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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 01-25957
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BIZNESSONLINE.COM, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 06-1519132
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1720 ROUTE 34, PO BOX 1347 07719
WALL, NJ (Zip Code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: 732-280-6408
Registrant's fax number, including area code: 732-280-6409
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of exchange on which Registered
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NONE. NONE.
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 219.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. /X/
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant on March 24,2000, based upon the closing price
of the Common Stock on the NASDAQ National Market of $8.0625 on such day, was
approximately $44.5 million. The number of outstanding shares of the
registrant's Common Stock as of March 24, 2000, was approximately 8,609,574
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders
in connection with the Annual Meeting of Stockholders presently scheduled to be
held on Friday, May 5, 2000 are incorporated by reference into Part III of this
Form 10-K.
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TABLE OF CONTENTS
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PAGE
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PART I.
Item 1 Business....................................................
Item 2. Properties..................................................
Item 3. Legal Proceedings...........................................
Item 4. Submission of matters to a vote of security holders.........
PART II.
Market for the registrant's common stock and related
Item 5 stockholder matters.........................................
Item 6. Selected financial data.....................................
Management's discussion and analysis of financial condition
Item 7. and results of operations...................................
Item 7A. Quantitative and qualitative disclosure about market risk...
Item 8. Financial statements and supplementary data.................
Changes and disagreements with accountants on accounting and
Item 9. financial disclosure........................................
PART III.
Item 10. Directors and executive officers............................
Item 11. Executive compensation......................................
Security ownership of certain beneficial owners and
Item 12. management..................................................
Item 13. Certain relationships and related transactions..............
PART IV.
Exhibits, financial statement schedules and reports on
Item 14. Form 8-K....................................................
Signatures..................................................
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PART I
ITEM 1. BUSINESS
OVERVIEW
BiznessOnline.com is one of the Northeast's largest providers of enhanced
Internet services, including server co-location, Web design and e-commerce
solutions, Web hosting, and high-speed Internet access. We are committed to
satisfying the increasing Web and Internet needs of small and mid-sized
businesses by offering customers high-performance information technology
management and other advanced Internet services in state-of-the-art Internet
Data Centers including a brand new 6,000 square feet facility which opened in
December 1999 and services our Albany area operations. We provide secure
broadband Internet connections via our fault-tolerant, fiber-optic backbone
network, which is supported by 24 hour X 7 day customer care and network
monitoring. We are focused on increasing our existing base of customers in the
Northeast and continuing to grow our Internet network infrastructure.
CORPORATE HISTORY
BiznessOnline.com, Inc. was formed as a Delaware corporation on June 11,
1998 for the purpose of acquiring and operating businesses that provide Internet
access and related services to business and residential customers in the
northeastern United States outside of large metropolitan areas. We acquired our
first Internet service provider in January 1999 located in Albany, New York. We
acquired four additional Internet service providers in May 1999
contemporaneously with the closing of our initial public offering of
2.9 million shares of common stock which raised $29 million. Subsequently in
1999, we acquired four additional Internet service providers and two web
design/web hosting companies. We also entered into definitive agreements in
December 1999 to acquire a competitive local exchange carrier and its associated
Internet service provider based in Johnstown, New York which transaction is
expected to close on or about March 31, 2000. Our acquisitions are summarized in
the following table:
<TABLE>
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*% STOCK/
COMPANY LOCATION PURCHASE PRICE % CASH CLOSING DATE
- - ------- --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Global 2000 Communications, Inc...... Albany, NY $ 3,300,000 82%/18% 1/31/99
AlbanyNet, Inc....................... Albany, NY $ 2,400,000 0%/100% 5/17/99
Borg Internet Services, Inc.......... Utica, NY $ 2,000,000 75%/25% 5/17/99
Caravela Software, Inc............... Middlefield, CT $ 4,980,000 56%/44% 5/17/99
Ulsternet, Inc....................... Kingston, NY $ 1,450,000 55%/45% 5/17/99
Ascent Networking and Ascent Internet
Holdings, Inc...................... Norwich, NY $ 1,050,000 0%/100% 7/30/99
WebWay, LLC.......................... Albany, NY $ 2,580,000 68%/32% 8/18/99
Infoboard, Inc....................... Lynn, MA $ 3,030,000 54%/46% 9/30/99
Cyberzone, LLC....................... Hartford, CT $ 3,504,300 50%/50% 12/14/99
NECAnet, Inc......................... Storrs, CT $ 3,500,000 55%/45% 12/15/99
Prime Communications Systems, Inc.... Amherst, NY $ 7,000,000 82%/18% 12/29/99
Telecon Communications Corp.
(expected to close by 3/31/00)..... Johnstown, NY $15,000,000 0%/100% --
Telesupport, Inc. (expected to close
by 3/31/00)........................ Johnstown, NY $ 3,000,000 100%/0% --
</TABLE>
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* The dollar value of the stock portion of the purchase price in most of our
acquisitions as shown above is based upon the average closing price of our
common stock for the 20 business days prior to the closing date of the
acquisition and may differ from the value used to record the acquisition for
accounting purposes which utilizes the value of shares issued as of the
closing for determining acquisition cost.
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OUR GROWING MARKET
Internet use is experiencing dramatic growth in the number of users and the
amount of user time spent on the Internet. International Data Corporation
estimates that at the end of 1998 there were approximately 77 million Internet
users in the United States and that by the end of 2002, the number of United
States Internet users will increase to over 148 million. In the northeastern
United States alone, Upside Magazine estimates that the number of Internet
service subscribers will increase by approximately 30 million in the next three
years. With respect to the use of the Internet and enhanced Web services by
businesses, International Data predicts that the percentage of small and medium
scale businesses with on-line access will double in the next three years.
The functionality and accessibility of the Internet have made it an
increasingly attractive commercial medium by providing features that
historically have been unavailable through traditional distribution channels.
These advantages combined with the increasing availability of products and
services over the Internet, and the presence of more and more companies and
organizations on the Internet, have resulted in a huge demand for Web services.
eMarketer predicts that the demand for Web services (including Internet access,
Web hosting, Web site development, e-commerce solutions, Internet marketing
solutions, demand for bandwidth, etc.) which was $1 billion in 1998, will grow
to $14 billion by 2003.
PRODUCTS AND SERVICES
We offer a comprehensive, cost-effective range of Web and Internet services
to business and residential customers in the Northeast. Our scalable,
state-of-the-art, network can address comprehensive data intensive applications,
including Voice Over Internet Protocol and unified messaging services, and
ensures the speed and performance necessary for mission-critical Internet and
Web applications in a commercial setting. Our products and services include:
WEB HOSTING
Our high capacity network services and state-of-the-art server technology
enable us to provide advanced Web hosting services. We provide our customers
with data back up and Web site firewall protection, a comprehensive
facility-wide security system, current Web traffic statistics for market
tracking, and 24-hour network and Web site technical support.
WEB SITE DEVELOPMENT
Our experienced Internet marketing professionals, Web designers and Web
programmers work together to build customized corporate Web sites from the
extraordinarily complex designs to the most simple. We can provide our clients
with e-commerce enabled, interactive Web sites which have on-line credit card
and check clearing, shopping baskets, search engines, password protected areas
and database management capabilities, as well as modest sites that can be
upgraded over time.
SERVER CO-LOCATION, WHOLESALE AND MANAGED SERVICES
Our modern Internet Data Center located in Albany, NY allows us to offer
server co-location, web hosting, private-label ISP and other managed services
which present clients with the convenience of having an in-house server or modem
banks without the responsibilities of supporting their own Web infrastructure.
Additionally, we expect to be providing managed services for outsource
applications, including the wholesaling of Voice over Internet Protocol gateway
services and unified messaging in the near future. Our Internet Data Center
features the latest technology, and reduces customers' bandwidth costs,
increases their available bandwidth, and extends redundancy. We provide our
customers with 24 hour X 7 day network and server monitoring.
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E-COMMERCE SOLUTIONS
We develop cost-effective, standard or customized e-commerce solutions for
customers. Our e-commerce packages offer businesses a broad range of features,
including site tools that make it possible to accept electronic checks and
credit card payments from customers, track sales on a real time basis,
automatically control inventory, effectively manage storefront and products,
fully protect and secure transaction capabilities, and increase their customer
base worldwide.
HIGH SPEED BROADBAND INTERNET ACCESS: DSL, FRAME RELAY, T-1, AND T-3
We are currently providing businesses and residential customers with a
variety of broadband services, and we expect to be providing additional xDSL and
ADSL technology and ATM offerings in our markets in the near future. We believe
these additional product offerings accommodate the greater functionality and
user requirements of their target market while being more profitable than
existing solutions. We are working with existing xDSL and ADSL wholesalers to
provide underlying xDSL and ADSL capabilities, while maintaining the option of
deploying xDSL and ADSL on our own at some later point in time when deemed
economically feasible.
INTERNET MARKETING/WEB MEDIA
Our Internet technology and marketing teams develop Web media solutions
geared toward increasing traffic to a customer's site through specialized
design, programming and indexing. We monitor Web traffic via graphical tracking
and reporting tools, and establish on-line, strategic content and commerce
affiliates for our clients.
DIAL-UP INTERNET ACCESS
We provide fast, reliable dial-up access to the Internet. Our local call
centers offer 24 hour technical support and our subscribers have access to 500
national numbers to facilitate account portability.
LOCAL AND LONG DISTANCE TELEPHONE SERVICE
On March 15, 2000, the New York State Public Service Commission granted
approval for the transfer of the "Certificate of Public Convenience and
Necessity" held by Telecon Communications Corp., a competitive local exchange
carrier ("CLEC") based in Johnstown, New York to us in connection with our
planned acquisition of substantially all of Telecon's assets. We now expect to
close such transaction and the acquisition of an Internet service provider
affiliated with Telecon on or about March 31, 2000. In addition, we are in the
process of preparing CLEC filings in other New England states to enable us to
begin to resell local and long distance telephone services in such markets
beginning in the second half of 2000.
BUSINESS STRATEGY
We continue to penetrate our target secondary markets in the Northeast by
acquiring profitable, secondary Web and Internet service providers, and to
strengthen our regional organization which is committed to being an efficient
source of global communication for our rapidly growing customer base. Our
philosophy is to deliver cost-effective, comprehensive, state-of-the-art Web
services while staying close to our customers.
Following that philosophy, we are executing a multiple product line strategy
by providing combinations of Web and Internet services to our customers. Also,
we expect to expand our service offerings to include local and long distance
telephone services, as well as paging and wireless telephone services, upon the
closing of the acquisition of substantially all of the assets of Telecon
Communications Corp. and the filing of CLEC applications in certain other
markets that we serve. We have built a state-of-the-art Internet Data Center in
Albany, New York and we operate a second modern data center in Amherst, New
York. We
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intend to build additional data centers in underserved secondary markets and
towards that end we have located suitable sites in Buffalo, NY and Hartford, CT
and are now in the process of negotiating leaseholds for such sites. We offer
wholesale Internet and related services to independent Internet service
providers, and we plan to partner with other companies whose products can be
sold via the Internet to its customer base. We will also continue to add
national content providers to our Web pages to increase site loyalty.
TARGET MARKETS
We plan to continue to penetrate secondary Northeastern markets through
acquisitions of existing Internet, web design/hosting and other
telecommunications service providers, and by consolidating and building enhanced
Internet services operations in secondary markets in the Northeast. We are
concentrating on small and medium size businesses in this segment because we
believe the following:
- Small and medium size businesses typically outsource their Web service
requirements due to capital and personnel constraints (unlike larger firms
in primary metropolitan markets, which, in most cases, support their own
Web and telecommunications infrastructure);
- There are approximately 1 million small and medium size businesses in the
Northeast (Source: Upside Magazine) many of which will need to develop
e-commerce solutions to increase revenues and/or remain competitive;
- The number of Internet subscribers in secondary markets in the Northeast
alone could potentially rise by 30 million over the next three years
(Source: eMarketer);
- Small and medium sized businesses will exhibit higher customer loyalty and
lower than average customer turnover;
- Costs associated with providing services in secondary markets will be
lower than the major urban markets, potentially resulting in higher
margins;
- Secondary markets are currently more fragmented because of
undercapitalized local competitors, while still containing large customer
bases;
- There is greater potential to more quickly gain market share and secure
market coverage through carefully selected acquisition candidates and an
emphasis on customer service and product combinations; and
- There is greater potential to develop strong regional brand recognition
and brand equity in a shorter time.
SALES & MARKETING
We intend to become one of the leading brands in the enhanced Internet
services market in the Northeast. We sell our services via the Web, and through
knowledgeable sales force staffed by people native to our markets. We intend to
maintain our in-house sales staff and hire additional sales personnel, while
converting each acquired company's location into a regional sales office. Our
sales and marketing strategy is as follows:
BUILD OUT OUR EXISTING DIRECT INTERNET SALES FORCE
We are aggressively growing our existing sales force. We intend to hire a
sales manager to head each branch sales force, and to hire additional,
accomplished sales personnel who have Internet and telecommunications sales
experience in their respective regions. We expect to build our sales force in
each regional sales office to up to six people in the immediate term.
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PROACTIVE SALES PHILOSOPHY AND AGGRESSIVE ADVERTISING
We are actively marketing our services to existing and potential customers
in the Northeast through a number of marketing initiatives aimed at building our
brand equity. Our marketing initiatives include or are planned to include: a
telemarketing program for current and prospective customers; participation in
customers' and industry trade shows; public relations exercises; aggressive
print, billboard, radio and television advertising in the Northeast; and direct
mail and e-mail customer solicitations. We plan to follow an aggressive pricing
strategy for all of our products and services, and to emphasize to existing and
potential customers our regional presence and state-of-the-art enhanced Internet
services infrastructure as an advantage over local and national competitors. We
are also currently developing alternative distribution channels, and engaging
potential agents or resellers who will retail our products and services. We plan
to take advantage of the cross merchandising opportunities presented by the
Internet by advertising and offering our bundled services on our resellers' Web
pages.
PROMOTE VALUE-ADDED, BUNDLED SERVICES TO CUSTOMERS
We offer value added, packaged services while retaining our regional focus
which will make us an attractive proposition for customers. We plan to bundle
Web, Internet, local dial tone, and long distance services while providing
convergent billing with real-time Web based access to account data. We also
offer our customers the option of using a credit card billing system for monthly
recurring local and flat rate charges.
FOCUS ON CUSTOMER SERVICE
We are focused heavily on customer service. We plan to maintain first-line
technical support at each branch and have established customer service
operations including fully convergent billing and customer care systems, and a
toll free telephone number for 24 hour, 7 days a week technical support.
ACQUISITIONS
A significant component of our growth strategy is to continue to penetrate
markets by acquiring well established Internet service providers and/or CLEC and
long distance service providers. We then plan to integrate and bundle their
services with our own, offering our customers an ever-widening, more
comprehensive suite of products and services, typically on one integrated
monthly bill.
Our strategy is to initially purchase an "anchor" Web or Internet service
provider, CLEC or long distance service provider within our target markets, and
then acquire other, complementary local companies. We then utilize our
multiple-trunk fiber optic backbone network powered by state of the art Cisco
systems equipment purchased to integrate acquired companies' network and
administrative operations, while maintaining their various locations as regional
sales offices.
As we execute our acquisition strategy, we integrate resources of the
acquired companies into our broader network in order to bring increased scope
and the benefits of economies of scale. Historically, networks and
administrative functions of newly acquired companies can be integrated into our
systems within 90 to 120 days. We further believe that economies of scale
advantages will facilitate a reduction in operating costs of acquired companies.
We plan to offer our complete product line to customers of our acquired
companies' immediately following their acquisition in an effort to rapidly
increase sales. We believe that our regional focus enables us to better control
costs and to maximize the financial, operating and marketing benefits of
consolidating local Web and Internet services providers.
COMPETITION
The market for Internet access and related services is extremely
competitive. We expect competition to increase as Internet use grows and
established national Internet service providers, telecommunications
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and computer related vendors expand their traditional products and services and
new start-ups emerge. The significant financial resources of many of our
competitors could lead to severe price cutting in an effort to secure market
share, which could have a negative effect on our revenues and results of
operations. Our competitors in the markets in which we operate include:
- National and regional commercial internet service providers such as Verio,
Earthlink and Mindspring;
- Established on-line commercial information providers such as AOL, Prodigy
and MSN;
- Local internet service providers in Connecticut and Northeastern New York
State who provide products and services that are similar to ours to small
to medium sized businesses;
- Cable television operators such as Time Warner and Tele-Communications,
Inc;
- National long distance telecommunications carriers such as AT&T, MCI
Worldcom, and Sprint;
- Computer hardware and software companies, such as IBM and Compaq;
- Regional telephone operating companies such as Bell Atlantic, SBN and
Citizens Telephone Company; and
- New "free access" Internet services providers such as JUNO and NetZero.
We also believe that new competitors will continue to enter the Internet
access market, such as large computer hardware and software companies, media and
telecommunications entities, and companies that provide direct service to
residential customers, including cable television operators, wireless
communication companies, local and long distance telephone companies and
electric utility companies.
Many of our competitors are larger and have greater financial, technical,
and operating resources than we do. We will need to distinguish ourselves by our
product and service knowledge, our responsiveness to our targeted market of
small to medium sized businesses, our ability to market and sell customized
combinations of products and services within our market, and our capacity to
offer a diverse Internet product line. We also believe that our ability to be
flexible and to respond quickly in providing solutions to our customer's
Internet needs will be an advantage over some of our competitors.
EMPLOYEES
As of December 31, 1999, we had 174 employees as follows:
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Sales & Marketing........................................... 29
Support..................................................... 60
Technical................................................... 58
Administrative.............................................. 27
---
174
</TABLE>
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ITEM 2. DESCRIPTION OF PROPERTIES
Our leased corporate headquarters are located in Wall, NJ. We also lease
additional facilities in the following locations for the following purposes:
<TABLE>
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Albany, NY............................. Data Center/Managed Services Facility
Albany, NY............................. Development and Support
Amherst, NY............................ Data Center/Managed Services Facility
Buffalo, NY............................ Sales and support
Kingston, NY........................... Sales and support
Norwich, NY............................ Sales and Support
Utica, NY.............................. Sales and Support
Lynn, MA............................... Sales and Support
Hartford, CT........................... Data Center/Managed Services Facility
Middlefield, CT........................ Sales and Support
Storrs, CT............................. Sales and Support
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock commenced trading on the NASDAQ National Market on May 12,
1999 under the symbol "BIZZ". The following table sets forth the high and low
closing sales price for the common stock for each quarter during the last fiscal
year, as reported by the NASDAQ National Market.
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HIGH LOW
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Fiscal 1999:
Second Quarter........................................... 11.1875 7.3125
Third Quarter............................................ 10.75 6.50
Fourth Quarter........................................... 9.375 5.8125
</TABLE>
As of March 24, 2000, there were 115 holders of record of common stock who
held an aggregate of 8,609,574 shares of common stock as nominees for an
undisclosed number of beneficial holders.
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain future earnings, if any, to fund the development
and growth of the business and therefore do not expect to pay any cash dividends
in the foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, results of operations, current and
anticipated cash needs, and plans for expansion and additional acquisitions.
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
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were not registered under the Securities Act and have not previously been
reported in a quarterly report on Form 10-Q:
1. On December 14, 1999, the Company issued an aggregate of 271,904
shares of its common stock to the two members of Cyberzone, LLC, a
Connecticut limited liability company, comprising a portion of the purchase
price paid to such persons 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 Cyberzone. This sale was effected
without registration under the Securities Act in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act.
2. On December 15, 1999, the Company issued an aggregate of 298,726
shares of its common stock to the two stockholders of NECAnet, Inc. and New
England Computer Associates, Inc., both Connecticut corporations
(collectively, "NECAnet"), comprising a portion of the merger consideration
paid to such persons pursuant to an Agreement and Plan of Merger and
Reorganization by which NECAnet 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 from registration set forth in
Section 4(2) of the Securities Act.
3. On December 29, 1999, the Company issued an aggregate of 720,000
shares of its common stock to the three stockholders of Prime Communications
Systems Incorporated, a New York corporation, comprising a portion of the
purchase price paid to such persons by the Company pursuant to an Agreement
and Plan of Merger and Reorganization by which Prime 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 from
registration set forth in Section 4(2) of the Securities Act.
4. The issuances of common stock described in paragraphs 1, 2 and 3
above were made in connection with acquisition transactions not involving a
public offering. The members of Cyberzone and the stockholders of NECAnet
and Prime, either directly or by way of a purchaser representative, each
represented that they were 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 he or she was able to bear the economic risk of an
investment in the common stock and afford a complete loss of such
investment, and that he or she 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.
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. from its initial public offering of common stock.
i. In February 1999, we filed a registration statement under the
Securities Act of 1933 to sell up to 2.9 million shares of common stock in
our initial public offering. The effective date of registration of the
initial public offering was May 12, 1999, under Commission file number
333-73067. The offering was managed by Joseph Stevens and Company, Inc,
Schneider Securities, Inc., Neidiger, Tucker, Bruner, Inc. and Royce
Investment Group, Inc. and closed on May 17, 1999.
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ii. Expenses related to the initial public offering and direct offering
costs incurred through December 31, 1999 were as follows:
<TABLE>
<S> <C>
Underwriter's discounts and commissions..................... $ 2,900,000
Accountants fees............................................ 386,000
Legal fees.................................................. 467,000
Printing expenses........................................... 177,000
Miscellaneous filing fees and expenses...................... 425,000
-----------
Total....................................................... 4,355,000
===========
Net Proceeds.............................................. $24,645,000
===========
</TABLE>
iii. From the effective date of the initial public offering registration
through December 31, 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
Acquisition of WebWay, LLC.................................. 830,000
Acquisition of Infoboard, Inc............................... 1,380,000
Acquisition of Prime Communications, Inc.................... 1,240,000
Acquisition of Cyberzone, LLC............................... 1,752,000
Acquisition of NECAnet, Inc................................. 1,575,000
Repayment of indebtedness of Internet service providers..... 276,000
Purchases of capital equipment, primarily relating to our
data center in Albany, NY................................. 4,154,000
-----------
Total....................................................... $18,567,000
===========
</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. SELECTED FINANCIAL DATA
SELECTED ACTUAL RESULTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIOD FROM JULY 1, 1999
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31 THROUGH DECEMBER 31, 1998
----------------------- -----------------------------
1999 1999 1998 1998
$ % $ %
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<S> <C> <C> <C> <C>
Revenues........................................ $6,741 100.0% -- N/A
Costs and expenses:
Connectivity and operations................... 3,721 55.2% -- --
Sales and marketing........................... 1,804 26.8% -- --
General and administrative.................... 2,480 36.8% 126 N/A
Stock compensation............................ 322 4.8% -- --
Depreciation.................................. 377 5.6% -- --
Amortization.................................. 2,449 36.3% -- --
Loss from operations.......................... (4,412) (65.5%) (126) N/A
Net loss........................................ (4,055) (60.2%) (126) N/A
Earnings before interest, taxes depreciation and
amortization.................................. (1,586) (23.5%) (126) N/A
</TABLE>
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Total current assets........................................ 9,135 $148
Property and equipment, net................................. 5,727 --
Goodwill and intangibles, net............................... 32,331 --
Total assets................................................ $47,262 $256
Total current liabilities................................... 6,117 99
Long term debt.............................................. 95 --
Total stockholders' equity.................................. 41,050 57
Total liabilities and stockholders' equity.................. $47,262 $256
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR
OUR INTERNET SERVICE PROVIDERS
The selected financial data are derived in part from the more detailed
historical financial statements and accompanying explanatory notes of our
Internet service providers included elsewhere in this prospectus.
The following selected financial data of the Internet service providers
acquired on January 31, 1999 and May 17, 1999 should be read in conjunction with
the historical financial statements and accompanying explanatory notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" included elsewhere in this Form 10-K. All of the Internet service
providers have fiscal years ending December 31.
The following table presents selected historical financial data for such
Internet service providers for the stated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
<S> <C> <C>
1997 1998
---------- ----------
STATEMENTS OF OPERATIONS DATA:
ALBANYNET, INC.
Revenues.................................................. $ 838,807 $1,140,518
Costs and expenses:
Connectivity and operations............................. 658,329 768,400
Selling, general and administrative expenses............ 44,441 61,456
Depreciation............................................ 57,866 67,814
---------- ----------
Total costs and expenses.............................. 760,636 897,670
---------- ----------
Income from operations.................................... 78,171 242,848
Other income, net......................................... 11,082 5,369
Interest expense.......................................... (4,724) (3,272)
---------- ----------
Net income................................................ $ 84,529 $ 244,945
========== ==========
Net income per share basic and diluted.................... $ 422.65 $ 1,224.73
Weighted average shares outstanding....................... 200 200
========== ==========
Approximate number of subscribers at year end............. 2,300 3,200
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
<S> <C> <C>
1997 1998
---------- ----------
BORG INTERNET SERVICES, INC.
Revenues.................................................. $ 505,970 $ 832,734
Costs and expenses:
Connectivity and operations............................. 319,127 601,890
Selling, general and administrative expenses............ 64,978 136,025
Depreciation............................................ 64,909 102,581
Amortization of intangibles............................. 21,534 21,534
---------- ----------
Total costs and expenses.............................. 470,548 862,030
---------- ----------
Income (loss) from operations............................. 35,422 (29,296)
Interest expense.......................................... (4,467) (11,717)
---------- ----------
Income (loss) before income taxes......................... 30,955 (41,013)
Income tax provision (benefit)............................ 12,383 (12,056)
---------- ----------
Net income (loss)......................................... $ 18,572 $ (28,957)
========== ==========
Net income (loss) per share basic and diluted............. $ 6,190.67 $(9,652.33)
Weighted average shares outstanding....................... 3 3
========== ==========
Approximate number of subscribers at year end............. 2,500 4,000
CARAVELA SOFTWARE, INC.
Revenues.................................................. $1,516,112 $1,879,410
Costs and expenses:
Connectivity and operations............................. 1,328,076 1,520,192
Selling, general and administrative expenses............ 152,944 156,761
Depreciation............................................ 118,485 117,146
---------- ----------
Total costs and expenses.............................. 1,599,505 1,794,099
---------- ----------
Income (loss) from operations............................. (83,393) 85,311
Other income (expense), net............................... 267 (67,901)
Interest expense.......................................... (9,453) (21,406)
---------- ----------
Income (loss) before income taxes......................... (92,579) (3,996)
Income tax benefit........................................ (37,031) (1,598)
---------- ----------
Net loss.................................................. $ (55,548) $ (2,398)
========== ==========
Net (loss) per share basic and diluted.................... $ (555.48) $ (23.98)
Weighted average shares outstanding....................... 100 100
========== ==========
Approximate number of subscribers at year end............. 4,000 5,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
<S> <C> <C>
1997 1998
---------- ----------
GLOBAL 2000 COMMUNICATIONS, INC.
Revenues.................................................. $1,108,980 $1,738,613
Costs and expenses:
Connectivity and operations............................. 809,374 927,769
Selling, general and administrative expenses............ 148,153 480,334
Depreciation............................................ 43,690 58,672
---------- ----------
Total costs and expenses.............................. 1,001,217 1,466,775
---------- ----------
Income from operations.................................... 107,763 271,838
Other income, net......................................... (7,502) (18,493)
Interest expense.......................................... (14,375) (13,573)
---------- ----------
Net income................................................ $ 85,886 $ 239,772
========== ==========
Net income per share basic and diluted.................... $ 429.43 $ 1,198.86
Weighted average shares outstanding....................... 200 200
========== ==========
Approximate number of subscribers at year end............. 3,300 4,000
ULSTERNET, INC.
Revenues.................................................. $ 318,630 $ 604,419
Costs and expenses:
Connectivity and operations............................. 290,309 491,327
Selling, general and administrative expenses............ 6,913 21,472
Depreciation............................................ 39,224 58,231
---------- ----------
Total costs and expenses.............................. 336,446 571,030
---------- ----------
Income (loss) from operations............................. (17,816) 33,389
Interest expense.......................................... (8,480) (9,784)
Net income................................................ $ (26,296) $ 23,605
========== ==========
Net income per share basic and diluted.................... $ (279.74) $ 251.12
Weighted average shares outstanding....................... 94 94
========== ==========
Approximate number of subscribers at year end............. 2,100 3,800
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998
-----------
<S> <C>
BALANCE SHEET DATA:
AlbanyNet, Inc.
Working capital........................................... $ 142,000
Total assets.............................................. $ 259,894
Long term debt, less current portion...................... $ 4,030
Total stockholders' equity................................ $ 190,079
Borg Internet Services, Inc.
Working capital (deficit)................................. $(192,274)
Total assets.............................................. $ 348,614
Long term debt, less current portion...................... $ 78,608
Total stockholders' equity (deficit)...................... $ (30,283)
Caravela Software, Inc.
Working capital (deficit)................................. $(160,143)
Total assets.............................................. $ 550,128
Long term debt, less current portion...................... $ 6,816
Total stockholders' equity................................ $ 68,021
Global 2000 Communications, Inc.
Working capital........................................... $ 41,066
Total assets.............................................. $ 622,536
Long term debt, less current portion...................... $ 96,496
Total stockholders' equity................................ $ 192,023
Ulsternet, Inc.
Working capital (deficit)................................. $(143,755)
Total assets.............................................. $ 88,217
Long term debt, less current portion...................... $ 25,205
Total stockholders' equity (deficit)...................... $ (92,502)
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and other sections of this report contain
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements, often identified by words such
as "expects", "anticipates", "intends", "plans", "believes", "estimates" and
similar expressions, reflect our current beliefs and expectations. However, they
are not guarantees of future performance and involve risks and uncertainties
that could cause our results to differ significantly from those expressed or
implied by such forward-looking statements. The risks and uncertainties include,
but are not limited to, the factors identified below under the caption "Factors
that could effect future results." We undertake no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
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 1999 audited consolidated financial statements and the related notes thereto
appearing in this filing on Form 10-K.
OVERVIEW
We derive revenues from a variety of sources. We provide Internet access,
web site development, e-commerce solutions and Internet marketing/web media
services. These services are predominantly utilized by small to medium sized
business and individuals looking to establish a presence on the world wide web.
We host commercial and individual web sites. We also provide our customers with
server co-location and managed services from our state-of-the-art Internet data
center located in Albany, New York. We also provide Internet access via
dedicated high-speed broadband products such as DSL, Frame relay, T-1 and T-3
connections along with dial up connectivity. Our customers are individuals and
small to medium sized businesses. Subscription fees for dial up connectivity
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. Most of our
individual subscribers pay us by credit card automatically on a monthly basis.
Our revenue composition may change as we develop our strategy to provide
additional e-commerce and other enhanced Internet services to our clients.
RESULTS OF OPERATIONS
Year ended December 31, 1999
We were formed in June 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, a web hosting company on September 30, 1999, an Internet
service provider on December 14, 1999, an Internet service provider on
December 15, 1999 and another Internet service provider on December 29, 1999.
We generated revenues of $6.7 million during the year ended December 31,
1999. We also incurred $3.7 million of connectivity and operations expenses,
$1.8 million of sales and marketing expenses, $2.5 million of general and
administrative expenses, $322,000 of non cash compensation expenses relating to
the issuance of stock options and warrants to outside consultants, $2.8 million
of depreciation and amortization costs, and we earned $419,000 of interest
income, net. Income tax expense for the year, consisting solely of state income
taxes, was $62,000. We had a net loss of $4.1 million, or $0.70 per share for
the year ended December 31, 1999. The acquisitions of the nine Internet service
providers and two web hosting and application providers have been accounted for
using the purchase method of accounting and
15
<PAGE>
consequently, the results of their operations have been included in our results
since their respective acquisition dates.
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 expenses include the costs associated with acquiring
subscribers, including sales personnel 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 expenses consist primarily of corporate, Human
Resources, finance and related staff, along with related benefits, as well as
legal and accounting costs. General and administrative costs are expected to
increase to support our growth, primarily the implementation of a common billing
system.
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
accelerated method. 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 expense primarily relates to the amortization of goodwill
resulting from acquisitions and is based upon the useful lives of these
intangibles. Amortization expense is expected to increase as additional
acquisitions are made and will vary based upon purchase prices and assets
acquired.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had $7.5 million of cash and cash equivalents, an
increase of $7.3 million from December 31, 1998. Net cash provided by operating
activities was $1.8 million. Net cash used for investing activities was
$18.3 million, primarily as a result of the acquisition of the nine Internet
service providers and two web hosting and application service providers during
the year ended December 31, 1999. Net cash provided by financing activities was
$23.9 million, primarily as a result of the initial public offering of common
stock, which closed on May 17, 1999.
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 centers in Buffalo, NY and Hartford, CT, which are expected to be
operational by the fourth quarter of 2000. These investments will allow us to
better support our current subscribers and newly acquired subscribers.
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 2000.
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, proceeds from debt
financing, such as the March 2000 $15 million borrowing from MCG Credit
Corporation, and cash flow from operations. However, if we do not secure
additional
16
<PAGE>
sources of financing, we will not have the resources to continue to pursue our
acquisition strategy, and our growth will be slowed. In addition, as we continue
to expand the range of our e-commerce products and services to small to medium
sized businesses, we intend to 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, such as the
acquisition of Telecon Communications Corp. which is expected to close by
March 31, 2000. Any significant acquisitions or increases in our growth rate
could materially affect our operating and financial expectations and results,
liquidity and capital resources.
RECENT DEVELOPMENTS
On March 15, 2000, the New York State Public Service Commission granted
approval for the transfer of the "Certificate of Public Convenience and
Necessity" held by Telecon Communications Corp., a competitive local exchange
carrier ("CLEC") based in Johnstown, New York to us in connection with our
planned acquisition of substantially all of Telecon's assets. We now expect to
close such transaction and the acquisition of an Internet service provider
affiliated with Telecon on or about March 31, 2000 for an aggregate purchase
price of $15 million payable in cash and $3 million payable in shares of common
stock of the Company. In addition, we are in the process of preparing CLEC
filings in other New England states to enable us to begin to resell local and
long distance telephone services in such markets beginning in the second half of
2000.
On March 16, 2000, we closed a $15 million senior secured credit facility.
We plan to use the proceeds of this facility to fund the cash purchase price of
the Telecon acquisition. The credit facility is secured by all of the assets of
BiznessOnline.com and its operating subsidiaries. In connection with such
financing, the Lender received certain cash fees and a warrant to purchase
838,779 shares of our common stock at prices of $7.00 per share for 559,186
shares and $12.00 per share for 279,593 shares, subject to certain anti-dilution
and other adjustments. The Lender will also receive 71,429 shares of common
stock at the closing of the Telecom acquisition.
YEAR 2000 READINESS DISCLOSURE STATEMENT
We did not experience any interruption in our business activities or incur
any impairment to our financial condition or results of operations as a result
of passing into calendar year 2000. We will continue to monitor our own internal
systems and products to determine the impact, if any, of problems associated
with the year 2000. To date, year 2000 costs are not considered to be material
to our financial condition nor have we incurred any significant unplanned
expenditures to address or remediate year 2000 problems.
UNAUDITED SUPPLEMENTAL COMBINED FINANCIAL INFORMATION
The following unaudited supplemental combined financial information and
related management discussion and analysis 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--SUPPLEMENTAL COMBINED
The following unaudited supplemental combined financial information for the
year ended December 31, 1998 includes the results of BiznessOnline.com, Inc.
combined with the results on May 17, 1999 of the Internet service provider
acquired in January 1999, and the additional four Internet service providers
acquired on May 17, 1999, as if the acquisitions had occurred on January 1,
1998.
The unaudited supplemental combined financial information for the year ended
December 31, 1999 includes the results of the additional Internet service
provider acquired in July 1999 and the three Internet service providers acquired
in December 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.
17
<PAGE>
This unaudited supplemental combined 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.
<TABLE>
<CAPTION>
SUPPLEMENTAL COMBINED RESULTS
(IN THOUSANDS EXCEPT SHARE DATA)
---------------------------------------------
YEARS ENDED DECEMBER 31
---------------------------------------------
1999 1998
--------------------- ---------------------
$ % $ %
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... $14,874 100.0 $6,196 100.0
---------- ----- ---------- -----
Costs and expenses:
Connectivity and operations............................... 8,599 57.8 4,218 68.1
Sales and marketing....................................... 2,537 17.1 929 15.0
General and administrative................................ 3,303 22.2 512 8.3
Stock compensation........................................ 322 2.2 -- 0.0
Depreciation.............................................. 878 5.9 405 6.5
Amortization.............................................. 7,038 47.3 2,704 43.6
---------- ----- ---------- -----
Total costs and expenses.................................. 22,677 152.5 8,768 141.5
---------- ----- ---------- -----
Loss from operations...................................... (7,803) (52.5) (2,572) (41.5)
Other expense............................................... (7) (0.0) (81) (1.3)
Interest income, (expense), net............................. 367 2.5 (60) (1.0)
---------- ----- ---------- -----
Loss before income taxes.................................... (7,443) (50.0) (2,713) (43.8)
Income taxes................................................ 98 (0.7) -- 0.0
---------- ----- ---------- -----
Net loss.................................................... $(7,541) (50.7) $(2,713) (43.8)
========== ===== ========== =====
Supplemental combined net loss per share, basic and
diluted................................................... $(0.88) $(0.39)
========== ==========
Weighted average shares outstanding, basic and diluted...... 8,609,574 6,890,436
========== ==========
</TABLE>
YEAR ENDED DECEMBER 31, 1999--UNAUDITED SUPPLEMENTAL COMBINED
REVENUES:
Revenues increased $8.7 million, or 140.1% from $6.2 million to
$14.9 million. The increase in revenues was a result of the three acquisitions,
which occurred during the third quarter of 1999, and the three acquisitions,
which occurred during the fourth quarter of 1999 (approximately 116% of the
growth) combined with internal growth (approximately 24% of the growth).
The following table provides a comparison of connectivity and operations,
sales and marketing and general and administrative expenses as a percentage of
pro forma total revenues:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Connectivity and Operations............................... 57.8% 68.1%
Sales and Marketing....................................... 17.1% 15.0%
General and Administrative................................ 22.2% 8.3%
</TABLE>
18
<PAGE>
CONNECTIVITY AND OPERATIONS:
Connectivity and operations expenses increased $4.4 million, or 103.9%, from
$4.2 million to $8.6 million, primarily as a result of the increase in revenue
from subscriber usage. As a percentage of revenue, Connectivity and Operations
expenses decreased from 68.1% in 1998 to 57.8% in 1999. Connectivity and
operations costs included $664,000 of costs associated with integrating the
combined companies during 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 $1.6 million, or 173.1%, from
$929,000 to $2.5 million. The increase was primarily the result of recent
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 sales personnel 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 $2.8 million, or 545.1%, from
$512,000 to $3.3 million, 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. General and
administrative costs are expected to increase to support our growth, primarily
the implementation of a common billing system. We have implemented a financial
reporting system in our corporate headquarters in New Jersey.
DEPRECIATION:
Depreciation expense increased $473,000, or 116.8%, from $405,000 to
$878,000, 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 in Albany, NY.
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 during 2000.
19
<PAGE>
AMORTIZATION:
Amortization expense increased $4.3 million, or 160.3%, from $2.7 million to
$7.0 million. This increase was a result of the acquisitions completed during
the third and fourth quarters of 1999.
Amortization expense primarily relates to the amortization of goodwill
acquired in the acquisitions and 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 $367,000 for the year ended December 31, 1999, as
compared to interest expense, net of $60,000 for the year ended December 31,
1998.
INCOME TAXES:
Income tax expense for year ended December 31, 1999 was $98,000. The Company
had no income tax expense for the year ended December 31 1998 on a pro rata
basis. The Company has not recorded any income tax benefit from non-deductible
amortization of goodwill.
NET INCOME:
As a result of the above, net loss for the year ended December 31, 1999 was
$7.5 million, or $0.88 per share as compared to a net loss of $2.7 million, or
$0.39 per share during 1998.
RESULTS OF OPERATIONS
The following tables set forth significant historical financial data and
this data as a percentage of revenues for the periods indicated.
GLOBAL 2000 COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------------- --------------------
$ % $ %
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................................. 1,108,980 100.0 1,738,613 100.0
Connectivity and operations.............................. 809,374 73.0 927,769 53.4
Selling, general and administrative expense.............. 148,153 13.4 480,334 27.6
Depreciation............................................. 43,690 3.9 58,672 3.4
--------- ----- --------- -----
Total costs and expenses................................. 1,001,217 90.3 1,466,775 84.4
--------- ----- --------- -----
Income from operations................................... 107,763 9.7 271,838 15.6
Other income (expense) net............................... (7,502) (.7) (18,493) (1.1)
Interest expense......................................... (14,375) (1.3) (13,573) (.8)
--------- ----- --------- -----
Net income............................................... 85,886 7.7 239,772 13.8
========= ===== ========= =====
Approximate total subscribers at year end................ 3,300 4,000
</TABLE>
GLOBAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998.
20
<PAGE>
Revenues:
Revenues increased $629,633, or 56.8% from $1,108,980 to $1,738,613,
primarily as a result of an increase in the number of subscribers and increased
revenue per subscriber. The number of subscribers increased from 3,300 at the
end of 1997 to 4,000 at the end of 1998, an increase of 21.2%.
Connectivity and operations:
Connectivity and operations expenses increased $118,395 or 14.6%, from
$809,374 to $927,769. This increase was a result of the increased subscriber
base.
Selling, general and administrative:
Selling, general and administrative expenses increased $332,181, or 224.2%
from $148,153 to $480,334 primarily as a result of an increase in advertising
expenses.
Depreciation:
Depreciation expenses increased $14,982, or 34.3%, from $43,690 to $58,672
as a result of the acquisition of fixed assets during 1998 of approximately
$103,000.
Other (expense) net:
Other (expense) net increased $(10,991) from $(7,502) to $(18,493). This
change was a result of losses on disposal of fixed assets.
Interest expense:
Interest expense decreased $802, from $14,375 to $13,573, primarily as a
result of the decrease in average principal outstanding of debt and capitalized
leases.
CARAVELA SOFTWARE, INC. D/B/A CONNIX
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
-------------------- --------------------
$ % $ %
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................................. 1,516,112 100.0 1,879,410 100.0
Connectivity and operations.............................. 1,328,076 87.6 1,520,192 81.0
Selling, general and administrative expense.............. 152,944 10.1 156,761 8.3
Depreciation............................................. 118,485 7.8 117,146 6.2
--------- ----- --------- -----
Total costs and expenses................................. 1,599,505 105.5 1,794,099 95.5
--------- ----- --------- -----
Income (loss) from operations............................ (83,393) (5.5) 85,311 4.5
Other income (expense) net............................... 267 .0 (67,901) (3.6)
Interest expense......................................... (9,453) (.6) (21,406) (1.1)
--------- ----- --------- -----
Income (loss) before taxes............................... (92,579) (6.1) (3,996) (.2)
Income tax benefit....................................... (37,031) (2.4) (1,598) (.1)
--------- ----- --------- -----
Net loss................................................. (55,548) (3.7) (2,398) (.1)
========= ===== ========= =====
Approximate total subscribers at year end................ 4,000 5,000
</TABLE>
CONNIX' RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998.
21
<PAGE>
Revenues:
Revenues increased $363,298, or 24.0%, from $1,516,112 to $1,879,410
primarily as a result of an increase in subscribers. The number of subscribers
increased from 4,000 at December 31, 1997 to 5,000 at December 31, 1998, an
increase of 25.0%.
Connectivity and operations:
Connectivity and operations expenses increased $192,116, or 14.5%, from
1,328,076 to 1,520,192. The increase was primarily a result of the increase in
the number of subscribers.
Selling, general and administrative expense:
Selling, general and administrative expenses increased $3,817, or 2.5%, from
$152,944, to $156,761. The slight increase in these expenses was a result of an
increase in advertising expenses, which was offset by a decrease in bad debt
expenses.
Depreciation:
Depreciation expenses decreased $1,339, or 1.1%, from $118,485, to $117,146,
primarily as a result of disposals of fixed assets offset by new assets
acquired.
Other income (expense) net:
Other income (expense), net changed from other income, net of $267, to other
expense, net of $(67,901). This change was a result of losses on disposal of
fixed assets in 1998.
Interest expense:
Interest expense increased $11,953, from $9,453 to $21,406, primarily as a
result of the increase in average principal outstanding of debt.
Income tax benefit:
Income tax benefit decreased from $37,031 to $1,598. The decrease was a
result of the smaller loss before income taxes during 1998. The effective rate
remained 40% for both years.
ULSTERNET, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
------------------- -------------------
$ % $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... 318,630 100.0 604,419 100.0
Connectivity and operations................................. 290,309 91.1 491,327 81.3
Selling, general and administrative expense................. 6,913 2.2 21,472 3.6
Depreciation................................................ 39,224 12.3 58,231 9.6
------- ----- ------- -----
Total costs and expenses.................................... 336,446 105.6 571,030 94.5
------- ----- ------- -----
Income (loss) from operations............................... (17,816) (5.6) 33,389 5.5
Interest expense............................................ (8,480) (2.7) (9,784) (1.6)
------- ----- ------- -----
Net income (loss)........................................... (26,296) (8.3) 23,605 3.9
======= ===== ======= =====
Approximate total subscribers at year end................... 2,100 3,800
</TABLE>
22
<PAGE>
ULSTERNET RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998.
Revenues:
Revenues increased $285,789, or 89.7%, from $318,630 to $604,419 primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,100 at December 31, 1997 to 3,800 at December 31, 1998, an increase of
81.0%.
Costs and expenses:
Total costs and expenses increased $234,584, or 69.7% from $336,446 to
$571,030, primarily as a result of the increase in the number of subscribers.
Connectivity and operations:
Connectivity and operations expenses increased $201,018, or 69.2%, from
$290,309 to $491,327. The increase was primarily a result of the increased
number of subscribers.
Selling, general and administrative expense:
Selling, general and administrative expenses increased $14,559, from $6,913,
to $21,472.
Depreciation:
Depreciation expenses increased $19,007, or 48.5%, from $39,224 to $58,231,
primarily as a result of capital equipment spending.
Interest expense:
Interest expense increased $1,304, from $8,480 to $9,784, primarily as a
result of the increase in average principal outstanding of debt and capitalized
leases.
BORG INTERNET SERVICES, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
------------------- -------------------
$ % $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................................................... 505,970 100.0 832,734 100.0
Connectivity and operations................................. 319,127 63.1 601,890 72.3
Selling, general and administrative expense................. 64,978 12.8 136,025 16.3
Depreciation................................................ 64,909 12.8 102,581 12.3
Amortization of intangibles................................. 21,534 4.3 21,534 2.6
------- ----- ------- -----
Total costs and expenses.................................... 470,548 93.0 862,030 103.5
------- ----- ------- -----
Income (loss) from operations............................... 35,422 7.0 (29,296) (3.5)
Interest expense............................................ (4,467) (.9) (11,717) (1.4)
------- ----- ------- -----
Income (loss) before taxes.................................. 30,955 6.1 (41,013) (4.9)
Income tax provision (benefit).............................. 12,383 2.4 (12,056) (1.4)
------- ----- ------- -----
Net income (loss)........................................... 18,572 3.7 (28,957) (3.5)
======= ===== ======= =====
Approximate total subscribers at year end................... 2,500 4,000
</TABLE>
23
<PAGE>
BORG RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1998.
Revenues:
Revenues increased $326,764 or 64.6%, from $505,970 to $832,734, primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,500 at December 31, 1997 to 4,000 at December 31, 1998, an increase of
60.0%.
Connectivity and operations:
Connectivity and operations expenses increased $282,763, or 88.6%, from
$319,127 to $601,890. The increase was primarily a result of the increase in the
number of subscribers.
Selling, general and administrative expense:
Selling, general and administrative expenses increased $71,047, or 109.3%,
from $64,978 to $136,025. The increase was a result of increased advertising
expenses.
Depreciation:
Depreciation expenses increased $37,672 or 58.0%, from $64,909 to $102,581,
primarily as a result of increased capital equipment spending.
Interest expense:
Interest expense increased $7,250, from $4,467 to $11,717, primarily as a
result of the increase in average principal outstanding of debt and capitalized
leases.
Income tax provision (benefit):
Income tax provision during 1998 of $12,383 changed to an income tax
(benefit) of $(12,056). The change was a result of a loss before taxes in 1998.
ALBANYNET, INC.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
1997 1998
------------------- --------------------
$ % $ %
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................................... 838,807 100.0 1,140,518 100.0
Connectivity and operations................................ 658,329 78.5 768,400 67.4
Selling, general and administrative expense................ 44,441 5.3 61,456 5.4
Depreciation............................................... 57,866 6.9 67,814 5.9
------- ----- --------- -----
Total costs and expenses................................... 760,636 90.7 897,670 78.7
------- ----- --------- -----
Income from operations..................................... 78,171 9.3 242,848 21.3
Other income, net.......................................... 11,082 1.3 5,369 .5
Interest expense........................................... (4,724) (.6) (3,272) (.3)
------- ----- --------- -----
Net Income................................................. 84,529 10.0 244,945 21.5
======= ===== ========= =====
Approximate total subscribers at year end.................. 2,300 3,200
</TABLE>
ALBANYNET'S RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1998.
24
<PAGE>
Revenues:
Revenues increased $301,711 or 36.0%, from $838,807 to $1,140,518 primarily
as a result of an increase in subscribers. The number of subscribers increased
from 2,300 at December 31, 1997 to 3,200 at December 31, 1998, an increase of
39.1%.
Connectivity and operations:
Connectivity and operations expenses increased $110,071 or 16.7% from
$658,329 to $768,400. The increase was primarily a result of the increased
number of subscribers.
Selling, general and administrative expense:
Selling, general and administrative expenses increased $17,015, or 38.3%,
from $44,441 to $61,456.
Depreciation:
Depreciation expenses increased $9,948, from $57,866 to $67,814, primarily
as a result of capital equipment purchases.
Interest expense:
Interest expense decreased $1,452, from $4,724 to $3,272. The decrease was a
result of lower outstanding capital leases during 1998.
FACTORS THAT COULD AFFECT FUTURE RESULTS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY.
We were formed in June 1998 and acquired our first Internet/Web services
provider in January 1999. We have acquired an additional 10 companies during
1999. Our management team faces the challenge of successfully implementing
company-wide administrative and operating systems and managing our newly
acquired companies. We may not be able to successfully manage our business to
achieve or maintain profitability of any of our individual Internet service
providers, or overall. In addition, our pro forma financial results cover
periods when we did not control or manage our Internet service providers and may
not be indicative of our future financial results.
OUR "GROWTH BY ACQUISITIONS" STRATEGY IS RISKY.
Our business strategy depends largely on our ability to expand into new
markets and enhance our presence in our existing markets by acquiring additional
Internet service providers and telecommunications companies that meet our
financial, geographic and other acquisition criteria. Although our acquisition
strategy may provide opportunities for rapid growth, we will face numerous
risks, including the following:
- difficulty in combining newly acquired operations, technology and
personnel;
- loss of subscribers as a result of ownership or management changes;
- failure of acquired businesses to achieve expected results;
- diversion of management's attention from existing operations;
- possible acquisition of substantial contingent or undisclosed liabilities;
- risks of entering markets in which we have no direct prior experience.
25
<PAGE>
We may not be successful in overcoming these risks or any other problems
encountered in connection with future acquisitions.
COMPETING BIDS FOR INTERNET AND TELECOMMUNICATIONS SERVICE PROVIDERS MAY
DRIVE UP PURCHASE PRICES AND LIMIT OUR ABILITY TO CARRY OUT OUR GROWTH STRATEGY.
Our business strategy depends largely on our ability to expand into new
markets and enhance our presence in our existing markets by acquiring additional
Internet service providers that meet our financial, geographic and other
acquisition criteria. We believe that competition from other companies, which
seek to acquire and consolidate Internet service companies, is significant and
that acquisition prices will rise with the growth in demand for these companies
in the future. We may not have sufficient financial resources to afford these
higher prices. The potential increase in acquisition prices could increase the
amount of goodwill and other intangibles allocated from the purchase price for
these companies, which could adversely affect our financial condition, and
operating results.
OUR ACQUISITION OF TELECON COMMUNICATIONS CORP. IS OUR INITIAL ENTRY INTO
PROVIDING LONG DISTANCE AND LOCAL TELEPHONE SERVICE.
While our Chairman & Chief Executive Officer has considerable prior
experience in the marketing and sales of telecommunications products and
services, our company to date has focussed on providing Internet access and
related services including web site design and hosting. The acquisition of
Telecon Communications Corp. which is expected to close on or about March 31,
2000 will be the initial entry by BiznessOnline.com, Inc. into the business of
providing local and long distance telephone service. We cannot provide any
assurance that we will be successful in this new undertaking.
COVENANTS IN OUR $15 MILLION LOAN AGREEMENT RESTRICT OUR ABILITY TO BORROW
AND INVEST, WHICH COULD IMPAIR OUR ABILITY TO MAKE ADDITIONAL ACQUISITIONS OR
OBTAIN ADDITIONAL DEBT OR EQUITY FINANCING.
The credit agreement dated March 16, 2000 governing our $15 million credit
facility imposes significant operating and financial restrictions that limit our
discretion on some business matters, which could make it more difficult for us
to acquire additional companies, finance our operations or otherwise expand or
engage in other business activities that may be of interest. Among other things,
these restrictions limit or prohibit our ability to:
- Incur additional debt;
- Pay dividends or make other distributions;
- Make capital expenditures or enter into leasing transactions;
- Make investments;
- Pledge or mortgage assets;
- Guarantee debt;
- Sell assets;
- Enter into transactions with related persons; and
- Consolidate, merge or sell substantially all of our assets
If we are unable to satisfy the financial or other covenants required by the
lender or otherwise default on the credit agreement, we could be forced into
bankruptcy or liquidation proceedings or otherwise lose all of our business and
assets to such lender in a foreclosure action.
26
<PAGE>
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN MARK MUNRO AND OTHER KEY
PERSONNEL.
We believe that the telecommunications and related management, sales and
marketing experience of Mark E. Munro, our president and chief executive officer
is critical to our success in the Internet business and in our growth by
acquisitions strategy and the loss of his services would have a detrimental
impact on our business. Our success will also depend on our ability to hire and
retain other qualified management, including competent marketing, technical and
sales personnel. We may be unable to locate and hire these personnel. We may
also be unable to retain or integrate the personnel of acquired Internet service
providers into our operations.
BECAUSE WE WILL DEPEND ON OTHER COMPANIES FOR TELECOMMUNICATIONS PRODUCTS
AND SERVICES, WE MAY EXPERIENCE DELAYS AND INCREASED COSTS IF DEMAND FOR THESE
ITEMS CONTINUES TO INCREASE.
We will depend on major companies such as UUNET, MCI Worldcom, Qwest and
Sprint to provide connectivity and equipment capacity to us. We will also depend
on third-party suppliers of hardware components. As we and other Internet
service providers grow, our suppliers will face significant demand for their
products; some of these suppliers may have limited resources and production
capacity. If our suppliers fail to adjust to meet increasing demand, they may be
unable to supply components and products in the quantities, at the quality
levels and at the times required by us, or at all. In addition, prices for these
components and products may increase significantly. If our suppliers fail to
provide equipment and we are unable to develop alternative sources of supply, we
will experience delays and increased costs in expanding our network.
THE INTERNET SERVICE MARKET CHANGES RAPIDLY AND WE MAY NOT BE SUCCESSFUL IN
ADAPTING TO NEW TECHNOLOGIES OR ALTERNATIVE INTERNET ACCESS SYSTEMS.
Our industry is characterized by rapidly changing technology, constantly
evolving industry standards, emerging competition and frequent new service
information. We are unable to predict whether we will have the necessary
resources to adapt to this changing marketplace. For example, our Internet
service providers provide Internet access across telephone lines to computers.
If the Internet becomes easily accessible by screen-based telephones, television
or other electronic devices, or if the means of delivery changes to satellite or
other wireless technology, we may need to change our network design and develop
new technology. Our pursuit of these technological advances would require
substantial time and expense. We cannot assure you that we will be successful in
adapting our business to alternative access systems or that new technologies
will be available or affordable for us.
WE MAY FACE ADDITIONAL COSTS AND LOWER REVENUES AS A RESULT OF CHANGES IN
GOVERNMENT REGULATIONS.
Our Internet services are not currently subject to direct regulation by the
Federal Communications Commission or any other agency, other than regulations
applicable to businesses generally. However, there is a risk that changes in
governmental regulations could increase our costs or lower our revenues as a
result of (i) the imposition of access charges on Internet service providers,
(ii) the loss of certain reciprocal compensation payments received by local
telephone companies, and (iii) required contributions to a universal service
fund to replace current subsidies and accomplish certain public policy
objectives, and (iv) other new federal, state or local taxes on Internet access
fees and e-commerce activities.
ACCESS CHARGES. Access charges are assessed by local telephone companies to
long distance companies for the use of the local telephone network to originate
and terminate long distance calls, generally on a per minute basis. Access
charges have been a source of dispute, with long distance companies arguing that
the access rates are substantially in excess of cost and local telephone
companies arguing that access rates are needed to subsidize lower local rates
for end user and other purposes. To date the Federal Communications Commission
has determined that Internet service providers should not be required to pay
interstate access charges to local telephone companies. However, there is no
guarantee that the Commission will not reconsider its decision in the future.
Our costs for doing business would increase if we were required to pay
interstate access charges.
27
<PAGE>
RECIPROCAL COMPENSATION. To the extent that an end-user's call to an
Internet service provider is local rather than long distance, the local
telephone company that serves the Internet service provider may be entitled to
reciprocal compensation from the end-user's local telephone company. Reciprocal
compensation is a reimbursement from one local telephone company to a second one
for handling calls that originate with the first local telephone company and
terminate with the second one. This payment of reciprocal compensation reduces
the local telephone company's costs and ultimately reduces the Internet service
provider's costs. Although the FCC recently determined that most traffic to an
Internet service provider is interstate in nature, the Commission allowed state
commissions to determine payment issues in certain situations pending a final
resolution by the FCC. This determination could potentially eliminate the
payment of reciprocal compensation to the local telephone company which could
ultimately increase our costs.
UNIVERSAL SERVICE FUND. The FCC has to date determined that Internet access
providers should not be required to contribute to a universal service fund
established to replace current local rate subsidies and to meet other public
policy objectives, such as enhanced communications systems for schools,
libraries and health care providers. As a result, unlike telecommunications
providers, Internet access providers do not have to contribute a percentage of
their revenues to the federal universal fund and are not likely to be required
to contribute to similar funds being established at the state level. However,
both the access charges and universal service fund treatment are the subjects of
further FCC proceedings and could change. Telephone companies are actively
seeking modification or reversal of the FCC decisions, and their arguments are
gaining support as "telephone" service through computers begins to compete with
traditional telephone service. We would be adversely affected if in the future
our Internet service providers were required to contribute to the universal
service fund.
TAXES. New federal, state or local tax laws may also have an adverse impact
on our future revenues by imposing taxes on Internet access fees or e-commerce
activities. We may not be able to fully recoup these taxes from our subscribers
due to the competitive nature of our industry.
WE MAY FACE POTENTIAL LIABILITY FOR INFORMATION DISSEMINATED OVER OUR
NETWORK.
The law relating to liability of Internet service providers for information
carried on or disseminated through their network is unsettled. Companies like
ours face potential liability for the actions of subscribers and others using
our systems, including liability for infringement of intellectual property
rights, rights of publicity, defamation, libel and criminal activity including
transmission of obscene materials. As the law in this area develops, our
potential liability for information carried on or disseminated through our
network could require us to implement measures to reduce our exposure to this
liability, which may require the expenditure of substantial resources or the
discontinuation of some product or service offerings, any of which could be
detrimental to our business, financial condition and results of operation.
OUR SYSTEMS MAY BE VULNERABLE TO SECURITY RISKS OR UNINTENTIONAL
INTERRUPTIONS IN SERVICE.
Our systems will be vulnerable to computer viruses, sabotage, unauthorized
access and other intentional or accidental actions of Internet users,
subscribers, employees or others which could result in temporary or prolonged
delays in providing Internet-related service. Unauthorized access could also
jeopardize confidential information of our customers stored in our or the
customer's computer systems, which may deter potential subscribers and result in
liability claims against us. Fixing problems caused by computer viruses or other
inappropriate uses or security breaches may require interruptions, delays, or
stops in service to our subscribers. Until more comprehensive and cost-effective
security technologies are developed, the security and privacy concerns of
existing and potential customers may inhibit the growth of the Internet service
industry in general, and our customer base and revenues in particular.
28
<PAGE>
Our business depends on our ability to deliver high quality uninterrupted
access to the Internet. However, there is a risk that our services will be
interrupted as a result of:
- network equipment damage caused by natural disasters like earthquakes and
fires;
- hardware failures at our operational centers;
- increased stress on network hardware and traffic management systems;
- local power losses or other telecommunications systems failures; and
- capacity constraints either at a particular telecommunications facility or
system wide.
Any system failure that causes interruption in our service, particularly
during our early stages of development, could have a negative effect on our
business, financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
BIZNESSONLINE.COM, INC.
AUDITORS' REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
<S> <C>
Report of KPMG LLP, Independent Auditors.................... 31
Consolidated Balance Sheets as of December 31, 1999
and 1998.................................................. 32
Consolidated Statements of Operations for the year ended
December 31, 1999 and the period July 1, 1998 (date of
inception) through December 31, 1998...................... 33
Consolidated Statements of Stockholders Equity for the Year
Ended December 31, 1999 and the period July 1, 1998 (date
of inception) through December 31, 1998................... 34
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999 and the period July 1, 1998 (date of
inception) through December 31, 1998...................... 35
Notes to Consolidated Financial Statements.................. 36
</TABLE>
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
BIZNESSONLINE.COM, INC.:
We have audited the accompanying consolidated balance sheets of
BiznessOnline.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended December 31, 1999 and the period from July 1, 1998
(date of inception) through December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BiznessOnline.com, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended
December 31, 1999 and the period from July 1, 1998 (date of inception) through
December 31, 1998, in conformity with generally accepted principles.
/s/ KPMG LLP
Providence, Rhode Island
February 25, 2000
31
<PAGE>
BIZNESSONLINE.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,481 $ 148
Accounts receivable, net of allowance for bad debts of
$482.................................................... 1,274 --
Prepaid expenses and other current assets................. 380 --
------- -----
Total current assets...................................... 9,135 148
Property and equipment, net................................. 5,727 --
Goodwill and intangibles, net of accumulated amortization of
$2,400.................................................... 32,331 --
Other assets................................................ 69 108
------- -----
Total assets................................................ $47,262 $ 256
======= =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt......................... $ 23 $ --
Current portion of obligations under capital leases....... 183 --
Accounts payable.......................................... 2,345 99
Income tax payable........................................ 109 --
Accrued expenses.......................................... 1,847 --
Deferred revenue.......................................... 1,610 --
------- -----
Total current liabilities................................... 6,117 99
Long term debt, net of current portion...................... 6 --
Capital leases, net of current portion...................... 89 --
------- -----
Total liabilities........................................... 6,212 99
------- -----
Preferred stock subscriptions............................... -- 100
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000 shares authorized,
no shares issued and outstanding........................ -- --
Common stock, $0.01 par value, 39,000,000 shares
authorized, 8,609,574 and 3,147,186 shares issued and
outstanding in 1999 and 1998 respectively............... 86 31
Additional paid in capital................................ 45,145 152
Accumulated deficit....................................... (4,181) (126)
------- -----
Total stockholders' equity.................................. 41,050 57
------- -----
Total liabilities and stockholders' equity.................. $47,262 $ 256
======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
BIZNESSONLINE.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM JULY 1, 1998
YEAR ENDED (DATE OF INCEPTION)
DECEMBER 31 THROUGH
1999 DECEMBER 31, 1998
----------- ------------------------
<S> <C> <C>
Revenues.................................................... $ 6,741 $ --
---------- ----------
Costs and expenses:
Connectivity and operations............................... 3,721 --
Sales and marketing....................................... 1,804 --
General and administrative................................ 2,480 126
Stock compensation........................................ 322 --
Depreciation.............................................. 377 --
Amortization.............................................. 2,449 --
---------- ----------
Total costs and expenses.................................. 11,153 126
---------- ----------
Loss from operations...................................... (4,412) (126)
Interest income, net........................................ 419 --
---------- ----------
Loss before income taxes.................................... (3,993) (126)
Income taxes................................................ 62 --
---------- ----------
Net loss.................................................... $ (4,055) $ (126)
========== ==========
Net loss per share, basic and diluted....................... $ (0.70) $ (0.04)
========== ==========
Weighted average shares outstanding, basic and diluted...... 5,765,432 3,147,186
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
BIZNESSONLINE.COM, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<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>
Initial Capitalization....... 100 $-- -- $ -- -- -- --
Additional capital
contributions.............. -- -- -- -- 183 -- 183
Effect of 10,000 for 1
stock split................ 999,900 10 -- -- (10) -- --
Effect of 3.147186 for 1
stock split................ 2,147,186 21 -- -- (21) -- --
Net loss..................... -- -- -- -- (126) (126)
--------- --- ------- ---- ------- ------- -------
Balance December 31, 1998.... 3,147,186 $31 -- $ -- 152 (126) 57
Issuance of Preferred
Stock...................... -- -- 70,000 1 349 -- 350
Conversion of preferred stock
to common stock............ 61,250 1 (70,000) (1) -- -- --
Issuance of common stock in
connection with initial
public offering, net of
offering costs and
underwriter discounts...... 2,900,000 29 -- -- 24,616 -- 24,645
Issuance of common stock for
Acquisitions............... 2,501,138 25 -- -- 20,028 -- 20,053
Net loss..................... -- -- -- -- -- (4,055) (4,055)
--------- --- ------- ---- ------- ------- -------
Balance December 31, 1999.... 8,609,574 $86 -- $ -- $45,145 $(4,181) $41,050
========= === ======= ==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE>
BIZNESSONLINE.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM JUNE 1, 1998
(DATE OF INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ------------------------
<S> <C> <C>
Net loss................................................ $ (4,055) $(126)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization....................... 2,826 --
Provision for bad debt.............................. 257 --
Compensation charge for issuance of stock options
and warrants...................................... 322 --
Changes in net assets and liabilities:
Increase in accounts receivable-trade............. (369) 99
Increase in other current assets.................. (329) 0
Increase in accounts payable...................... 2,038 0
Increase in accrued expenses...................... 1,259 0
Increase in income taxes payable.................. 65 --
Decrease in deferred revenue...................... (182) --
-------- -----
Net cash provided by (used in) operating
activities.................................... 1,832 (27)
Cash flows from investing activities:
Capital expenditures................................ (4,154) --
Change in other assets.............................. 60 --
Acquisition of businesses, net of cash acquired..... (14,266) --
-------- -----
Net cash used in investing activities........... (18,360) --
-------- -----
Cash flows from financing activities:
Capital contributions............................... -- 183
Repayments of capital lease obligations............. (95) --
Repayment of long term debt......................... (504) --
Repayment of long term debt to related parties...... (435) --
Proceeds from preferred stock subscription.......... -- 100
Proceeds from sale of preferred stock............... 250 --
Increase in deferred costs.......................... -- (108)
Issuance of common stock in initial public offering,
net of underwriter discounts and commissions...... 24,645 --
-------- -----
Net cash provided by financing activities....... 23,861 175
-------- -----
Net increase in cash and cash equivalents............... 7,333 148
Cash and cash equivalents at beginning of period........ 148 --
-------- -----
Cash and cash equivalents at end of period.............. $ 7,481 $ 148
======== =====
Non--cash investing and financing:
Notes payable....................................... 580 --
Issuance of common stock for acquisitions........... 20,053 --
Interest paid........................................... $ 26 --
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
BiznessOnline.com, Inc., a Delaware Corporation was incorporated on
June 11, 1998 (date of inception of operations, July 1, 1998) for the purpose of
acquiring Internet service providers and related businesses serving individuals
and small to medium-sized businesses. We acquired all of the stock or assets of
nine Internet service providers, one web development company, and one web
hosting company during 1999. The Company conducts all of its operations through
its operating subsidiaries covering a geographic footprint that includes upstate
New York, Connecticut and portions of Rhode Island, New Hampshire and
Massachusetts, and considers its operating subsidiaries to be one reporting
segment.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
(D) CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(E) NET LOSS PER SHARE
Basic loss per share is based upon the weighted average number of common
shares outstanding. Loss per share assuming dilution is based upon the weighted
average number of common and common equivalent shares outstanding assuming
dilution. Dilutive potential common shares outstanding at December 31, 1999 were
approximately 8.6 million. Options to purchase approximately 800,000 shares of
common equivalent shares were not included in the computation of net loss per
share because they were anti-dilutive. As a result, diluted loss per share is
the same as basic loss per share.
(F) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of the assets.
The Company leases certain of its data communications and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments or the fair value of the assets under the lease. Assets under capital
lease are depreciated over the shorter of their estimated useful lives or the
lease term.
(G) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets represents the excess of purchase price
over fair value of net assets acquired and are amortized on a straight line
basis over the expected periods to be benefited, which
36
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
is five years. The Company assesses the recoverability of its intangible assets
by determining whether the amortization over the remaining life can be recovered
through undiscounted future operating cash flows. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for the Company's cash
and cash equivalents, accounts receivable, accounts payable and bank borrowings
and lease obligations approximate fair value due to their short-term nature or
borrowing rates that approximate market rates.
(J) FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. Cash and cash equivalents include cash on deposit in
checking accounts, commercial paper and certificates of deposit. These cash and
cash equivalents consist of high credit quality instruments.
The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. The company maintains reserves for potential
credit losses; historically, such losses have not been material and have been
within management's expectations. At December 31, 1999, no customer accounted
for a significant percentage of accounts receivable.
(K) REVENUE RECOGNITION
The Company recognizes revenue when services are provided. Services for
Internet access are generally billed in advance. Advance billings are recorded
as deferred revenue and recognized as revenue when earned over the period of
service.
(L) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in earnings in the period that includes the enactment date.
37
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(M) ADVERTISING COSTS
All costs related to advertising the Company's services are expensed in the
period incurred. Amounts charged to expense were $858,000 during the year ended
December 31, 1999 and $0 during 1998.
(N) EFFECTS OF INFLATION
We do not believe that inflation has had a material impact on our results of
operations during the year ended December 31, 1999.
(O) 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.
NOTE 2. ACQUISITIONS
(A) GLOBAL 2000 COMMUNICATIONS
On January 31, 1999, the Company acquired all of the shares of Global 2000
Communications, Inc., an Internet service provider located in Albany, NY, in
exchange for a $580,000 note payable at the initial public offering and
$2.7 million payable in shares of common stock. The Company issued 272,000
shares of common stock. The note was repaid at the initial public offering. The
total purchase price is $3.3 million.
(B) ALBANYNET, INC.
On May 17, 1999, the Company acquired all of the shares of AlbanyNet, Inc.,
an Internet service provider located in Albany, NY, in exchange for
$2.4 million payable in cash.
(C) BORG INTERNET SERVICES
On May 17, 1999, the Company acquired all of the shares of Borg Internet
Services, Inc., an Internet service provider located in Utica, NY, in exchange
for $500,000 in cash and $1.5 million payable in shares of common stock. The
Company issued 150,000 shares of common stock. The total purchase price is
$2.0 million.
(D) CARAVELA SOFTWARE, INC.
On May 17, 1999, the Company acquired all of the shares of Caravela
Software, Inc., an Internet service provider located in Middlefield, CT, in
exchange for $2.1 million in cash and $2.8 million payable in
38
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS (CONTINUED)
shares of common stock. The Company issued 280,000 shares of common stock. The
total purchase price is $5.0 million.
(E) ULSTERNET, INC.
On May 17, 1999, the Company acquired all of the shares of Ulsternet, Inc.,
an Internet service provider located in Kingston, NY, in exchange for $650,000
in cash and $800,000 payable in shares of common stock. The Company issued
80,000 shares of common stock. The total purchase price is $1.5 million.
(F) ASCENT NETWORKING, INC.
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 $1.1 million in cash. Based on the operating results for 1999, we will
pay an additional $.2 million. This amount has already been recorded in the
financial statements.
(G) WEBWAY, LLC
On August 18, 1999 the Company acquired substantially all of the assets of
WebWay, LLC, a web development company located in Albany, NY, for $830,000
payable in cash and $1.8 million payable in shares of common stock. The Company
issued 200,046 shares of common stock. The total purchase price is
$2.6 million.
(H) INFOBOARD, INC.
On September 30, 1999 the Company acquired all the shares of
Infoboard, Inc., a web hosting company located in Lynn, MA, for $1.4 million in
cash and $1.6 million payable in shares of common stock. The Company issued
228,462 shares of common stock. The total purchase price is $3.0 million.
(I) CYBERZONE, LLC
On December 14, 1999 the Company acquired substantially all of the assets of
Cyberzone, LLC, an Internet service provider located in Hartford, CT, for
$1.8 million payable in cash and $1.8 million payable in shares of common stock.
The Company issued 271,904 shares of common stock. The total purchase price is
$3.5 million. Based on the operating results for 1999, the Company will increase
the purchase price by $.2 million, payable 50% in cash and 50% in shares in
common stock.
(J) NECANET, INC.
On December 15, 1999 the Company acquired all the shares of NECAnet, Inc., a
Internet service provider located in Storrs, CT, for $1.6 million in cash and
$1.9 million payable in shares of common stock. The Company issued 298,726
shares of common stock. The total purchase price is $3.5 million.
39
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITIONS (CONTINUED)
(K) PRIME COMMUNICATIONS, INC.
On December 29, 1999 the Company acquired all the shares of Prime
Communications, Inc., a Internet service provider located in Amherst, NY, for
$1.2 million in cash and $5.8 million payable in shares of common stock. The
Company issued 720,000 shares of common stock. The total purchase price is
$7.0 million. The Company has also agreed to pay an additional amount based on
revenue and profitability for the first six months of 2000. The amount is 2.5
times revenue over $1.4 million, provided EBITDA is greater than 35% of revenue.
In accordance with generally accepted accounting principles, the total
purchase price for these acquisitions 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. The amount of purchase price paid in common stock of the
Company has been recorded at the price on the date issued. This amount may
differ from the price paid per the purchase agreement, as the stock price was
generally, the average stock price for the 20 days prior to closing.
<TABLE>
<S> <C>
Working capital............................................. $ (936,000)
Property and equipment...................................... 1,950,000
Other assets................................................ 74,000
Long term debt.............................................. (275,000)
Goodwill.................................................... 35,544,000
</TABLE>
The acquisitions were accounted for pursuant to the purchase method of
accounting and included all costs of acquisition, including legal and accounting
fees. The accompanying financial statements of BiznessOnline.com, Inc. include
the operating results of each of the acquisitions from their respective
acquisition dates. The pro forma results of operations for the acquired
companies have been included with the pro forma results of operations included
on Page 17.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED LIFE DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Communication and computer equipment........... 3-5 years $ 5,187,000
Purchased software............................. 3 years 862,000
Office furniture and equipment................. 3-7 years 342,000
Leasehold Improvements......................... Lease term 1,402,000
Vehicles....................................... 3 years 74,000
-----------
7,867,000
Less accumulated depreciation.................. (2,140,000)
-----------
$ 5,727,000
===========
Pro forma revenues............................. $ 14,874
Pro forma net loss............................. (7,541)
Pro forma net loss per share................... (0.88)
</TABLE>
40
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Notes payable consist of the following:
Note payable, due in monthly installments of $342, plus
interest at 11%, balance due January 2002................. $10,000
Note payable, due in monthly installments of $390, plus
interest at 10.5%, balance due March 2000................. 1,000
Note payable, due in monthly installments of $894, plus
interest at .9%, balance due July 2001.................... 18,000
-------
29,000
Less current portion........................................ 23,000
-------
Long-term debt, net of current portion...................... $ 6,000
=======
</TABLE>
The aggregate maturities of long-term debt are as follows: 2000--$23,000 and
2001--$6,000.
Total interest expense for the year ended December 31, 1999 was $20,000, and
is included in interest income, net.
NOTE 5. LEASE COMMITMENTS
The Company leases its office facilities under various operating leases
expiring at various times through fiscal 2004. Future minimum annual rental
commitments under the lease agreements for the years ending December 31 are as
follows:
<TABLE>
<S> <C>
2000........................................................ $ 499,000
2001........................................................ 474,000
2002........................................................ 414,000
2003........................................................ 414,000
2004........................................................ 253,000
----------
$2,054,000
==========
</TABLE>
Total rent expense for the year ended December 31, 1999 and for the period
July 1, 1998 to December 31, 1998 was approximately $232,000 and $0,
respectively.
NOTE 6. CAPITAL LEASES
The Company leases certain equipment under capital lease agreements that
expire at various dates through December, 2002. At December 31, 1999, the gross
amount of equipment and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<S> <C>
Communications and computer equipment....................... $460,000
Less accumulated amortization............................... 116,000
--------
$344,000
========
</TABLE>
41
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. CAPITAL LEASES (CONTINUED)
Future minimum lease payments under capital leases as December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000........................................................ $211,000
2001........................................................ 81,000
2002........................................................ 11,000
--------
Total minimum lease payments................................ 303,000
Less amount representing interest........................... 31,000
--------
Present value of minimum capital lease payments............. 272,000
Less current installments of obligations under capital
leases.................................................... 183,000
--------
Obligations under capital leases, excluding current
portion................................................... $ 89,000
========
</TABLE>
NOTE 7. INCOME TAXES
No provision for federal income taxes has been recorded as the Company
incurred net operating losses for all periods presented. The Company incurred
state tax expense of $62,000 for the year ending December 31, 1999. No state tax
expense was recorded for the period ended December 31, 1998. The Company has
recorded a full valuation allowance against its deferred tax assets since
management believes that, after considering all the available objective
evidence, both positive and negative, historical and prospective, with greater
weight given to historical evidence, it is more likely than not that these
assets will not be realized. No income tax benefit has been recorded for all
periods presented because of the valuation allowance. Temporary differences
between the financial statement carrying amounts and tax
42
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
bases of assets and liabilities that give rise to significant portions of
deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS: 12/31/1999 12/31/1998
- - -------------------- ---------- ----------
<S> <C> <C>
Accounts receivable principally due to
allowance for doubtful accounts...................... $ 192,000 --
Deferred revenue....................................... 289,000 --
Compensation expense................................... 129,000 --
Net operating loss carryforwards....................... 462,000 --
Amortization........................................... 173,000 --
Other.................................................. 117,000 49,000
---------- -------
Total gross deferred tax assets........................ $1,362,000 $49,000
Less valuation allowance............................... 1,255,000 49,000
Net deferred tax assets................................ 107,000 0
Deferred Tax Liabilities
Plant and equipment, principally due to differences In
depreciation and amounts capitalized................. $ 15,000 --
Accrual to cash adjustments............................ 92,000 --
Total deferred tax liabilities......................... 107,000 --
---------- -------
Net deferred tax assets................................ $ 0 $ 0
========== =======
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $975,000 which are available to
offset future federal taxable income, if any, through 2019. At December 31, 1999
the Company also has net operating loss carryforwards for state income tax
purposes of approximately $850,000, $500,000, and $120,000 which are available
to offset future state taxable income, if any, through 2006, 2019, and 2004 in
New Jersey, New York, and Connecticut respectively.
In accordance with FAS 109, the accounting for the tax benefits of acquired
deductible temporary differences, which are not recognized at the acquisition
date because a valuation allowance is established, and recognized subsequent to
the acquisitions will be applied first to reduce to zero, any goodwill and other
noncurrent intangible assets related to the acquisitions. Any remaining benefits
would be recognized as reduction of income tax expense. As of December 31, 1999,
$275,000 of the Company's deferred asset pertains to acquired companies, the
future benefits of which will be applied first to reduce to zero any goodwill
and other noncurrent intangible related to the acquisitions prior to reducing
the Company's income tax expense.
43
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
Income tax expense differed from the expected benefit computed by applying
the U.S. federal income tax rate of 34% to net loss as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Computed expected tax benefit....................... $(1,358,000) $ (43,000)
Increase (reduction) in income taxes resulting from:
Change in the valuation allowance................... 771,000 43,000
Amortization of goodwill............................ 600,000
State tax net of federal benefit.................... 41,000 --
Other, net.......................................... 8,000 --
----------- ----------
Income Tax Expense.................................. $ 62,000 $ 0
</TABLE>
NOTE 8. ACCRUED EXPENSES AND OTHER ACCRUED LIABILITIES
Accrued expenses and other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Accrued compensation and related benefits................... $ 543,000
Accrued acqui sition costs.................................. 712,000
Other accruals.............................................. 592,000
----------
$1,847,000
==========
</TABLE>
NOTE 9. COMMITMENTS
The company and its operating subsidiaries have entered into several
contracts with vendors that provide certain telephone related line access
services with various expiration dates. Following are the commitments for each
of the five years subsequent to December 31, 1999:
<TABLE>
<S> <C>
2000........................................................ $1,147,000
2001........................................................ 1,022,000
2002........................................................ 472,000
2003........................................................ 5,000
2004........................................................ 5,000
----------
$2,651,000
==========
</TABLE>
NOTE 10. STOCKHOLDERS' EQUITY
(A) INITIAL PUBLIC OFFERING
In February 1999, we filed a registration statement under the Securities Act
of 1933 to sell up to 2.9 million shares of common stock in our initial public
offering. The offering closed on May 17, 1999.
44
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
Expenses related to the initial public offering and direct offering costs
incurred through December 31, 1999 were as follows:
<TABLE>
<S> <C>
Underwriter's discounts and commissions................... $ 2,900,000
Accountants fees.......................................... 386,000
Legal fees................................................ 467,000
Printing expenses......................................... 177,000
Miscellaneous filing fees and expenses.................... 425,000
-----------
Total..................................................... 4,355,000
===========
Net Proceeds................................................ $24,645,000
===========
</TABLE>
From the effective date of the initial public offering registration through
December 31, 1999, the amount of net offering proceeds used 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............................... 1,380,000
Acquisition of Prime Communications, Inc.................... 1,240,000
Acquisition of Cyberzone, LLC............................... 1,752,000
Acquisition of NECAnet, Inc................................. 1,575,000
Purchases of capital equipment, primarily data center....... 4,154,000
-----------
Total....................................................... $18,567,000
===========
</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.
(B) COMMON STOCK
Each stockholder of record is entitled to one vote for each outstanding
share of our common stock owned by that stockholder on every matter properly
submitted to the stockholders for their vote. Holders of common stock
participate with the holders of preferred stock in any dividend declared by our
board of directors out of funds legally available for this purpose. After the
payment of liquidation preferences to all holders of preferred stock, holders of
common stock will receive on a pro rata basis all our remaining assets available
for distribution to the stockholders in the event of our liquidation,
dissolution or winding up. Holders of common stock do not have any preemptive
right to become subscribers or purchasers of additional shares of any class of
our capital stock.
45
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
(C) PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to 1,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series. These shares may have rights senior
to our common stock. The issuance of preferred stock may have the effect of
delaying or preventing a change in control of BiznessOnline. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of the common stock.
On February 15, 1999, we issued 70,000 shares of Class A preferred stock in
connection with the closing of a private offering of preferred stock. Upon
consummation of our initial public offering on May 12, 1999, these preferred
shares were converted into 61,250 shares of common stock.
(D) STOCK OPTIONS
Our 1999 stock incentive plan enables us to issue incentive and
non-qualified stock options to deserving employees, directors and non-employees
who perform services for the Company. Under this plan, we have reserved 500,000
shares of our authorized common stock for option grants. We believe that our
stock incentive plan will enhance our ability to attract and retain key
employees and other persons who are in a position to make significant
contributions to our success.
Our 1999 non-employee director stock incentive plan enables us to issue
non-qualified stock options to non-employee directors. Under this plan, we have
reserved 50,000 shares of our authorized common stock for option grants. We
believe that our non-employee director stock incentive plan will provide
incentives for the continued service of these directors and for attracting new
directors to our board.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options. Accordingly,
no compensation expense has been recognized in connection with granting
options pursuant to these plans.
SFAS 123 DISCLOSURES
Pro forma information regarding net loss and loss per common and common
equivalent share is required by SFAS 123, which also requires that the
information be determined as if the Company has accounted for its employee
stock options granted under the fair value method of that Statement. The
fair value for these options was estimated using a Black-Scholes
option-pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
OPTIONS
--------
<S> <C>
Expected life (years)....................................... 10
Interest rate............................................... 6.3%
Volatility.................................................. 64%
Dividend.................................................... None
</TABLE>
46
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The company's
pro forma information is as follows:
The pro forma compensation expense for the issuance of the options would
have been $912,000 for 1999. The Company recognized $167,000 of this expense on
the financial statements, as these options were granted to a consultant of the
Company and not an employee. If the entire amount had been recognized the pro
forma net loss and earnings per share for the year would have been:
<TABLE>
<S> <C>
Pro forma net loss.......................................... $4,800
Basic and fully diluted loss per share...................... $ .83
</TABLE>
Option activity under the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding at beginning of year.................... 0 0.00
Granted............................................. 412,675 10.23
Expired or cancelled................................ (12,300) 10.00
Exercised........................................... -- --
------- ------
Outstanding at end of year.......................... 400,375 $10.24
======= ======
Exercisable at end of year.......................... 37,500 $14.00
======= ======
</TABLE>
The following table presents weighted average price and life information
about significant option groups outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING YEARS
PRICE OUTSTANDING OF CONTRACT LIFE EXERCISABLE
- - --------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
8.500 20,000 9.62
8.934 10,000 9.58
9.375 20,000 9.94
10.000 320,375 9.56 7,500
15.000 30,000 9.54 30,000
- - --------------------- ------- ------
8.50-15.00 400,375 37,500
======= ======
</TABLE>
47
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
(E) WARRANTS
During 1999 the Company granted warrants to purchase common stock. A total
of 335,000 warrants were granted to representatives of the underwriters of our
initial public offering and various consultants to the Company. The following
table shows the number of warrants, the exercise price and date of expiration.
<TABLE>
<CAPTION>
NUMBER EXERCISE
OUTSTANDING PRICE EXPIRATION
----------- -------- ----------
<S> <C> <C> <C>
290,000 16.50 2009
30,000 7.00 2004
15,000 9.00 2002
------- ------
$15.31(weighted
Total.................................. 335,000 average)
======= ======
</TABLE>
We have accounted for these warrants using Statement of Financial Accounting
Standards No. 123, accounting for Stock Based Compensation. The fair value for
these warrants was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted-average assumptions.
For the 290,000 warrants, an implied volatility of 0 was used resulting in
no compensation expense. For the remainder of the warrants, a volatility of 84%
and an interest rate of 5.3% were used. This resulted in a compensation charge
for these warrants of $155,000 during 1999. The Company recognized this expense
during the year.
NOTE 11. RELATED PARTY TRANSACTIONS
In connection with our acquisition of Global 2000 Communications on
January 31, 1999, we issued a total of 204,000 shares of common stock to a
director and his wife former owners of Global 2000 and promissory notes in the
aggregate principal amount of $435,000. Their notes were repaid at the closing
of our initial public offering.
On February 1, 1999, our Global 2000 Communications, Inc. subsidiary entered
into a lease with the director and his wife for approximately 2,000 square feet
of office space with a monthly rent of $2,000 plus utilities. The term of the
lease is five years although we may terminate this lease at any time upon thirty
days prior notice without further liability.
On December 29, 1999, our Prime Communications, Inc. subsidiary entered into
a lease with Prime Business Park, a company partially owned by a shareholder of
the Company for approximately 6,780 square feet of office space with a monthly
rent of $7,486 plus utilities. The term of the lease is five years.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial data has been prepared from the financial
records of the Company without audit, and reflect all adjustments which, in the
opinion of management, were of a normal recurring
48
<PAGE>
BIZNESSONLINE.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
nature and necessary for a fair presentation of the results of operations for
the interim periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C> <C>
Net revenue................................... $ 424 $ 1,237 $ 2,141 $ 2,939
Loss from operations.......................... (139) (647) (1,247) (2,379)
Net loss...................................... (140) (547) (1,217) (2,151)
Net loss per share, basic and diluted......... $ (.04) $ (0.10) $ (0.17) $ (0.29)
Weighted average shares outstanding, basic and
diluted..................................... 3,325,497 5,260,299 6,986,419 7,436,792
</TABLE>
NOTE 13. SUBSEQUENT EVENTS (UNAUDITED)
On March 15, 2000, the New York State Public Service Commission granted
approval for the transfer of the "Certificate of Public Convenience and
Necessity" held by Telecon Communications Corp., a competitive local exchange
carrier ("CLEC") based in Johnstown, New York to us in connection with our
planned acquisition of substantially all of Telecon's assets. We now expect to
close such transaction and the acquisition of an Internet service provider
affiliated with Telecon on or about March 31, 2000 for an aggregate purchase
price of $15 million payable in cash and $3 million payable in shares of common
stock of the Company. In addition, we are in the process of preparing CLEC
filings in other New England states to enable us to begin to resell local and
long distance telephone services in such markets beginning in the second half of
2000.
On March 16, 2000, we closed a $15 million senior secured credit facility.
We plan to use the proceeds of this facility to fund the cash purchase price of
the Telecon acquisition. The credit facility is secured by all of the assets of
BiznessOnline.com and its operating subsidiaries. In connection with such
financing, the Lender received certain cash fees and a warrant to purchase
838,779 shares of our common stock at prices of $7.00 per share for 559,186
shares and $12.00 per share for 279,593 shares, subject to certain anti-dilution
and other adjustments. The Lender will also receive 71,429 shares of common
stock of the Telecom acquisition.
49
<PAGE>
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 will be contained in the registrant's
Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders ("2000
Proxy Statement") to be held in May 2000, which the registrant intends to file
with the Commission on or about March 30, 2000, and such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 will be contained in the registrant's
Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders ("2000
Proxy Statement") to be held in May 2000, which the registrant intends to file
with the Commission on or about March 30, 2000, and such information is
incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 will be contained in the registrant's
Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders ("2000
Proxy Statement") to be held in May 2000, which the registrant intends to file
with the Commission on or about March 30, 2000, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 will be contained in the registrant's
Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders ("2000
Proxy Statement") to be held in May 2000, which the registrant intends to file
with the Commission on or about March 30, 2000, and such information is
incorporated herein by reference.
ITEM 14. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Consolidated Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the Company are included
in Item 8, pages 30-49:
(1) (a) Report of KPMG LLP, Independent Auditors
(b) Consolidated Financial Statements
(i) Consolidated Balance Sheets as of December 31, 1999 and
1998;
(ii) Consolidated Statements of Operations for the year ended
December 31, 1999 and for the period from July 1, 1998
(date of inception) through December 31, 1998;
(iii) Consolidated Statements of Stockholders' Equity for the
year ended December 31, 1999 and for the period from
July 1, 1998 (date of inception) through December 31, 1998;
(iv) Consolidated Statements of Cash Flows for the year ended
December 31, 1999 and for the period from July 1, 1998 (date
of inception) through December 31, 1998; and
50
<PAGE>
(v) Consolidated Notes to Financial Statements.
(2) Consolidated Financial Statement Schedules
(a) All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) For a list of exhibits filed herewith or incorporated by reference
to exhibits previously filed with the Securities and Exchange Commission,
refer to the exhibit index beginning on page 95. The registrant will furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.
Other historical financial statements are included herein as follows:
<TABLE>
<CAPTION>
COMPANY PAGE
------- --------
<S> <C>
Albany Net, Inc. Financial Statements....................... 52
Borg Internet Services, Inc. Financial Statements........... 60
Caravela Software, Inc. Financial Statements................ 69
Global 2000 Communications, Inc. Financial Statements....... 78
Ulsternet, Inc. Financial Statements........................ 86
</TABLE>
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
AlbanyNet, Inc.:
We have audited the accompanying balance sheet of AlbanyNet Inc.
("AlbanyNet") as of December 31, 1998, and the related statements of income,
stockholders' equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of AlbanyNet's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AlbanyNet Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 29, 1999
F-1
<PAGE>
ALBANYNET, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $149,779
Accounts receivable, net of allowance for doubtful
accounts of $5,000...................................... 58,006
--------
Total current assets.................................. 207,785
--------
Property and equipment (note 3):
Computer and telecommunications equipment................. 214,788
Less accumulated depreciation............................. 162,679
--------
Net property and equipment............................ 52,109
--------
Total assets.......................................... $259,894
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of obligations under capital leases
(note 3)................................................ $ 14,735
Accounts payable.......................................... 2,184
Deferred revenue.......................................... 48,866
--------
Total current liabilities............................. 65,785
Long-term liabilities:
Obligations under capital leases, excluding current
installments (note 3)................................... 4,030
--------
Total liabilities..................................... 69,815
--------
Stockholders' equity:
Common stock, $1 par value; 200 shares authorized, issued
and outstanding......................................... 200
Retained earnings......................................... 189,879
--------
Total stockholders' equity............................ 190,079
--------
Total liabilities and stockholders' equity............ $259,894
========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
ALBANYNET, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Revenues.................................................... $838,807 1,140,518
-------- ---------
Operating expenses:
Connectivity and operations............................... 658,329 768,400
Sales and marketing....................................... 37,285 35,820
General and administrative................................ 7,156 25,636
Depreciation and amortization............................. 57,866 67,814
-------- ---------
Total operating expenses.............................. 760,636 897,670
-------- ---------
Operating income...................................... 78,171 242,848
Other income (expense):
Interest expense.......................................... (4,724) (3,272)
Interest income........................................... 2,507 5,369
Other income.............................................. 8,575 --
-------- ---------
Total other income.................................... 6,358 2,097
-------- ---------
Net income............................................ $ 84,529 244,945
======== =========
Net income per share--basic and diluted..................... $ 422.65 1,224.73
======== =========
Weighted average shares outstanding--basic and diluted...... 200 200
======== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ALBANYNET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
COMMON (ACCUMULATED EQUITY
STOCK DEFICIT) (DEFICIT)
-------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1996............................... $200 (39,629) (39,429)
Net income............................................... -- 84,529 84,529
---- ------- -------
Balance at December 31, 1997............................... 200 44,900 45,100
Distributions to stockholders............................ -- (99,966) (99,966)
Net income............................................... -- 244,945 244,945
---- ------- -------
Balance at December 31, 1998............................... $200 189,879 190,079
==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ALBANYNET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 84,529 244,945
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 57,866 67,814
Changes in net assets and liabilities:
Increase in accounts receivable--trade................ (29,795) (28,211)
Decrease in accounts payable.......................... (3,168) (7,236)
Increase (decrease) in deferred revenue............... 24,931 (11,666)
-------- --------
Net cash provided by operating activities........... 134,363 265,646
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (55,413) (30,014)
-------- --------
Net cash used in investing activities............... (55,413) (30,014)
-------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations........ (25,355) (30,859)
Distribution to stockholders.............................. -- (99,966)
Repayments of long-term debt.............................. (24,033) (38,149)
-------- --------
Net cash used in financing activities............... (49,388) (168,974)
-------- --------
Net increase in cash and cash equivalents........... 29,562 66,658
Cash and cash equivalents at beginning of year.............. 53,559 83,121
-------- --------
Cash and cash equivalents at end of year.................... $ 83,121 149,779
======== ========
Supplemental cash flow information:
Non-cash financing activities:
Capital lease obligations of $35,808 and $13,829 were incurred in 1997 and
1998, respectively.
Interest paid was $4,724 and $3,272 in 1997 and 1998, respectively.
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ALBANYNET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
AlbanyNet, Inc. ("AlbanyNet") was incorporated in 1996. AlbanyNet is a
provider of Internet access and offers a broad spectrum of Internet access
services to both individual and business customers ranging from dial-up services
to continuous access services using dedicated telephone connections and Web
hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(b) REVENUE RECOGNITION
AlbanyNet recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(c) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, AlbanyNet considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. AlbanyNet leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(e) INCOME TAXES
As a subchapter S corporation, AlbanyNet's income is taxed at the
stockholder level, therefore except for certain local business income taxes, no
income tax provision has been included in the financial statements.
(f) ADVERTISING COSTS
AlbanyNet incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $36,635 and $28,894 for the years ended December 31, 1997 and
1998, respectively.
F-6
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(h) EARNINGS PER SHARE
AlbanyNet adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) LEASES
AlbanyNet leases certain equipment under capital lease agreements that
expire at various dates through August 2000. At December 31, 1998, the gross
amount of equipment and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment................... $77,062
Less accumulated amortization............................... 57,832
-------
$19,230
=======
</TABLE>
AlbanyNet has several operating leases for office space and office
equipment, with expiration dates through July 2000. Rental expense for operating
leases during 1997 and 1998 was $7,200 and $10,225, respectively.
Future minimum lease payments under capital and operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDED DECEMBER 31: LEASES LEASES
- - ----------------------- -------- ---------
<S> <C> <C>
1999............................................. $15,753 17,506
2000............................................. 4,183 5,253
------- ------
Total minimum lease payment...................... 19,936 22,759
======
Less amount representing interest (at 10%)....... 1,171
-------
Present value of minimum capital lease
payments....................................... 18,765
Less current installments of obligations under
capital leases................................. 14,735
-------
Obligations under capital leases, excluding
current installments........................... $ 4,030
=======
</TABLE>
F-7
<PAGE>
(4) COMMITMENTS
AlbanyNet has entered into several contracts with vendors that provide
certain telephone related line access services and advertising. Following are
the commitments for each of the five years subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999................................................ $ 72,161
2000................................................ 71,160
2001................................................ 71,160
2002................................................ 5,160
2003................................................ 5,160
Thereafter.......................................... 6,020
--------
Total............................................. $230,821
========
</TABLE>
(5) SUBSEQUENT EVENT (UNAUDITED)
AlbanyNet's stockholders have entered into a merger and stock purchase
agreement whereby they will sell all of the shares in the Company to
BiznessOnline.com, Inc. (the acquirer) for cash concurrent with the consummation
of the initial public offering ("IPO") of the common stock of the acquirer. Upon
consummation of the offering, the acquirer will become the sole stockholder of
AlbanyNet. Subsequent to the acquisition, AlbanyNet will be merged into a
subsidiary of the acquirer.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Borg Internet Services, Inc.:
We have audited the accompanying balance sheet of Borg Internet
Services, Inc. (Borg) as of December 31, 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the two-year period then ended. These financial statements are the
responsibility of Borg's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Borg Internet
Services, Inc. as of December 31, 1998, and the results of its operations and
its cash flows for each of the years in the two-year period then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 22, 1999
F-9
<PAGE>
BORG INTERNET SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 25,189
Accounts receivable, net of allowance for doubtful
accounts of $20,000..................................... 65,819
Deferred tax asset........................................ 13,658
Other current assets...................................... 3,349
--------
Total current assets.................................. 108,015
--------
Property and equipment, net (notes 3 and 4)................. 197,532
Goodwill, net of amortization of $64,601.................... 43,067
--------
Total assets.......................................... $348,614
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (note 5).................................... $ 37,581
Current installments of obligations under capital leases
(note 4)................................................ 48,004
Accounts payable.......................................... 13,156
Income taxes payable...................................... 24,799
Accrued expenses.......................................... 57,654
Deferred revenue.......................................... 119,095
--------
Total current liabilities............................. 300,289
Long-term liabilities:
Obligations under capital leases, excluding current
installments (note 4)................................... 78,608
--------
Total liabilities..................................... 378,897
--------
Stockholders' equity (deficit):
Common stock, $.01 par value; 25,000 shares authorized, 3
shares issued and outstanding........................... 1
Additional paid-in capital................................ 299
Accumulated deficit....................................... (30,583)
--------
Total stockholders' equity (deficit).................. (30,283)
--------
Total liabilities and stockholders' equity
(deficit)............................................ $348,614
========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Revenues.................................................... $ 505,970 832,734
--------- ---------
Operating expenses:
Connectivity and operations............................... 319,127 601,890
Sales and marketing....................................... 35,046 90,687
General and administrative................................ 29,932 45,338
Depreciation and amortization............................. 86,443 124,115
--------- ---------
Total operating expenses.............................. 470,548 862,030
--------- ---------
Operating income (loss)............................... 35,422 (29,296)
Interest expense............................................ (4,467) (11,717)
--------- ---------
Income (loss) before taxes............................ 30,955 (41,013)
Income taxes (benefit) (note 6)............................. 12,383 (12,056)
--------- ---------
Net income (loss)..................................... $ 18,572 (28,957)
========= =========
Net income (loss) per share--basic and diluted.............. $6,190.67 (9,652.33)
========= =========
Weighted average shares outstanding--basic and diluted...... 3 3
========= =========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
-------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996...................... $ 1 299 (20,198) (19,898)
Net income...................................... -- -- 18,572 18,572
---- --- ------- -------
Balance at December 31, 1997...................... 1 299 (1,626) (1,326)
Net loss........................................ -- -- (28,957) (28,957)
---- --- ------- -------
Balance at December 31, 1998...................... $ 1 299 (30,583) (30,283)
==== === ======= =======
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
BORG INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 18,572 (28,957)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 86,443 124,115
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade..... (60,930) 8,916
Decrease (increase) in other current assets........... (4,264) 917
Increase (decrease) in accounts payable............... 34,646 (37,053)
Increase (decrease) in income taxes payable........... 23,090 (1,349)
Increase in deferred taxes, net....................... (10,707) (10,707)
Increase (decrease) in accrued expenses............... 11,517 (18,745)
Increase in deferred revenue.......................... 22,174 57,968
--------- -------
Net cash provided by operating activities........... 120,541 95,105
--------- -------
Cash flows from investing activities:
Capital expenditures...................................... (111,652) (53,553)
--------- -------
Net cash used in investing activities............... (111,652) (53,553)
--------- -------
Cash flows from financing activities:
Principal payments under capital lease obligations........ -- (15,727)
Repayments of long-term debt.............................. (12,000) (12,000)
--------- -------
Net cash used in financing activities............... (12,000) (27,727)
--------- -------
Net increase (decrease) in cash..................... (3,111) 13,825
Cash at beginning of year................................... 14,475 11,364
--------- -------
Cash at end of year......................................... $ 11,364 25,189
========= =======
Supplemental cash flow information:
Non-cash financing activities:
Capital lease obligations of $142,339 were incurred in
1998.
Interest paid was $0 in 1997 and $4,039 in 1998.
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
BORG INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Borg Internet Services, Inc. ("Borg") was incorporated in 1995. Borg is a
provider of Internet access and offers a broad spectrum of Internet access
services to both individual and business customers ranging from dial-up services
to continuous access services using dedicated telephone connections and Web
hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(B) REVENUE RECOGNITION
Borg recognizes revenue when services are provided. Services are generally
billed in advance. Advance billings are recorded as deferred revenue and
recognized as revenue when earned over the period of service.
(C) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Borg considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Borg leases certain of its data communications and other equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments or the fair value of the assets under the lease. Assets under capital
lease are depreciated over the shorter of their estimated useful lives or the
lease term.
(E) GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, which is five years. Borg assesses the recoverability
of this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting Borg's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
F-14
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(G) ADVERTISING COSTS
Borg incurs advertising costs associated with the marketing of its services.
These costs of advertising are expensed as incurred. Advertising expense totaled
$21,641 and $49,559 for the years ended December 31, 1997 and 1998,
respectively.
(H) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(I) EARNINGS PER SHARE
Borg adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer and telecommunications equipment................... $394,082
Office equipment............................................ 2,824
--------
Property and equipment...................................... 396,906
Less accumulated depreciation and amortization.............. 199,374
--------
Net property and equipment.................................. $197,532
========
</TABLE>
F-15
<PAGE>
(4) LEASES
Borg leases certain equipment under capital lease agreements that expire at
various dates through August 2001. At December 31, 1998, the gross amount of
equipment and related accumulated amortization recorded under capital leases
were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment................... $142,339
Less accumulated amortization............................... 17,726
--------
$124,613
========
</TABLE>
Borg has one operating lease for office space and office equipment on a
month to month basis. Rental expense for operating leases during 1997 and 1998
was $9,954 and $12,974, respectively.
Future minimum lease payments under capital leases as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDED DECEMBER 31: LEASES
- - ----------------------- --------
<S> <C>
1999................................................ $58,504
2000................................................ 53,883
2001................................................ 31,488
-------
Total minimum lease payments........................ 143,875
Less amounts representing interest (at 10%)......... 17,263
-------
Present value of minimum capital lease payments..... 126,612
Less current installments of obligations under
capital leases.................................... 48,004
-------
Obligations under capital leases, excluding current
installments...................................... $78,608
=======
</TABLE>
(5) NOTES PAYABLE
The notes payable are due to related parties. The notes bear interest at 10%
and are due and payable.
(6) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997 and 1998,
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
1997:
Federal........................................ $17,287 (8,000) 9,287
State.......................................... 5,803 (2,707) 3,096
------- ------- -------
$23,090 (10,707) 12,383
======= ======= =======
1998:
Federal........................................ $(1,000) (8,000) (9,000)
State.......................................... (349) (2,707) (3,056)
------- ------- -------
$(1,349) (10,707) (12,056)
======= ======= =======
</TABLE>
Income tax expense (benefit) amounted to $12,383 for 1997 (an effective rate
of 40%) and $(12,056) for 1998 (an effective rate of 29%). The actual expense
(benefit) for both 1997 and 1998 differs from the
F-16
<PAGE>
(6) INCOME TAXES (CONTINUED)
"expected" tax expense (benefit) for those years (computed by applying the U.S.
federal corporate income tax rate of 34% to income (loss) before income taxes)
as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computed "expected" tax expense (benefit)................. $10,525 (13,944)
Increase in income taxes resulting from:
State income taxes, net of federal income tax
benefit............................................. 2,403 (2,017)
Other................................................. (185) 3,905
------- -------
$12,383 (12,056)
======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Goodwill................................................. $ -- 5,658
Bad debt reserve......................................... 4,000 8,000
------- ------
Gross deferred tax asset............................. 4,000 13,658
------- ------
Deferred tax liability:
Goodwill................................................. (1,049) --
------- ------
Gross deferred tax liabilities....................... (1,049) --
------- ------
Net deferred tax asset............................... $ 2,951 13,658
======= ======
</TABLE>
Management has concluded that it is more likely than not that Borg will have
sufficient taxable income of an appropriate character within the carryback and
carryforward period permitted by current tax law to allow for the utilization of
the deductible amounts generating the deferred tax asset.
(7) COMMITMENTS
Borg has entered into contracts with two vendors who provide certain
telephone related line access services. The contracts expire in April 1999, the
commitment for 1999 is $14,419.
(8) SUBSEQUENT EVENT (UNAUDITED)
Borg's stockholders have entered into a merger agreement whereby they will
exchange all of the shares in the Company to BiznessOnline. Com, Inc. (acquirer)
in exchange for cash and shares of common stock of the acquirer concurrent with
the consummation of the initial public offering ("IPO") of the common stock of
the acquirer. Upon consummation of the offering, the acquirer will become the
sole stockholder of Borg. Subsequent to the acquisition, Borg will merge into a
subsidiary of the acquirer.
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Caravela Software, Inc.:
We have audited the accompanying balance sheet of Caravela Software, Inc.
(Caravela) as of December 31, 1998 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of Caravela's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Caravela Software, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
each of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
February 2, 1999
F-18
<PAGE>
CARAVELA SOFTWARE, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 30,760
Accounts receivable, net of allowance for doubtful
accounts of $43,259..................................... 189,643
Deferred tax asset........................................ 94,745
--------
Total current assets.................................. 315,148
--------
Property and equipment, net (note 3)........................ 234,923
Organizational costs, net of amortization of $611........... 57
--------
Total assets.......................................... $550,128
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholders (note 7)..................... $ 58,969
Current portion of long-term debt (note 6)................ 71,009
Line of credit (note 5)................................... 50,000
Accounts payable.......................................... 55,133
Accrued expenses.......................................... 23,657
Income tax payable........................................ 7,925
Deferred taxes (note 8)................................... 93,162
Deferred revenue.......................................... 115,436
--------
Total current liabilities............................. 475,291
Long-term liabilities:
Long-term debt (note 6)................................... 6,816
--------
Total liabilities..................................... 482,107
--------
Stockholders' equity:
Common stock, $10 par value; 5,000 shares authorized, 100
shares issued and outstanding........................... 1,000
Retained earnings......................................... 67,021
--------
Total stockholders' equity............................ 68,021
--------
Total liabilities and stockholders' equity............ $550,128
========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Revenues.................................................... $1,516,112 1,879,410
---------- ---------
Operating expenses:
Connectivity and operations............................... 1,328,076 1,520,192
Sales and marketing....................................... 73,455 151,261
General and administrative................................ 79,489 5,500
Depreciation and amortization............................. 118,485 117,146
---------- ---------
Total operating expenses.............................. 1,599,505 1,794,099
---------- ---------
Operating income (loss)............................... (83,393) 85,311
---------- ---------
Other income (expense):
Loss on disposal of equipment............................. -- (78,993)
Interest expense.......................................... (9,453) (21,406)
Other income.............................................. 267 11,092
---------- ---------
Total other income (expense).......................... (9,186) (89,307)
---------- ---------
Loss before income taxes.............................. (92,579) (3,996)
Income tax benefit (note 8)................................. 37,031 1,598
---------- ---------
Net income (loss)..................................... $ (55,548) (2,398)
========== =========
Net income (loss) per share--basic and diluted.............. $ (555.48) (23.98)
========== =========
Weighted average shares outstanding--basic and diluted...... 100 100
========== =========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
-------- -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................................ $1,000 124,967 125,967
Net loss.................................................. -- (55,548) (55,548)
------ ------- -------
Balance at December 31, 1997................................ 1,000 69,419 70,419
Net loss.................................................. -- (2,398) (2,398)
------ ------- -------
Balance at December 31, 1998................................ $1,000 67,021 68,021
====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
CARAVELA SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (55,548) (2,398)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 118,485 117,146
Loss on disposal of equipment........................... -- 78,993
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade..... 81,230 (52,390)
Decrease in other current assets...................... -- 1,000
Increase (decrease) in accounts payable............... 79,278 (31,019)
Increase (decrease) in income tax payable............. 26,103 (18,178)
Increase (decrease) in deferred taxes................. (76,782) 15,897
Decrease in accrued expenses.......................... (49,085) (6,658)
Increase in deferred revenue.......................... 27,954 34,491
--------- --------
Net cash provided by operating activities........... 151,635 136,884
--------- --------
Cash flows from investing activities:
Proceeds from disposal of equipment....................... -- 6,952
Capital expenditures...................................... (182,737) (151,929)
--------- --------
Net cash used in investing activities............... (182,737) (144,977)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.................. 85,009 107,430
Principal payments under capital lease obligations........ (13,365) (14,555)
Repayments of long-term debt.............................. (19,605) (75,000)
--------- --------
Net cash provided by financing activities........... 52,039 17,875
--------- --------
Net increase in cash................................ 20,937 9,782
Cash at beginning of year................................... 41 20,978
--------- --------
Cash at end of year......................................... $ 20,978 30,760
========= ========
Supplemental cash flow information:
Interest of $9,722 and $20,415 was paid in 1997 and 1998,
respectively.
Income taxes of $8,000 and $0 were paid in 1997 and 1998,
respectively.
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
CARAVELA SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Caravela Software, Inc. ("Caravela") was incorporated in 1994 and operates
under the name Connix. Caravela is a provider of Internet access and offers a
broad spectrum of Internet access services to both individual and business
customers ranging from dial-up services to continuous access services using
dedicated telephone connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(B) REVENUE RECOGNITION
Caravela recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(C) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Caravela considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Caravela leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(E) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. For income tax reporting purposes, Caravela is on the cash
method of accounting.
F-23
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) ADVERTISING COSTS
Caravela incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $49,416 and $96,804 for the years ended December 31, 1997 and
1998, respectively.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(H) EARNINGS PER SHARE
Caravela adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Computer, telecommunications and office equipment........... $450,692
Less accumulated depreciation............................... 215,769
--------
Net property and equipment.................................. $234,923
========
</TABLE>
(4) LEASES
Caravela has two operating leases for office space on a month-to-month
basis. Caravela also had three capital leases for office equipment which were
paid in full during 1998. Rental expense for operating leases during 1997 and
1998 was $39,154 and $32,280, respectively.
(5) LINE OF CREDIT
At December 31, 1998, Caravela maintained a $50,000 Revolving Line of Credit
with a bank. The Revolving Line of Credit bears interest at prime plus 2% (prime
rate was 7.75% at December 31, 1998) and is payable on demand.
F-24
<PAGE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1998 consists of the following:
<TABLE>
<S> <C>
9% note payable to bank in monthly installments of $3,426,
including interest, due February 2000, secured by the
personal guarantee of the stockholders and certain
property and equipment owned by Caravela.................. $45,415
9.25% note payable to bank in monthly installments of $3,435
per month, including interest, due November 1999 secured
by the personal guarantee of the stockholders and certain
property and equipment owned by Caravela.................. 32,410
-------
77,825
Less current portion........................................ 71,009
-------
Long-term debt, excluding current portion................... $ 6,816
=======
</TABLE>
The aggregate maturities of long-term debt for each of the two years
subsequent to December 31, 1998 are as follows: 1999, $71,009 and 2000, $6,816.
(7) NOTE PAYABLE TO STOCKHOLDERS
The note payable is due to the stockholders of Caravela and bears interest
at 10%. The note payable will mature in 1999.
(8) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997 and 1998,
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
1997:
Federal........................................ $ 29,813 (57,587) (27,774)
State.......................................... 9,938 (19,195) (9,257)
-------- ------- -------
$ 39,751 (76,782) (37,031)
======== ======= =======
1998:
Federal........................................ $(13,121) 11,923 (1,198)
State.......................................... (4,374) 3,974 (400)
-------- ------- -------
$(17,495) 15,897 (1,598)
======== ======= =======
</TABLE>
Income tax expense (benefit) amounted to $(37,031) for 1997 (an effective
rate of 40%) and $(1,598) for 1998 (an effective rate of 40%). The actual
expense (benefit) for both 1997 and 1998 differs from the "expected" tax expense
(benefit) for those years (computed by applying the U.S. federal corporate
income tax rate of 34% to income (loss) before income taxes) as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computed "expected" tax expense (benefit)................. $(31,477) (1,359)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit... (5,554) (239)
-------- ------
$(37,031) (1,598)
======== ======
</TABLE>
F-25
<PAGE>
(8) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1998 are presented below:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts payable....................................... $ 34,460 22,053
Accrued expenses....................................... 5,544 9,214
Bad debt reserve....................................... 24,000 17,304
Deferred revenue....................................... 32,378 46,174
-------- -------
Gross deferred tax asset........................... 96,382 94,745
-------- -------
Deferred tax liability:
Accounts receivable.................................... (78,902) (93,162)
-------- -------
Gross deferred tax liabilities..................... (78,902) (93,162)
-------- -------
Net deferred tax asset............................. $ 17,480 1,583
======== =======
</TABLE>
Management has concluded that it is more likely than not that Caravela will
have sufficient taxable income of an appropriate character within the carryback
and carryforward period permitted by current tax law to allow for the
utilization of the deductible amounts generating the deferred tax asset.
(9) DEFINED CONTRIBUTION PLAN
Caravela sponsors a 401(k) Plan for all employees meeting certain
eligibility requirements. Caravela contributes 35% of the employees'
contribution, up to 6% of each employee's eligible compensation. The employer
matching contribution was $5,436 and $9,487 in 1997 and 1998, respectively. In
addition the plan provides for a voluntary annual profit sharing contribution.
Caravela contributed $12,798 in 1997 and $0 in 1998.
(10) COMMITMENTS
Caravela has entered into several contracts with vendors that provide
certain telephone related line access services with various expiration dates.
Following are the commitments for each of the two years subsequent to
December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $32,840
2000........................................................ 23,200
-------
Total................................................... $56,040
=======
</TABLE>
(11) SUBSEQUENT EVENT (UNAUDITED)
Caravela's stockholders have entered into a merger agreement whereby they
will exchange all of the shares in the Company to BiznessOnline.com, Inc. (the
acquirer) in exchange for cash and shares of common stock of the acquirer
concurrent with the consummation of the initial public offering ("IPO") of the
common stock of the acquirer. Upon consummation of the offering, the acquirer
will become the sole stockholder of Caravela. Subsequent to the acquisition,
Caravela will merge into a subsidiary of the acquirer.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Global 2000 Communications, Inc.:
We have audited the accompanying balance sheet of Global 2000
Communications, Inc. (Global 2000) as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for each of the years
in the two-year period then ended. These financial statements are the
responsibility of Global 2000 management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global 2000
Communications, Inc. as of December 31, 1998, and the results of its operations
and its cash flows for each of the years in the two-year period then ended in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 31, 1999
F-27
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $260,131
Accounts receivable--trade, net of allowance for doubtful
accounts of $18,000..................................... 114,952
--------
Total current assets.................................. 375,083
--------
Property and equipment, net (note 3)........................ 243,035
Other assets, net........................................... 4,418
--------
Total assets.......................................... $622,536
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 6)............. $ 7,288
Obligations under capital lease (note 4).................. 3,846
Accrued expenses.......................................... 64,615
Deferred revenue.......................................... 258,268
--------
Total current liabilities............................. 334,017
Long-term liabilities:
Long-term debt, excluding current maturities (note 6)..... 96,496
--------
Total liabilities..................................... 430,513
--------
Stockholders' equity:
Common stock, no par value; 200 shares authorized, issued
and outstanding 27,500
Retained earnings......................................... 164,523
--------
Total stockholders' equity............................ 192,023
--------
Total liabilities and stockholders' equity............ $622,536
========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
---------- ---------
<S> <C> <C>
Revenues.................................................... $1,108,980 1,738,613
---------- ---------
Operating expenses:
Connectivity and operations (note 5)...................... 809,374 927,769
Sales and marketing....................................... 71,513 366,229
General and administrative (note 7)....................... 76,640 114,105
Depreciation and amortization............................. 43,690 58,672
---------- ---------
Total operating expenses.............................. 1,001,217 1,466,775
---------- ---------
Operating income...................................... 107,763 271,838
Other income (expense), net:
Interest and other income................................. 2,836 2,938
Loss on disposal of equipment............................. (10,338) (21,431)
Interest expense.......................................... (14,375) (13,573)
---------- ---------
Total other income (expense), net..................... (21,877) (32,066)
---------- ---------
Net income............................................ $ 85,886 239,772
========== =========
Net income per share--basic and diluted..................... $ 429.43 1,198.86
========== =========
Weighted average shares outstanding--basic and diluted...... 200 200
========== =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
-------- -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................................ $27,500 25,865 53,365
Distributions to shareholders............................. -- (81,000) (81,000)
Net income................................................ -- 85,886 85,886
------- -------- --------
Balance at December 31, 1997................................ 27,500 30,751 58,251
Distributions to shareholders............................. -- (106,000) (106,000)
Net income................................................ -- 239,772 239,772
------- -------- --------
Balance at December 31, 1998................................ $27,500 164,523 192,023
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 85,886 239,772
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 43,690 58,672
Net realized loss (gain) on investment.................. (694) 1,535
Loss on disposal of property and equipment.............. 10,338 21,431
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable--trade..... (64,271) 12,488
Increase in other assets.............................. (1,360) (1,988)
Decrease in trade accounts payable.................... (9,964) (75)
Increase (decrease) in accrued expenses............... 39,807 (5,110)
Increase in deferred revenue.......................... 70,790 41,014
--------- --------
Net cash provided by operating activities........... 174,222 367,739
--------- --------
Cash flows from investing activities:
Proceeds from sale of investments......................... 36,384 25,614
Acquisition of property and equipment..................... (38,147) (103,938)
Proceeds from disposal of fixed assets.................... 13,800 --
Purchases of investments.................................. (52,174) (10,656)
--------- --------
Net cash used in investing activities................. (40,137) (88,980)
--------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations........ (8,049) (10,090)
Distributions to shareholders............................. (81,000) (106,000)
Repayments of long-term debt.............................. (23,078) (7,288)
--------- --------
Net cash used in financing activities............... (112,127) (123,378)
--------- --------
Net increase in cash and cash equivalents........... 21,958 155,381
Cash and cash equivalents at beginning of year.............. 82,792 104,750
--------- --------
Cash and cash equivalents at end of year.................... $ 104,750 260,131
========= ========
Supplemental disclosures of cash flow information:
Interest of $14,375 and $13,573 was paid in 1997 and 1998,
respectively.
Global 2000 incurred a capital lease obligation of $17,000
in connection with an acquisition of equipment in 1997.
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
GLOBAL 2000 COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Global 2000 Communications, Inc. ("Global 2000") was incorporated in New
York State in 1994. Global 2000 is a regional provider of Internet access and
offers a broad spectrum of Internet access services to both individual and
business customers ranging from dial-up services to continuous access services
using dedicated telephone connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts, that
affect the amounts reported in the financial statements. Actual results may
differ from those estimates.
(B) REVENUE RECOGNITION
Global 2000 recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the period of service.
(C) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Global 2000 considers all
highly liquid investments purchased with original maturity of three months or
less to be cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for
using the straight line method over the estimated useful lives of the assets.
The estimated useful lives of the assets range from three to forty years. Global
2000 leases certain of its computer and telecommunications equipment under
capital lease agreements. The assets and liabilities under capital leases are
recorded at the lesser of the present value of aggregate future minimum lease
payments or the fair value of the assets under the lease. Assets under capital
lease are depreciated over shorter of their useful life or the lease term.
(E) INCOME TAXES
As a subchapter S corporation, Global 2000's income is taxed at the
stockholder level, except for certain business income taxes, therefore, no
income tax provision has been included in the financial statements.
(F) ADVERTISING COSTS
Global 2000 incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $71,513 and $366,229 for the years ended December 31, 1997 and
1998, respectively.
F-32
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets.
(H) EARNINGS PER SHARE
Global 2000 adopted the provisions of SFAS No. 128, "Earnings per Share," on
January 1, 1998. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998
<TABLE>
<S> <C>
Computer, telecommunications and office equipment........... $238,153
Software.................................................... 9,730
Leasehold Improvements...................................... 100,361
--------
348,244
Less accumulated depreciation............................... 105,209
--------
Property and equipment, net................................. $243,035
========
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998 was
$43,650 and $58,672, respectively. Estimated useful lives used in the
calculation of depreciation by major category of property and equipment are as
follows:
<TABLE>
<S> <C>
Computer, telecommunications and office equipment........... 3-7 years
Software.................................................... 3 years
Leasehold improvements...................................... 30-40 years
</TABLE>
(4) LEASES
Global 2000 leases computer and telecommunications equipment under a capital
lease agreement that is due to expire on May 1, 1999. At December 31, 1998, the
gross amount of equipment under capital leases was $17,000 with accumulated
amortization of $13,460. Amortization of assets held under capital lease is
included with depreciation expense.
Global 2000 also has several operating leases, primarily for office
equipment, with expiration dates through July 1, 2000. See note 5 for
information regarding rental of office space.
F-33
<PAGE>
(4) LEASES (CONTINUED)
Future minimum lease payments under operating leases with initial or
remaining noncancellable lease terms in excess of one year as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDED DECEMBER 31: LEASES
- - ----------------------- ---------
<S> <C>
1999................................................ $30,150
2000................................................ 8,775
-------
Total minimum lease payments........................ $38,925
=======
</TABLE>
(5) RELATED PARTY TRANSACTIONS
Global 2000 rents office space from two of its primary shareholders on a
month-to-month basis. Rent expense in 1997 and 1998 was $6,000 and $21,000,
respectively.
(6) NOTE PAYABLE
The note payable is owed to a financial institution. The note bears interest
equal to the financial institution's base rate plus 2% per annum and is payable
in monthly installments of $1,483, including interest through June 1, 2001, when
payment will be made for the entire unpaid principal balance and any accrued
interest. Maturities for the next three years are as follows: 1999--$7,288;
2000--$8,050 and 2001--$88,446.
(7) RETIREMENT PLAN
Employees of Global 2000 with at least three years of service are included,
on a voluntary basis, in a contributory defined contribution pension plan
administered by Global 2000. The plan is a single-employer pension plan.
Contributions by Global 2000 totaled $39,648 and $53,535 for 1997 and 1998,
respectively.
(8) COMMITMENTS
Global 2000 has entered into several contracts with vendors that provide
certain telephone related line access services with various expiration dates.
Following are the commitments for each of the two years subsequent to
December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 68,632
2000........................................................ 64,632
--------
Total................................................... $133,264
========
</TABLE>
(9) SUBSEQUENT EVENT
Global 2000 was acquired by BiznessOnline.com, Inc. (the acquirer) on
January 31, 1999 in exchange for a note of $580,000 payable at the Initial
Public Offering (IPO) of the acquirer and $2,720,000 payable in shares of common
stock of the acquirer subject to adjustment at the IPO closing based on the IPO
price per share. Upon consummation of the agreement, the acquirer became the
sole stockholder of Global 2000. Subsequent to the acquisition, Global 2000 was
merged into a subsidiary of the acquirer.
F-34
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Ulsternet, Inc.:
We have audited the accompanying balance sheet of Ulsternet, Inc.
(Ulsternet) as of December 31, 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
two-year period then ended. These financial statements are the responsibility of
Ulsternet's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ulsternet, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for each
of the years in the two-year period then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Providence, Rhode Island
January 25, 1999
F-35
<PAGE>
ULSTERNET, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,258
Accounts receivable, net of allowance for doubtful
accounts of $3,000...................................... 5,530
Prepaid expenses.......................................... 4,971
--------
Total current assets.................................. 11,759
--------
Property and equipment, net (note 3)
Computer and telecommunications equipment................. 220,984
Less accumulated depreciation............................. 144,526
--------
Net property and equipment............................ 76,458
--------
Total assets.......................................... $ 88,217
========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt (note 4)............. $ 8,905
Current installments of obligations under capital leases
(note 3)................................................ 27,698
Accounts payable.......................................... 12,843
Accrued expenses.......................................... 710
Deferred revenue.......................................... 105,358
--------
Total current liabilities............................. 155,514
Long-term liabilities:
Long-term debt, excluding current maturities (note 4)..... 11,271
Obligations under capital leases, excluding current
installments (note 3)................................... 13,934
--------
Total liabilities..................................... 180,719
--------
Stockholders' equity (deficit) (note 5):
Common stock, no par value; 200 shares authorized, 94
shares issued and outstanding........................... 10,200
Accumulated deficit....................................... (102,702)
--------
Total stockholders' deficit........................... (92,502)
--------
Total liabilities and stockholders' deficit........... $ 88,217
========
</TABLE>
See accompanying notes to financial statements
F-36
<PAGE>
ULSTERNET, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $318,630 604,419
-------- -------
Operating expenses:
Connectivity and operations............................... 290,309 491,327
Sales and marketing....................................... 4,377 6,136
General and administrative................................ 2,536 15,336
Depreciation and amortization............................. 39,224 58,231
-------- -------
Total operating expenses.............................. 336,446 571,030
-------- -------
Operating income (loss)............................... (17,816) 33,389
Interest expense............................................ (8,480) (9,784)
-------- -------
Net income (loss)..................................... $(26,296) 23,605
======== =======
Net income (loss) per share--basic and diluted.............. $(279.74) 251.12
======== =======
Weighted average shares outstanding--basic and diluted...... 94 94
======== =======
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
ULSTERNET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON ACCUMULATED EQUITY
STOCK DEFICIT (DEFICIT)
-------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996................................ $ -- -- --
Capital Contributions..................................... 10,200 -- 10,200
Distributions............................................. -- (54,688) (54,688)
Net loss.................................................. -- (26,296) (26,296)
------- -------- -------
Balance at December 31, 1997................................ 10,200 (80,984) (70,784)
Distributions............................................. -- (45,323) (45,323)
Net income................................................ -- 23,605 23,605
------- -------- -------
Balance at December 31, 1998................................ $10,200 (102,702) (92,502)
======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
ULSTERNET, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(26,296) 23,605
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 39,224 58,231
Changes in net assets and liabilities:
Decrease (increase) in accounts receivable............ (6,645) 1,115
Increase in prepaid expenses.......................... -- (4,971)
Increase in accounts payable.......................... 7,413 5,430
Increase in accrued expenses.......................... 325 385
Increase in deferred revenue.......................... 82,944 22,414
-------- -------
Net cash provided by operating activities........... 96,965 106,209
-------- -------
Cash flows from investing activities:
Capital expenditures...................................... (55,344) (31,860)
-------- -------
Net cash used in investing activities............... (55,344) (31,860)
-------- -------
Cash flows from financing activities:
Capital contributions..................................... 10,200 --
Proceeds from long-term debt.............................. 40,524 --
Distributions to stockholders............................. (54,688) (45,323)
Principal payments under capital lease obligations........ (18,806) (26,271)
Repayments of long-term debt.............................. (12,298) (8,050)
-------- -------
Net cash used in financing activities............... (35,068) (79,644)
-------- -------
Net increase (decrease) in cash..................... 6,553 (5,295)
Cash at beginning of year................................... -- 6,553
-------- -------
Cash at end of year......................................... $ 6,553 1,258
======== =======
Supplemental cash flow information:
Ulsternet paid $8,480 and $9,784 in interest in 1997 and
1998, respectively.
Non-cash financing activities:
Capital lease obligations of $49,703 and $21,883 were incurred in 1997 and
1998, respectively.
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
ULSTERNET, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) NATURE OF OPERATIONS
Ulsternet, Inc. ("Ulsternet") was incorporated on November 7, 1996.
Ulsternet is a provider of Internet access and offers a broad spectrum of
Internet access services to both individual and business customers ranging from
dial-up services to continuous access services using dedicated telephone
connections and Web hosting services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, including estimates of the allowance for doubtful accounts and
provisions for sales credits, that affect the amounts reported in the financial
statements. Actual results may differ from those estimates.
(B) REVENUE RECOGNITION
Ulsternet recognizes revenue when services are provided. Services are
generally billed in advance. Advance billings are recorded as deferred revenue
and recognized as revenue when earned over the service period.
(C) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, Ulsternet considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
an accelerated method over the estimated useful lives of the assets for property
and equipment. The estimated useful lives of the assets range from three to five
years. Ulsternet leases certain of its data communications and other equipment
under capital lease agreements. The assets and liabilities under capital leases
are recorded at the lesser of the present value of aggregate future minimum
lease payments or the fair value of the assets under the lease. Assets under
capital lease are depreciated over the shorter of their estimated useful lives
or the lease term.
(E) INCOME TAXES
As a subchapter S corporation, Ulsternet's income is taxed at the
stockholder level, therefore except for certain local business income taxes, no
income tax provision has been included in the financial statements.
(F) ADVERTISING COSTS
Ulsternet incurs advertising costs associated with the marketing of its
services. These costs of advertising are expensed as incurred. Advertising
expense totaled $1,387 and $1,016 for the years ended December 31, 1997 and
1998, respectively.
F-40
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
(H) EARNINGS PER SHARE
Ulsternet adopted the provisions of SFAS No. 128, "Earnings per Share," on
December 31, 1997. This statement requires the presentation of basic and diluted
earnings per share for all periods presented. There were no common stock
equivalents outstanding for any of the periods presented; accordingly, basic and
fully diluted earnings per share are the same.
(3) LEASES
Ulsternet leases certain equipment under capital lease agreements that
expire at various dates through July 2001. At December 31, 1998, the gross
amount of equipment and related accumulated amortization recorded under capital
leases were as follows:
<TABLE>
<S> <C>
Computer and telecommunications equipment................... $91,930
Less accumulated amortization............................... 43,577
-------
$48,353
=======
</TABLE>
Ulsternet has one operating lease for office space on a month-to-month
basis. Rental expense for the operating lease during 1997 and 1998 was $3,600
and $5,100, respectively.
Future minimum lease payments under capital and operating leases as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDED DECEMBER 31: LEASES
- - ----------------------- --------
<S> <C>
1999................................................ $30,554
2000................................................ 12,974
2001................................................ 1,647
-------
Total minimum lease payment......................... 45,175
Less amount representing interest (at 10%).......... 3,543
-------
Present value of minimum capital lease payments..... 41,632
Less current installments of obligations under
capital leases.................................... 27,698
-------
Obligations under capital leases, excluding current
installments...................................... $13,934
=======
</TABLE>
F-41
<PAGE>
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Note payable to a bank in monthly installments of $430,
including interest at 10.5%, due January 2002, secured by
equipment................................................. $13,417
Note payable to a bank in monthly installments of $476,
including interest at 11%, due May 2000, secured by
personal property......................................... 6,759
-------
Total long-term debt...................................... 20,176
Less current maturities................................... 8,905
-------
Long-term debt, excluding current maturities.............. $11,271
=======
</TABLE>
Maturities for the next three years are as follows: 1999--$8,905;
2000--$6,569 and 2001--$4,702.
(5) DISTRIBUTIONS TO STOCKHOLDERS
Ulsternet is a cash-basis, subchapter S corporation for federal income tax
purposes. As such, income or loss is measured on the cash basis of accounting
for tax purposes and distributions are made based on those results. (For
financial statement purposes, Ulsternet is on the accrual method of accounting.)
The distributions made to date do not exceed Ulsternet's income tax basis and
therefore have been reflected as charges to accumulated deficit for financial
statement purposes rather than as returns of capital stock.
(6) COMMITMENTS
Ulsternet has entered into several contracts with vendors that provide
certain telephone related line access services. The contracts have various
expiration dates, through 2002. Following are the commitments for each of the
four years subsequent to December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $104,625
2000........................................................ 34,985
2001........................................................ 33,078
2002........................................................ 11,026
--------
Total................................................... $183,714
========
</TABLE>
(7) SUBSEQUENT EVENT (UNAUDITED)
Ulsternet's stockholders have entered into a merger agreement whereby they
will exchange their shares in the Company to BiznessOnline.Com, Inc. (acquirer)
in exchange for cash and shares of common stock of the acquirer concurrent with
the consummation of the initial public offering ("IPO") of the common stock of
the acquirer. Upon consummation of the offering, the acquirer will become the
sole stockholder of Ulsternet. Subsequent to the acquisition, Ulsternet will
merge into a subsidiary of the acquirer.
F-42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BIZNESSONLINE.COM, INC.
By: /s/ MARK E. MUNRO
-----------------------------------------
Mark E. Munro
CHAIRMAN OF THE BOARD AND
Date: March 29, 2000 CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Exchange act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and
/s/ MARK E. MUNRO Chief Executive Officer
------------------------------------------- (Principal Executive March 29, 2000
Mark E. Munro Officer)
Vice President and Chief
/s/ DANIEL J. SULLIVAN Financial Officer
------------------------------------------- (Principal Financial and March 29, 2000
Daniel J. Sullivan Accounting Officer)
/s/ S. KEITH LONDON
------------------------------------------- Executive Vice President March 29, 2000
S. Keith London and Director
/s/ JOHN FRASER
------------------------------------------- Director March 29, 2000
John Fraser
/s/ JOSEPH LUCIANO
------------------------------------------- Director March 29, 2000
Joseph Luciano
/s/ ROBERT BYRNE
------------------------------------------- Director March 29, 2000
Robert Byrne
/s/ DAVID CONBOY
------------------------------------------- Director March 29, 2000
David Conboy
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- - ------- ------------------------------------------------------------
<C> <S>
3.1 Certificate of Incorporation of Registrant (Filed as
Exhibit 3.1 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant (Filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form SB-2, File No. 333-73067, as
declared effective on May 11, 1999, and incorporated herein
by reference).
3.3 Certificate of Designation of Registrant (Filed as
Exhibit 3.3 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
3.4 Certificate of Amendment to Certificate of Incorporation of
Registrant (Filed as Exhibit 3.4 to the Registrant's
Registration Statement on Form SB-2, File No. 333-73067, as
declared effective on May 11, 1999, and incorporated herein
by reference).
3.5 Certificate of Amendment to Certificate of Incorporation of
Registrant (Filed as Exhibit 3.5 to the Registrant's
Registration Statement on Form SB-2, File No. 333-73067, as
declared effective on May 11, 1999, and incorporated herein
by reference).
3.6 By-Laws of Registrant (Filed as Exhibit 3.6 to the
Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
4.1 Specimen Common Stock Certificate of Registrant (Filed as
Exhibit 4.1 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.1 Merger Agreement among the Company, Insite Internet I
Acquisition Company, Global 2000 Communications, Inc.
("Global") and the shareholders of Global (Filed as
Exhibit 10.1 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.2 Merger Agreement among the Company, Insite Internet II
Acquisition Company, Borg Internet Services, Inc. ("Borg")
and the shareholders of Borg (Filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
10.3 Merger Agreement among the Company, Insite Internet IV
Acquisition Company, Ulsternet, Inc. ("Ulsternet") and the
shareholders of Ulsternet (Filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
10.4 Merger Agreement among the Company, Insite Internet V
Acquisition Company, Caravela Software, Inc. ("Caravela")
and the shareholders of Caravela (Filed as Exhibit 10.4 to
the Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
10.5 Stock Purchase Agreement among the Company and the
shareholders of AlbanyNet, Inc. (Filed as Exhibit 10.5 to
the Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
</TABLE>
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<TABLE>
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EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- - ------- ------------------------------------------------------------
<C> <S>
10.6* Employment Agreement with Mark E. Munro (Filed as
Exhibit 10.6 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.7* Employment Agreement with S. Keith London (Filed as
Exhibit 10.7 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.8* Employment Agreement with Daniel J. Sullivan (Filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.9* 1999 Stock Incentive Plan (Filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
10.10* Form of Incentive stock Option Agreement for 1999 Incentive
Stock Option Plan (Filed as Exhibit 10.10 to the
Registrant's Registration Statement on Form SB-2, File
No. 333-73067, as declared effective on May 11, 1999, and
incorporated herein by reference).
10.11* Form of Non-Qualified Stock Option Agreement for 1999 Stock
Incentive Plan (Filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form SB-2, File No. 333-73067, as
declared effective on May 11, 1999, and incorporated herein
by reference).
10.12* 1999 Non-Employee Director Stock Incentive Plan (Filed as
Exhibit 10.12 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.13* Form of Non-Qualified Stock Option Agreement for 1999
Non-Employee Director Stock Incentive Plan (Filed as
Exhibit 10.13 to the Registrant's Registration Statement on
Form SB-2, File No. 333-73067, as declared effective on
May 11, 1999, and incorporated herein by reference).
10.14 Asset Purchase Agreement among Insite Internet III
Acquisition Co., Inc., Ascent Internet Holdings, Inc. and
the stockholder of Ascent (Filed as Exhibit 10.14 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999, as filed on November 15, 1999, and
incorporated herein by reference).
10.15 Asset Purchase Agreement among the Company, Insite Internet
VI Acquisition Co., Inc., WebWay LLC and the members of
WebWay (Filed as Exhibit 10.15 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1999, as filed on November 15, 1999, and incorporated herein
by reference).
10.16 Merger Agreement among the Company, BOL Acquisition
Co. I, Inc., Infoboard, Inc. and the Stockholder of
Infoboard (Filed as Exhibit 10.16 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, as filed on November 15, 1999, and
incorporated herein by reference).
10.17 Merger Agreement among the Company, BOL Acquisition
Co. V, Inc., NECAnet, Inc., New England Computer
Associates, Inc. and the Stockholders of NECAnet and New
England Computer Associates dated December 14, 1999.
10.18 Asset Purchase Agreement among the Company, BOL Acquisition
Co. VII, Inc., Cyberzone, LLC and the members of Cyberzone
dated December 13, 1999.
</TABLE>
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<TABLE>
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EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- - ------- ------------------------------------------------------------
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10.19 Merger Agreement among the Company, BOL Acquisition
Co. X, Inc., Prime Communication Systems, Incorporated and
the Stockholders of Prime dated December 28, 1999.
10.20 Nontransferable Common Stock Purchase Warrant of the Company
in favor of The Research Works, Inc. dated October 27, 1999
10.21 Letter Agreement between the Company and Neidiger Tucker
Bruner, Inc. dated October 27, 1999
10.22* Employment Agreement with Anthony Bruno dated as of May 22,
1999, as amended by the First Amendment to Employment
Agreement, dated as of May 22, 1999.
10.23* First Amendment to Employment Agreement with Anthony Bruno,
dated as of February 1, 2000.
10.24* First Amendment to Employment Agreement with Daniel J.
Sullivan, dated as of February 1, 2000.
10.25 Merger Agreement among the Company, BOL Acquisition
Co. II, Inc., Telesupport, Inc., and the Stockholders of
Telesupport dated December 5, 1999
10.26 Asset Purchase Agreement among the Company, BOL Acquisition
Co. III, Inc., Telecon Communications, Corp. and the
stockholders of Telecon Communications, Corp. dated
December 5, 1999
10.27 Letter Agreement between the Company and Prudential
Securities Incorporated dated March 15, 2000
10.28 Credit Facility Agreement among the Company and each of its
direct and indirect Subsidiaries and MCG Finance Corporation
dated March 16, 2000
10.29 Term Loan Note of the Company and each of its direct and
indirect Subsidiaries in favor of MCG Finance Corporation
dated March 16, 2000
10.30 Master Security Agreement, Collateral Assignment and Equity
Pledge among the Company and each of its direct and indirect
Subsidiaries and MCG Finance Corporation dated March 16,
2000
10.31 Warrant Agreement between the Company and MCG Finance
Corporation dated March 16, 2000
10.32 Escrow And Account Collateral Agreement among the Company
and each of its direct and indirect Subsidiaries, Riggs
Bank, N.A. and MCG Finance Corporation dated March 16, 2000
10.33 Intellectual Property Security Agreement between the Company
and MCG Finance Corporation dated March 16, 2000
10.34 Intellectual Property Security Agreement between Caravela
Software, Inc. and MCG Finance Corporation dated March 16,
2000
10.35 Intellectual Property Security Agreement between Global 2000
Communications, Inc. and MCG Finance Corporation dated
March 16, 2000
10.36 Intellectual Property Security Agreement between
Infoboard, Inc. and MCG Finance Corporation dated
March 16, 2000
10.37 Letter Agreement between the Company and Waller Capital
Corporation dated March 17, 2000
11.1 Calculation of Earnings per share
</TABLE>
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EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
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21.1 Subsidiaries of the registrant
23.1 Consent of KPMG, LLP, Independent Auditors
27.1 Financial Data Schedule
</TABLE>
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* Management contract or compensatory plan or arrangement.
<PAGE>
Exhibit 10.17
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 14th day of December, 1999 by and among BOL
Acquisition Co. V, Inc., a Connecticut corporation ("BOL") and wholly-owned
first tier subsidiary of BiznessOnline.com, Inc., a Delaware corporation ("the
Parent"); the Parent; New England Computer Associates, Inc. ("NECA") and
NECAnet, Inc. ("NECAnet"), both Connecticut corporations, (NECA and NECAnet
sometimes collectively referred to herein as the "Company"); and Richard D.
Robarge and Leslie Robarge, the owners of all the issued and outstanding stock
of the Company (collectively the "Stockholders").
BACKGROUND
A. BOL and the Company intend to effect a merger of the Company with and into
BOL in accordance with this Agreement and the Connecticut Business Corporation
Act (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 BOL and the Company, and the Parent and the Stockholders 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 a properly executed Certificate of
Merger for the merger of the Company into BOL, conforming to the requirements of
the Connecticut Business Corporation Act (the "Merger Certificate") has been
delivered and accepted for filing by the Secretary of State Connecticut. At the
Effective Time, the Company shall be merged with and into BOL in accordance with
the
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Merger Certificate and the separate existence of the Company shall cease and
BOL shall continue as the surviving corporation (the "Surviving Corporation").
1.3 ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
THE SURVIVING CORPORATION. At the Effective Time:
(a) The Articles of Incorporation of BOL shall become the
Articles of Incorporation of the Surviving Corporation; and, subsequent to the
Effective Time, such Articles of Incorporation shall be the Articles of
Incorporation 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 Surviving Corporation's state of incorporation and
of the Articles of Incorporation 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 Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the Connecticut
Business Corporation Act (the "Act"). Except as herein specifically set forth
and as otherwise provided by the Act, 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, 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
2
<PAGE>
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.
Notwithstanding the foregoing, the Stockholders shall assume all of the
Surviving Corporation's obligations under that certain lease agreement with Gem
Chevrolet, Inc. dated on or about August 17, 1999 for the lease of a 1999
Chevrolet K1500 pick-up truck (the "Stockholders' Assumed Contract").
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of
capital stock of the Company ("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) $1,575,000 in U.S. currency delivered by check,
wire transfer or other immediately available funds, and
(2) $1,925,000 in unregistered shares of the Parent
Stock. The share certificates representing such shares (except for the "Escrow
Shares", as defined below) shall be delivered to the stockholder's counsel
within five (5) business days of the Closing Date. The actual number of shares
to be delivered hereunder shall be based on the average "NASDAQ National Market
price" of such common stock for the twenty (20) business days ending on the
ninth business day immediately preceding the Closing date. The shares of Parent
Stock delivered hereunder shall constitute "restricted securities" under the
Securities Act of 1933, as amended and be subject to the restrictions on
transfer set forth in this Agreement.
(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, the Stockholders shall deliver
certificates representing all outstanding shares of Company Stock to counsel for
BOL to hold in escrow until the Effective Time. At the Effective Time, the
Stockholders 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 $500,000 (the
"Escrow Shares") shall be delivered into escrow with the Parent's counsel (the
"Escrow Agent") for a period of twelve (12) months from the Closing Date
pursuant to the escrow agreement (the "Escrow Agreement") attached hereto as
EXHIBIT 1.6. In addition to all other rights and remedies of BOL and the
Surviving Corporation for breach by the Company or the Stockholders of the
representations and warranties of the Company and the Stockholders herein, both
at law and in
3
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equity, the Surviving Corporation shall have the right to set-off
against the Escrow Shares for any claims of 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 Stockholders shall deliver to counsel for BOL at
the Closing the certificates representing Company Stock, duly endorsed in blank
by the Stockholders or accompanied by duly executed stock powers, to hold in
escrow until the Effective Time. The Stockholders 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 BOL shall release
the certificates representing shares of Company Stock to BOL 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 Stockholders will be paid an amount in cash based on the
average NASDAQ National Market Price (as defined above) of Parent Stock as set
forth in SECTION 1.5(a)(2).
1.7 ALLOCATION. Subject to the adjustments set forth in SECTION 2,
the Merger Consideration shall be allocated as follows: Two Million Nine Hundred
Sixteen Thousand Six Hundred Seventy-Seven Dollars ($2,916,677) to NECA and Five
Hundred Eighty-Three Thousand Three Hundred Thirty-Three Dollars ($583,333) to
NECAnet.
1.8 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 but
in no event later than December 31, 1999. The actual date of the Closing is
referred to herein as the "Closing Date". At the Closing, 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 ADJUSTMENT BASED ON THE COMPANY'S CASH-ON-HAND ON
THE CLOSING DATE. On or before the Closing Date, the Company shall (i) to the
extent ascertainable, pay all accrued liabilities relating to periods prior to,
as of and including the Closing Date, and (ii) have cash-on-hand of at least
$20,000 in excess of the amount of such outstanding liabilities (the "Minimum
Cash Requirement"). In the event that the Company prepays any liability which
has not accrued as of the Closing Date, such amount would be credited to the
Minimum Cash
4
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Requirement. Within thirty (30) days after the Closing (or as soon as
practicable thereafter), the Parent shall review the records and accounts of the
Company and Surviving Corporation and prepare a statement regarding the
Company's outstanding payables and liabilities accrued as of and including the
Closing Date. The Stockholders shall provide such documentation as is reasonably
necessary to evidence payment of the same. To the extent there is a deficiency
in the Minimum Cash Requirement, the Stockholders shall pay to the Surviving
Corporation in cash, dollar-for-dollar the amount of such deficiency within ten
(10) days of the delivery the Minimum Cash Requirement statement, subject to the
dispute resolution procedure set forth in SECTION 2.3.
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 six (6) months ended December 31, 1999, are less than $700,000
on an accrual basis in accordance with generally accepted accounting principals
("GAAP"), the Merger Consideration shall be reduced by an amount equal to $5.00
for each One Dollar ($1.00) in revenue less than $700,000, and (ii) the
Surviving Corporation's aggregate audited revenues for the six (6) months ended
December 31, 1999 are greater than $700,000 on an accrual basis in accordance
with GAAP, the Merger Consideration shall be increased by an amount equal to
$5.00 for each One Dollar ($1.00) in revenue greater than $700,000. For example,
in the event the Surviving Corporation's aggregate revenues for the six (6)
months ended December 31, 1999, are $650,000, the Merger Consideration payable
to the Stockholders shall be reduced by $250,000 (i.e. the $50,000 shortfall
multiplied by 5.00). Any such adjustment shall be based on an income statement
prepared by the Surviving Corporation's accountants on or before March 31, 1999,
showing the Surviving Corporation's audited revenues for the six (6) months
ended December 31, 1999. To the extent any adjustment in the Merger
Consideration shall be required under this Section 2.2, (a) in the event of a
reduction in the Merger Consideration, the Stockholders shall pay to the
Surviving Corporation 55% of such payment in shares of Parent stock from the
Escrow Shares (provided that such action would not reduce the stock portion of
the Merger Consideration below 45% or otherwise impair the intended tax-free
reorganization structure of the Merger) and 45% of such amount in cash from the
Stockholders 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
(b) in the event of an increase in the Merger Consideration, the Surviving
Corporation shall pay the Stockholders 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 MINIMUM
CASH REQUIREMENT AND 1999 REVENUES. Notwithstanding anything in this SECTION 2
to the contrary, if the Stockholders dispute any item contained on the Minimum
Cash Requirement statement or the audited 1999 revenues of the Surviving
Corporation, the Stockholders shall notify the Surviving Corporation in writing
of each disputed item (collectively, the "Disputed Amounts"),
5
<PAGE>
and specify the amount thereof in dispute within thirty (30) business days after
the delivery of the Minimum Cash Requirement statement or the final income
statement for 1999, as the case may be. If the Surviving Corporation and the
Stockholders 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 Stockholders (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 Stockholders so that the Stockholders' aggregate share of such costs
shall bear the same proportion to the total costs that the Disputed Amounts
unsuccessfully contested by the Stockholders (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
STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material
inducement to BOL and the Parent to enter into this Agreement and consummate the
transactions contemplated hereby, the Company and the Stockholders hereby
jointly and severally make to BOL and the Parent the representations and
warranties contained in this SECTION 3.
3.2 ORGANIZATION AND QUALIFICATION OF THE COMPANY. NECA and
NECAnet are each a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut with full corporate power
and authority to own or lease the Company's properties and to conduct the
Company's 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 for the State of
Connecticut and the bylaws certified by the Secretary of the Company attached as
SCHEDULE 3.2, 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 BOL'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 Stockholders
own nor have any direct or indirect interest in or control over any corporation,
partnership, joint venture or entity of any kind (other than as an owner of less
than 2% of the outstanding common stock of a publicly held company which stock
trades on a national exchange.).
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3.4 CAPITAL STOCK. The total authorized capital stock of the
Company consists solely of the shares listed on SCHEDULE 3.4. 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 Stockholders as set forth in SCHEDULE 3.4 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 preemptive rights of any past or present
stockholders. No shares of the Company Stock are held in the treasury of the
Company. SCHEDULE 3.4 contains a complete and correct listing of the
stockholders of the Company at the date hereof, together with the number and
class of the capital stock of the Company owned by each such stockholders. 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 STOCKHOLDERS
(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 Stockholders 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 Stockholders will constitute, valid and binding obligations of the
Company, enforceable in accordance with their respective terms. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument:
(i) does not and will not violate any provision of
the Articles of Incorporation or bylaws of the Company;
(ii) to the Company's knowledge does 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 Certificate of Merger in accordance with the laws of the State of
Connecticut 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
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(iii) except as otherwise indicated on SCHEDULE 3.5
hereto, does 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 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 Stockholders have 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 them 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 Stockholders pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholders) constitutes, or when executed and delivered will constitute, valid
and binding obligations of the Stockholders enforceable in accordance with their
respective terms, subject to the terms hereof. The execution, delivery and
performance by the Stockholders of this Agreement and each such agreement,
document and instrument:
(i) do not and will not violate any provision of the
Articles of Incorporation or bylaws of the Company;
(ii) do not and will not to Stockholder's knowledge
violate any laws of the United States, or any state or other
jurisdiction applicable to the Stockholders or require the Stockholders
to obtain any approval, consent or waiver of, or to the Stockholder's
knowledge 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 Stockholders
are a party or by which the property of such Stockholders is bound or
to which the property of the Stockholders 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 3.5, 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.
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(a) REAL PROPERTY. The Company does not own and has never
owned any real property. The real property identified as 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 leased by the Company.
(i) TITLE. Except as set forth on SCHEDULE 3.6(a), to
the Company's knowledge 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 or the Company's use or occupancy of the
Real Property.
(ii) COMMISSIONS. 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 Company's use or occupancy
of the Real Property, and no such fees, commissions or other
compensation shall, by reason on any existing agreement, become due
after the date hereof.
(iii) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is not to the Company's knowledge any (i)
material defect in the physical condition of any of the Real Property,
or (ii) 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 Company's knowledge, 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.
(iv) 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, to its knowledge, 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.
(v) 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.
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(vi) 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.
(vii) ZONING. The Company has not received any notice
of any zoning violations.
(viii) SERVICE CONTRACTS. A complete list of all
material existing service, management, supply or maintenance or
equipment lease contracts and other contractual agreements which the
Company is a party to (the "Service Contracts") is set forth on
SCHEDULE 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 any of the Schedules to this Agreement, 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 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) Attached hereto as SCHEDULE 3.7 IS A DRAFT BALANCE
SHEET OF THE COMPANY DATED WITHIN FIVE (5) DAYS OF THE DATE HEREOF (THE "COMPANY
BALANCE SHEET DATE"). (b) As of the date hereof, the Company 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) reflected in Schedules furnished to
Parent hereunder on the date hereof or (ii) 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
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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 (other than current accrued
tax liability incurred in the ordinary course of Seller's business).
(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 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 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.
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(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
and any similar provisions of federal, state, local or foreign law.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company
arising prior to the date hereof and thereafter, 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 less than $10,000 of
inventory, all saleable in the ordinary course and stated in accordance with
GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
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;
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(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 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, 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 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 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 (i) through (xii)
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
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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 or used in its
respective business as presently conducted (the "Proprietary Rights") are listed
in SCHEDULE 3.13 attached hereto. Except as indicated on SCHEDULE 3.13, 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. Except as 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.
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(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;
(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);
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(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 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 is a party or by which the Company is obligated
are valid and are in full force and effect and constitute legal, valid and
binding obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor to the Company's
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 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 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 an 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, to the Company's knowledge, the Company 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 the Company
is not in such compliance with any such statute, ordinance, order, rule or
regulation.
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3.18 INSURANCE. The Company has delivered to counsel to BOL true
and correct 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: (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 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. SCHEDULE 3.18 describes any self-insurance
arrangements affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or
threatened in writing, 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 Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all
material permits, registrations, licenses, franchises, certifications and other
approvals (collectively, the "Approvals") required from Governmental Entities in
order for the Company to conduct its business. 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.
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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 organization, person or entity with whom the Company is doing business.
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, to
the knowledge of the Stockholders 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
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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 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 a 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 knowledge of the Company and the Stockholders no
Hazardous Material (as defined below) has ever been or is threatened to be
spilled, released, or disposed of at any site presently leased, or used by the
Company, or has ever come to be located in the soil or groundwater at any such
site; (iii) the Company does not to the Stockholders' knowledge 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 (iv) 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) 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
and the Stockholder's knowledge any property 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) 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) the Company nor any Company
Stockholder has 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
knowledge of the Stockholders no site 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 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.
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(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 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,
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 any customer 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 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 necessary action to assess,
evaluate 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.
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3.29 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Company and the Stockholders and the Exhibits hereto, neither
contains an untrue statement of material fact nor omits 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. Any matter disclosed
by the Company and the Stockholders in this Agreement or the Exhibits and/or
Schedules hereto shall be deemed disclosed on each other Schedule or Exhibit
where the inclusion of such item or matter may reasonably be required.
SECTION 4. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and
the Merger Effective Date, the Stockholders 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;
(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;
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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 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 except for paying the Company's outstanding debt, which debt shall
be paid in full prior to the Closing 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;
(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. Subject to the Parent's obligations
set forth in SECTION 5.2(a), the Company and the Stockholders 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
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obligations of the Company and the Stockholders 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 contracts, permits,
licenses and franchises of or applicable to the businesses of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof
the Stockholders will execute and deliver a unanimous written consent in lieu of
a meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of record
by them or over which the exercise voting control in favor of the Merger, this
Agreement and the consummation of the transactions contemplated hereby and shall
not demand appraisal or dissenter's rights in connection with the merger under
the business corporation laws of the State of Connecticut.
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 Stockholders 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 Stockholders shall neither sell, exchange, deliver,
assign, pledge, encumber nor otherwise transfer or dispose of any Company Stock
owned beneficially or of record by the Stockholders, 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 Stockholders shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders 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
Stockholders contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of the Stockholders 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) affect
the Parent's right to terminate this Agreement.
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4.8 AMENDMENT OF SCHEDULES. The Company and the Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders 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.
4.9 FURTHER ASSURANCES. The Company and the Stockholders 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;
COVENANTS OF BOL AND THE PARENT.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date
hereof, BOL and the Parent hereby jointly and severally represents and warrants
to the Stockholders and the Company as set forth in this SECTION 5.
(a) ORGANIZATION OF BOL, THE PARENT. Each of BOL and the
Parent is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation with full corporate power and
authority to conduct is businesses in the manner as now conducted and in the
places where such properties are owned or leased and where such business are
currently being conducted. BOL and Parent are duly qualified to do business as
foreign corporations in each other jurisdiction where they own, operate or lease
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 either.
(b) AUTHORITY. All necessary corporate action has been
taken by each of BOL and the Parent to authorize the execution, delivery and
performance of this Agreement and each agreement, document and instrument to be
executed and delivered by BOL and the Parent pursuant to this Agreement and to
carry out the transaction contemplated hereby and thereby. This Agreement and
each agreement, document and instrument to be executed and delivered by each of
BOL and the Parent pursuant to or contemplated by this Agreement (to the extent
it contains obligations to be performed by BOL or the Parent) constitutes, or
when executed and delivered by BOL or the Parent will constitute, valid and
binding obligations of BOL or Parent as the case may be, enforceable in
accordance with their respective terms.
(c) NO CONFLICTS. The execution, delivery and performance
by BOL and the Parent 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 BOL or the Parent; (ii) 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,
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judgment, injunction, decree, determination or arbitration award, whether
written or oral, to which BOL or the Parent is a party or by which the property
of BOL or the Parent 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 BOL or the Parent, 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
BOL or the Parent 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 BOL or the Parent, (iii) does not or will not, to BOL or the
Parent's knowledge, violate any laws of the United states, or any state or other
jurisdiction, or any state or other jurisdiction applicable to BOL or the Parent
or require BOL or the Parent 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 Certificate of Merger in accordance with the laws of the State of
Connecticut 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 BOL or the Parent.
(d) PARENT STOCK. The Parent Stock to be delivered to the
Stockholders 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. Such 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.
(e) LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against BOL or
the Parent which may have an adverse effect on the properties, assets, business,
financial condition or prospects of BOL or the Parent or which would prevent or
hinder the consummation of the transactions contemplated by this Agreement.
(f) COMPLIANCE WITH LAWS. Neither BOL nor the Parent 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 BOL or the Parent.
(g) BOL. BOL is a wholly-owned first tier subsidiary of
the Parent.
(h) DISCLOSURE. This Agreement, including the Exhibits
attached hereto and the Information Statement of the Parent dated November 30,
1999, neither contains an untrue statement of material fact nor omits to state a
material fact necessary to make the statements herein, in light of the
circumstances under which they were made, not misleading.
5.2 MAKING OF COVENANTS. BOL and the Parent covenant and agree as
set forth in this Section 5.2:
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(a) The Parent and BOL shall, if necessary, obtain any
governmental approvals of an anti-trust nature, necessary for the Parent and BOL
to fulfill their obligations hereunder to consummate the transactions
contemplated hereby.
(b) BOL and the Parent shall give prompt notice to the
Stockholders 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 BOL and the Parent contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any material failure of
BOL and the Parent 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 5.2 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 this Agreement or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
(c) BOL and the Parent 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 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BOL AND THE PARENT.
6.1 INTRODUCTION. The obligations of BOL and the Parent 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, BOL shall have had sufficient time to review the trial balance sheet of
the Company prepared by the Stockholders as of the last day of the month ended
immediately prior to the Closing Date disclosing no material change in the
financial condition of the Company since the Company Balance Sheet Date.
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 Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. BOL 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 discretion.
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6.5 OPINION OF COUNSEL. BOL shall have received an opinion from
Guarnaccia & Connors, counsel to the Company and the Stockholders, dated the
Closing Date, in form and substance satisfactory to BOL, to the effect that:
(a) each of NECAnet and NECA have been duly organized and
is validly subsisting in good standing under the laws of the State of
Connecticut.
(b) the authorized and outstanding capital stock of
NECAnet and NECA is as represented by the Stockholders 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, neither NECAnet nor
NECA has 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 NECA, NECAnet and the Stockholders and constitutes a valid and
binding agreement of such parties 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 or the
Stockholders, 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 of the State of Connecticut or
to the knowledge of such counsel of any other third party is required in
connection with the execution, delivery or consummation of this Agreement by the
Stockholders or for the merger of the Company with and into BOL;
(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 NECA or NECAnet's
Certificate of Incorporation or bylaws or of any lease, instrument, license,
permit or any other agreement to which NECA or NECAnet is a party or by which
NECA or NECAnet is/are bound; and
(h) any other matters incident to the matters set forth
herein as reasonably required by BOL.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall
have delivered to BOL a certificate dated the Closing Date, setting forth (i)
all liabilities and obligations of the
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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 .
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 (20) days prior to the Closing Date,
duly issued by the Secretary of State and the Department of Revenue of the State
of Connecticut 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 Certificate of Incorporation and all amendments
thereto duly certified by the Secretary of the State of Connecticut.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of the Company and the Stockholders 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 Stockholders 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
Stockholders on or before the Closing Date; and the Company and the Stockholders
shall have delivered to the Parent a certificate dated the Closing Date signed
by the Company's President and by the Stockholders to the foregoing effect.
6.9 APPROVALS AND CONSENTS. Excluding any approvals or consents
required to be obtained by the Parent or BOL pursuant to SECTION 5.2(a), the
Company and the Stockholders 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. 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
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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 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 Stockholders 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. Richard Robarge shall have executed and
delivered an individual employment agreement with BOL in the form attached
hereto as EXHIBIT 6.12 (the "Employment Agreement"). -
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered the Escrow Agreement.
6.14 LEASE. BOL shall have executed a lease with the landlord of
the office space currently leased by the Company in the form attached hereto as
EXHIBIT 6.14 (THE "LEASE").
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the
Stockholders 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 Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the
representations and warranties of BOL and the Parent contained in SECTION 5 and
elsewhere in this Agreement 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; BOL 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 BOL and the Parent on or
before the Closing Date; and BOL shall have delivered to the Company a
certificate signed by the President 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
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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.
7.4 EMPLOYMENT AGREEMENT. BOL shall have executed and delivered
the Employment Agreement.
7.5 ESCROW AGREEMENT. BOL shall have executed and delivered the
Escrow Agreement.
7.6 OPINION OF COUNSEL. The Company shall have received an opinion
from Duffy & Sweeney, LLP, counsel to the Parent and BOL, in form and substance
reasonably satisfactory to the Company, 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.
7.7 LEASE. BOL shall have executed the Lease.
7.8 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial position or business of the Parent or BOL shall
have occurred and the Parent and BOL shall not have suffered any material loss
or damage to a material portion of its properties or business, since the date of
this Agreement which change, loss or damage materially affects or impairs the
ability of the Parent or BOL to conduct its business.
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7.9 PROCEEDINGS SATISFACTORY TO COMPANY. All proceedings to be
taken by the Parent or BOL 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 Company shall be
reasonably satisfactory in form and substance to the Company and its counsel.
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 Stockholders hereunder, the Stockholders hereby irrevocably agrees that for
a period of (i) one (1) year after the Closing Date with respect to 100% of such
stock, and (ii) two (2) years after the Closing Date with respect to 50% of such
stock, the Stockholders 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 Stockholders agree that the foregoing shall be binding upon
the Stockholder and their respective successors, assigns, heirs, and personal
representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders
acknowledge and agree that the shares of Parent Stock to be delivered to the
Stockholders 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 Stockholders represent and
warrant that the Parent Stock to be acquired by Stockholders 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 Stockholders
covenant, warrant and represent that none of the shares of Parent Stock issued
to such Stockholders 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 AND ACCREDITED INVESTORS;
INFORMATION. Each of the Stockholders represent and warrant that he/she 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. Each
of the Stockholders represents that he/she is an "accredited investor" within
the meaning of Regulation D of Rule 504 of the Act. Each of the Stockholders
further represent and warrant that he/she (i) fully understands 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 November
30, 1999 and supplement dated December 8, 1999 (collectively, the "Information
Statement"); and (iii) have such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of
the proposed investment and therefore has the capacity to protect his or her own
interests in connection with the acquisition of the Parent Stock. The
Stockholders 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
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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 its affiliates and information
disclosed in the Information Statement. The Stockholders have asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to his satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent
Stock to be received by the Stockholders 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 CONTAINED IN SECTION 8 OF THAT CERTAIN AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION WITH THE COMPANY DATED AS OF _____________, PURSUANT TO WHICH
THE HOLDER OF THIS CERTIFICATE HAS AGREED NOT TO OFFER, PLEDGE, SELL OR
OTHERWISE TRANSFER DIRECTLY OR INDIRECTLY THE SECURITIES REPRESENTED BY THIS
CERTIFICATE UNTIL [_____________]. A COPY OF THE LOCK-UP AGREEMENT 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 BOL and
the Company;
(b) either the Stockholders and the Company, on the one
hand, or by BOL, on the other hand, if
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(i) the transactions contemplated by this Agreement
to take place at the Closing shall not have been consummated by
December 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 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. Upon the termination
of this Agreement none of the parties hereto shall have any obligation or
liability to any other party (except for obligations arising under SECTION 11
hereof) unless such termination results from the willful or intentional failure
of any party to perform any of its obligations hereunder which performance was
within such party's reasonable control at a reasonable cost. In such case,
without limiting the non-breaching party's otherwise available legal or
equitable remedies, the non-performing party shall be liable for any and all
damages 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, each of the Stockholders 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, web site design or
web hosting services, or in any related business which the Company and/or its
affiliates may engage in or actively plan to engage in from time to time during
the term of this covenant; the "Restricted Territory" means the New England
states, Delaware, Pennsylvania, Maryland, New York and New Jersey; a
"Competitive Position" means any employment with any Competitor of the Company
or self-employment whereby Stockholders will use or are likely to use any
Confidential Information (as defined below), or whereby the Stockholders have
duties for such Competitor that are the same or substantially similar to those
actually performed by Stockholders for the Company under the terms of employment
with the Surviving Corporation. Nothing contained in this SECTION 10 is intended
to prevent either Stockholder 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 either
Stockholder 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
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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 STOCKHOLDERS. The Stockholders recognize and acknowledge
that they have had in the past, currently have in the future may have access to
certain confidential information relating to the Company, the Parent and BOL,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and BOL (collectively, "Confidential Information"). The Stockholders
agree 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 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, and (b)
following the Closing, such information may be disclosed by the Stockholders as
is required in the course of performing its duties for the Surviving Corporation
unless (i) such information becomes known to the public generally through no
breach by the Stockholders 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 Stockholders shall give prior written notice thereof to
BOL and provide BOL 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 Stockholders of the provisions of this
section, BOL shall be entitled to an injunction restraining the Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting BOL 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
Stockholders shall return to BOL as soon as possible all documents containing
confidential information about the Parent.
11.2 BOL AND PARENT. BOL and Parent recognize and acknowledge that
it has in the past and currently has 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. BOL and Parent agree that, on behalf of themselves and their
affiliates, prior to the Closing, or if the transactions contemplated by this
Agreement are not consummated, they will not use or disclose such confidential
information for 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 Stockholders and to authorized representatives of
the Company, BOL or Parent who need to know such information in connection with
the transactions contemplated hereby, who have been informed of the confidential
nature of such
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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 BOL, the Parent or its affiliates 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 (iii), BOL shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iv) 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 BOL of the provisions of
this Section, the Company and the Stockholders shall be entitled to an
injunction restraining BOL from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders 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 against 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 STOCKHOLDERS. The Stockholders, on
behalf of themselves and their respective successors, executors, administrators,
estates, heirs and permitted assigns, agree subsequent to the Effective Time to
indemnify and hold harmless the Surviving Corporation and its 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, warranty, covenant
or agreement made by the Company or the Stockholders in this Agreement or in any
schedule, exhibit, certificate,
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agreement or other instrument required to be delivered by the by the
Stockholders under 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.
Claims under clause (a) of this SECTION 12.1 are hereinafter collectively
referred to as "Parent Indemnifiable Claims". The payment of any Parent
Indemnifiable Claim by the Stockholders hereunder shall be made (i) 55% in
shares of Parent Stock from the Escrow Shares to the extent available and then
from the stockholders directly, and (ii) 45% in cash or other readily available
funds. The Stockholders, indemnification obligations hereunder shall be limited
to the Merger Consideration of $3,500,000, as adjusted pursuant to SECTION 2 of
this Agreement. After payment of such amount, the Stockholders' 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 Stockholders and their 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 Stockholders,
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 $3,500,000 as adjusted pursuant to SECTION 2 of this Agreement.
After delivery of the same, the Parent's indemnification obligations hereunder
shall terminate.
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,
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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.
12.4 LIMITATIONS ON INDEMNIFICATION. Neither the Stockholders nor
the Parent shall be obligated to indemnify the other party except to the extent
the cumulative amount of losses to such party exceeds Twenty Thousand Dollars
($20,000) (the "Indemnity Threshold") whereupon the full amount of such losses
shall be recoverable in accordance with the terms hereof. Notwithstanding the
foregoing sentence, the Indemnity Threshold shall not apply to liability arising
from (i) any matter relating to the Purchase Price adjustments set forth in
Section 2, (ii) the Stockholders' Assumed Contract, (iii) fraud or (iv) the
litigation disclosed on SCHEDULE 3.16.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of Connecticut 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:
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TO BOL:
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 STOCKHOLDERS:
Richard Robarge and Leslie Robarge
3 Lorraine Circle
Storrs, Connecticut 06269
with a copy to:
Treiber, Guarnaccia & Connors
25 Church Street
P.O. Box 44
Willimantic, CT 06226
ATTN: Giacomo J. Guarnaccia, Jr., Esq.
Phone: (860) 423-6308
Fax: (860) 423-6344
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 by the
Company or the Stockholders without the prior written consent of BOL. This
Agreement and the obligations of the parties hereunder shall be binding upon and
enforceable by, and shall inure to the benefit of,
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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
forty-five (45) mile radius of Hartford, Connecticut and the arbitrator(s) shall
apply Connecticut 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, BOL shall have the absolute right to obtain
equitable remedies in any state court of competent jurisdiction in the State of
Connecticut or in a United States District Court for the Connecticut. 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.
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.
(d) "knowledge" means the actual knowledge of such party
or receipt by such party of notice or information which would have been
sufficient to put a commercially reasonable person on notice to investigate such
matter.
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.
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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 BOL, the Parent, the
Company and the Stockholders, 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 forever thereafter (subject to any applicable statutes of
limitation or repose).
<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.
WITNESS: BiznessOnline.com, Inc.
By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------
Mark E. Munro, President
WITNESS: BOL Acquisition Co. V, Inc.
By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------
Mark E. Munro, President
and Chief Executive Officer
WITNESS: New England Computer Associates, Inc.
By: /s/Richard Robarge
- - ----------------------------- -----------------------------
Richard Robarge, President
WITNESS: NECAnet, Inc.
By: /s/ Richard Robarge
- - ----------------------------- -----------------------------
Richard Robarge, President
WITNESS: STOCKHOLDERS
/s/ Richard Robarge
- - ----------------------------- --------------------------------
Richard Robarge
/s/ Leslie Robarge
- - ----------------------------- --------------------------------
Leslie Robarge
<PAGE>
Exhibit 10.18
ASSET PURCHASE AGREEMENT
INTRODUCTION
THIS ASSET PURCHASE AGREEMENT is made as of this 13th day of December,
1999 by and among BOL Acquisition Co. VII, Inc., a Connecticut corporation (the
"Buyer") and wholly-owned subsidiary of BiznessOnline.com, Inc., a Delaware
corporation (the "Parent"); the Parent; Cyberzone, LLC, a Connecticut limited
liability company (the "Seller"); and Sean Barrett and Elizabeth Kivela, 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:
"Affiliate" of an entity or person means any business entity which
controls, or is controlled by, or is under common control with such person or
entity.
"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 October 31, 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.
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"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 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 Disanto, Bertoline & Company, P.C., 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 Section 3(37).
"PBGC" means the Pension Benefit Guaranty Corporation.
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"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.
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 unless otherwise qualified herein means the understanding of the
Seller and of the Members 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 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.
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3. PURCHASE PRICE
3.1 PAYMENT. Subject to the adjustments 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 One Million Seven Hundred Fifty-Two Thousand One Hundred
Fifty Dollars ($1,752,150) payable by wire transfer to the account identified in
SCHEDULE 3.1(a);
(b) PARENT STOCK. The Buyer shall deliver to the Escrow Agent
(as defined below) One Million Seven Hundred Fifty-Two Thousand One Hundred
Fifty Dollars ($1,752,150) 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 price of the Parent Stock for the
twenty (20) business day period ending on the eighth business day immediately
preceding the Closing date.
The "average Nasdaq National Market price" for such twenty (20)
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.
(c) ESCROW. The Buyer shall, simultaneously with the Closing,
place all of the shares of Parent Stock described in SECTION 3(b) above (the
"Escrow Deposit') into escrow with the Buyer's counsel (the "Escrow Agent")
until January 10, 2001 and the shares of Parent stock representing Seven Hundred
Thousand Dollars ($700,000) (valued in accordance with SECTION 3.1(b) shall be
held in escrow until January 10, 2002) all pursuant to the escrow agreement
attached hereto as EXHIBIT 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.
(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, sales or
use 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 of,
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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 5.15; 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) Sean Barrett and (ii)
Elizabeth Kivela in the forms attached as EXHIBIT 3.1(e)(i) and EXHIBIT
3.1(e)(ii) 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 about 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 and the six (6) months 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 six (6) months ended
December 31, 1999 are less than Six Hundred Seventy-Five Thousand Dollars
($675,000), the Seller shall pay the Buyer as a reduction of the Purchase Price
paid to the Seller hereunder an amount equal to Five Dollars ($5.00) for each
One Dollar ($1.00) in revenue less than Six Hundred Seventy-Five Thousand
($675,000), and (ii) the aggregate audited revenues of the Seller for the six
(6) months ended December 31, 1999 are greater than Six Hundred Seventy-Five
Thousand Dollars ($675,000), the Purchase Price would be increased by an amount
equal to Five Dollars ($5.00) for each One Dollar ($1.00) in revenue greater
than Six Hundred Seventy-Five Thousand ($675,000). For example, in the event the
aggregate revenues of the Seller for the six (6) months ended December 31, 1999
are Six Hundred Twenty-Five Thousand Dollars ($625,000), the Purchase Price
would be reduced by Two Hundred Fifty Thousand Dollars ($250,000) (i.e. the
$50,000 shortfall multiplied by 5.00). 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 determine that any revenues of the Seller's
business during the last six (6) months of calendar year 1999 are required to be
"written off" as uncollectible ("Uncollected Revenues"), then for purposes of
the adjustment required to be made under this SECTION 3.3(a), fifty percent
(50%) of the amount of the Uncollected Revenues shall be credited toward the
Seller's revenues. Notwithstanding the foregoing
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sentence, the maximum revenue credit to the Seller based on Uncollected Revenues
shall not exceed $25,000 (i.e. in the event the Uncollected Revenues exceed
Fifty Thousand Dollars ($50,000), the Seller shall not receive any additional
credit towards such revenue calculation).
To the extent payment by the Buyer is required under this SECTION 3.3,
the Buyer shall pay to Seller 50% of the amount of such payment in cash and the
other 50% in shares of Parent Stock, which shares shall be valued at the average
Nasdaq National Market price for the twenty (20) day period prior to the date of
delivery of the final income statement. Such payment, if any, shall be made
within ten (10) days of the delivery of the final income statement.
(b) PAYABLES AND LIABILITIES. The Seller shall (i) deliver to
Buyer Twenty Thousand Dollars ($20,000) in cash at the Closing; (ii) pay all
outstanding accounts payable existing as of the Closing Date and (iii) pay, when
due, all liabilities of the Seller accrued up to and including the Closing Date.
Within forty-five (45) days of the Closing, the Buyer and/or its accountants
shall review the records of the Seller's business and to the extent that there
was a surplus or deficiency in the Minimum Cash Amount (as hereafter defined)
such amount shall be paid in cash to the respective party within ten (10) days
of determination by Buyer of the Minimum Cash Amount. For purposes hereof, the
"Minimum Cash Amount" shall mean Twenty Thousand Dollars ($20,000) in excess of
the Seller's outstanding accounts payable and liabilities accrued up to and
including the Closing Date (e.g. American Express bill, non-capital leases, cell
phone bills, etc.).
(c) ADJUSTMENT BASED ON SHORTFALL OF CERTAIN ACCOUNTS IN
CALENDAR YEAR 2000. On or about January 31, 2001, the Buyer shall review the
revenue generated in calendar year 2000 and collected by the Buyer for the
following customers of the Seller's business: Computer Solutions, Northeast
Healthcare and Lincoln National Life. In the event that individually any or all
of such accounts fail to generate the collected revenue as specified for each
such customer on SCHEDULE 3.1(d)(t), then the Seller shall make payment to Buyer
of the amount of such shortfall, if any, within five (5) business days of such
determination.
(d) DISPUTES REGARDING ADJUSTMENTS. If the Seller disputes any
item contained on the audited 1999 revenues of the Seller or any adjustment
based on subsection (b) or (c) of this SECTION 3.3, the Seller shall notify the
Buyer in writing of each disputed item (collectively, the "Disputed Amounts"),
and specify the amount thereof in dispute within thirty (30) days after the
delivery of the final income statement for 1999. If the Seller and the Buyer
cannot resolve any such dispute, then such dispute shall be resolved by an
independent nationally recognized accounting firm which is reasonably acceptable
to the Seller and the Buyer (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 the Independent Accounting Firm. Any
expenses relating to the engagement of the Independent Accounting Firm shall be
allocated between the Seller
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and the Buyer so that the Seller's aggregate share of such costs shall bear the
same proportion to the total costs that the Disputed Amounts unsuccessfully
contested by the Stockholder (as finally determined by the Independent
Accounting Firm) bear to the total of the Disputed Amounts so submitted to the
Independent Accounting Firm.
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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
December 13, 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 Connecticut with 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 or proposed to be conducted. The copies of the Articles of
Organization of the Seller as amended to date, certified by the Secretary of
State of Connecticut and the operating agreement certified by the Manager of the
Seller and heretofore delivered to the Buyer's counsel, are complete and
correct, and no amendments thereto are pending. The records of the Seller which
have heretofore been delivered to the Buyer's counsel are correct and complete.
The Seller is not required to qualify to do business as a foreign company in any
jurisdiction in which it owns, operates or leases real property nor in any 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 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, neither
the Seller nor the Members own or have any direct or indirect interest in or
control over any corporation, partnership, joint venture, proprietorship, entity
or business interest of any kind other than the ownership of less than two
percent (2%) of the issued and outstanding common stock of a publicly held
company. 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
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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, claims, and demands. 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. 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.
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. 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 of the Seller;
(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) 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 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
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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.
(i) COMMISSIONS. To the best knowledge of the
Members, 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 the Lease
described in SCHEDULE 5.5(a).
(ii) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 5.5(a), to the knowledge of the Members without any independent
investigation, (a) there is no material defect in the physical condition of any
of the Real Property, (b) 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"), and (c) 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.
(iii) UTILITIES. The Seller 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 Seller 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 Seller.
(iv) 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.
(v) GOVERNMENT APPROVALS. The Seller 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 Seller of any of the
Real Property or which would
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modify or realign any adjacent street or highway in a manner materially adverse
to the Seller.
(vi) ZONING. The Seller has not received any notice
of any zoning violations.
(vii) REAL PROPERTY TAXES. To the knowledge of the
Members without any independent investigation, except as set forth in said
SCHEDULE 5.5(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any portion
thereof, which are outstanding or unpaid.
(b) PERSONAL PROPERTY. 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 or otherwise is used in
the operation of the Seller's Business. Except as specifically disclosed in
SCHEDULE 5.5(b) or in the Financial Statements, the Seller has good and
marketable 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. 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 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 Seller, copies of which are attached hereto as
SCHEDULE 5.6: (i) Balance Sheet prepared by Seller's accountants, Disanto
Bertoline & Company, P.C.] dated December 31, 1998; and (ii) Management prepared
monthly profit and loss statements dated January 1999 through October 31, 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
respects the financial condition of the Seller 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 Seller 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
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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 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
liabilities of the Seller 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 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 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, 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 threatening to assert
against the Seller any deficiency or claim for additional taxes or a claim that
the Seller has or may be
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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
accrual 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 are not subject to setoff or
counterclaim. 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.
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.
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Since December 31, 1998, 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 prospects 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 and the write-off of a receivable of Downcity, LLC in the
amount of not more than $6,500, 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
properties of the Seller 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 Ten Thousand Dollars ($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 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; 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 or independent contractor of the Seller except for employment
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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;
(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. All of the material
patents, registered trademarks and copyrights of the Seller and all of the
material patent applications, trademark registration applications and copyright
registration applications of the Seller 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
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require the consent of any other person and (b) 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
adverse claims. The Seller 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 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 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 Seller with infringement of any adversely held patent, trade name, trademark
or copyright has been filed or is threatened to be filed.
5.13 TRADE SECRETS AND CUSTOMER LISTS. The Seller 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 Seller for the use of such trade secrets,
inventions, customer lists and secret processes are described in SCHEDULE 5.13.
The Seller 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 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 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;
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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 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;
(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)
(excluding shrink wrapped, off-the-shelf software products); 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) any partnership, joint venture, or other
similar contract, arrangement or agreement; or
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(xv) 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) To the Seller's knowledge, 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. Neither
the Seller nor any other party to any contract, agreement, lease or instrument
of the Seller is in default in complying with any provisions thereof, and to the
Seller's knowledge, 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 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 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 threatened against the
Seller which may have an adverse effect on the properties, assets, business,
financial condition or prospects 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 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 Seller 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
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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
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 its formation, the Seller has 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
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. 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. 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 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 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 prospects 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
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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 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. The Seller 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 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 or as required by
law, 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. 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 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"). No Customer has given notice to
the Seller of its
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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. Except as disclosed on SCHEDULE 5.25, the Seller has taken
all commercially reasonable 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) The Seller has never maintained or been a party to any
Employee Benefit Plan.
(b) The Seller has never contributed, or ever has been
required to contribute to any Employee Benefit Plan which is in Employee Pension
Benefit Plan.
(c) The Seller has no 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.
(d) 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 Section 4980B).
5.27 ENVIRONMENT, HEALTH, AND SAFETY.
(a) To Seller's knowledge, (without any independent
investigation) the Seller 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 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) To Seller's knowledge, (without any independent
investigation) the Seller has no 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
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that could 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.
(c) To Seller's knowledge, (without any independent
investigation) all properties and equipment used in the Seller have been free of
asbestos, PCB's, methylene chloride, trichloroethylene,
1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
5.28 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Seller, together with the other information furnished to the
Buyer by the Seller in connection herewith, do 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.
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:
(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 (including Member's
salaries) 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 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;
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(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;
(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 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
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(m) refrain from using any cash generated by the Business
other than to pay ordinary recurring expenses; 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.
6.2 CONSENTS AND APPROVALS. The Seller shall use all commercially
reasonable 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 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 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, 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
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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 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 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, 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 AND THE PARENT. As of
the date hereof, the Buyer and the Parent hereby represents and warrants to the
Seller as set forth in this SECTION 7.
7.1 ORGANIZATION OF THE BUYER. Each of Buyer and the Parent is a
corporation duly organized, validly existing and in good standing under the laws
of its respective
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state of incorporation 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 and the Parent to authorize 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. This Agreement
and each agreement, document and instrument to be executed and delivered by the
Buyer and the Parent pursuant to this Agreement constitutes, or when executed
and delivered by the Buyer and the Parent will constitute, valid and binding
obligations of the Buyer and the Parent enforceable in accordance with their
respective terms.
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: (i) does not and will not violate any provision of the Buyer or the
Parent's respective Certificate of Incorporation or bylaws; and (ii) 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 Buyer or the Parent
is a party or by which the property of the Buyer and the Parent 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 and the Parent, 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 the Parent,
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 and the Parent.
7.4 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or to the knowledge of the
Buyer or the Parent 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 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 or the Parent.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER. The
obligations of the Buyer and the Parent 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.
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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 material change in the
financial condition of the Seller 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 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 DUE DILIGENCE AND REGULATORY REVIEW. The Buyer and KPMG LLP shall
have completed to its satisfaction a due diligence investigation of the Seller
and its prospects, business, assets, contracts, rights, liabilities and
obligations, including a review of the practices and procedures of the Seller
with respect to compliance with contracts and federal, state and local laws and
regulations governing the operations of 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 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 legally existing
under the laws of the State of Connecticut.
(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 knowledge of such counsel (which knowledge may be
based on a certificate of the Members and the Seller), 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;
(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.
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(e) to the knowledge of such counsel (which knowledge may be
based on a certificate of the Members and the Seller), except to the extent set
forth on SCHEDULE 5.15, there are no claims, actions, suits or proceedings (i)
pending, or (ii) 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) no notice to, consent, authorization, approval or order of
any court or governmental agency or body or to the knowledge of such counsel
(which knowledge may be based on a certificate of the Members and the Seller) 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;
(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 knowledge of
such counsel (which knowledge may be based on a certificate of the Members and
the Seller) 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 to which counsel is able to opine.
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 LEGAL EXISTENCE CERTIFICATES; CERTIFIED COPY OF THE ARTICLES OF
ORGANIZATION. The Seller shall have delivered to the Buyer certificates, dated
as of a date no earlier than thirty (30) days prior to the Closing Date, duly
issued by the Secretary of State of Connecticut and the Department of Revenue
Services of the State of Connecticut and of any other state in which the Seller
is authorized to do business, showing that the Seller is legally existing 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 Connecticut.
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
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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. 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 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, 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.
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.
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8.12 ESCROW AGREEMENT. The Escrow Agreement shall be executed by the
Seller and the Members.
8.13 NAME CHANGE, TELEPHONE NUMBERS AND POST OFFICE BOX ADDRESSES. The
Seller will have executed and delivered all such documents for filing as may be
required to change the Company name of the Seller and any and all fictitious
business names to other name(s) bearing no similarity thereto, including but not
limited to duly executed amendments to the Articles of Organization of the
Seller. From and after the Closing Date, neither the Seller nor the Members
shall use such names or any names similar thereto, and shall sign such consents
and take such other action as the Buyer may request in order to permit the Buyer
to use the Seller's name and transfer telephone numbers and post office boxes
addresses, if any.
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
Seller 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 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 EMPLOYMENT AGREEMENTS. The Employment Agreements shall be executed
by the Buyer and the respective Members.
9.4 ESCROW AGREEMENT. The Escrow Agreement shall be executed by the
Buyer.
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 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 December 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, unless waived by the Buyer.
11. NON-COMPETITION. For a period of three (3) years from and after the
Closing Date, the Seller and the Members 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 Seller, Buyer, 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, web site design or web hosting services or in
any related business which the Buyer, the Parent and/or their Affiliates are
engaged in or actively plan to engage in during the term of this covenant; the
"Restricted Territory" means the New England states, New York, New Jersey,
Pennsylvania and Delaware and any other states which the Buyer, the Parent or
its Affiliates are doing business; a "Competitive Position" means any employment
with any Competitor of the Company or self-employment whereby Seller or the
Member(s) will use or are likely to use any Confidential Information (as defined
herein), or whereby the Member(s) has duties for such Competitor that are the
same or substantially similar to those performed by such
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Member for the Seller prior to the Closing and/or under the terms of such
Member's employment agreement with the Buyer. Nothing contained in this SECTION
10 is intended to prevent the Members or the Seller 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 the
Member(s) and members of such Member's 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.
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 ("Buyer's 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 Seller 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 subject to the limitations of such
law or order of governmental authority 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
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available remedy for such breach or threatened breach, including but not limited
to 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.
12.2 THE BUYER. The Buyer recognizes and acknowledges that it had in
the past and currently has access to certain confidential information ("Seller's
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 Seller's 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 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 but not limited to 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 Seller, the Members and 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. 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
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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");
(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". Neither the Members
nor the Seller shall be obligated to indemnify any Buyer Indemnified Party
unless and until the cumulative amount of losses exceeds Ten Thousand Dollars
($10,000) (the "Indemnity Threshold") whereupon the full amount of such losses
shall be recoverable in accordance with the terms hereof. Notwithstanding the
foregoing sentence, the Indemnity Threshold shall not apply to liability arising
from (i) any matter relating to the Purchase Price adjustments set forth in
Section 3.3 or (ii) fraud.
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 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 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
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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.
14. PARENT STOCK. The Parent Stock to be issued to the Seller hereunder
shall be subject to this SECTION 14.
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
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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 fifty percent (50%) 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.
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. Each of the Members represents and warrants that such Member is
an "accredited investor" within the meaning of Regulation D of the Act. They
further represent and warrant that they (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 November 30,
1999 and the supplement dated December 8, 1999 (collectively, 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 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.
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
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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.
THESE SHARES ARE FURTHERMORE SUBJECT TO A LOCK-UP AGREEMENT CONTAINED
IN SECTION 14 OF THAT CERTAIN ASSET PURCHASE AGREEMENT WITH THE COMPANY
DATED AS OF _________________ PURSUANT TO WHICH THE HOLDER OF THIS
CERTIFICATE HAS AGREED NOT TO OFFER, PLEDGE, SELL OR OTHERWISE TRANSFER
DIRECTLY OR INDIRECTLY THE SECURITIES REPRESENTED BY THIS CERTIFICATE
UNTIL ________________________. A COPY OF THE LOCK-UP AGREEMENT 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 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.
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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 of the Seller or
the Members of their respective rights shall be made without the prior written
consent of the Buyer, which consent may be withheld in its sole discretion. 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 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.
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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 (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).
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:
Cyberzone, LLC
Suite 100
942 Main Street
Hartford, CT 06103
Attention: Sean Barrett, CEO
Phone: (860) 520-6550
Fax: (860) 520-6553
Sean Barrett and Elizabeth Kivela
244 Bingham Road
Canterbury, CT 06331
Phone: (860) 546-9747
With a copy to:
Greene & Levine, LLP
231 Farmington Avenue
Farmington, CT 06032
Attn: Louis F. Green, Esq.
Phone: (860) 677-7004
Fax: (860) 677-7005
(b) If to the Buyer:
BOL Acquisition Co. VII, Inc.
P.O. Box 1347
Wall, NJ 07719
Attention: Mark E. Munro, President
Phone: (732) 280-6407
Fax: (732) 280-6409
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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 (except for a dispute
regarding Disputed Amounts under SECTION 3.3(a)) 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
forty-five (45) mile radius of Hartford, Connecticut and the arbitrator(s) shall
apply Connecticut 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 parties shall have the absolute right to
obtain equitable remedies in any state court of competent jurisdiction in the
State of Connecticut or in any United States District Court in the State of
Connecticut. 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.
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 Connecticut without reference to its
laws governing conflicts of law.
26. PARENT GUARANTY. The Parent guarantees the Buyer's obligations
under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SELLER:
CYBERZONE, LLC
By: /s/ Sean Barrett
--------------------------------------
Sean Barrett, Chief Executive Officer
MEMBERS:
/s/ Sean Barrett
-----------------------------------------
Sean Barrett
/s/ Elizabeth Kivela
-----------------------------------------
Elizabeth Kivela
BUYER:
BOL ACQUISITION CO. VII, INC.
By: /s/ Mark E. Munro
--------------------------------------
Mark E. Munro, President
PARENT:
BIZNESSONLINE.COM, INC.
By: /s/ Mark E. Munro
--------------------------------------
Mark E. Munro, President
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Exhibit 10.19
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 28th day of December, 1999 by and among BOL
Acquisition Co. X, Inc., a New York corporation ("BOL") and wholly owned
subsidiary of BiznessOnline.com, Inc., a Delaware corporation (the "Parent");
the Parent; Prime Communications Systems Incorporated, a New York corporation,
(the "Company"); and Kirk Miller, Debra Horvath and Robert Prince, the owners of
all the issued and outstanding stock of the Company (collectively the
"Stockholders").
INTRODUCTION
BOL and the Company intend to effect a merger of the Company with and
into BOL in accordance with this Agreement and the New York 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. 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.
This Agreement has been adopted and approved by the respective boards
of directors of BOL and the Company, and the shareholder of BOL and the
Stockholders 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 a properly executed Certificate of Merger for the
merger of the Company into BOL, conforming to the requirements of the New York
Business Corporation Law (the "Merger Certificate") has been delivered and
accepted for filing by the Secretary of State New York. 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 Company shall cease and BOL shall
continue as the surviving corporation (the "Surviving Corporation").
1.3 ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
<PAGE>
(a) The Articles of Incorporation of BOL shall become the
Articles of Incorporation of the Surviving Corporation; and, subsequent to the
Effective Time, such Articles of Incorporation shall be the Articles of
Incorporation 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 Surviving Corporation's state of incorporation and
of the Articles of Incorporation 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 Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York Business
Corporation Law. Except as herein specifically set forth and as otherwise
required by law, 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, 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.
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1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
(a) As of the Effective Time, all of the shares of capital
stock of the Company ("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"):
(i) $1,240,000 in U.S. currency delivered by check,
wire transfer or other immediately available funds, and
(ii) $5,760,000 in unregistered shares of the Parent
Stock valued at $8.00 per share. The shares of Parent Stock delivered hereunder
shall constitute "restricted securities" under the Securities Act of 1933, as
amended and be subject to the restrictions on transfer set forth in this
Agreement.
(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, the Stockholders shall deliver
certificates representing all outstanding shares of Company Stock to counsel for
BOL to hold in escrow until the Effective Time. At the Effective Time, the
Stockholders 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 $1,500,000 (the
"Escrow Shares") shall be delivered into escrow with the Parent's counsel (the
"Escrow Agent") pursuant to the escrow agreement (the "Escrow Agreement")
attached hereto as EXHIBIT 1.6. In addition to all other rights and remedies of
BOL and the Surviving Corporation for breach by the Company or the Stockholders
of the representations, warranties, covenants and agreements of the Company and
the Stockholders herein, both at law and in equity, the Surviving Corporation
shall have the right to set-off against the Escrow Shares for any claims of 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 Stockholders shall deliver to counsel for BOL at the
Closing the certificates representing Company Stock, duly endorsed in blank by
the Stockholders or accompanied by duly executed stock powers, to hold in escrow
until the Effective Time. The Stockholders 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.
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(c) At the Effective Time, counsel for BOL shall release the
certificates representing shares of Company Stock to BOL 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.
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. on December 28, 1999, 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, 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 ADJUSTMENT BASED ON CASH ON HAND AND ACCOUNTS PAYABLE.
The Company shall maintain a minimum of twenty thousand dollars ($20,000.00) of
cash on hand at the Closing Date in excess of the Company's outstanding payables
and liabilities (the "Minimum Cash Requirement") at the Closing. For purposes
hereof, outstanding payables and liabilities shall (a) include accrued but
unpaid employee vacation and sick time, current accrued accounts payable ,
accrued lease payments, etc. and (b) exclude deferred revenue liability. Within
thirty (30) days of the Closing Date, or as soon as practicable thereafter, BOL
and/or its accountants shall review the records and accounts of the Company and
to the extent that there was a deficiency in the Minimum Cash Requirement as of
the Closing Date, the Stockholders shall pay the amount of such shortfall, in
cash or other readily available funds to the Surviving Corporation within three
(3) business days of the date of determination of the Minimum Cash Requirements.
2.2 POST-CLOSING ADJUSTMENT FOR FIRST SIX MONTHS OF 2000 REVENUES AND
EBITDA. Any adjustment described in this SECTION 2.2 shall be based on an income
statement prepared by BOL's accountants (the "Income Statement") on or about
August 30, 2000, showing the Company and the Surviving Corporation's audited
revenues and earnings before interest and taxes less depreciation and
amortization ("EBITDA") on an accrual basis in accordance with generally
accepted accounting principals ("GAAP") for the first six (6) months of calendar
year 2000.
(a) REVENUES. To the extent that the Company's and the Surviving
Corporation's aggregate audited revenues for the first six (6) months of
calendar year 2000 are (i) less than one million four hundred thousand dollars
($1,400,000) on an accrual basis in accordance with GAAP, the Merger
Consideration shall be reduced by an amount equal to five dollars ($5.00) for
each one dollar ($1.00) in revenue less than one million four hundred thousand
($1,400,000), and (ii) greater than one million four hundred thousand dollars
($1,400,000) on an accrual basis in accordance with GAAP, the Merger
Consideration shall be increased by an amount equal to five
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dollars ($5.00) for each one dollar ($1.00) in revenue greater than one million
four hundred thousand dollars ($1,400,000). For example, in the event the
revenues for such period, are one million three hundred thousand dollars
($1,300,000), the Merger Consideration would be decreased by five hundred
thousand dollars ($500,000) (i.e. the $100,000 shortfall multiplied by 5.00).
For purposes of this paragraph, the revenue calculations shall be made in the
same manner in which BOL's accountants audit the Company's revenues for calendar
year 1999 (i.e. on an accrual basis in accordance with GAAP). In no event shall
the adjustments under this Section reduce the Merger Consideration below
$1,500,000.
(b) To the extent that the Company's and the Surviving Corporation's
EBITDA for the first six (6) months of calendar year 2000 is less than
thirty-five percent (35%) of the audited revenues for such period, the Merger
Consideration shall be reduced by fourteen dollars and twenty-eight cents
($14.28) for each one dollar of revenue less than such minimum EBITDA amount.
For example, in the event that the Company's audited revenues as determined in
SECTION 2.2(a) above were $1,400,000 and the Company's EBITDA is actually
$470,000, then the Merger Consideration would be reduced by $285,600 (i.e. the
$20,000 EBITDA shortfall (35% of $1,400,000 less $470,000) times 14.28). For
purposes of calculations made pursuant to this SECTION 2.2(b), the Company's and
the Surviving Corporation's expenses shall include the Parent's allocation of
overhead charges for: (i) insurance, payroll services and other regular
operating expenses attributable to the Surviving Corporation's business and (ii)
the Surviving Corporation's pro rata share for use of the Parent's Albany data
center (if any). There shall be no allocation of overhead charge for the
Parent's Wall, New Jersey office or Executive Officers' salaries.
(c) To the extent any decrease in the Merger Consideration is required
under this SECTION 2.2, the Stockholder shall make such payment within five (5)
business days of the delivery of the Income Statement To the extent any increase
or decrease in the Merger Consideration is required under this SECTION 2.2, the
Surviving Corporation or Stockholders, as the case may be, shall pay such amount
in Parent Stock and such shares of stock would be valued at the "average Nasdaq
National Market price" for the twenty (20) business day period immediately
preceding the date of delivery of the Income Statement or the date of resolution
of any dispute regarding any Merger Consideration adjustment.
2.3 DISPUTE RESOLUTION PROCEDURE FOR ADJUSTMENTS BASED ON MERGER
CONSIDERATION ADJUSTMENTS. Notwithstanding anything in this SECTION 2 to the
contrary, if the Stockholders dispute the determination of the Minimum Cash
Requirement or any item contained on the Income Statement, the Stockholders
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 determination of the Minimum Cash
Requirement or the delivery of the Income Statement, as the case may be. If the
Surviving Corporation and the Stockholders 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 Stockholders (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
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Independent Accounting Firm shall be allocated between the Surviving Corporation
and the Stockholders so that the Stockholders' aggregate share of such costs
shall bear the same proportion to the total costs that the Disputed Amounts
unsuccessfully contested by the Stockholders (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
STOCKHOLDERS.
3.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As a material inducement
to BOL to enter into this Agreement and consummate the transactions contemplated
hereby, the Company and the Stockholders hereby jointly and severally make to
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 State of New York with full corporate power and authority to own or lease
the Company's properties and to conduct the Company's 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 for the State of New York and the bylaws certified by the
Secretary of the Company and heretofore delivered to BOL'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 BOL'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 Stockholders
own nor have any direct or indirect interest in or control over any corporation,
partnership, joint venture or entity of any kind (other than as an owner of less
than 2% of the outstanding common stock of a publicly held company which stock
trades on a national exchange.).
3.4 CAPITAL STOCK. The total authorized capital stock of the Company
consists solely of the shares listed on SCHEDULE 3.4. 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 Stockholders as set forth in SCHEDULE 3.4 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 preemptive rights of any past or present stockholders. No
shares of the Company Stock are held in the treasury of the Company.
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SCHEDULE 3.4 contains a complete and correct listing of the stockholders of the
Company at the date hereof, together with the number and class of the capital
stock of the Company owned by each such stockholders. 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 STOCKHOLDERS
(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 Stockholders 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
Stockholders will constitute, valid and binding obligations of the Company,
enforceable in accordance with their respective terms. The execution, delivery
and performance by the Company of this Agreement and each such other agreement,
document and instrument:
(i) does not and will not violate any provision of
the Articles of Incorporation or bylaws of the Company;
(ii) does 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 Certificate of Merger in accordance
with the laws of the State of New York 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 such breach, default, acceleration or right of
termination would not have a material adverse
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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 Stockholders have 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 Stockholders pursuant to or as contemplated by
this Agreement (to the extent it contains obligations to be performed by such
Stockholders) constitutes, or when executed and delivered will constitute, valid
and binding obligations of the Stockholders enforceable in accordance with their
respective terms, subject to the terms hereof. The execution, delivery and
performance by the Stockholders of this Agreement and each such agreement,
document and instrument:
(i) do not and will not violate any provision of the
Articles 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 Stockholders
or require the Stockholders 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 Stockholders are a party or by which the property of such Stockholders
is bound or to which the property of the Stockholders 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 3.5, 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) TITLE. Except as set forth on SCHEDULE 3.6(a),
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. There are no
leases, tenancies or occupancy rights of any kind affecting any of the Real
Property.
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(ii) SECURITY INTERESTS. 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 3.6(a)
(collectively, the "Encumbrances"). 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. 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. 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 on any existing
agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition of any of
the Real Property. Except as set forth on SCHEDULE 3.6(a), 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"). 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. 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.
(vi) 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.
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(vii) 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.
(viii) 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.
(ix) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(a), no special assessments of any kind (special, bond or otherwise)
are or have been levied against any Real Property, or any portion thereof, which
are outstanding or unpaid. Each property constituting part of the Real Property
is assessed as a separate and distinct tax lot.
(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") is set forth on SCHEDULE 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 $5,000 or more (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 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, 1997 and December 31, 1998 and
compiled, reviewed or management-prepared statements of income, stockholders'
equity and cash flows for each of the
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two (2) years ended December 31, 1997 and December 31, 1998, certified by the
Chief Financial Officer of the Company (the "Year-End Company Financial
Statements");
(ii) Management prepared balance sheets of the
Company as of December 16, 1999 (herein the "Company Balance Sheet Date") and
statements of income, stockholders' equity and cash flows for the period then
ended, certified by the Chief Financial Officer 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.
(b) As of the Company Balance Sheet Date, the Company 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 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 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
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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 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 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
accrual 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
and any similar provisions of federal, state, local or foreign law.
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
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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 less than $10,000 of
inventory, all saleable in the ordinary course and stated in accordance with
GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
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;
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(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 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, 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 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 (i) through (xii)
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 or used in its
respective business as presently conducted (the "Proprietary Rights") are
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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. Except as 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;
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(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;
(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
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(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 is a party or by which the Company is obligated are valid
and are in full force and effect and constitute legal, valid and binding
obligations of the Company and the other parties thereto, enforceable in
accordance with their respective terms. Neither the Company nor 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 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
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
SCHEDULE 3.16, there is no litigation or governmental or administrative
proceeding or investigation pending or threatened against the Company which may
have an 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
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 to counsel to BOL true and
correct 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: (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 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
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party to the policy has repudiated any provision thereof. The Seller 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. There are no existing or threatened
in writing, 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 Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from Governmental Entities in order for
the Company to conduct its business. 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 organization, person or entity with whom the Company is doing business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
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(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 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.
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(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 a 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.
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) 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) no Hazardous
Material has ever been transported from any site presently or formerly owned,
operated, leased, or used by the Company
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for treatment, storage, or disposal at any other place; (iv) 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) 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) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) 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) 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) the Company nor any Company Stockholder has 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, 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 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.
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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 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,
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 any customer 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 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 necessary action to assess,
evaluate 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.
3.29 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Company, together with the other information furnished to BOL by
the Company and the Stockholders 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 STOCKHOLDERS.
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4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Merger Effective Date, the Stockholders 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;
(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;
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(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;
(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. The Company and the Stockholders 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 Company and the Stockholders 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 contracts, permits,
licenses and franchises of or applicable to the businesses of the Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof the
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of
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record by him or over which the exercise voting control in favor of the Merger,
this Agreement and the consummation of the transactions contemplated hereby and
shall not demand appraisal or dissenter's rights in connection with the merger
under the business corporation laws of the State of New York.
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 Stockholders 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 Stockholders shall neither sell, exchange, deliver,
assign, pledge, encumber nor otherwise transfer or dispose of any Company Stock
owned beneficially or of record by the Stockholders, 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 Stockholders shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders 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 Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of the Stockholders 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 Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders 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 Stockholders 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.
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4.9 FURTHER ASSURANCES. The Company and the Stockholders 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 BOL AND THE PARENT.
5.1 MAKING OF REPRESENTATIONS AND WARRANTIES. As of the date hereof,
the Parent and BOL hereby represents and warrants to the Stockholders and the
Company as set forth in this SECTION 5.
5.2 ORGANIZATION OF BOL AND THE PARENT. Each of the Parent and BOL are
a corporations 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 is businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by BOL and
the Parent to authorize the execution, delivery and performance of this
Agreement and each agreement, document and instrument to be executed and
delivered by BOL and the Parent pursuant to this Agreement. This Agreement and
each agreement, document and instrument to be executed and delivered by BOL and
the Parent pursuant to this Agreement (to the extent it contains obligations to
be performed by BOL and the Parent) constitutes, or when executed and delivered
by BOL and the Parent will constitute, valid and binding obligations of BOL and
the Parent enforceable in accordance with their respective terms.
5.4 NO CONFLICTS. The execution, delivery and performance by BOL and
the Parent of this Agreement and each such other agreement, document and
instrument: (i) does not and will not violate any provision of its respective
the Certificate of Incorporation or bylaws of BOL and the Parent; and (ii) 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 BOL and/or Parent is a
party or by which the property of BOL and/or Parent 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 BOL and/or
Parent, 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 BOL and/or Parent, 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 BOL and/or Parent.
5.5 PARENT STOCK. The Parent Stock to be delivered to the Stockholders
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. Such 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.
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5.6 LITIGATION. There is no litigation or governmental or
administrative proceeding or investigation pending or threatened against BOL or
the Parent which may have an adverse effect on the properties, assets, business,
financial condition or prospects of BOL and the Parent and would prevent or
hinder the consummation of the transactions contemplated by this Agreement.
5.7 COMPLIANCE WITH LAWS. Neither BOL nor Parent 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 of BOL or the Parent.
SECTION 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BOL.
6.1 INTRODUCTION. The obligations of 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, BOL
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, or such partial period as may be acceptable to Parent, and the unaudited
statements of income, cash flow and stockholders' 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 BOL shall have
received on the Closing Date a certificate signed by the President of the
Company and the Stockholders to such effect.
6.4 DUE DILIGENCE AND REGULATORY REVIEW. BOL 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 discretion.
6.5 OPINION OF COUNSEL. BOL shall have received an opinion from
Pusatier, Sherman & Abbott, counsel to the Company and the Stockholders, dated
the Closing Date, in form and substance satisfactory to BOL, 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.
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(b) the authorized and outstanding capital stock of the
Company is as represented by the Stockholders 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 has no
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 Stockholders and constitutes a valid and
binding agreement of such parties 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 3.16, to the
knowledge of such counsel, there are no claims, actions, suits or proceedings
pending, or threatened against or affecting the Company or the Stockholders, 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 is required
in connection with the execution, delivery or consummation of this Agreement by
the Stockholders or for the merger of the Company with and into BOL;
(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 bylaws or of any lease, instrument, license, permit or any
other agreement to which the Company is a party or by which the Company is
bound; and
(h) any other matters incident to the matters set forth herein
as reasonably required by BOL.
6.6 ADDITIONAL LIABILITIES AND OBLIGATIONS. The Stockholders shall have
delivered to BOL a certificate dated the Closing Date, setting forth (i) all
material 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.
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to BOL certificates, dated as of
a date no earlier than twenty (20) days prior to the Closing Date, duly issued
by the Secretary of State and the Department of Revenue and Finance of the State
of New York and of any other state in which the Company is
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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
BOL prior to the Closing a recent copy of its Certificate of Incorporation and
all amendments thereto duly certified by the Secretary of the State of New York.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders 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 Stockholders 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
Stockholders on or before the Closing Date; and the Company and the Stockholders
shall have delivered to the Parent a certificate dated the Closing Date signed
by the Company's President and by the Stockholders to the foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders 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 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. All proceedings to be taken by
the Company and the Stockholders in connection with the consummation of the
Closing on the Closing Date and the other transactions contemplated hereby and
all certificates, opinions, instruments and
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other documents required to effect the transaction contemplated hereby
reasonably requested by BOL shall be reasonably satisfactory in form and
substance to BOL and its counsel.
6.12 EMPLOYMENT AGREEMENT. Each of the Stockholders shall have executed
and delivered individual employment agreements with BOL in the form attached
hereto as EXHIBIT 6.12(a), EXHIBIT 6.12(b) and EXHIBIT 6.12(c) (collectively,
the "Employment Agreements").
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered the Escrow Agreement.
6.14 LEASE. BOL shall have executed a lease with the landlord of the
office space currently leased by the Company in the form attached hereto as
EXHIBIT 6.14 (the "Lease").
6.15 MATRIX. MATRIX SYSTEMS CORPORATION, A NEW YORK CORPORATION WHICH
IS OWNED BY THE STOCKHOLDERS, SHALL have terminated all of its employees and BOL
shall have hired certain of such former employees as it may, in its sole
discretion, need to operate the Surviving Corporation, provided, however, that
BOL shall have no obligation to hire any such employees nor shall it assume any
liability relating to such employee, including, without limitation liability for
vacation, sick time or other employee benefits. .
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
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 Stockholders):
7.2 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of 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; 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 BOL on or before the
Closing Date; and BOL shall have delivered to the Company a certificate signed
by the President 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 AGREEMENTS. BOL shall have executed and delivered the
Employment Agreements.
7.5 ESCROW AGREEMENT. BOL shall have executed and delivered the Escrow
Agreement.
7.6 LEASE. BOL shall have executed and delivered the Lease.
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
Stockholders hereunder, the Stockholders hereby irrevocably agrees that for a
period of (i) one (1) year after the Closing Date with respect to 100% of such
stock, and (ii) two (2) years after the Closing Date with respect to 50% of such
stock, the Stockholders 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 Stockholders agree that the foregoing shall be binding upon
the Stockholder and their respective successors, assigns, heirs, and personal
representatives.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders acknowledge
and agree that the shares of Parent Stock to be delivered to the Stockholders
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 Stockholders represent and warrant that the
Parent Stock to be acquired by Stockholders 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 Stockholders covenant, warrant and represent
that none of the shares of Parent Stock issued to such Stockholders 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 AND ACCREDITED INVESTORS;
INFORMATION. Each of the Stockholders represent and warrant that he/she 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. Each
of the Stockholders further represent and warrant that he/she (i) is an
"accredited investor" within the meaning of Regulation D under the Act; (ii)
fully understands the nature, scope and duration of the limitations on transfer
contained in this Agreement, (iii) have received a copy of the Company's
information statement dated within five (5) business days of the date of this
Agreement (the "Information Statement"); and (iv) have such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect his or her own interests in connection with the acquisition
of the Parent Stock. The Stockholders represent and warrant that they have had
an adequate opportunity to ask questions and receive answers from
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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 its
affiliates and information disclosed in the Information Statement. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to his satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders 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
THE LOCK-UP PROVISIONS CONTAINED IN SECTION 8 OF THAT CERTAIN AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION 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 BOL and
the Company;
(b) either the Stockholders and the Company, on the one
hand, or by 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
January 15, 2000, unless the failure of such
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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.
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, each of the Stockholders 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, web site design, web hosting services, long
distance or local telephone service, or in any related Internet or
telecommunications business which the Company, the Parent or their affiliates
may engage in or actively plan to engage in from time to time during the term of
this covenant; the "Restricted Territory" means the New England States, New
York, Ohio, Pennsylvania, New Jersey, Delaware, Maryland or in any other state
in which the Surviving Corporation, the Parent or their affiliates are or
actively plan to do business; a "Competitive Position" means any employment with
any Competitor of the Company or self-employment whereby Stockholders will use
or are likely to use any Confidential Information (as defined below), or whereby
the Stockholders have duties for such Competitor that are the same or
substantially similar to those actually performed by Stockholders for the
Company under the terms of employment with the Surviving Corporation. Nothing
contained in this SECTION 10 is intended to prevent either Stockholder 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 either Stockholder 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
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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 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently have in the future may have access to
certain confidential information relating to the Company, the Parent and BOL,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and BOL (collectively, "Confidential Information"). The Stockholders
agree 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 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, and (b)
following the Closing, such information may be disclosed by the Stockholders as
is required in the course of performing its duties for the Surviving Corporation
unless (i) such information becomes known to the public generally through no
breach by the Stockholders 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 Stockholders shall give prior written notice thereof to
BOL and provide BOL 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 Stockholders of the provisions of this
section, BOL shall be entitled to an injunction restraining the Stockholders
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting BOL 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
Stockholders shall return to BOL as soon as possible all documents containing
confidential information about the Parent.
11.2 BOL. BOL recognizes and acknowledges that it has in the past and
currently has 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. BOL
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 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 Stockholders and to authorized representatives of
the Company 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, unless (i) such information becomes known to
the public generally through no breach by BOL of this covenant, (ii) disclosure
is required by law or the order of any governmental authority under color of law
or
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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 (iii), BOL shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iv) 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 BOL of the provisions of this Section, the
Company and the Stockholders shall be entitled to an injunction restraining BOL
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting the Company and the Stockholders 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 against 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 STOCKHOLDERS. The Stockholders, on behalf
of themselves and their respective successors, executors, administrators,
estates, heirs and permitted assigns, agree subsequent to the Effective Time to
indemnify and hold harmless 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 Stockholders 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, "Parent Representation and Warranty
Claims");
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(b) any breach of any covenant or agreement made by the
Company or the Stockholders 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;
(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 BOL 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; or
(d) any claim, action, proceeding, liability or other matter
arising from or related to Matrix Systems Corporation.
Claims under clauses (a) through (d) 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.
12.2 NOTICE; DEFENSE OF CLAIMS.
Promptly after receipt by a Parent Indemnified Party of notice of any
claim, liability or expense to which the indemnification obligations hereunder
would apply, the Parent Indemnified Party shall give notice thereof in writing
to the Stockholders, but the omission to so notify the Stockholders promptly
will not relieve the Stockholders from any liability except to the extent that
the Stockholders 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 Stockholders give written notice to the Parent 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 Stockholders
(subject to the consent of the Parent Indemnified Party which consent may not be
unreasonably withheld) and the Parent Indemnified Party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
Stockholders 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 Stockholders shall relate solely to the claim, liability or expense that
is subject or potentially subject to indemnification. The Stockholders shall
have the right, with the consent of the Parent Indemnified Party, which consent
shall not be unreasonably withheld, to settle any Parent Indemnified Claims by
third parties which are
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susceptible to being settled provided its obligation to indemnify the Parent
Indemnified Party therefor will be fully satisfied. The Stockholders shall keep
the Parent Indemnified Party apprised of the status of the claim, liability or
expense and any resulting suit, proceeding or enforcement action, shall furnish
the Parent Indemnified Party with all documents and information that the Parent
Indemnified Party shall reasonably request and shall consult with the Parent
Indemnified Party prior to acting on major matters, including settlement
discussions. Notwithstanding anything herein stated, the Parent 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 Stockholders and the Parent
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 Parent Indemnified Party shall be paid by the
Stockholders. If no such notice of intent to dispute and defend is given by the
Stockholders, or if such diligent good faith defense is not being or ceases to
be conducted, the Parent Indemnified Party shall, at the expense of the
Stockholders, undertake the defense of (with counsel selected by the Parent
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
Stockholders, then the Parent Indemnified Party shall make available all
information and assistance that the Stockholders may reasonably request and
shall cooperate with the Stockholders in such defense.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York 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 BOL:
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
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ATTN: Michael F. Sweeney, Esq.
Phone: (401) 455-0700
Fax: (401) 455-0701
TO THE COMPANY AND THE STOCKHOLDERS:
Kirk Miller
861 Edgewater
Amherst, NY 14228
Debra Horvath
1560 Colvin Blvd
Tonawanda, NY 14223
Robert Prince
493 Hewitt Ave.
Bufalo, NY 14215
with a copy to:
Pusatier, Sherman, Abbot & Sugarman
2464 Elmwood Avenue
Kenmore, NY 14217
ATTN: Stephen F. Pusatier, Esq.
Phone: (716) 873-6765
Fax: (716) 873-7709
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 by the Company
or the Stockholders without the prior written consent of BOL. 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
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<PAGE>
agree, then appointed by JAMS/Endispute. Any arbitration shall be held in
Albany, New York 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, BOL shall have
the absolute right to obtain equitable remedies in any state court of competent
jurisdiction in the State of New York or in a United States District Court for
the 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.
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 BOL, the Company and
the Stockholders, 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
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<PAGE>
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 twenty-four (24)
months except for any representation, warranty, indemnity, etc. relating to tax
matters which shall survive for the applicable statutes of limitation or repose.
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<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.
WITNESS: BiznessOnline.com, Inc.
- - ----------------------------- By: /S/ MARK E. MUNRO
--------------------------
Mark E. Munro, President
WITNESS: BOL Acquisition Co. X, Inc.
- - ----------------------------- By: /S/ MARK E. MUNRO
------------------------------
Mark E. Munro, President
WITNESS: Prime Communication Systems,
Incorporated
- - ------------------------------ By: /S/ KIRK MILLER
------------------------------
Kirk Miller, Chief Executive
Officer
WITNESS: STOCKHOLDERS
- - ----------------------------- /s/ KIRK MILLER
--------------------------------
Kirk Miller
- - ----------------------------- /s/ DEBRA HORVATH
--------------------------------
Debra Horvath
- - ----------------------------- /s/ ROBERT PRINCE
---------------------------------
Robert Prince
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<PAGE>
Exhibit 10.20
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NEITHER THE WARRANT NOR SUCH SECURITIES CAN BE OFFERED OR
SOLD EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT, OR AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
BIZNESSONLINE.COM, INC.
NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT
CSW-1 30,000 shares
THIS NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT, for value received, entitles
The Research Works, Inc. or its permitted assigns (the "Holder"), to subscribe
for and purchase from BiznessOnline.com, Inc., a Delaware corporation (the
"Company"), subject to the terms and conditions set forth herein, at any time or
from time to time from the date hereof and before 5:00 PM, Eastern Time, on
October 27, 2004 (the "Exercise Period"), thirty thousand (30,000) shares (the
"Shares") of the Company's common stock, par value $.01 per share ("Common
Stock"). This Warrant will be exercisable at a price per share equal to seven
dollars and no cents ($7.00) (the "Exercise Price") in lawful funds of the
United States of America. This Warrant is being issued to the Holder in
consideration for services to be performed by the Holder as set forth in that
certain letter agreement between the Company and the Holder, a copy of which is
attached hereto (the Agreement").
1. Vesting; Exercise of Warrant. This Warrant shall vest immediately and may
thereafter be exercised during the Exercise Period as to the whole or any lesser
number of Shares, by the surrender of this Warrant (together with the duly
executed Election in the form attached hereto as Exhibit A) to the Company at
its office or at such other place as is designated in writing by the Company,
together with a check payable to the order of the Company in an amount equal to
the Exercise Price multiplied by the number of Shares for which this Warrant is
being exercised, or at the option of the Warrantholder, this Warrant may be
surrendered to the Company and the Company shall issue to the Warrantholder for
no additional cash consideration a number of shares of common stock determined
by dividing the product of the maximum number of shares of common stock the
Warrantholder is entitled to purchase hereunder times the difference between the
closing price per share on the date of surrender for exercise and the Exercise
Price, by the closing price per share on the date of surrender for exercise date
of surrender for exercise, as follows:
Number of shares to be issued = ((maximum # of shares purchasable under
terms of the Warrants) X ((closing price per share on the date of
surrender for exercise) - (Exercise Price))) / (closing price per share on
the date of surrender for exercise)
<PAGE>
2. Record Holder of Warrants. As soon as practicable after exercise of this
Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Shares registered in the name of the Holder or its
designee. Upon exercise of this Warrant, the Holder shall be deemed to be the
holder of record of the Shares notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Shares shall not
then have been actually delivered to the Holder. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Shares (or portions thereof) subject to
purchase hereunder, provided the Exercise Period has not expired.
3. Warrant Register. Any Warrant issued upon the permitted transfer or exercise
in part of this Warrant (together with this Warrant, the "Warrants") shall be
numbered and shall be registered in a warrant register as they are issued. The
Company shall be entitled to treat the registered holder of any Warrant upon the
warrant register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other person, and shall not be liable for any registration or
transfer of Warrants which are registered or to be registered in the name of a
fiduciary or the nominee of a fiduciary unless made with the actual knowledge
that a fiduciary or nominee is committing a breach of trust in requesting such
registration or transfer, or with the knowledge of such facts that its
participation therein amount to bad faith. The Warrants shall be nontransferable
except in accordance with Section 8 below.
4. Reservation of Common Stock. The Company shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, such number of shares of
Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of this Warrant
when paid for in accordance with the respective terms hereof, shall be validly
issued, fully paid and nonassessable by the Company.
5. Merger, Consolidation or Reclassification or Splits of Securities;
Adjustments.
(a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any
sale, lease or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, such successor,
leasing or purchasing corporation, as the case may be, shall (i) execute
with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind
and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such consolidation, merger, sale,
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<PAGE>
lease or conveyance by a Holder of the number of shares of Common Stock
for which this Warrant might have been exercised immediately prior to such
consolidation, merger, sale, lease or conveyance, and (ii) make effective
provision in its certificate of incorporation or otherwise, if necessary,
in order to effect such agreement.
(b) In case of any reclassification or change of the Shares issuable upon
exercise of this Warrant (other than a change in par value or from par
value to no par value) or in case of a subdivision or combination,
including any change in the shares into two or more classes or series of
shares, or in case of any consolidation or merger of another corporation
into the Company in which the Company is the continuing corporation and in
which there is a reclassification or change (including a change to the
right to receive cash or other property) of the Shares (other than a
change in par value, or from par value to no par value) the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely
the kind and amount of shares of stock and other securities, property,
cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by a holder of the number of Shares for
which this Warrant might have been exercised immediately prior to such
reclassification, change, consolidation or merger.
(c) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Stock in shares of Stock, (ii)
subdivide or reclassify its outstanding shares of Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares of
Stock into a smaller number of shares, the Exercise Price in effect at the
time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification shall
be proportionately adjusted so that the holder of this Warrant, exercised
after such date, shall be entitled to receive the aggregate number and
kind of shares which, if this Warrant had been exercised by such holder
immediately prior to such date, he would have owned upon such exercise and
been entitled to receive upon such dividend, subdivision, combination or
reclassification. For example, if the Company declares a 2-for-1 stock
distribution in which one share of Stock is distributed for each share
outstanding and the Exercise Price immediately prior to such event was
$2.00 per share, the adjusted Exercise Price immediately after such event
would be $1.00 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(d) Upon the occurrence of any event described in Sections 5(a) or (b) or
(c) (an "Event"), the number of Shares acquirable thereafter upon exercise
of this Warrant shall be adjusted so that the Holder hereof is entitled to
receive upon exercise of this Warrant the number of Shares which the
Holder would have owned or would have been entitled to receive after the
happening of the Event had
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<PAGE>
this Warrant been exercised immediately prior to the happening of such
Event; and the Exercise Price per share shall be correspondingly adjusted.
(e) Whenever there shall be an adjustment as provided in Section 5(d), the
Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its principal office,
which notice shall be accompanied by an officer's certificate setting
forth the number of Shares issuable after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
computation thereof, which officer's certificate shall be conclusive
evidence of the correctness of any such adjustment absent manifest error.
(f) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(g) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of
Warrants. If any fraction of a share would be issuable upon the exercise
of any Warrant (or specified portions thereof), the Company shall purchase
such fraction for an amount in cash equal to the same fraction of the
current market price of such share of Common Stock on the date of exercise
of the Warrant, based on the average of the daily closing prices or sales
prices of the Common Stock for the thirty (30) consecutive trading days
immediately preceding such date.
(h) The above provisions of this Section 5 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases or conveyances or splits
similar to those described in Sections 5(a) and (b) and (c).
6. Notice of Certain Proposed Actions. In case at any time the Company shall
propose:
(a) to issue any rights, warrants or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common
Stock or any other rights, warrants or other securities; or
(b) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease or conveyance of
property described in Section 5; or
(c) to effect any liquidation, dissolution, or winding-up of the Company;
(d) then, and in any one or more of such cases, the Company shall give
written notice thereof, by certified mail, postage prepaid, to the Holder
at the Holder's address as it shall appear in the warrant register, mailed
five (5) days
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prior to the earlier to occur of (i) the date as of which the holders of
record of shares of Common Stock to be entitled to receive any such
rights, warrants or other securities are to be determined, or (ii) the
date on which any such reclassification, change of outstanding shares of
Common Stock, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up is expected to become effective,
and the date as of which it is expected that holders of record of shares
of Common Stock, as the case may be, shall be entitled to exchange their
shares or warrants for securities or other property, if any, deliverable
upon such reclassification, change of outstanding shares, consolidation,
merger, sale, lease, conveyance of property, liquidation, dissolution, or
winding-up.
7. Exercise of Warrants; Issuance of Securities. The issuance of any shares or
warrants or other securities upon the exercise of this Warrant, and the delivery
of Certificates or other instruments representing such shares, warrants or other
securities, shall be made without charge to the Holder for any tax or other
charge in respect of such issuance. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any Certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such Certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
8. Investment Representations; Transfer Restrictions; Lock-up; Legends.
(a) The Holder represents and warrants with respect to its purchase of
this Warrant that it is experienced in evaluating and investing in
Internet-related businesses such as the Company; that it is acquiring this
Warrant for investment for its own account and not with a view to, or for
resale in connection with, any distribution thereof; and that it has no
present intention of selling or distributing the Warrant or any of the
Shares issuable upon exercise. The Holder understands that this Warrant
and the Shares have not been registered under the Securities Act by reason
of a specific exemption from the registration provisions of the Securities
Act which depends upon, among other things, the bona fide nature of the
investment intent expressed herein. The Holder has had an opportunity to
discuss the Company's business, management and financial affairs with the
Company's management and to obtain any additional information necessary to
verify the accuracy of the information received. The Holder represents
that it is an accredited investor within the meaning of Regulation D
promulgated under the Securities Act, and is able to bear the economic
risk of its investment in the Company represented hereby.
(b) On the basis of the foregoing representations set forth in Section
8(a) above, this Warrant has not been registered under the Securities Act,
and neither this Warrant nor the Shares issuable upon exercise may be
sold, pledged, transferred
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<PAGE>
or otherwise disposed of unless either (i) they first shall have been
registered under the Securities Act, or (ii) the Company first shall have
been furnished with an opinion of legal counsel reasonably satisfactory to
the Company or, at its option, legal counsel of the Company stating that
such sale or transfer is an exempted transaction under the Securities Act.
(c) In addition to applicable federal and state securities laws
restricting the public sale of the Shares to be issued to the Holder
hereunder, the Holder hereby irrevocably agrees that for a period of two
(2) years after the date(s) of exercise of this Warrant, it will not
offer, pledge, sell, assign or otherwise transfer directly or indirectly,
any of such Shares or enter into any agreement that transfers or assigns,
in whole or in part, any of the economic consequences of ownership of the
Shares (such restrictions adjusted for any stock splits,
recapitalizations, mergers or other similar events). The Holder agrees
that the foregoing shall be binding upon Holder and its respective
successors, assigns, heirs, and representatives.
(d) In accordance with this Section 8, the Shares to be issued upon
exercise of this Warrant shall be subject to a stop transfer order and the
certificate or certificates evidencing any such securities shall bear the
following legends:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH
SHARES (OR OTHER SECURITIES) CANNOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
A REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT."
"THE SHARES ARE SUBJECT TO A LOCK-UP AGREEMENT CONTAINED IN SECTION 8 OF
THAT CERTAIN WARRANT WITH THE COMPANY DATED AS OF OCTOBER 27, 1999
PURSUANT TO WHICH THE HOLDER OF THIS CERTIFICATE HAS AGREED NOT TO OFFER,
PLEDGE, SELL OR OTHERWISE TRANSFER DIRECTLY OR INDIRECTLY THE SECURITIES
REPRESENTED BY THIS CERTIFICATE UNTIL TWO (2) YEARS FROM THE DATE OF
ISSUANCE. A COPY OF THE LOCK-UP AGREEMENT MAY BE OBTAINED BY CONTACTING
THE SECRETARY OF THE COMPANY."
9. Replacement of Certificates.
(a) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor and denomination.
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(b) Upon surrender for exchange of any Warrant, with proper instructions
to the Company and in accordance with the transfer restrictions set forth
in Section 8 below, the Company, upon reimbursement of the Company's
reasonable incidental expenses, will issue and deliver to or upon the
order of the Holder a new Warrant or Warrants of like tenor, in the name
of such Holder or as such Holder may direct (upon payment of any
applicable transfer taxes), calling in the aggregate on the face or faces
thereof for the number of Shares called for on the face or faces of the
Warrant or Warrants so surrendered.
10. Rights of Holder. The Holder of any Warrant shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Warrant.
11. Notices. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
nor mailed by registered or Certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address of such
holder as shown on the books of the Company, or
(b) If to the Company, to Secretary, BiznessOnline.com, Inc., 1720 Route
34, P.O. Box 1347, Wall, NJ 07719.
12. Dispute Resolution. This Warrant shall be construed in accordance with the
laws of the State of Delaware, without giving effect to conflict of laws. By
accepting this Warrant, the Holder irrevocably agrees that any dispute regarding
this Warrant 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 Company and the
Holder 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 Wall, New Jersey and the arbitrator(s) shall apply Delaware law. Judgment
upon any award rendered by the arbitrator(s) shall be final and may be entered
in any court of competent jurisdiction.
Dated: October 27, 1999
BIZNESSONLINE.COM, INC.
By: /s/ Mark E. Munro
----------------------------
Mark E. Munro, President
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EXHIBIT A
Election Form
The undersigned holder of the enclosed warrant hereby elects to exercise
said warrant to purchase ____ shares of common stock of BiznessOnline.com, Inc.
pursuant to the terms and conditions set forth in the enclosed warrant. Payment
in the amount of $_________________ representing the exercise price is enclosed
herewith. The undersigned hereby requests that the certificate for such shares
be issued in the name set forth below.
THE RESEARCH WORKS, INC.
Dated: ___________________ By:________________________
(Signature)
Name:______________________
(Please Print)
Address: __________________
___________________________
___________________________
Employer Identification Number
or Social Security Number
___________________________
If said number of shares shall not be all the shares purchasable under the
within Warrant, the Warrant Holder hereby requests that a new Warrant for the
unexercised portion shall be registered in the name set forth below and
delivered to the address set forth below.
Name: ___________________________
(Please Print)
Address: ________________________
________________________
________________________
Employer Identification Number
or Social Security Number:
___________________________
8
<PAGE>
Exhibit 10.21
Neidiger Tucker Bruner, Inc. Investment Bankers
1675 Larimer Street, Suite 300
Denver, Colorado 80202
October 27, 1999
Mr. Mark Munro
President
BiznessOnline.com
1720 Route 34
PO Box 1347
Wall, NJ 07719
Dear Mark:
The purpose of this letter is to confirm that BiznessOnline.com (the "Company")
is retaining Michael E. Shonstrom of Neidiger, Tucker, Bruner, Inc. ("NTB") as a
non-exclusive financial consultant/advisor in connection with such activities
necessary to improve market visibility and investor interest.
NTB will be compensated as follows: payment of an expense allowance of $5,000
and warrants to purchase 15,000 shares @ $9.00, which terminate in three years,
with full registration rights and anti-dilution protection, to be vested at the
end of the first year. The expense allowance is to be paid in cash at the time
this agreement is executed.
Notwithstanding any provisions hereof to the contrary, the Company and/or NTB
may terminate this agreement by giving the other party sixty (60) days written
notice. In the event of such termination, the Company shall continue to be
responsible to NTB for payment of the fees as set forth above on a pro-rata
basis for the period in which the agreement was in force, to include warrants.
Further, the Company will be responsible for payment of any reasonable expenses
incurred in the course of making institutional investor presentations.
This letter of agreement shall be binding upon and shall inure to the benefit of
parties hereto, their heirs, personal representatives, successors and assigns.
In the event of any disagreement arising hereunder, same shall be submitted to
arbitration in Denver, Colorado in accordance with the rules of the American
Association of Arbitration. The discovery provisions of the Federal Rules of
Civil Procedure shall be applicable to such arbitration proceedings. All notices
hereunder shall be given by certified mail, return receipt requested, and shall
be effective upon receipt provided addressed to NTB at the address set forth on
this letterhead and provided addressed to you at the address set forth above.
This letter agreement shall be governed by the laws of the State of Colorado and
can be modified or amended only by a written agreement signed by both of the
parties.
<PAGE>
You agree to indemnify NTB against and hold NTB harmless from any losses,
claims, damages, or liabilities, joint or several, to which NTB may become
subject in connection with the services which are the subject of this letter and
reimburse NTB for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against any loss, claim, damage or
liability, or any action in respect thereof; provided, however, that you shall
not be liable under the foregoing indemnity agreement in respect of any loss,
claim, damage or ability to the extent that a court having jurisdiction shall
have determined by a final judgment that such loss, claim, damage, or liability
resulted from the willful misfeasance or gross negligence of NTB. The indemnity
agreement in this paragraph shall, upon the same terms and conditions, extend to
and inure to the benefit of each person, if any, who may be deemed to control
NTB.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us a copy containing your executed acceptance. We look
forward to working with you in connection with this matter.
Sincerely yours,
NEIDIGER, TUCKER, BRUNER, INC.
By: /s/ NEIDIGER, TUCKER, BRUNER, INC.
----------------------------------
ACCEPTANCE
Mark E. Munro does hereby accept the terms and provisions of the foregoing
letter agreement and does this 27th day of October, 1999, agree to be bound by
same.
By: /s/ Mark E. Munro
---------------------------------
President
<PAGE>
Exhibit 10.22
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 22nd day
of May, 1999, by and between, BiznessOnline.com, Inc., a Delaware corporation
(the "Company") and Anthony Bruno, an individual with a mailing address at 40
Brentwood Road, Exeter, NH 03833 ("Employee").
INTRODUCTION
The Company is in the business of acquiring Internet service provider
businesses. Employee possesses skills and knowledge advantageous to the Company.
The Company desires to employ Employee and Employee desires to accept such
employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises herein below set forth, the
parties hereby agree as follows:
1. EMPLOYMENT; DUTIES. Subject to the terms and conditions set forth herein,
the Company hereby employs Employee during the Employment Period (as
defined below), and Employee hereby accepts such employment. Employee
agrees to be a full-time employee of the Company and devote his full and
exclusive time, energy, skill and best efforts to the business of the
Company and to the fulfillment of Employee's duties hereunder. Employee's
duties include, but are not limited to, (i) serving as Vice President of
Operations of the Company; (ii) assisting in the internal growth of the
Company's business; and (iii) other duties assigned to Employee by the CEO
of the Company from time to time consistent with Employee's position.
2. EMPLOYMENT PERIOD. Subject to earlier termination pursuable to SECTION 4
and SECTION 5 below, this Agreement shall commence on the date hereof and
continue for a one (1) year period (the "Employment Period"). Thereafter,
this Agreement shall automatically renew for additional one (1) year
periods unless the Company gives the Employee ninety (90) days written
notice of its intention not to renew prior to the end of the then current
one (1) year term.
3. COMPENSATION AND BENEFITS.
3.1. SALARY. During the Employment Period, the Company agrees to pay
Employee at the rate of $85,000 per annum ("Base Salary").
Employee's salary shall be subject to customary withholdings and be
payable to Employee on the regularly occurring pay period
established time to time by the Company.
3.2. HEALTH BENEFITS. During the Employment Period, the Company shall
provide Employee with family health care coverage, as provided by
health care provider(s) selected by the Company from time to time.
3.3. BONUS. During the Employment Period, Employee shall be eligible
for discretionary bonuses based upon realization of specific growth
objectives determined by the Company including.
3.4. RETIREMENT PLAN. During the Employment Period, Employee shall be
entitled to participate in any 401(k) or similar benefit/profit
sharing plan adopted by the Company for the benefit of its
employees. The Company reserves the right to modify, terminate or
withdraw any such plan (if so adopted) at any time in its sole
discretion.
<PAGE>
3.5. STOCK OPTIONS. Employee shall receive an initial grant of incentive
stock options for 30,000 shares of common stock of the Company with
a three (3) year vesting plan (i.e. 10,000 per year) provided any
options not vested upon termination of employment shall terminate.
The Company shall provide a customary option agreement to Employee.
3.6. VACATION. Employee may take up to three (3) weeks paid vacation in
each calendar year during the Employment Period.
3.7. RELOCATION: MOVING EXPENSES. The Company shall reimburse Employee
for any temporary hotel/travel expenses prior to permanent
relocation and for moving expenses for home furnishings.
4. TERMINATION BY THE COMPANY FOR CAUSE. Upon written notice to Employee, the
Company may terminate this Agreement for cause if any of the following
events shall occur: (i) any breach of this Agreement by Employee; (ii) the
commission of a felony by Employee; or (iii) the commission of an act by
Employee involving fraud, theft or dishonesty. In the event of a
termination pursuant to this SECTION 4, all obligations of the Company
under this Agreement shall cease and any stock options, which have not
vested, shall terminate.
5. TERMINATION WITHOUT CAUSE.
5.1. BY EMPLOYER. The Company may terminate this Agreement at any time
without cause upon thirty (30) days written notice to Employee. In
such event, the Company shall, for the greater of six (6) months or
the remainder of the initial one-year term pay Employee during
regular payroll periods (less customary withholding taxes) the Base
Salary and (ii) provide the health benefits described in SECTION
3.2. Provided, however, in either case the Company's severance
obligations hereunder will end on the date Employee secures new
employment.
5.2. BY EMPLOYEE. Employee may terminate this Agreement at any time upon
one hundred and twenty (120) days prior written notice to the
Company. In such case, Employee shall not be eligible for any
severance payments or other benefits after the date of termination.
5.3. TERMINATION OF STOCK OPTIONS. In the event of a termination pursuant
to this SECTION 5, any stock options, which have not vested, shall
terminate.
6. CONFIDENTIALITY AND NON-DISCLOSURE. Employee recognizes and acknowledges
that during the Employment Period he will have access to certain
confidential information relating to the Company and its affiliates,
including, but not limited to, operational policies, financial
information, marketing information, personnel information, trade secrets,
customer information (including customer lists), and pricing and cost
policies, that are valuable, special and unique assets of the Company
(collectively, "Confidential Information"). Employee 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 as is required in the course of performing his duties
hereunder unless (i) such information becomes known to the public
generally through no breach by Employee of this covenant or (ii)
disclosure is required by law or any governmental authority or is required
in connection with the defense of a lawsuit against the disclosing party,
provided, that prior to disclosing any information pursuant to this clause
(ii), Employee shall give prior written notice thereof to the Company and
provide the Company with the opportunity to contest such disclosure.
Employee agrees that, both during the Employment Period and for a period
of twenty-four (24) months after the
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<PAGE>
termination of this Agreement, Employee will hold in a fiduciary capacity
for the benefit of the Company, and shall not directly or indirectly use
or disclose, except as authorized by the Company in connection with the
performance of Employee's duties, any Confidential Information, that
Employee may have or may acquire (whether or not developed or compiled by
Employee and whether or not Employee has been authorized to have access to
such Confidential Information) during the term of this Agreement. The
covenants contained in this SECTION 6 shall survive for the Employment
Period and for a period of twenty-four (24) months thereafter; provided,
however, that with respect to those items of Confidential Information
which constitute trade secrets under applicable law, Employee's
obligations of confidentiality and non-disclosure as set forth in this
SECTION 6 shall continue to survive after the applicable period above to
the greatest extent permitted by applicable law. These rights of the
Company are in addition to those rights the Company has under the common
law or applicable statutes for the protection of trade secrets.
7. NON-COMPETITION. Employee expressly covenants and agrees that for the
Employment Period and for a period of twenty four (24) months thereafter,
he shall not, directly or indirectly, seek, obtain or accept a
"Competitive Position" in the "Restricted Territory" with a "Competitor"
of the Company (as such terms are hereafter defined). 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 or in any related business which the Company and/or its affiliates
may engage in from time to time during the term of this covenant; the
"Restricted Territory" means each state of the United States of America in
which the Company and/or its affiliates transacts business during the term
of this covenant; a "Competitive Position" means any employment with any
Competitor of the Company whereby Employee will use or is likely to use
any Confidential Information, or whereby Employee has duties for such
Competitor that are the same or substantially similar to those actually
performed by Employee pursuant to the terms hereof. Nothing contained in
this SECTION 7 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.
8. NON-SOLICITATION.
8.1. NON-SOLICITATION OF CUSTOMERS. Employee agrees that he will not take
any customer lists of the Company after leaving his employ and that
he will, for the Employment Period and for a period of twenty-four
(24) months thereafter, refrain from soliciting or attempting to
solicit directly or by assisting others, any business from any of
the Company's customers, including actively sought prospective
customers, with whom Employee had "material contact" during the
employment for purposes of providing products or services.
8.2. NON-SOLICITATION OF EMPLOYEES. Employee agrees that he will, for the
Employment Period and for a period of twenty-four (24) months
thereafter, refrain from recruiting or hiring, or attempting to
recruit or hire, directly or by assisting others, any other employee
of the Company who is employed by the Company or any successor or
affiliate of the Company.
9. TOLLING OF PERIOD OF RESTRAINT. Employee hereby expressly acknowledges and
agrees that in the event the enforceability of any of the terms of this
Agreement shall be challenged in court and Employee is not enjoined from
breaching any of the restraints set forth in SECTION 6 through SECTION 8,
then if a court of competent jurisdiction finds that the challenged
restraint is
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<PAGE>
enforceable, the time period of the restraint shall be deemed tolled upon
the filing of the lawsuit challenging the enforceability of the restraint
until the dispute is finally resolved and all periods of appeal have
expired.
10. ACKNOWLEDGEMENTS. Employee hereby acknowledges and agrees that the
restrictions contained in SECTION 6 through SECTION 9 are fair and
reasonable and necessary for the protection of the legitimate business
interests of the Company. Employee acknowledges that in the event
Employee's employment with the Company terminates for any reason, Employee
will be able to earn a livelihood without violating the restrictions
contained in SECTION 6 through SECTION 9 and that Employee's ability to
earn a livelihood without violating such restrictions is a material
condition to Employee's employment and continued employment with the
Company. Employee expressly agrees that the character, duration and
geographical scope of the covenants contained in this SECTION 6 through
SECTION 9 are reasonable in light of the circumstances as they exist at
the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at
a later date that the character, duration or geographical scope of the
covenants contained herein are unreasonable in light of the circumstances
as they then exist, then it is the intention of both Employee and the
Company that these covenants shall be construed by the court in such a
manner as to impose only those restrictions on the conduct of Employee
which are reasonable in light of the circumstances as they then exist and
necessary to assure the Company of the intended benefit of these
covenants.
11. RIGHTS TO MATERIALS; WORK FOR HIRE. All records, files, memoranda,
reports, price lists, customer lists, drawings, plans, sketches, documents
and the like (together with all copies thereof) relating to the business
of the Company, which Employee shall use or prepare or come in contact
with in the course of, or as a result of, his employment shall, as between
the parties hereto, remain the sole property of the Company. Upon the
termination of Employment or upon the prior demand of the Company,
Employee shall immediately return all such materials and shall not
thereafter cause removal thereof from the premises of the Company.
Employee agrees to disclose and assign to the Company as its exclusive
property, all ideas, writings, inventions, discoveries, improvements and
technical or business innovations made or conceived by Employee, whether
or not patentable or copyrightable, either solely or jointly with others
during the Employment Period and for a period of two (2) years thereafter
whether or not made or conceived during regular hours of work or
otherwise, which are along the lines of the business, work or
investigations of the Company or its affiliates. Employee agrees to
execute any and all documents hereafter requested by the Company necessary
to further effectuate the foregoing.
12. REMEDIES. Without limiting the Company's right to claim damages, Employee
acknowledges that the Company will be irreparably harmed by a breach of
any provision of this Agreement and Employee agrees that the Company shall
be entitled to injunctive relief in the event of such breach.
13. GOVERNING LAW; ARBITRATION; JURISDICTION; VENUE; ATTORNEY'S FEES. This
Agreement is made and entered into in and shall be governed by and
interpreted in accordance with the laws of, the State of New Jersey. The
Company and Employee agree 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
parties shall mutually select the arbitrator(s) or in the event the
parties cannot mutually agree, then appointed by JAMS/Endispute. Any
arbitration shall be held within a forty-five (45) mile radius of Wall,
New Jersey and the arbitrator(s) shall apply New Jersey 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
Company shall have the absolute right to obtain equitable remedies in any
state court of competent
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jurisdiction in the State of New Jersey or in the United States District
Court in the state of New Jersey. By his execution and delivery of this
agreement, Employee 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 convenient) 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 in any litigation or arbitration.
14. MISCELLANEOUS.
14.1. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof
and supersedes any and all previous agreements, written and oral,
regarding the subject matter hereof between the parties hereto. This
Agreement shall not be changed, altered, modified or amended, except
by a written agreement signed by both parties hereto.
14.2. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall
be in writing and shall be deemed to have been given if delivered by
hand, sent by generally recognized overnight courier service, telex
or telecopy, or mail,
(a) To the Company: With a copy to:
BiznessOnline.com Duffy & Sweeney, LLP
1100 First Avenue 300 Turks Head Building
Spring Lake, NJ 07762 Providence, RI 02903
Attention: Mark E. Munro, CEO Attention: Michael F. Sweeney, Esq.
Telephone: (732) 280-6408 Telephone: (401) 455-0700
Fax: (732) 280-6409 Fax: (401) 455-0701
(b) To the Employee at:
Anthony Bruno
40 Brentwood Road
Exeter, NH 03833
14.3. ASSIGNMENT. The Company may assign this Agreement to any entity
controlling, controlled by or under common control with the Company
or (ii) to any purchaser of the Company's assets provided that such
purchaser agrees to assume the Company's obligations hereunder.
14.4. SEVERABILITY. If any term or provision of this Agreement, or the
application thereof to any person or under any circumstance, shall
to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or
unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and
enforceable to the fullest extent permitted by law. The invalid or
unenforceable provisions shall, to the extent permitted by law, be
deemed amended and given such interpretation as to achieve the
economic intent of this Agreement.
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<PAGE>
14.5. WAIVER. The failure of any party to insist in any one instance or more
upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed
as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party
of any violation of, breach of or default under any provision of this
Agreement by the other party shall not be construed as, or constitute, a
continuing waiver of such provision, or waiver of any other violation of,
breach of or default under any other provision of this Agreement.
14.6. TITLES;GENDER. 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. All pronouns or any
variations thereof contained in this Agreement refer to the masculine,
feminine or neuter as the identity of the person may require.
14.7. SURVIVAL. SECTION 6 through SECTION 14 hereof shall survive any
termination of this Agreement.
14.8. EXECUTION IN COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of, which shall
constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY:
ATTEST: BiznessOnline.com, Inc.
/s/ Mark E. Munro
----------------------------------------
By: Mark E. Munro
WITNESS: EMPLOYEE:
________________________________ /s/ Anthony Bruno
----------------------------------------
Anthony Bruno
<PAGE>
EXHIBIT 10.23
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is entered into as of this
1st day of February, 2000 by and between BiznessOnline.com, Inc., a Delaware
corporation (the "Company") and Anthony Bruno, an individual with an address at
40 Brentwood Road, Exeter, New Hampshire 03833 ("Employee").
INTRODUCTION
1. The Company and Employee entered into that certain Employment
Agreement dated as of May 22, 1999 (the "Employment Agreement"), pursuant to
which the Company employed Employee as its Vice President of Operations.
2. The Company and Employee now desire to amend the Employment Agreement
as hereinafter set forth.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
I. A new Section 3.8 regarding severance payments is hereby added
to the Employment Agreement as follows:
"3.8 SEVERANCE PAYMENTS.
3.8.1 TERMINATION BY THE COMPANY. In the event the Company
terminates this Agreement pursuant to Section 5 (Termination Without Cause), the
Company shall, prior to the effective date of the termination, pay Employee, in
one lump sum, an amount equal to (a) 1.5 times Employee's Base Salary, at his
then current rate, less applicable taxes, if termination shall occur prior to a
"Change in Control" or an "Approved Change in Control" (both as hereinafter
defined) or subsequent to an Approved Change in Control, or (b) 2.0 times
Employee's annual salary, at his then current rate, less applicable taxes, if
termination shall occur after a Change in Control. The Company shall also pay
Employee's health insurance benefits at described in SECTION 3.2 for a period of
one year in the event of termination pursuant to SECTION 5, and in the event of
a Change in Control, any options granted to Employee shall become fully vested
as of such date of termination in connection with such Change of Control.
3.8.2 DEFINITIONS.
(a) CHANGE IN CONTROL. A "Change in Control" shall be
deemed to have occurred in any of the following events:
<PAGE>
(i) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than (a) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, (b) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" or group (as such terms are defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) acquires more than 30% of the combined voting
power of the Company's then outstanding securities, or (c) a reorganization
pursuant to which the Company creates a holding company for itself in which the
stockholders of the Company immediately prior to the reorganization (other than
those exercising dissenters' rights) become the stockholders of the holding
company immediately after the reorganization; or
(ii) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets;
or
(iii) as a result of or in connection with any cash
tender offer, merger, or other business combination, sale of assets or contested
election, or combination of the foregoing, the persons who were directors of the
Company just prior to such event shall cease to constitute a majority of the
Board; or
(iv) when any "person" or "group" (as such terms are
defined in Section 13(d)(3) of the Securities Exchange Act of 1934) becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the Company
representing forty percent (40%) or more of the total number of votes that may
be cast for the election of directors of the Company; or
(v) the closing of a transaction or series of
transactions in which more than 50% of the voting power of the Company is
transferred; or
(vi) a tender offer or exchange offer for the common
stock of the Company, other than one made by the Company or by a person or group
(as such terms are defined in Section 13(d)(3) of the Securities Exchange Act of
1934) that on the date hereof holds more than 5% of the outstanding shares of
the Company entitled to vote for the election of directors, where the offeror
acquires more than 40% of the outstanding shares of common stock of the Company.
(b) APPROVED CHANGE IN CONTROL. An "Approved Change in
Control" of the Company shall mean a Change in Control that is approved by a
majority of the Company's Board of Directors."
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II. Sections 4 and 5 of the Employment Agreement are hereby deleted and
replaced in their entirety by the following new Sections 4 and 5:
4. TERMINATION FOR CAUSE; DISABILITY
4.1 TERMINATION FOR CAUSE. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company. As used in this Section 4.1, "cause" shall
mean any or all of the following: (i) gross or willful misconduct of Employee
during the course of his employment; (ii) conviction of a felony or any criminal
offense involving dishonesty, breach of trust or moral turpitude during the
Employment Period; or (iii) Employee's breach of any of the material terms of
this Agreement. In the event of a for cause termination, all stock options
granted to the Employee, whether vested or not vested, shall immediately
terminate.
4.2 DISABILITY. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability on thirty (30) days' prior
notice to Employee.
5. TERMINATION WITHOUT CAUSE. Upon ninety (90) days prior written
notice, the Company may terminate this Agreement without cause and without
further liability to the Company except as set forth in SECTION 3.8.
III. Except as modified herein, the Employment Agreement is hereby
ratified, confirmed and approved in all respects.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ATTEST: BIZNESSONLINE.COM, INC.
By: /s/ MARK E. MUNRO
- - ---------------------------- ----------------------------------
Title: CEO
WITNESS: EMPLOYEE:
/s/ ANTHONY BRUNO
- - ---------------------------- ----------------------------------
Anthony Bruno
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EXHIBIT 10.24
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is entered into as of this
1st day of February, 2000 by and between BiznessOnline.com, Inc., a Delaware
corporation fka InSite Internet, Inc. (the "Company") and Daniel J. Sullivan, an
individual with an address at 2375 Apple Ridge Circle, Manasquan, New Jersey
08736 ("Employee").
INTRODUCTION
1. The Company and Employee entered into that certain Employment
Agreement dated as of January 25, 1999 (the "Employment Agreement"), pursuant to
which the Company employed Employee as its Chief Financial Officer.
2. The Company and Employee now desire to amend the Employment Agreement
as hereinafter set forth.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
I. In Section 1 of the Employment Agreement, after the words
"Chief Financial Officer", the words "and Vice President" are hereby added.
II. A new Section 3.8 regarding severance payments is hereby added
to the Employment Agreement as follows:
"3.8 SEVERANCE PAYMENTS.
3.8.1 TERMINATION BY THE COMPANY. In the event the
Company terminates this Agreement pursuant to Section 5 (Termination Without
Cause), the Company shall, prior to the effective date of the termination, pay
Employee, in one lump sum, an amount equal to (a) 1.5 times Employee's Base
Salary, at his then current rate, less applicable taxes, if termination shall
occur prior to a "Change in Control" or an "Approved Change in Control" (both as
hereinafter defined) or subsequent to an Approved Change in Control, or (b) 2.0
times Employee's annual salary, at his then current rate, less applicable taxes,
if termination shall occur after a Change in Control. The Company shall also pay
Employee's health insurance benefits at described in SECTION 3.2 for a period of
one year in the event of termination pursuant to SECTION 5, and in the event of
a Change in Control, any options granted to Employee shall become fully vested
as of such date of termination in connection with such Change of Control.
<PAGE>
3.8.2 DEFINITIONS.
(a) CHANGE IN CONTROL. A "Change in
Control" shall be deemed to have occurred in any of the following events:
(i) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (a) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, (b) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" or group (as such terms are defined in Section 13(d)(3) of
the Securities Exchange Act of 1934) acquires more than 30% of the combined
voting power of the Company's then outstanding securities, or (c) a
reorganization pursuant to which the Company creates a holding company for
itself in which the stockholders of the Company immediately prior to the
reorganization (other than those exercising dissenters' rights) become the
stockholders of the holding company immediately after the reorganization; or
(ii) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets; or
(iii) as a result of or in connection
with any cash tender offer, merger, or other business combination, sale of
assets or contested election, or combination of the foregoing, the persons who
were directors of the Company just prior to such event shall cease to constitute
a majority of the Board; or
(iv) when any "person" or "group" (as
such terms are defined in Section 13(d)(3) of the Securities Exchange Act of
1934) becomes a "beneficial owner" (as such term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934), directly or indirectly, of securities of
the Company representing forty percent (40%) or more of the total number of
votes that may be cast for the election of directors of the Company; or
(v) the closing of a transaction or
series of transactions in which more than 50% of the voting power of the Company
is transferred; or
(vi) a tender offer or exchange offer
for the common stock of the Company, other than one made by the Company or by a
person or group (as such terms are defined in Section 13(d)(3) of the Securities
Exchange Act of 1934) that on the date hereof holds more than 5% of the
outstanding shares of the Company entitled to vote for the election of
directors, where the offeror acquires more than 40% of the outstanding shares of
common stock of the Company.
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(b) APPROVED CHANGE IN CONTROL. An
"Approved Change in Control" of the Company shall mean a Change in Control that
is approved by a majority of the Company's Board of Directors."
III. Sections 4 and 5 of the Employment Agreement are hereby deleted and
replaced in their entirety by the following new Sections 4 and 5:
4. TERMINATION FOR CAUSE; DISABILITY
4.1 TERMINATION FOR CAUSE. The Company may discharge
Employee and terminate his employment under this Agreement for cause without
further liability to the Company. As used in this Section 4.1, "cause" shall
mean any or all of the following: (i) gross or willful misconduct of Employee
during the course of his employment; (ii) conviction of a felony or any criminal
offense involving dishonesty, breach of trust or moral turpitude during the
Employment Period; or (iii) Employee's breach of any of the material terms of
this Agreement. In the event of a for cause termination, all stock options
granted to the Employee, whether vested or not vested, shall immediately
terminate.
4.2 DISABILITY. If during the Employment Period, Employee
shall become ill, disabled or otherwise incapacitated so as to be unable to
perform his usual duties (a) for a period in excess of one hundred twenty (120)
consecutive days or (b) for more than one hundred eighty (180) days in any
consecutive twelve (12) month period, then the Company shall have the right to
terminate this Agreement without further liability on thirty (30) days' prior
notice to Employee.
5. TERMINATION WITHOUT CAUSE. Upon ninety (90) days prior written
notice, the Company may terminate this Agreement without cause and without
further liability to the Company except as set forth in SECTION 3.8.
IV. Except as modified herein, the Employment Agreement is hereby
ratified, confirmed and approved in all respects.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ATTEST: BIZNESSONLINE.COM, INC.
By:/s/ MARK E. MUNRO
- - ---------------------------- ----------------------------------
Title: CEO
WITNESS: EMPLOYEE:
/s/ DANIEL J. SULLIVAN
- - ---------------------------- ----------------------------------
Daniel J. Sullivan
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Exhibit 10.25
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
INTRODUCTION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is entered into as of the 5th day of December, 1999 by and among
BiznessOnline.com, Inc., a Delaware corporation (the "Parent"), BOL Acquisition
Co. II, Inc., a New York corporation ("BOL"), (the Parent and BOL are sometimes
collectively referred to herein as the "Buyer") Telesupport, Inc., a New York
corporation, (the "Company"), and Joseph Sullivan and Bruce Becker, the holders
of all of the issued and outstanding shares of capital stock of the Company (the
"Stockholders").
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 New York 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 Stockholders 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 a properly executed certificate of merger for the
merger of the Company into BOL, conforming to the requirements of the New York
Business Corporation Law (the "Merger Certificate") shall be delivered and
accepted for filing by the Secretary of State for New York. 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 Company shall cease and BOL
shall continue as the surviving corporation (the "Surviving Corporation").
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time:
<PAGE>
(a) The Certificate of Incorporation of BOL shall become the
Certificate of Incorporation of the Surviving Corporation; and, subsequent to
the Effective Time, such Certificate of Incorporation shall be the Certificate
of Incorporation 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 Surviving Corporation's state of incorporation and
of the Certificate of Incorporation 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 Certificate of Incorporation and bylaws of the Surviving
Corporation, until his or her successor is elected and qualified.
1.4 EFFECT OF MERGER. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of the New York 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, 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.
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(a) As of the Effective Time, all of the shares of capital
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, that number of shares of common stock of the
Parent, par value $.01 per share ("Parent Stock") equal to $3,000,000 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 (the "Merger Consideration").
(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, the Stockholders shall deliver their
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 Stockholders shall receive, pro rata, 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 $1,125,000 (the "Escrow Shares") shall be delivered into escrow with
the Parent's counsel (the "Escrow Agent") of which (i) $1,000,000 shall be held
for a period of one year from the Closing Date and (ii) $125,000 shall be held
for a period of two years from the Closing Date, all 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 Stockholders of the representations and warranties of the Company
and the Stockholders 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 indemnity provisions of SECTION 12
below (pending resolution of such claims as provided in Section 13.6 below) and
in accordance with the Escrow Agreement. Such right of setoff shall be in
addition to the Parent or BOL's right to seek damages or obtain any other remedy
at law or in equity to which the Parent or BOL would be entitled by virtue of
such breach.
(b) The Stockholders shall deliver to counsel for the Parent
at the Closing the certificates representing Company Stock, duly endorsed in
blank by the Stockholders or accompanied by duly executed stock powers, to hold
in escrow until the Effective Time. The Stockholders 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.
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(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 Stockholders will be paid an amount in cash based on the
average NASDAQ National Market Price (as defined above) of Parent Stock for the
20 business days ending on the second business day preceding the Closing Date.
1.7 CLOSING. The closing of the Merger (the "Closing") shall occur on or
before the tenth business day after satisfaction or waiver of all of the
conditions set forth in SECTION 6 AND 7 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, the 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. Simultaneously with
the Closing, BOL Acquisition Co. III, Inc., a wholly owned subsidiary of the
Parent ("BOL III") shall purchase substantially all of the assets and assume
certain liabilities of Telecon Communications Corp., a New York corporation
("Telecon").
SECTION 2 [INTENTIONALLY OMITTED]
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS.
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 Stockholders hereby jointly and
severally make to the Parent and BOL the representations and warranties
contained in this SECTION 3, which shall be true and correct as of the date
hereof and as of the Closing Date.
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 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
New York and the bylaws certified by the Secretary 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
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, the Company does not own or have any direct
or
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indirect interest in or control over any corporation, partnership, joint venture
or entity of any kind. Except as set forth in Schedule 3.3, the Stockholders do
not own or have any direct or indirect interest in or control over any
corporation, partnership, joint venture or entity of any kind which is in the
business of selling internet access service, web site design or hosting
services, long distance or local telecommunications products or services, or any
other business which is related to or could reasonably be beneficial to the
operations of the Company, the Parent or BOL except for investments in publicly
traded securities in which the Stockholder owns no more than 5% of the
outstanding common stock of the issuer of such securities. 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 solely of the shares listed on SCHEDULE 3.4. All of the issued and
outstanding shares of the Company Stock are duly authorized and validly issued,
are fully paid and nonassessable, are owned of record and beneficially by the
Stockholders as set forth in SCHEDULE 3.4, 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 preemptive rights of any past or
present stockholders. No shares of the Company Stock are held in the treasury of
the Company except as set forth on SCHEDULE 3.4. The Stockholders hold of record
and own beneficially all of the Company Stock, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), taxes, security interests, mortgages, pledges,
liens, encumbrances, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. None of the Stockholders are a party to any
option, warrant, or other contract or commitment that could require any
Stockholder to sell, transfer, or otherwise dispose of any Company Stock (other
than this Agreement). None of the Stockholders are a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
Company Stock. SCHEDULE 3.4 contains a complete and correct listing of the
stockholders of the Company at the date hereof, together with their residence
addresses and the number and class of the capital stock of the Company owned by
each such stockholder. 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 except as set forth on
SCHEDULE 3.4.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders each have full right, power and
authority to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by it or any of them 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 Stockholders by a unanimous written consent vote. This Agreement and each
agreement,
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document and instrument to be executed and delivered by the Company or by the
Stockholders pursuant to or as contemplated by this Agreement (to the extent it
contains obligations to be performed by the Company and/or the Stockholders)
constitutes, or when executed, delivered and approved by the Company
Stockholders will constitute, valid and binding obligations of the Company
and/or the Stockholders, enforceable in accordance with their respective terms.
The execution, delivery and performance by the Company and/or the Stockholders
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 Company;
(ii) except as otherwise indicated on SCHEDULE 3.5
hereto, does 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; and
(iii) except as otherwise indicated on SCHEDULE 3.5 hereto, does
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 and/or the Stockholders 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 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.
Except as disclosed on SCHEDULE 3.5, 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. SCHEDULE 3.6(a) lists and describes
briefly all the real property owned or leased by the (the "Real Property").
(i) TITLE. Except as set forth on SCHEDULE 3.6(a), to
the knowledge of the Stockholders, 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. There are
no leases, tenancies or occupancy rights of any kind affecting any of
the Real Property.
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(ii) SECURITY INTERESTS. 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.
(iii) COMMISSIONS. 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 Real Property, and no such
fees, commissions or other compensation shall, by reason on any
existing agreement, become due after the date hereof.
(iv) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition
of 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"). 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. 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.
(vi) 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.
(vii) GOVERNMENT AUTHORIZATIONS. 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. All facilities have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations, except where the failure to do so would not have a
material adverse effect on the Company.
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(viii) 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.
(ix) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid. Each property
constituting part of the Real Property is assessed as a separate and
distinct tax lot.
(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") is
set forth on SCHEDULE 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 and/or Telecon
having a fair market value of at least $10,000 (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 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) Combined financial statements of the Company and
Telecon for the fiscal year ended December 31, 1998, compiled by
Washburn, Ellingwood, Sheeler & Thaisz utilizing the accrual method of
accounting and certified by the Vice President of the Company as to the
truth and accuracy of such financial statements with respect to the
representations made in this Section 3.7 (the "Year End Company
Financial Statements"); and
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(ii) Draft management prepared financial statements
of the Company and Telecon as of September 30, 1999 (herein the "Company
Balance Sheet Date") and statements of income, stockholders' equity and
cash flows for the nine (9) months then ended, certified by the Vice
President of the Company as to the truth and accuracy of such financial
statements with respect to the representations made in this Section 3.7
(the "Interim Company Financial Statements", together with the Year-End
Company Financial Statements, the "Company Financial Statements").
The Year-End Company Financial Statements have been prepared in accordance with
GAAP based on the accrual method of accounting (except that the Interim Company
Financial Statements are subject to normal year-end audit adjustments and do not
include footnotes). The Interim Company Financial Statements have been prepared
in accordance with GAAP based on the accrual method of accounting applied
consistently in accordance with the Year End Company Financial Statements
(except that the Interim Company Financial Statements are subject to normal
year-end audit adjustments and do not include footnotes). The Company Financial
Statements 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.
(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) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except liabilities
which are 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) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except liabilities
(i) stated or adequately reserved for 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
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reserved for on the financial statements provided to the Parent pursuant to
SECTION 3.7 hereof). The Company has no unpaid tax liability for prior tax years
exceeding $25,000 and the Company and the Stockholders agree, jointly and
severally, to indemnify and hold the Buyer and its officers, directors, agents
and affiliates harmless from and against any liability for unpaid taxes of the
Company and the Stockholders.
(b) Except as set forth in SCHEDULE 3.8, 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 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 Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
Further, the Company has at all times maintained its status as a Subchapter S
corporation under the Code, and the Company and the Stockholders will indemnify
and hold harmless BOL and the Parent in respect of any liabilities, costs or
other claims made upon the Buyer by the IRS or any other federal, state or local
governmental entity in respect of any inadvertent termination of the Company's S
Corporation status as a result of any actions by the Company or the Stockholders
since inception of the Company and prior to Closing, including but not limited
to any distributions, stock transfers, or other events that may terminate an S
election under applicable sections of the Code in force at the time of any such
event.
(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
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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
and any similar provisions of federal, state, local or foreign law.
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 in excess
of $1,000 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 less than $80,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1998 through the date hereof, 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 that is material and adverse to the
business, assets, liabilities, results of operations or financial
condition of the Company taken as a whole (a "Material Adverse
Change"); provided that a Material Adverse Change does not include the
impact of any of the following: (A) changes in applicable law of
general applicability or the implementation thereof; (B) actions taken
by the Company with the express written consent of the Buyer; (C)
circumstances affecting the Internet access, long distance telephone,
natural gas sales and related business generally; and (D) the effects
of the transactions contemplated by this Agreement;
(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 or claim of, the Company
except for the cancellation or compromise of accounts receivable in the
ordinary course of the Company's business not exceeding an aggregate of
$15,000;
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(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
$25,000;
(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 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;
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(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
(i) through (xii) 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 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. Except as 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.
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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 $50,000 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;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $25,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $20,000 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 other than customer contracts entered into in the ordinary
course of the Company's business;
(vii) any contract or agreement for the sale or lease
of its products or services not made in the ordinary course of
business;
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(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 $25,000 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 trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) To the best of the Company's and the Stockholders'
knowledge, all material contracts, agreements, leases and instruments to which
the Company is a party or by which the Company is obligated are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Company and the other parties thereto, enforceable in accordance with their
respective terms. To the best of the Company's and the Stockholders' knowledge,
neither the Company nor 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 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
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is 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 best of the
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Company's and the Stockholders' knowledge, threatened against the Company which
may have an 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
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation, except where the failure
to be in compliance would not have a material adverse effect on the Company.
3.18 INSURANCE. SCHEDULE 3.18 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 Seller 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 and will continue to be so through the Closing Date;
(ii) neither 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 (iii) no party to the policy has
repudiated any provision thereof. SCHEDULE 3.18 describes any self-insurance
arrangements affecting the Seller.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, 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.
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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 Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Permits") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Permits,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Permits 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 Permits 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 material competitor, supplier or customer of
the Company or any organization, person or entity with whom the Company is doing
a material amount of business.
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
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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 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;
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(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 a 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.
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 best knowledge of the Company and the
Stockholders, 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 best knowledge
of the Company and the Stockholders, 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 best knowledge of the Company and the Stockholders, 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 best knowledge of the Company and the Stockholders, 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) the Company
has no liability under, nor has the Company ever violated in any material
respect, any Environmental Law (as defined below); (ii) 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) 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 any Stockholder has any reason to believe that
any of the items enumerated in clause (iii) of this paragraph will be
forthcoming.
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(c) Except as set forth in SCHEDULE 3.24 hereto, to the best
knowledge of the Company and the Stockholders, 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 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 $40,000
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. No charges
of employment discrimination or unfair labor practices have been brought against
the Company, 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).
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No collective bargaining agreements are in effect or are currently being or are
about to be negotiated by the Company. Except for the Stockholders, 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 any customer who accounted for
more than 5% of the combined sales of the Company and Telecon 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 relationship with the
Company or to decrease materially or limit its usage or purchase of the services
or products of the Company. For purposes of this SECTION 3.27, each customer
account of the Company and Telecon shall be deemed a separate customer,
notwithstanding the fact that in some instances a single person or entity may
have more than one customer account.
3.28 Y2K. The Company has taken the actions described in SCHEDULE 3.28
to assess, evaluate, test and correct all of the hardware, software, embedded
microchips and other processing capabilities of computer and telecommunication
systems it uses in any material portion of its business, 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. To
the best of the Company's and the Stockholders' knowledge, computerized services
provided by third parties to the Company such as billing and payroll services
will be able to function accurately and without interruption or ambiguity using
date information before, during and after January 1, 2000.
3.29 [Intentionally Omitted]
3.30 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Stockholders and the Company, together with the other
information furnished to the Parent and BOL by the Company and the Stockholders
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. If, prior to the 90th day after the date of the Closing, the Company
or the Stockholders become aware of any fact or circumstance which would affect
the accuracy of a representation or warranty of the Company or the Stockholders
in this Agreement, in any material respect, the Company and the Stockholders
shall immediately give notice of such fact or circumstance to the Parent and
BOL. However, subject to the provisions of SECTION 4.7, such notification shall
not relieve either the Company or the Stockholders of their respective
obligations under this Agreement, and subject to the provisions of SECTION 4.7,
at the sole option of the Parent and BOL, the truth and accuracy of any and all
warranties and representations of the Company and of the Stockholders at the
date of this Agreement and on the Closing Date and immediately prior to at the
Effective Time, shall be a precondition to the consummation of this transaction;
provided that, solely for purposes of this pre-Closing condition, and not for
purposes of evaluating compliance with or breach of any representation or
warranty post-Closing, "truth and accuracy" shall mean "truth and accuracy in
all material respects" provided such representation or warranty is not otherwise
qualified by materiality.
SECTION 4 COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
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4.1 MAKING OF COVENANTS AND AGREEMENTS. The Company and the
Stockholders 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 Stockholders will cause the Company to do and the Company
will do the following, unless Parent and BOL 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 $15,000 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 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
reasonable 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;
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(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;
(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), upon reasonable prior notice, 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. The Company and the Stockholders 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 Company and the Stockholders under this Agreement, including, without
limitation, the consents and authorizations described in SCHEDULE 3.15 and such
other authorizations, waivers, approvals, consents and permits as set forth in
Schedule 3.21 as may be necessary to transfer to BOL and/or to retain in full
force and effect without penalty subsequent to the Effective Time all contracts,
permits, licenses and franchises of or applicable to the businesses of the
Company.
4.4 ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. On the date hereof
Stockholders will execute and deliver a unanimous written consent in lieu of a
meeting in accordance with applicable law for the purpose of authorizing the
transactions contemplated hereby. The recommendation of the Board of Directors
will remain in effect at all times prior to the Effective Time. The Stockholders
hereby agree to vote all shares of capital stock of the Company held of record
by them or over which they exercise voting control in favor of the Merger, this
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Agreement and the consummation of the transactions contemplated hereby and shall
not demand appraisal or dissenter's rights in connection with the merger under
the New York Business Corporation Law.
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 Stockholders 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 Stockholders shall neither sell, exchange, deliver,
assign, pledge, encumber nor otherwise transfer or dispose of any Company Stock
owned beneficially or of record by the Stockholders, 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 Stockholders shall be bound by this Agreement.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent and BOL 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
Stockholders contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any material failure of the Stockholders 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 Stockholders agree
that, with respect to the representations and warranties contained in this
Agreement, the Company and the Stockholders 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 Stockholders 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 Stockholders agree to
notify the Parent 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
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of any and all representations and warranties of the Stockholders 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 Parent (provided that, solely for
purposes of this pre-Closing condition, and not for purposes of evaluating
compliance with or breach of any representation or warranty post-Closing, "truth
and accuracy" of a representation or warranty shall mean "truth and accuracy in
all material respects" of such representation or warranty, provided that such
representation or warranty is not otherwise qualified by materiality), and
Parent shall not be deemed to have consented to any amendment or supplement to a
Schedule prepared by the Stockholders after the date hereof or to have waived
any of its rights or remedies for breach hereof, 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, unless the Parent acknowledges and consents to such
amendment or supplement.
4.9 FURTHER ASSURANCES. The Company and the Stockholders 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 and
as of the Closing Date, the Parent and BOL hereby represent and warrant to the
Stockholders and the Company jointly and severally as set forth in this SECTION
5.
5.2 ORGANIZATION AND QUALIFICATION OF THE PARENT AND BOL. The Parent
and BOL are corporations duly organized, validly existing and in good standing
under the laws of Delaware and New York, respectively, with full corporate power
and authority to own or lease their respective properties and to conduct their
respective businesses 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. Each of the Parent and BOL 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 Parent and BOL,
respectively.
5.3 AUTHORITY. All necessary corporate action has been taken by 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 the Parent and/or BOL 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
their respective terms, subject, however, to the extent the enforceability may
be limited by the effect of bankruptcy, insolvency or similar laws affecting
creditors' rights generally or by principles of equity..
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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) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or BOL; and (ii) 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. Except
for the filing of the Certificate of Merger with the Secretary of State of New
York, 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 Parent or BOL is required in connection
with the execution, delivery or performance of this Agreement by the Parent or
BOL or the consummation of the transactions contemplated by this Agreement by
the Parent or BOL, the failure of which to obtain would (i) prevent the Closing,
or (ii) have a material adverse effect on the Stockholders. The Stockholders
acknowledge that in order to issue the Parent Stock to the Stockholders pursuant
to this Agreement, the Parent and BOL will rely upon a private placement
exemption based in part upon certain representations and warranties of the
Stockholders contained herein.
5.5 SEC FILINGS. The Parent has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since the closing of the Parent's initial public
offering on May 17, 1999 (the "Parent SEC Documents"). As of its filing date,
each Parent SEC Document filed, as amended or supplemented, if applicable, (i)
complied in all material respects with the applicable requirements of the
securities Act or the Exchange Act, as applicable, and the rules and regulations
thereunder and (ii) did not, at the time it was filed, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading.
5.6 FINANCIAL STATEMENTS. Each of the consolidated financial statements
(including, in each case, any related notes) contained in the Parent SEC
Documents, including any Parent SEC Documents filed from the date of this
Agreement until the Closing, complied or will comply in all material respects
with the applicable published rules and regulations of the SEC with respect
thereto, was or will be prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q or 8-K promulgated by the SEC), and fairly presented or
will fairly present the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
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statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
5.7 PARENT STOCK.
(a) The Parent Stock to be delivered to the Stockholders 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. Such 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 8 below. A portion of the Parent Stock
will also be subject to the escrow provisions described in Section 1.6 hereof.
(b) The Parent's issuance of the Parent Stock (i) has been duly
authorized by all requisite corporate action by the Parent, and (ii) will not
violate the Parent's Certificate of Incorporation or Bylaws of the Parent or any
provision of any indenture, mortgage, agreement, contract or other instrument to
which the Parent is a party or by which the Parent or any of its properties or
assets is bound as of the date hereof, or result in a breach of or constitute
(upon notice or lapse of time or both) a default under any such indenture,
mortgage, agreement, contract or other instrument or result in the creation or
imposition of any lien, security interest, mortgage, pledge, charge or other
encumbrance, of any nature whatsoever, upon any properties or assets of the
Parent.
(c) As of the date hereof, the authorized capital stock of the
Parent consists of (a) 39,000,000 shares of common stock, $.01 par value per
share, of which, as of September 30, 1999, 7,318,944 shares were issued and
outstanding, fully paid and non-assessable; and (b) 1,000,000 shares of
preferred stock, $.01 par value per share, of which, as of September 30, 1999,
no shares were issued and outstanding. As of September 30, 1999, (i) options to
acquire 297,500 shares of common stock were outstanding, and (ii) warrants to
purchase 320,000 shares of common stock were outstanding.
5.8 LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no litigation or governmental or administrative proceeding or investigation
pending or to the knowledge of such parties threatened against the Parent or BOL
which would result in any change that is material and adverse to the business,
assets, liabilities, results of operations or financial condition of the Parent
and BOL taken as a whole (a "BIZZ MAC") or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.9 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 promulgated by any federal, state, municipal or
other governmental authority, which violation or alleged violation would result
in a BIZZ MAC.
5.10 DISCLOSURE. This Agreement, together with the other information
furnished to the Company and the Stockholders by the Parent and BOL in
connection herewith, does not contain an untrue statement of material fact or
omit to state a material fact necessary to make the
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statements herein and therein, in light of the circumstances under which they
were made, not misleading.
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 (or, if the Closing occurs on or before the 22nd day of a month, as
of the last day of the month before the last full month before the Closing Date)
and the management prepared statements of income, cash flow and stockholders'
equity for the period then ended, disclosing no Material Adverse Change from the
Company Financial Statements originally furnished by the Company as set forth in
SCHEDULE 3.7. In addition, prior to the Closing Date, the Parent and BOL shall
have had sufficient opportunity to review the audited combined balance sheet of
the Company and Telecon as of December 31, 1998 and the draft audited combined
balance sheet of the Company and Telecon as of December 31, 1999 (assuming the
Closing occurs by April 15, 2000) and the draft audited statements of income,
cash flow and stockholders' equity of such companies for the periods ended on
such dates as audited by the Parent's accounting firm at the Parent's sole
expense in accordance with GAAP, and the Parent shall be satisfied in all
respects that such financial information does not disclose any Material Adverse
Change from the Company Financial Statements.
6.3 NO MATERIAL ADVERSE CHANGE. Since the Company Balance Sheet Date,
the Company shall not have suffered a Material Adverse Change, and the Parent
shall have received on the Closing Date a certificate signed by the President of
the Company and each of the Stockholders to such effect.
6.4 [Intentionally Omitted]
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Hodgson Russ Andrews Woods & Goodyear, LLP, counsel to the Company and the
Stockholders, dated the Closing Date, in substantially the form annexed hereto
as EXHIBIT 6.5.
6.6 [Intentionally Omitted]
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent (i) a certificate,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the New York Secretary of State, showing that the Company is a
subsisting corporation organized under the law of the State of New York and (ii)
a franchise tax report duly issued by the New York State Department of Taxation
and finance showing that all New York State franchise and/or income tax returns
and tax for the Company prior to the date of such certificate have been filed
and paid. The Company shall also have delivered to the Parent 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.
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6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement 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 Company and the Stockholders 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 Stockholders on or before the Closing Date; and the Company and
the Stockholders shall have delivered to the Parent a certificate dated the
Closing Date signed by the Company's President and by the Stockholders to the
foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders 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 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 Stockholders 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 in all
material respects to BOL and the Parent and their counsel.
6.12 EMPLOYMENT/CONSULTING AGREEMENTS.
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(a) MARSHALL EMPLOYMENT AGREEMENT. Kathleen Marshall shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(a).
(b) SULLIVAN EMPLOYMENT AGREEMENT. Joseph Sullivan shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(b).
(c) BECKER CONSULTING AGREEMENT. Bruce Becker shall have executed
and delivered a consulting agreement with BOL or an affiliate in the form
attached hereto as EXHIBIT 6.12(c).
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered an escrow agreement with BOL in the form attached hereto as EXHIBIT
1.6.
6.14 TELECON. Simultaneous with the Closing, the Parent or a subsidiary
of the Parent shall acquire substantially all of the assets and assume certain
liabilities of Telecon pursuant to an Asset Purchase Agreement between such
parties (the "Telecon Agreement").
SECTION 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
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 Stockholders):
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.
7.4 EMPLOYMENT/CONSULTING AGREEMENTS.
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(a) Marshall EMPLOYMENT AGREEMENT. Kathleen Marshall shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(a).
(b) SULLIVAN EMPLOYMENT AGREEMENT. Joseph Sullivan shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as Exhibit 6.12(b).
(c) BECKER CONSULTING AGREEMENT. Bruce Becker shall have executed
and delivered a consulting agreement with BOL or an affiliate in the form
attached hereto as Exhibit 6.12(c).
7.5 LEGAL OPINION. The Company shall have received an opinion from
Duffy & Sweeney, LLP, counsel to the Parent and BOL, dated the Closing Date, in
substantially the form attached hereto as EXHIBIT 7.5.
7.6 APPROVALS AND CONSENTS. The Parent and BOL 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 Closing Date, 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 Stockholders, 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 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.
7.7 PROCEEDINGS SATISFACTORY TO THE STOCKHOLDERS. All proceedings to be
taken by the BOL and the Parent 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 Company and the
Stockholders shall be reasonably satisfactory in form and substance in all
material respects to the Company and the Stockholders and their counsel.
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
Stockholders hereunder, the Stockholders hereby irrevocably agree that: (i) for
a period of two (2) years after the Closing Date they will not offer, pledge,
sell, assign or otherwise transfer directly or indirectly, fifty percent (50%)
of the Parent Stock, or enter into any agreement that transfers or assigns, in
whole or in part, any of
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the economic consequences of ownership of such shares of Parent Stock received
hereunder (such restrictions adjusted for any stock splits, recapitalizations,
mergers or other similar events); and (ii) the remaining fifty percent (50%) of
the Parent Stock shall be subject to SEC Rule 144. The Stockholders agrees that
the foregoing shall be binding upon Stockholders and their respective
successors, assigns, heirs, and personal representatives. The Parent agrees to
use best efforts to keep current in filing all reports, statements and other
materials required to be filed with the Securities and Exchange Commission and
to take other reasonable steps as necessary to permit sales of the Parent Stock
delivered hereunder in accordance with Rule 144, provided that any such sales
comply with the lock-up provisions set forth herein.
8.2 UNREGISTERED STOCK; INVESTMENT INTENT. The Stockholders
acknowledges and agrees that the shares of Parent Stock to be delivered to the
Stockholders 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 Stockholders represent and
warrant that the Parent Stock to be acquired by Stockholders 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 Stockholders
covenant, warrant and represent that none of the shares of Parent Stock issued
to such Stockholders 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; ACCREDITED INVESTORS; SOPHISTICATED INVESTORS;
INFORMATION. The Stockholders 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. They
further represent and warrant that they are each "Accredited Investors" within
the meaning of Rule 501 under Regulation D of the Act and further that they (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 within 5 business days of the date of this Agreement
(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 acquisition of the Parent Stock. The
Stockholders 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, 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 Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
8.4 RESTRICTIVE LEGENDS. The certificates evidencing the Parent Stock
to be received by the Stockholders 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.
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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 by the Stockholders 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
March 31, 2000, 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; provided, however, the parties agree that such date
shall be extended for up to a maximum of sixty (60) days if the
termination date of the Telecon Agreement is extended pursuant to
SECTION 9.1(b)(i) thereof; 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.
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
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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 five (5) years from and after the
Closing Date (or, with respect to Mr. Sullivan, the later of 5 years after the
Closing Date or 2 years after his employment termination date) the Stockholders
shall not directly or indirectly, (i) seek, obtain or accept a "Competitive
Position" in the "Restricted Territory" with a "Competitor" of the Company, the
Parent, BOL or their affiliates (as such terms are hereafter defined) except
that in the event of a termination of Mr. Sullivan under the terms of his
employment agreement with the Parent which termination is by such employer
"without cause" as defined in such employment agreement, the provisions of this
non-competition covenant shall end with respect to Mr. Sullivan on the later of
the effective employment termination date or the date of the last installment of
any severance or other payment payable to Mr. Sullivan in connection with such
termination, or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, BOL,
the Parent, or their 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, web site design, web hosting
services, long distance or local telephone services, or in any related Internet
or telecommunications business along such lines, or in any related Internet or
telecommunications business along such lines which the Company and/or its
affiliates may engage in or actively plan to engage in from time to time during
the term of this covenant; provided, however, with respect to Mr. Sullivan, a
Competitor shall not include any Internet or telecommunications-related
businesses which were not Competitors of the Parent or its affiliates during Mr.
Sullivan's term of employment with the Parent; the "Restricted Territory" means
(i) with respect to any Competitor engaged in the telephony business (i.e. long
distance or local telephone services or similar business) the New England
States, New York, New Jersey, Pennsylvania, Ohio, Delaware, Maryland, District
of Columbia and any other state in which the Company and/or its affiliates are
doing business in at the time of termination of Mr. Sullivan's employment and
(ii) with respect to any Competitor not included in subsection (i) of this
sentence, the United States of America; a "Competitive Position" means any
employment with any Competitor of the Company or self-employment whereby any
Stockholder will use or is likely to use any Confidential Information, or
whereby any Stockholder would have duties for such Competitor that are the same
or substantially similar to those actually performed by any Stockholders under
the terms of their employment agreement with the Surviving Corporation. Nothing
contained in this SECTION 10 is intended to prevent any Stockholder 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, each Stockholder and members of his or her 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
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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 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently has in the future may have access to
certain confidential information relating to the Company, the Parent and BOL,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and BOL. The Stockholders agree 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 Parent and 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, and (b) following the Closing, such
information may be disclosed by the Stockholders as is required in the course of
performing his/her duties for the Parent or BOL unless (i) such information
becomes known to the public generally through no breach by the Stockholders 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 Stockholders shall give prior written notice thereof to the Parent and
provide the Parent 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 Stockholders of the provisions of this
section, the Parent shall be entitled to an injunction restraining the
Stockholders 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 Stockholders 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 Stockholders 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, unless (i) such information becomes known to the public
generally through no breach by the Parent or BOL of this covenant, (ii)
disclosure is required by law or the order of any governmental authority under
color of law or
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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, if possible,
give prior written notice thereof to the Company and the Stockholders and
provide the Company and the Stockholders 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 Parent or BOL of the
provisions of this Section, the Company and the Stockholders 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 Stockholders 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 against 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 STOCKHOLDERS. The Stockholders jointly and
severally, on behalf of themselves and their respective successors, executors,
administrators, estates, heirs and permitted assigns, agree 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 Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement as supplemented or amended pursuant to SECTION 4.7 hereof, 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, as so
supplemented; or
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(b) any breach of any covenant or agreement made by the Company or
the Stockholders 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 Stockholders shall not be obligated to indemnify the Parent
Indemnified Parties in respect of Parent Indemnifiable Claims except to the
extent the cumulative amount of Losses to Parent Indemnifiable Parties exceeds
$50,000, whereupon all Losses in excess of $25,000 shall be recoverable in
accordance with the terms hereof. (These $50,000/$25,000 thresholds shall not
apply to claims with respect to taxes as described in clause (c) above or as a
result of fraud or intentional misrepresentations by the Stockholders). The
aggregate indemnification obligations of the Stockholders hereunder shall be
limited to the Purchase Price. After payment of such amount, such
indemnification obligations shall terminate.
Notwithstanding the foregoing, with respect to a breach by a Stockholder
of the non-competition provisions contained in Section 10 or the nondisclosure
provisions contained in Section 11.1 hereof, the liabilities of the Stockholders
for any Losses or claims arising from such a breach shall be separate, rather
than joint and several, such that a Stockholder shall not be liable for any
claims or losses of the Parent or BOL arising from the breach of said
noncompetition or non-disclosure provisions committed by another Stockholder.
In the event of a Parent Indemnifiable Claim, the Parent and BOL agree
that the Parent Indemnified Parties shall first apply to the Escrow Agent under
the terms of the Escrow Agreement for satisfaction of any such claims and that
the Company and the Stockholders will not be required to pay such claim
personally unless the amount of unpaid Parent Indemnifiable Claim(s) exceeds the
value of any then remaining Escrow Shares (except to the extent such claim is
based on a breach of the non-competition or non-disclosure provisions set forth
in Sections 10 and 11.1 hereof). The foregoing provision regarding payment from
escrow shall not in any way affect, reduce, limit, decrease or release the
Stockholders' liability for any Parent Indemnifiable Claim. The parties agree
that Parent Indemnifiable Claims arising solely under this Agreement in excess
of the Escrow Shares may be satisfied by the payment of Parent Stock.
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12.2 INDEMNIFICATION BY THE PARENT AND BOL. The Parent and BOL, jointly
and severally on behalf of themselves and their successors and assigns, agree to
indemnify and hold harmless the Stockholders and their successors, heirs and
assigns (individually, a Stockholder Indemnified Party" and collectively, the
"Stockholder 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
(including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against the Stockholders,
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Parent or BOL in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement as supplemented or amended, 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, as so supplemented; and
(b) any breach of any covenant or agreement made by the Parent or
BOL 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.
Claims under clauses (a) through (b) of this SECTION 12.2 are
hereinafter collectively referred to as "Stockholder Indemnifiable Claims." The
rights of Stockholder Indemnified Parties to recover indemnification in respect
of any occurrence referred to in clauses (b) of this SECTION 12.2 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 12.2. The Parent and BOL shall not be obligated to indemnify the
Stockholder Indemnified Parties in respect of any such losses except to the
extent the cumulative amount of such losses to Stockholder Indemnified Parties
exceeds $50,000, whereupon all Losses in excess of $25,000 shall be recoverable
in accordance with the terms hereof. The indemnification obligations of the
Parent and BOL hereunder shall be limited to the unpaid portion of the Purchase
Price plus $2 million. After payment of such amount, such indemnification
obligations shall terminate.
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
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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. If the Indemnifying Party assumes the defense of
such claim, then in no event shall the Indemnified Party admit any liability
with respect to, settle, compromise or discharge any such claim without the
prior written consent of the Indemnifying Party which consent shall not be
unreasonably withheld 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.
SECTION 13 MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York 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:
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TO PARENT OR BOL: with a copy to:
BiznessOnline.com, Inc. Duffy & Sweeney, LLP
1720 Route 34 300 Turks Head Building
Wall, New Jersey, 07719 Providence, RI 02903
ATTN: Mark E. Munro, President and ATTN: Michael F. Sweeney, Esq.
Chief Executive Officer Phone: (401) 455-0700
Phone: 732-280-6408 Fax: (401) 455-0701
Fax: 732-280-6409
TO THE COMPANY: with a copy to:
Telesupport, Inc. Hodgson Russ Andrews
131 Enterprise Road Woods & Goodyear, LLP
Industrial Park 6 Fremont Street
Johnstown, New York 12095 Gloversville, NY 12078
ATTN: Bruce Becker, President ATTN: Mario J. Papa, Esq.
Phone: (518) 762-3456 Phone: (518) 725-6347
Fax: (518) 762-7602 Fax: (518) 773-7350
TO THE STOCKHOLDERS with a copy to:
Joseph J. Sullivan III Hodgson Russ Andrews
122 Boblin Marina Drive Woods & Goodyear, LLP
Mayfield, NY 12117 6 Fremont Street
Gloversville, NY 12078
Bruce R. Becker ATTN: Mario J. Papa, Esq.
2 Woodland Drive Phone: (518) 725-6347
Johnstown, NY 12095 Fax: (518) 773-7350
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 PUBLICITY; SECURITIES LAWS. The Stockholders and the Company
acknowledge that the Parent is a publicly held company that is therefore subject
to certain disclosure requirements under federal securities laws. The
Stockholders, the Company 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 Stockholders further understand that this
Agreement represents information concerning the Parent and BOL 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 Stockholders and the Company agree not to take any
action in connection with this
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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.
13.4 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.
13.5 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may 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.
13.6 JURISDICTION; VENUE; ATTORNEY'S FEES. Each party hereto agrees
that any dispute regarding this Agreement shall be resolved in a 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 shall award
costs and expenses (including reasonable attorney's fees) to the prevailing
party and/or parties in any litigation.
13.7 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.
13.8 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.
13.9 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.
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13.10 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 and the Stockholders, 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.
13.11 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 24 months; provided, however, (i) that the representation and warranty
set forth in Section 3.6(a)(i), (ii) and (iii) shall terminate on the Closing
Date and (ii) that any representation and warranty with respect to any tax
matter shall survive for the period of the applicable statute of limitation or
repose.
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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
------
ATTEST: BiznessOnline.com, Inc.
By: /S/ MARK E. MUNRO
-------------------------------
Mark E. Munro, President
and Chief Executive Officer
BOL
---
ATTEST: BOL Acquisition Co. II, Inc.
By: /S/ MARK E. MUNRO
-------------------------------
Mark E. Munro, President
and Chief Executive Officer
COMPANY
-------
ATTEST: Telesupport, Inc.
-----------------
By: /S/ BRUCE BECKER
- - ------------------------------- -------------------------------
, Secretary Bruce Becker, President
WITNESS: STOCKHOLDERS
/S/ JOSEPH SULLIVAN
-----------------------------------
Joseph Sullivan
WITNESS:
/S/ BRUCE BECKER
- - ------------------------------- -----------------------------------
Bruce Becker
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Exhibit 10.26
ASSET PURCHASE AGREEMENT
INTRODUCTION
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is entered into as of
the 5th day of December 1999 by and among BiznessOnline.com, Inc., a Delaware
corporation (the "Parent"); BOL Acquisition Co. III, Inc., a New York
corporation ("BOL"), (the Parent and BOL are sometimes collectively referred to
herein as the "Buyer"); Telecon Communications Corp., a New York corporation
(the "Company"); and Joseph Sullivan, Bruce Becker, and Kathleen Marshall, the
holders of all of the outstanding capital stock of the Company (referred to
individually as a "Stockholder" and collectively as the "Stockholders").
BACKGROUND
A. The Company is the owner of certain assets described herein. The Company
desires to sell to BOL, and BOL desires to purchase from the Company,
substantially all of the assets of the Company for the consideration and upon
the terms and conditions set forth in this Agreement.
B. This Agreement has been adopted and approved by the respective Board of
Directors of the Parent, BOL, and the Company, and the shareholders of BOL, and
the Stockholders 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. PURCHASE AND SALE OF ASSETS; CLOSING.
1.1 SALE AND TRANSFER OF ASSETS. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in SECTION
1.4 below), the Company agrees to sell, convey, transfer, assign and deliver to
BOL, and BOL agrees to purchase from the Company, the assets and property of the
Company described on EXHIBIT 1.1 attached hereto (the "Assets"), free and clear
of all liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever except for those certain liens and
security interests which secure liabilities which are to be assumed by BOL
pursuant to Section 1.7 below ("Permitted Liens"). For purposes of this
Agreement, the Assets will also mean and include all assets and property
acquired hereafter by the Company before the Closing Date but will not include
the assets and property of the Company disposed of as permitted by this
Agreement or the "Excluded Assets" as defined in SECTION 1.2 below.
1.2 EXCLUDED ASSETS. "Excluded Assets" shall mean (a) income and other
tax records of the Company (copies of which have been made available to BOL),
provided, however, the Company 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) the Company's corporate seal, Certificate of
Incorporation, minute book and stock ledger and (c) any other assets listed on
EXHIBIT 1.2 hereof.
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1.3 PURCHASE PRICE. The aggregate purchase price (the "Purchase Price")
for the Assets will be $15,000,000, subject to the escrow provisions set forth
in SECTION 1.4 below and the post-closing adjustments set forth in SECTION 2
below, which shall be payable at the Closing as described in Section 1.5 below,
as follows: (i) $10 million in cash, certified check, or wire transfer; and (ii)
$5 million in cash, certified check or wire transfer or, at the sole option of
the Buyer, two (2) promissory notes in the principal amounts of $3,000,000 and
$2,000,000 respectively in the forms attached hereto as EXHIBIT 1.3(a) AND
1.3(b) (collectively, the "Notes"). In addition, Buyer shall pay the Company or
the Stockholders as additional Purchase Price an amount equal to 50% of the
"Ordinary Income Tax Differential" payable by the Company or the Stockholders on
up to 55% of the combined accounts receivable of the Company and Telesupport,
Inc. as reported on the Closing Date Balance Sheet as of the Closing Date. For
purposes hereof, "Ordinary Income Tax Differential" means the difference between
the dollar amount of tax payable by the Company or the Stockholders on the sale
of its accounts receivable (a) on a capital gain tax rate basis and (b) on an
ordinary income tax rate basis, if applicable. By way of illustration, if the
combined accounts receivable of the Company and Telesupport as of the Closing
Date is $2,000,000, and the differential between the ordinary income rate and
the capital gains rate is the difference between 20% and 45%, Buyer would pay up
to 25% of 50% of $1,100,000, or $137,500. The Stockholders shall provide draft
tax returns to the Buyer's accountants by April 1, 2000 for a determination of
the Ordinary Income Tax Differential, whereupon the parties shall have 10 days
to resolve any disputes over the amounts to be paid to the Company or the
Stockholders, subject to the same dispute resolution procedures set forth in
Section 2.3. The amount payable hereunder shall be paid to the Company or the
Stockholders within 5 days of the final determination of such amount
1.4 ESCROW/SET-OFF. At the Closing, the Company shall simultaneously
deliver $2,000,000 of the Purchase Price in cash or, if the Buyer elects to
deliver the Notes as part of the Purchase Price, then the Company shall instead
simultaneously deliver the $2,000,000 Note attached hereto as Exhibit 1.3(b)
into escrow pursuant to the Escrow Agreement attached hereto as EXHIBIT 1.4 (the
"Escrow Deposit"). In addition to all other rights and remedies of the Buyer for
breach by the Company or the Stockholders of the representations and warranties
of the Company and the Stockholders herein, both at law and in equity, the Buyer
shall have the right to set-off against the Escrow Deposit (i) for any claims of
Buyer arising under SECTION 2 below (pending resolution of such claims as
provided in SECTION 2), or (ii) under the indemnity provisions of SECTION 12
below (pending resolution of such claims as provided in SECTION 13.6 below) and
in accordance with the Escrow Agreement. Such right of setoff shall be in
addition to the Parent and BOL's right to seek damages or obtain any other
remedy at law or in equity to which Buyer and BOL shall be entitled by virtue of
such breach.
1.5 CLOSING.
(a) Within ten (10) business days after satisfaction or waiver of
all of the conditions set forth in SECTION 6 AND 7 hereof, including but not
limited to the issuance of any necessary consent, approval or order of the New
York Public Commission ("PSC"), the closing shall take place 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 (hereinafter referred to as the "Closing"). The
actual date of the Closing is referred to herein as the "Closing Date". At the
Closing, the Parent, BOL, the
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Stockholders and the Company shall take all actions necessary to effect the
transfer and delivery of the Assets to BOL as stated in SECTION 1.1 hereof.
Simultaneously with the Closing, the Parent or BOL Acquisition Co. II, Inc., a
wholly owned subsidiary of the Parent ("BOL II"), and the stockholders of all
the issued and outstanding shares of capital stock of Telesupport, Inc., a New
York corporation ("Telesupport"), shall effect a merger of Telesupport into BOL
II. In the event the Note is delivered to the Company at the Closing, the Parent
shall increase the Purchase Price under that certain Agreement and Plan of
Merger of even date herewith by and among the Parent, BOL II and the
Stockholders of Telesupport from $3,000,000 to $4,000,000 payable in restricted
shares of common stock of the Parent, provided all other terms of such merger
agreement shall remain the same.
(b) The parties agree that time is of the essence in completing the
consummation of the transactions contemplated hereby. Accordingly, the Buyer,
the Company and the Stockholders, on behalf of themselves and their respective
affiliates, covenant and agree to cooperate in good faith and take all steps as
may be reasonably necessary or proper to expeditiously and diligently complete
the consummation of the transactions contemplated hereby.
1.6. GOVERNMENT APPROVAL APPLICATIONS AND THIRD PARTY CONSENTS. As soon
as practicable, but in no event later than five business days after the date
this Agreement is executed, the parties hereby agree to prepare and file with
the PSC and vigorously prosecute all documents and take all action which may be
necessary to obtain authorization, approval or consent of the PSC to the
transactions contemplated by this Agreement. The Buyer, the Company and the
Stockholders will cooperate in providing the PSC with any additional information
requested by the PSC. Provided that the economic benefit to the Buyer, the
Company and the Stockholders contemplated by this Agreement is not diminished,
each of the Buyer and the Company agree to make such amendments and
modifications as may be required to obtain the approval of the PSC, provided
that such changes are permitted by this Agreement. With respect to any other
regulatory authority or third party whose consent or approval may be required in
connection with this Agreement or the sale of the Assets to the Buyer, the
Company and the Stockholders will use best efforts following the execution of
this Agreement to promptly prepare and file any necessary documents to obtain
the approval of such parties as contemplated under SECTION 6.9 below or
otherwise for the due and punctual consummation of the transactions contemplated
by this Agreement.
1.7 ASSUMPTION OF LIABILITIES. At the Closing, BOL will assume those
certain trade debts, liabilities, obligations and contracts of the Company,
specifically described on EXHIBIT 1.7 (the "Assumed Liabilities"). BOL 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 EXHIBIT 1.7.
Without limiting the foregoing, BOL shall not assume any liability, whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, for (i) any tax including, but not limited to, income tax, taxes
imposed on the Company or the Stockholders because of the sale of the Assets,
other than as expressly set forth on Exhibit 1.7; (ii) any liabilities or
expenses of the Company or the Stockholders incurred in negotiating and carrying
out their obligations under this Agreement; (iii) any obligations incurred by
the Company or the Stockholders after the Closing; (iv) any liabilities or
obligations incurred by the Company or the Stockholders in violation of, or as a
result of the Company or the Stockholders' breach of, this Agreement; (v)
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any intercompany payables or outstanding loans or lines of credit of the
Company; (vi) for any litigation involving the Company, including but not
limited to matters listed on SCHEDULE 3.16; and (vii) liabilities for any
severance, accrued vacation/sick day or other employee benefits of the Company
whether or not resulting from the transactions contemplated hereby.
1.8 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 EXHIBIT 1.8. In connection with their filing
of Federal income tax returns, the parties will file Treasury Forms 8594
consistent with this allocation.
1.9 REAL ESTATE.
(a) CONVEYANCE OF PREMISES. With respect to that certain parcel of
real estate included in the Assets with an address at 131 Enterprise Drive,
Johnstown, New York as described in EXHIBIT 1.1 hereto (the "Premises"), the
Company agrees to sell and convey the Premises to BOL at the Closing by delivery
of a good and sufficient Bargain and Sale Deed in the form attached hereto as
EXHIBIT 1.9, running to BOL or to such nominee as the Buyer may designate to the
Company at or prior to the Closing, and said deed shall convey a good, clear,
record, marketable and insurable (as specified in Section 6.14 herein) title
thereto, free from all mortgages, liens, restrictions, easements or other
encumbrances or matters of record, except:(i) real estate taxes assessed for the
then current tax fiscal year which are not due and payable on the date of the
delivery of such deed; (ii) any liens for municipal betterments assessed after
the Closing Date; (iii) any restrictions, easements and other burdens on the
Premises of record, including the Protective Covenants for the Johnstown
Industrial Park, subject to the provisions of Section 6.14 hereto. The Company
shall also deliver to the Buyer at the Closing all documents required by the
title company to remove the standard title exceptions from the title commitment
and the subsequent title policy to be obtained by the Buyer, and such other
customary closing documents as may be reasonably requested by the Buyer,
including but not limited to a Bill of Sale for fixtures and other personal
property and an affidavit of non-foreign status for purposes of exemption from
FIRPTA withholding.
(b) RISK OF LOSS. The risk of loss or damage to the Premises by
fire or other casualty prior to the Closing is assumed by the Company.
Notwithstanding anything contained herein to the contrary, in the event that
prior to the Closing, any part of the Premises is destroyed or damaged by fire
or any other cause whatsoever or condemnation or eminent domain proceedings are
initiated against all or any portion of the Premises, the Company shall
immediately give notice to the Buyer thereof, and whether or not such notice is
given, the following paragraphs shall be applicable:
(i) If the Premises shall be damaged from any cause (including
condemnation or eminent domain proceedings) to the extent that the
estimated cost to repair or restore such damage can reasonably be
expected to be not more than $100,000, which damage the Seller shall
not have repaired or replaced prior to the earlier of (i) thirty (30)
days after receiving notice of such damage or (ii) the Closing Date,
the Buyer may, by giving notice within fifteen (15) days after
receiving notice of such damage from
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Seller or any third party, either (x) terminate this Agreement with
the same effect of a termination as provided in subparagraph (ii)
hereof, or (y) accept the Premises in its damaged condition, whereupon
all proceeds of insurance or condemnation awards paid or payable to
the Company by reason of such damage, destruction or condemnation
shall be paid to and made payable to and assigned to the Buyer at the
Closing.
(ii) If the Premises shall be damaged from any cause
(including condemnation or eminent domain proceedings) to such extent
that the estimated cost to repair or restore such damage can reasonably
be expected to exceed $100,000 and such damage would cause an
interruption of the Company's business activities for more than 30 days
which interruption is not fully covered by business interruption
insurance, the Buyer may, by giving notice to the Company within
fifteen (15) days after receiving notice of such damage from Seller or
any other third party, terminate this Agreement, in which case neither
party shall have any further rights or obligations hereunder. If the
Buyer does not exercise such right to terminate, all proceeds of
insurance or condemnation awards paid or payable to the Company by
reason of such damage, destruction or condemnation shall be paid to and
made payable to and assigned to the Buyer at the Closing.
(c) MAINTENANCE OF PREMISES. From the date hereof until the
Closing Date, the Company shall: (i) maintain the Premises in good order,
condition and repair, reasonable wear and tear and damage by fire and other
insured-against casualty excepted; (ii) continuously maintain in full force and
effect a policy or policies of fire and extended coverage insurance on the
Premises in such amounts as shall be reasonably required by the Buyer from time
to time but in no event less than the amount which is currently in place on the
Premises; (iii) take all such actions as may be reasonably necessary to preserve
the value of the Premises.
(d) ACTIONS REQUIRING BUYER'S CONSENT. From the date hereof
until the Closing Date, the Company shall not take any of the following actions
with respect to the Premises without first obtaining the Buyer's prior written
consent which consent the Buyer may give or withhold in the Buyer's sole
discretion:(i) make or permit any structural modifications of or additions to
the Premises; (ii) mortgage or otherwise encumber or permit liens (whether
inchoate or not) upon the Premises; (iii) enter into any agreements relating to
the operation or maintenance of the Premises the term of which agreements shall
extend beyond the date of the Closing; or (iv) enter into any lease, assignment
of lease, license, contract or other agreement with respect to the use or
occupancy of the Premises.
(e) ADJUSTMENTS. Real estate taxes assessed for the year of
the Closing Date shall be pro-rated between the Company and the Buyer, the
Company paying pro-rata for the period of such year up to the Closing Date and
the Buyer paying or assuming the balance of such taxes. Any and all taxes
assessed for all prior periods shall be paid in full by the Company on or before
the Closing Date. The Company shall pay the documentary stamps for recording the
deed to the Premises. Any unpaid betterment or improvement assessments
constituting a lien against the Premises payable in installments shall be
apportioned, the Company paying all installments due for prior periods and a pro
rata share of the current installment, the Buyer taking subject to the lien of
any such assessment and assuming the balance.
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(f) ACCESS. Prior to the Closing, the Company agrees to provide
the Buyer and the Buyer's duly authorized agents with reasonable access to the
Premises upon reasonable prior advance notice to enable the Buyer to inspect and
examine the Premises, take measurements, perform tests and for any other
legitimate purpose. The Buyer acknowledges and agrees that such right of access
shall be conducted in a manner so as not to unreasonably interfere with the
current use of the Premises.
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, BOL shall engage KPMG
LLP to audit a combined balance sheet of the Company and Telesupport prepared in
accordance with generally accepted accounting principles ("GAAP") as of 5:00 PM
(EST) on the day of the Closing (the "Closing Date Balance Sheet"). Such Closing
Date Balance Sheet will utilize the accrual method of accounting notwithstanding
any other accounting method(s) that the Company or Telesupport may have been
using in the past 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
$1,465,000 (the amount of such shortfall being hereafter known as the "Net
Equity Deficiency"), the Company shall pay to BOL, within ten (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) in cash, by certified check
or by wire transfer of immediately available funds, an amount equal to 100% of
the Net Equity Deficiency; provided, however, that BOL shall have the option,
upon notice to the Company and the Stockholders, at its sole discretion and
notwithstanding any language to the contrary in the Escrow Agreement, to receive
all or a portion of the Escrow Deposit to satisfy any such Net Equity
Deficiency.
2.2 POST-CLOSING ADJUSTMENT FOR DEFICIENCY OR SURPLUS IN 1999 EBITDA.
To the extent that the combined audited "EBITDA" (Earnings before Interest,
Taxes, Depreciation and Amortization) of the Company and Telesupport for the
fiscal year ended December 31, 1999, is (i) less than $1,450,000, the Purchase
Price shall be reduced by an amount equal to $11.25 for each dollar in combined
EBITDA less than $1,450,000 (the "1999 Combined EBITDA Deficiency"), or (ii)
greater than $1,750,000, the Purchase Price shall be increased by an amount
equal to $11.25 for each dollar in combined EBITDA greater than $1,750,000 (the
"1999 Combined EBITDA Surplus"). For example, in the event of a 1999 Combined
EBITDA Deficiency of $100,000, the aggregate price payable to the Company shall
be reduced by $1,125,000 (i.e. the $100,000 shortfall multiplied by $11.25),
and, alternatively, in the event of a 1999 Combined EBITDA Surplus of $100,000,
the aggregate price payable to the Company shall be increased by $1,125,000
(i.e. the $100,000 surplus multiplied by 11.25). Any such adjustment shall be
based on income statements prepared by BOL's accountants on or before April 30,
2000, and utilizing the accrual method of accounting notwithstanding any other
accounting method(s) that the Company or Telesupport may have been using in the
past in connection with their financial statements and taxes, showing combined
audited EBITDA for the Company and Telesupport for the year ended December 31,
1999 (the "1999 Income Statements"). To the extent any reduction in the purchase
price shall be required under this SECTION 2.2, the Company shall pay to BOL,
within ten (10) days of the date of determination of the 1999 Combined EBITDA
Deficiency (subject to the dispute resolution procedure set forth in
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SECTION 2.3 below) 100% of such Deficiency in cash, by certified check or by
wire transfer of immediately available funds. To the extent any increase in the
purchase price shall be required under this SECTION 2.2, the Parent shall pay to
the Company, within ten (10) days of the date of determination of the 1999
Combined EBITDA Surplus (subject to the dispute resolution procedure set forth
in the SECTION 2.3 below) 100% of such Surplus in cash, by certified check or by
wire transfer of immediately available funds. BOL agrees that (i) expenses of
the Company and Telesupport specifically attributable to the transactions
contemplated by this agreement (including legal and accounting fees) up to a
maximum of $100,000, which shall be supported by sufficiently detailed written
invoices or other written documentation provided to Buyer, and (ii) gross
receipts taxes, if any, shall be excluded from the computation of EBITDA.
Notwithstanding anything else herein, the total Purchase Price paid to the
Company, after all adjustments pursuant to SECTIONS 2.1 and SECTION 2.2 herein,
combined with the total purchase price to be paid by BOL II for all outstanding
stock of Telesupport after adjustments for any Net Equity Deficiency and/or 1999
Combined EBITDA Deficiency or Surplus, shall not be less than $17 million ($18
million if the Notes are delivered at the Closing) nor greater than $19 million
($20 million if the Notes are delivered at the Closing) (subject in either case
to reduction as a result of any indemnity claims by the Parent or BOL under
SECTION 12 below as a result of any breach of a representation, warranty or
condition herein by the Stockholders and/or the Company); provided, however,
that in the event the combined audited EBITDA of the Company and Telesupport for
the year ended December 31, 1999 is less than $1,300,000 as reasonably
determined by BOL prior to the Closing based on actual or draft income
statements for 1999 as prepared by BOL's accountants prior to the Closing, the
Buyer shall have the absolute and unconditional right to terminate this
Agreement upon written notice to the Stockholders without any liability
whatsoever to the Company, Telesupport and/or their respective stockholders, and
in such event this Agreement shall be of no further force or effect.
2.3 DISPUTE RESOLUTION PROCEDURE FOR ADJUSTMENTS BASED ON THE CLOSING
DATE BALANCE SHEET AND 1999 AUDITED EBITDA. Notwithstanding anything in this
SECTION 2 to the contrary, if there is any Net Equity Deficiency and the Company
and/or the Stockholders dispute any item contained on the Closing Date Balance
Sheet, or if there is any dispute over the amount of any 1999 Combined EBITDA
Surplus or Deficiency based on the 1999 Income Statements, the Company or the
Stockholders shall notify BOL 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
delivery of the 1999 Income Statements, as applicable. If BOL and the Company
and/or the Stockholders cannot resolve any such dispute, then such dispute shall
be resolved by an independent nationally recognized accounting firm which is
reasonably acceptable to BOL and the Company/Stockholders (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 BOL and the Company so that the
Company's aggregate share of such costs shall bear the same proportion to the
total costs that the Disputed Amounts unsuccessfully contested by the
Company/Stockholders (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 STOCKHOLDERS.
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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 Stockholders hereby
jointly and severally make to the Parent and BOL the representations and
warranties contained in this SECTION 3, which shall be true and correct as of
the date hereof and as of the Closing Date.
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 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, except as set forth in SCHEDULE 3.2. 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 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 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, the Company does not own or have any direct
or indirect interest in or control over any corporation, partnership, joint
venture or entity of any kind. Except as set forth in Schedule 3.3, the
Stockholders do not own or have any direct or indirect interest in or control
over any corporation, partnership, joint venture or entity of any kind which is
in the business of selling internet access service, web site design or hosting
services, long distance or local telecommunications products or services, or any
other business which is related to or could reasonably be beneficial to the
operations of the Company, the Parent or BOL except for investments in publicly
traded securities in which the Stockholder owns no more than 5% of the
outstanding common stock of the issuer of such securities. 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 solely of the shares (the "Company Shares") listed on SCHEDULE 3.4. All
of the issued and outstanding Company Shares are duly authorized and validly
issued, are fully paid and nonassessable, and are owned of record and
beneficially by the Stockholders as set forth in SCHEDULE 3.4. No shares of
capital stock of the Company are held in the treasury of the Company except as
set forth on SCHEDULE 3.4. None of the Stockholders are a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any Company Shares. SCHEDULE 3.4 contains a
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complete and correct listing of the stockholders of the Company at the date
hereof, together with their residences addresses and the number of Company
Shares owned by each such Stockholder. 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 except as set forth on
SCHEDULE 3.4.
3.5 AUTHORITY OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders each have full right, power and
authority to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by it or any of them 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 Stockholders by a unanimous written consent vote. This Agreement and each
agreement, document and instrument to be executed and delivered by the Company
or by the Stockholders pursuant to or as contemplated by this Agreement (to the
extent it contains obligations to be performed by the Company and/or the
Stockholders) constitutes, or when executed, delivered and approved by the
Company Stockholders will constitute, valid and binding obligations of the
Company and/or the Stockholders, enforceable in accordance with their respective
terms. The execution, delivery and performance by the Company and/or the
Stockholders 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 Company;
(ii) except as otherwise indicated on SCHEDULE 3.5
hereto, does 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; and
(iii) except as otherwise indicated on SCHEDULE 3.5
hereto, does 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
and/or the Stockholders 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 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
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encumbrance on any of the assets of the Company. Except as disclosed
on SCHEDULE 3.5, 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. SCHEDULE 3.6(a) lists and describes briefly
all the real property owned or leased by the Company (collectively referred to
as the "Real Property").
(i) REAL PROPERTY OWNED BY THE COMPANY. The Company
has good and marketable title to the Real Property which it owns, free
and clear of any security interest, easement, covenant, or other
restriction, except for installments of special assessments not yet
delinquent and recorded easements, covenants, and other restrictions
which do not impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto. The legal
description for such property contained in the deed thereof describes
such parcel fully and adequately, the buildings and improvements are
located within the boundary lines of the described parcels of land, are
not in violation of applicable setback requirements, zoning laws, and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), and do not encroach on any
easement which may burden the land, and the land does not serve any
adjoining property for any purpose inconsistent with the use of the
land, and the property is not located within any flood plain or subject
to any similar type restriction for which any permits or licenses
necessary to the use thereof have not been obtained. There are no
parties (other than the Company and Telesupport) in possession of the
Real Property owned by the Company.
(ii) TITLE. Except as set forth on SCHEDULE 3.6(a),
to the knowledge of the Stockholders, 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.
(iii) SECURITY INTERESTS. 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.
(iv) COMMISSIONS. 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 Real Property, and no such
fees, commissions or other compensation shall, by reason of any
existing agreement, become due after the date hereof.
(v) PHYSICAL CONDITION. Except as set forth on
SCHEDULE 3.6(a), there is no material defect in the physical condition
of any material improvements located on or
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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").
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.
(vi) 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.
(vii) 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.
(viii) GOVERNMENT AUTHORIZATIONS. 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. All facilities have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations, except where failure to do so would not have a material
adverse effect on the Company.
(ix) ZONING. The Company has not received any notice
of any zoning violations.
(x) REAL PROPERTY TAXES. Except as set forth in said
SCHEDULE 3.6(a), no special assessments of any kind (special, bond or
otherwise) are or have been levied against any Real Property, or any
portion thereof, which are outstanding or unpaid.
(xi) 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 is a party is set forth on SCHEDULE 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).
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(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 $10,000 (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 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 information, copies of which are attached hereto as SCHEDULE 3.7:
(i) Combined financial statements of the Company and
Telesupport for the fiscal year ended December 31, 1998, compiled by
Washburn, Ellingwood, Sheeler & Thaisz utilizing the accrual method of
accounting and certified by the Vice President of the Company as to the
truth and accuracy of such financial statements with respect to the
representations made in this Section 3.7 (the "Year-End Company
Financial Statements");
(ii) Draft management prepared combined financial statements
of the Company and Telesupport as of September 30, 1999 (herein the
"Company Balance Sheet Date") and statements of income, Stockholders'
equity and cash flows for the nine (9) months then ended, certified by
the Vice President of the Company as to the truth and accuracy of such
financial statements with respect to the representations made in this
Section 3.7; (the "Interim Company Financial Statements", together with
the Year-End Company Financial Statements, the "Company Financial
Statements");
The Year-End Company Financial Statements have been prepared in
accordance with GAAP based on the accrual method of accounting (except that the
Year-End Company Financial Statements are subject to normal year-end audit
adjustments and do not include footnotes). The Interim Company Financial
Statements have been prepared in accordance with GAAP based on the accrual
method of accounting applied consistently in accordance with the Year End
Company Financial Statements (except that the Interim Company Financial
Statements are subject to normal year-end audit adjustments and do not include
footnotes). The Company Financial Statements 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) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except liabilities
which are 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) of a type required to be reflected or reserved
against on a balance sheet prepared in accordance with GAAP except (i)
liabilities stated or adequately reserved for 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. The Vice President
of the Company shall further certify that as of the date hereof, the combined
revenues of the Company and Telesupport for the month of October, 1999 shall be
not less than $850,000 and the combined EBITDA of the Company and Telesupport
for such month shall not be less than $125,000.
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). The Company has no unpaid tax liability for
prior tax years exceeding $50,000 and the Company and the Stockholders agree,
jointly and severally, to indemnify and hold the Buyer and its officers,
directors, agents and affiliates harmless from and against any liability for
unpaid taxes of the Company and the Stockholders.
(b) Except as set forth on SCHEDULE 3.8, 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
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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 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 Tax. The Company has not
entered into a closing agreement pursuant to Section 7121 of the Code. The
Stockholders have paid all taxes due and filed all tax returns relating to
distributions from the Company as a "Subchapter S" corporation under the Code.
Further, the Company has at all times maintained its status as a Subchapter S
Corporation under the Code, and the Company and the Stockholders will indemnify
and hold harmless BOL and the Parent in respect of any liabilities, costs or
other claims made upon the Buyer by the IRS or any other federal, state or local
governmental entity in respect of any inadvertent termination of the Company's S
Corporation status as a result of any actions by the Company or the Stockholders
since inception of the Company and prior to Closing, including but not limited
to any distributions, stock transfers, or other events that may terminate an S
election under applicable sections of the Code in force at the time of any such
event.
(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 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
and any similar provisions of federal, state, local or foreign law.
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3.9 ACCOUNTS RECEIVABLE. All accounts receivable of the Company 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 best knowledge of the
Company and the Stockholders are fully collectible. Except as set forth in
SCHEDULE 3.9, the Company has no accounts or loans receivable in excess of
$1,000 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. On the Closing Date, the Company will prepare and deliver to the Buyer
an Accounts Receivable aging report as of the close of business on the preceding
business day which will be certified by the President or Vice President of the
Company as to the material truth and accuracy of such report with respect to the
representations made in this SECTION 3.9.
3.10 INVENTORIES. The Company maintains less than $80,000 of inventory,
all saleable in the ordinary course and stated in accordance with GAAP.
3.11 ABSENCE OF CERTAIN CHANGES.
Since December 31, 1998 through the date hereof, 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 that is material and adverse to the business,
assets, liabilities, results of operations or financial condition of the Company
taken as a whole (a "Material Adverse Change"); provided that a Material Adverse
Change does not include the impact of any of the following: (A) changes in
applicable law of general applicability or the implementation thereof; (B)
actions taken by the Company with the consent of the Buyer; (C) circumstances
affecting the Internet access, long distance telephone, natural gas sales and
related business generally; and (D) the effects of the transactions contemplated
by this Agreement;
(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 or claim of, the Company except for the cancellation or compromise of
accounts receivable in the ordinary course of the Company's business not
exceeding an aggregate of $15,000;
(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 $25,000;
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(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 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 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, credit
practices or collection policies used by the Company other than to comply with
new accounting pronouncements;
(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.
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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 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. Except as 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.
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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 written 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 $50,000 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;
(iii) any contract or agreement for the purchase of
any commodity, material or equipment except purchase orders in the
ordinary course for less than $25,000 each;
(iv) any other contracts or agreements creating any
obligation of the Company of $20,000 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 other than customer contracts entered into in the ordinary
course of the Company's business;
(vii) any written 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 $25,000 whether or not such
purchase is in the ordinary course of business;
(xi) any license agreement (as licensor or
licensee);
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(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 trusts, shareholder agreements or other
similar arrangements or any stock purchase or repurchase agreements or
stock restriction agreements.
(b) To the best of the Company's and the Stockholders'
knowledge, all material contracts, agreements, leases and instruments to which
the Company is a party or by which the Company is obligated are valid and are in
full force and effect and constitute legal, valid and binding obligations of the
Company and the other parties thereto, enforceable in accordance with their
respective terms. To the best of the Company's and the Stockholders' knowledge,
neither the Company nor 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 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 Parent as a result
of the transactions contemplated herein.
3.16 LITIGATION.
(a) SCHEDULE 3.16 hereto lists all currently pending and
threatened litigation and governmental or administrative proceedings or
investigations to which the Company is 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 best of the Company's and the
Stockholders' knowledge, threatened against the Company which may have an
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.
(b) Buyer and the Stockholders agree that all costs, expenses,
fees and other liabilities in connection with that certain lawsuit identified as
Telecon Communications Corporation v. Caroga Enterprises pending in New York
State Supreme Court, Fulton County, are and will hereafter be the responsibility
of the Stockholders, and Buyer shall be indemnified and held harmless against
any such costs, expenses, fees and liabilities in connection therewith
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by the Stockholders, and all rights, benefits and future payments, if any, shall
be an Excluded Asset for purposes of this Agreement and shall belong to the
Stockholders and not to Buyer.
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. 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
there is no valid basis for any claim that the Company is not in compliance with
any such statute, ordinance, order, rule or regulation, except where the failure
to be in compliance would not have a material adverse effect on the Company.
3.18 INSURANCE. SCHEDULE 3.18 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 Company 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 and will continue to be so through the Closing Date;
(ii) neither the Company 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 (iii) no party to the policy has
repudiated any provision thereof.. SCHEDULE 3.18 describes any self-insurance
arrangements affecting the Company.
3.19 WARRANTY AND RELATED MATTERS. There are no existing or threatened
in writing, 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.
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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 Stockholders.
3.21 PERMITS; BURDENSOME AGREEMENTS. SCHEDULE 3.21 lists all material
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Permits") required from Governmental Entities in order for
the Company to conduct its business. The Company has obtained all the Permits,
which are valid and in full force and effect. Except as disclosed on SCHEDULE
3.21, none of the Permits is subject to termination by their express terms as a
result of the execution of this Agreement by the Stockholders, and no further
Permits 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 material competitor, supplier or customer of
the Company or any organization, person or entity with whom the Company is doing
a material amount of business.
3.23 EMPLOYEE BENEFIT PROGRAMS.
(a) SCHEDULE 3.23 sets forth a list of every Employee Program
(as defined below) maintained (as such term is further defined below) by the
Company at any time during the three-year period ending on the date hereof. The
Company acknowledges that the Buyer is not assuming any obligations under any
Employee Program. 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
or federal law governing employment benefits. All Employee Programs shall
further be considered Excluded Assets for purposes of this Agreement, and the
Company and the Stockholders shall indemnify, defend and hold Buyer harmless
from any losses, liabilities, obligations, damages, actions, costs, claims, and
expenses (including reasonable attorneys' fees) arising in connection with any
Employee Program. The Company and the Stockholders have no knowledge that any
current employee of the Company will refuse employment with Buyer at the
Closing.
(b) Neither the Company nor any Affiliate has ever maintained
any Employee Program subject to Title IV of ERISA.
(c) 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
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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); and
(iii) an entity is an "Affiliate" of a 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).
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 best knowledge of the Company and the
Stockholders, 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 best knowledge
of the Company and the Stockholders, 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 best knowledge of the Company and the Stockholders, 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 best knowledge of the Company and the Stockholders, 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) the
Company has no liability under, nor has the Company ever violated in any
material respect, any Environmental Law (as defined below); (ii) 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) 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
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any environmental or health and safety matter or the enforcement of any
Environmental Law (as defined below); and (iv) neither the Company nor any
Stockholder has 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 best
knowledge of the Company and the Stockholders, 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 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 $40,000
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 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. No charges of employment
discrimination or unfair labor practices have been brought against the Company,
nor are there any strikes, slowdowns, stoppages of work, or any other concerted
interference with normal operations
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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. Except for the Stockholders,
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 any customer who accounted for
more than 5% of the combined sales of the Company and Telesupport 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 relationship with the
Company or to decrease materially or limit its usage or purchase of the services
or products of the Company. For purposes of this SECTION 3.27, each customer
account of the Company and Telesupport shall be deemed a separate customer,
notwithstanding the fact that in some instances a single person or entity may
have more than one customer account.
3.28 Y2K. The Company has taken the actions described in SCHEDULE 3.28
to assess, evaluate, test and correct all of the hardware, software, embedded
microchips and other processing capabilities of computer and telecommunication
systems it uses in any material portion of its business, either directly or
indirectly, 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. To the best of the Company's and the Stockholders'
knowledge, computerized services provided by third parties to the Company such
as billing and payroll services will be able to function accurately and without
interruption or ambiguity using date information before, during and after
January 1, 2000.
3.29 DISCLOSURE. This Agreement, including the Schedules hereto
prepared by the Stockholders and the Company, together with the other
information furnished to the Parent and BOL by the Company and the Stockholders
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. If, prior to the 90th day after the Closing, the Company or the
Stockholders become aware of any fact or circumstance which would affect the
accuracy of a representation or warranty of the Company or the Stockholders in
this Agreement, in any material respect, the Company and the Stockholders shall
immediately give notice of such fact or circumstance to the Parent and BOL.
However, subject to the provisions of SECTION 4.7, such notification shall not
relieve either the Company or the Stockholders of their respective obligations
under this Agreement, and subject to the provisions of SECTION 4.7, at the sole
option of the Parent and BOL, the truth and accuracy of any and all warranties
and representations of the Stockholders, on behalf of the Company and of the
Stockholders at the date of this Agreement and on the Closing Date, shall be a
precondition to the consummation of this transaction; provided that, solely for
purposes of this pre-Closing condition, and not for purposes of evaluating
compliance with or breach of any representation or warranty post-Closing, "truth
and accuracy" of a representation or warranty shall mean "truth and accuracy in
all material respects" of such representation or warranty, provided that such
representation or warranty is not otherwise qualified by materiality.
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SECTION 4. COVENANTS OF THE STOCKHOLDERS AND THE COMPANY.
4.1 MAKING OF COVENANTS AND AGREEMENTS. The Stockholders and the
Company covenant and agree as set forth in this SECTION 4.
4.2 CONDUCT OF BUSINESS. Between the date of this Agreement and the
Closing Date, the Stockholders will cause the Company to do and the Company will
do the following, unless the Parent and BOL 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 $15,000 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 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
reasonable 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;
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(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;
(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), upon reasonable prior notice, 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. The Company and the Stockholders shall use
their best efforts to obtain or cause to be obtained prior to the Closing Date
all necessary consents and approvals for BOL to operate the business of the
Company using the Assets acquired under this Agreement, including, without
limitation, the consents and authorizations described in SCHEDULE 3.15, and such
other authorizations, waivers, approvals, consents and permits as set forth in
SCHEDULE 3.21 as may be necessary to transfer to BOL 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 businesses of the
Company.
4.4 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 any Stockholder shall, nor shall any of them permit any
director, officer, employee or agent of either of the Company 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,
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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 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.
4.5 NO SALES OF CAPITAL STOCK. Between the date of this Agreement and
the Closing Date, none of the Stockholders shall sell, exchange, deliver,
assign, pledge, encumber or otherwise transfer or dispose of any Company Shares
owned beneficially or of record by such Stockholder, 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 any Stockholder shall be bound by this Agreement.
4.6 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to the Parent and BOL 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 Stockholders contained
herein to be untrue or inaccurate in any material respect at or prior to the
Closing and (ii) any material failure of any 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 4.6 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.
4.7 AMENDMENT OF SCHEDULES. The Stockholders agree that, with respect
to the representations and warranties contained in this Agreement, the
Stockholders 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 Stockholders 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 Stockholders agree to notify the Parent 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 Stockholders 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 Parent (provided that, solely for
purposes of this pre-Closing condition, and not for purposes of evaluating
compliance with or breach of any representation or warranty post-Closing, "truth
and accuracy" of a representation or warranty shall mean "truth and accuracy in
all material respects" of such representation or warranty, provided that such
representation or warranty is not otherwise qualified by materiality),and Parent
shall not be deemed to have consented to any amendment or supplement to a
Schedule prepared by the Stockholders after the date hereof or to have waived
any of its rights or remedies for breach hereof, with respect to any matter
hereafter arising or
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discovered that constitutes or reflects a Material Adverse Change, unless the
Parent acknowledges and consents in writing to such amendment or supplement.
4.8 FURTHER ASSURANCES. The Stockholders and the Company hereby 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 and
as of the Closing Date, the Parent and BOL jointly and severally hereby
represent and warrant to the Stockholders and the Company jointly and severally
as set forth in this SECTION 5.
5.2 ORGANIZATION OF THE PARENT. The Parent and BOL are corporations
duly organized, validly existing and in good standing under their respective
states of incorporation with full corporate power and authority to conduct their
businesses in the manner as now conducted.
5.3 AUTHORITY. All necessary corporate action has been taken by 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 the Parent and BOL pursuant to this Agreement. This Agreement and
each agreement, document and instrument to be executed and delivered by the
Parent and 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 their
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) does not and will not violate any provision of the Certificate
of Incorporation or bylaws of the Parent or BOL ; and (ii) 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 other than those liens in favor of the Company contemplated hereby, 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 SEC FILINGS. The Parent has timely filed all material reports,
schedules, forms, statements and other documents required to be filed by it with
the Securities and Exchange Commission ("SEC") under the Securities Act of 1933,
as amended (the "Securities Act") and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since the closing of the
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Parent's initial public offering on May 17, 1999 (the "Parent SEC Documents").
As of its filing date, each Parent SEC Document filed, as amended or
supplemented, if applicable, (i) complied in all material respects with the
applicable requirements of the securities Act or the Exchange Act, as
applicable, and the rules and regulations thereunder and (ii) did not, at the
time it was filed, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made, not
misleading.
5.6 FINANCIAL STATEMENTS. Each of the consolidated financial statements
(including, in each case, any related notes) contained in the Parent SEC
Documents, including any Parent SEC Documents filed from the date of this
Agreement until the Closing, complied or will comply in all material respects
with the applicable published rules and regulations of the SEC with respect
thereto, was or will be prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by Form 10-Q or 8-K promulgated by the SEC), and fairly presented or
will fairly present the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
5.7 LITIGATION. Except as disclosed in the Parent SEC documents, there
is no litigation or governmental or administrative proceeding or investigation
pending or to the knowledge of such parties threatened against the Parent which
individually or in the aggregate would result in any change that is material and
adverse to the business, assets, liabilities, results of operations or financial
condition of the Parent and BOL taken as a whole (a "BIZZ MAC") or which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
5.8 COMPLIANCE WITH LAWS. Neither the Parent nor BOL have 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 result
in a BIZZ MAC.
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 (or, if the Closing occurs on or before the 22nd day of a month, as
of the last day of the month before the last full month before the Closing Date)
and the management-prepared statements of income, cash flow and stockholders'
equity for the period then ended, disclosing no Material Adverse Change from the
Company Financial Statements originally furnished by the Company as set forth in
SCHEDULE 3.7. The Parent and BOL shall also have had sufficient opportunity to
review the audited combined
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balance sheet of the Company and Telesupport as of December 31, 1998 and the
draft audited combined balance sheet of the Company and Telesupport as of
December 31, 1999 (assuming the Closing occurs by April 15, 2000) and the draft
audited statements of income, cash flow and stockholders' equity of such
companies for the periods ended on such dates as audited by the Parent's
accounting firm at the Parent's sole expense in accordance with GAAP, and the
Parent shall be satisfied in all respects that such financial information does
not disclose any Material Adverse Change from the Company Financial Statements.
6.3 NO MATERIAL ADVERSE CHANGE. Since the Company Balance Sheet Date,
the Company shall not have suffered a Material Adverse Change, and the Parent
shall have received on the Closing Date a certificate signed by the President of
the Company and each of the Stockholders to such effect.
6.4 [Intentionally Omitted.]
6.5 OPINION OF COUNSEL. The Parent shall have received an opinion from
Hodgson Russ Andrews Woods & Goodyear, LLP, counsel to the Company and the
Stockholders, dated the Closing Date in substantially the form annexed hereto as
EXHIBIT 6.5.
6.6 [Intentionally Omitted.]
6.7 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. The Company shall have delivered to the Parent (i) a certificate,
dated as of a date no earlier than twenty days prior to the Closing Date, duly
issued by the New York Secretary of State, showing that the Company is a
subsisting corporation organized under the law of the State of New York and (ii)
a franchise tax report duly issued by the New York State Department of Taxation
and finance showing that all New York State franchise and/or income tax returns
and tax for the Company prior to the date of such certificate have been filed
and paid. The Company shall also have delivered to the Parent 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.
6.8 REPRESENTATIONS; WARRANTIES; COVENANTS. Each of the representations
and warranties of the Company and the Stockholders contained in SECTION 3 and
elsewhere in this Agreement 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 Company and the Stockholders 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 and the Stockholders on or before the Closing Date; and the Company and
the Stockholders shall have delivered to the Parent a certificate dated the
Closing Date signed by the Company's President and by each of the Stockholders
to the foregoing effect.
6.9 APPROVALS AND CONSENTS. The Company and the Stockholders 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
by BOL using the Assets subsequent to the Closing Date, and the Company and the
Parent shall have received all required authorizations, waivers, consents and
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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
this Agreement 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 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 THE PARENT AND BOL. All proceedings to
be taken by the Company and the Stockholders 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 in all
material respects to BOL and the Parent and its counsel.
6.12 EMPLOYMENT AGREEMENT; TRANSITIONAL SERVICES; TERMINATION OF
EMPLOYEES.
(a) MARSHALL EMPLOYMENT AGREEMENT. Kathleen Marshall shall
have executed and delivered an employment agreement with BOL in the form
attached hereto as EXHIBIT 6.12(a).
(b) SULLIVAN EMPLOYMENT AGREEMENT. Joseph Sullivan shall have
executed and delivered an employment agreement with BOL or an affiliate in the
form attached hereto as EXHIBIT 6.12(b).
(c) BECKER CONSULTING AGREEMENT. Bruce Becker shall have
executed and delivered a consulting agreement with BOL in the form attached
hereto as EXHIBIT 6.12(c).
(d) TERMINATION OF EMPLOYEES. As of the Closing Date, the
Company 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 of the Company thereafter, provided, however, that the
Buyer shall have no obligation to hire any such employees (other than pursuant
to the Employment Agreement described above).
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(e) SCOTT GILBERT LICENSE. As of the Closing Date, the Company
and Scott Gilbert shall have entered into a license agreement satisfactory to
BOL providing BOL and its affiliates, successors and assigns with a perpetual,
non-exclusive, royalty free license to use and modify the Constellation Billing
and Customer Care System for its internal business purposes.
6.13 ESCROW AGREEMENT. The Stockholders shall have executed and
delivered an escrow agreement with BOL and the Parent in the form attached
hereto as EXHIBIT 1.6.
6.14 TITLE INSURANCE; SURVEY. The Company will assist Buyer in
obtaining a title insurance commitment, policy, and rider with respect to the
Premises at 131 Enterprise Drive in Johnstown, New York. Such policy shall be a
standard 1992 ALTA Owner's Policy of Title Insurance (or other similar form as
may be acceptable to Buyer) issued by a title insurer satisfactory to the Buyer,
in such amount as the Buyer may determine to be the fair market value of the
Premises (including all improvements located thereon), insuring title to the
Premises to be in the Buyer's name as of the Closing, and with such zoning,
access and other endorsements reasonably required by the Buyer after review of
the title insurance commitment. In the event the Buyer chooses to procure a
current survey of the real property, prepared by a licensed surveyor, such
survey shall not disclose any survey defect or encroachment from or on the
Premises which has not been cured or insured over prior to the Closing.
6.15 TELESUPPORT. Simultaneous with the Closing, the stockholders of
Telesupport and the Parent or BOL II shall merge Telesupport into the Parent or
BOL II.
6.16 BULK SALES. The Buyer waives compliance with the applicable
provisions of Sections 6-101-112 of the Uniform Commercial Code relating to bulk
transfer in connection with this sale of the Assets, subject to the indemnities
of the Company and the Stockholders contained in this Agreement. Nothing in the
SECTION 6.16 will estop or prevent either the Buyer or the Company or
Stockholders from asserting as a bar or defense to any action or proceeding
brought under such provisions that such provisions are not applicable to the
transfer contemplated under this Agreement.
6.17 NAME CHANGE, TELEPHONE NUMBERS AND POST OFFICE BOX ADDRESSES. The
Company will have executed and delivered all such documents for filing as may be
required to change the corporate name of Telecon Communications Corp. to another
name bearing no similarity thereto or to any other trade names of the Company,
including but not limited to duly executed amendments to the Certificate of
Incorporation of the Company. From and after the Closing Date, neither the
Company nor the Stockholders shall use such names or any names similar thereto,
and shall sign such consents and take such other action as the Buyer shall
reasonably request in order to permit the Buyer to use the Telecon name and
transfer telephone numbers and post office box addresses, if any.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS.
7.1 INTRODUCTION. The obligations of the Company and the Stockholders
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 Stockholders):
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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 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.
7.4 EMPLOYMENT AND OTHER AGREEMENTS. BOL shall have executed and
delivered the following employment agreements: (a) Employment Agreement with
Kathleen Marshall in the form attached hereto as EXHIBIT 6.12(a); (b) Employment
Agreement with Joseph Sullivan in the form attached hereto as EXHIBIT 6.12(b);
Consulting Agreement with Bruce Becker in the form annexed hereto as EXHIBIT
6.12(c).
7.5 LEGAL OPINION. The Company shall have received an opinion from
Duffy & Sweeney, LLP in substantially the form attached hereto as EXHIBIT 7.5.
7.6 APPROVALS AND CONSENTS. The Parent and BOL 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 by BOL using
the Assets subsequent to the Closing Date, 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 Stockholders, 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 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.
7.7 PROCEEDINGS SATISFACTORY TO THE STOCKHOLDERS. All proceedings to be
taken by the BOL and the Parent 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
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Company and the Stockholders shall be reasonably satisfactory in form and
substance in all material respects to the Company and the Stockholders and their
counsel.
7.8 GOOD STANDING CERTIFICATES; CERTIFIED COPY OF THE CERTIFICATE OF
INCORPORATION. Parent shall have delivered to the Stockholders a certificate,
dated as of a date no earlier than twenty (20) days prior to the Closing Date,
duly issued by the Secretary of State of Delaware secretary of State, showing
that the Parent is a subsisting corporation organized under the law of the State
of Delaware and that it has filed all annual reports and paid all franchise
taxes due. BOL shall have delivered to the Stockholders certificates, dated as
of a date no earlier than twenty (20) days prior to the Closing Date, (i) duly
issued by the New York Secretary of State, showing that BOL is a subsisting
corporation organized under the law of the State of New York and (ii) a
franchise tax report duly issued by the New York State Department of Taxation
and finance showing that all New York State franchise and/or income tax returns
and tax for BOL prior to the date of such certificate have been filed and paid.
Each of the Parent and BOL shall also have delivered to the Stockholders prior
to the Closing a recent copy of its Certificate of Incorporation and all
amendments thereto dully certified by the Secretary of State of Delaware.
7.9 TELESUPPORT. Simultaneous with the Closing, the stockholders of
Telesupport and the Parent or BOL II shall merge Telesupport into the Parent or
BOL II.
7.10 NOTICE OF BULK SALES. The notification to the New York State
Commissioner of Taxation and Finance required under Section 1141(c) of Tax Law
shall have been filed at least ten (10) days prior to the Closing.
7.11 NO MATERIAL ADVERSE CHANGE. If the Buyer elects at the Closing to
deliver the promissory notes contemplated in Section 1.3 above in lieu of cash
in the amount of $5,000,000, there shall not have occurred a BIZZ MAC which
would adversely affect the ability of BOL, or the Parent as guarantor of such
promissory notes, to satisfy the full amount of BOL's payment obligations
thereunder upon the maturity date of such notes.
SECTION 8. [Intentionally Omitted].
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 board of directors of the Parent and
the Company;
(b) either by the Stockholders 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 March 31,
2000, 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;
provided, however,
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the parties agree that such date shall be extended for up to a maximum
of 60 days if approval from the PSC or the Federal Communications
Commission has not been received as of such date through no fault of
the parties hereto and despite the best efforts of the parties hereto
in accordance with Section 1.6 hereof to acquire such approval; 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.
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 five (5) years from and after the
Closing Date (or, with respect to Mr. Sullivan and Ms. Marshall, respectively,
the later of 5 years after the Closing Date or 2 years after his or her
respective employment termination date), the Stockholders shall not directly or
indirectly, (i) seek, obtain or accept a "Competitive Position" in the
"Restricted Territory" with a "Competitor" of the Company, BOL, the Parent or
their affiliates (as such terms are hereafter defined), except that in the event
of a termination of either Mr. Sullivan or Ms. Marshall, respectively under the
terms of his or her employment agreement with the Parent or an affiliate of the
Parent, as applicable, which termination by such employer is "without cause" as
defined in such employment agreement, the provisions of this non-competition
covenant shall end with respect to such person on the later of the effective
employment termination date or the date of the last installment of any severance
or other payment payable to such person in connection with his or her
employment, or (ii) solicit, directly or indirectly, any customers, clients,
accounts, officers, employees, agents or representatives of the Company, BOL,
the Parent, or their 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, web site design or hosting
services, long distance or local telephone services, or in any related Internet
or telecommunications business along such lines which the Company and/or its
affiliates may engage in or actively plan to engage in from time to time during
the term of this covenant; provided, however, with respect to Mr. Sullivan and
Ms. Marshall respectively, a Competitor shall not include any Internet or
telecommunications-related businesses which were not Competitors of the Parent
or its affiliates during Mr. Sullivan's or Ms. Marshall's terms of employment
with the Parent or an affiliate of the Parent, as applicable; the "Restricted
Territory" means (i) with respect to any Competitor engaged in the telephony
business (i.e. long distance or local telephone services or similar business)
the New England States, New York, New Jersey, Pennsylvania, Ohio, Delaware,
Maryland, District of Columbia and any other state in which the Company and/or
its affiliates are doing business in at the time of termination of Mr.
Sullivan's or Ms. Marshall's employment, respectively and (ii) with respect to
any Competitor not included in subsection (i) of this sentence, the United
States of America;; a "Competitive Position" means any employment with any
Competitor of the Company or self-employment whereby any Stockholder will use or
is likely to use any Confidential Information,
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or whereby any Stockholder would have duties for such Competitor that are the
same or substantially similar to those actually performed by the Stockholders
under the terms of their employment agreements with the Surviving Corporation.
Nothing contained in this SECTION 10 is intended to prevent any Stockholder 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, each Stockholder and members of his or her 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 STOCKHOLDERS. The Stockholders recognize and acknowledge that
they have had in the past, currently has in the future may have access to
certain confidential information relating to the Company, the Parent and BOL,
including, but not limited to, operational policies, customer lists, and pricing
and cost policies, that are valuable, special and unique assets of the Company,
the Parent and BOL. The Stockholders agree 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 Parent and 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, and (b) following the Closing, such
information may be disclosed by the Stockholders as is required in the course of
performing his/her duties for the Parent or BOL unless (i) such information
becomes known to the public generally through no breach by the Stockholders 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 Stockholders shall give prior written notice thereof to the Parent and
provide the Parent 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 Stockholders of the provisions of this
section, the Parent shall be entitled to an injunction restraining the
Stockholders 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 Stockholders shall return to the
Parent within a reasonable time all documents containing confidential
information about the Parent.
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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 Stockholders 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, unless (i) such information becomes known to the public
generally through no breach by the Parent or BOL 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 Parent and BOL
shall, if possible, give prior written notice thereof to the Company and the
Stockholders and provide the Company and the Stockholders 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 Parent or
BOL of the provisions of this Section, the Company and the Stockholders 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 Stockholders 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 SECTION 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 COMPANY AND THE STOCKHOLDERS. The Company
and the Stockholders, jointly and severally on behalf of themselves and their
respective successors, executors, administrators, estates, heirs and permitted
assigns, agree to indemnify and hold harmless the Parent, BOL, and their
respective officers, directors, employees and agents (individually, a "Parent
Indemnified Party" and collectively, the "Parent Indemnified Parties")
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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 Stockholders in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered under or in connection with
this Agreement as supplemented or amended pursuant to SECTION 4.7 hereof, 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, as so
supplemented; or
(b) any breach of any covenant or agreement made by the
Company or any 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.
(c) any and all loss, liability, deficiency or damage suffered
or incurred by the Parent or BOL attributable to the use of the acquired assets
prior to the Closing Date except for the Assumed Liabilities, or attributable to
the Excluded Assets, and any and all actions, suits, proceedings, claims,
demands, assessments, encumbrances, investigations, judgments, costs and
expenses (including, but no limited to, legal and accounting fees and expenses)
incident to any of the foregoing.
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 clause (b) 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 Company and the Stockholders shall not be obligated to indemnify
the Parent Indemnified Parties in respect of Parent Indemnifiable Claims and no
Parent Indemnifiable Claims shall be paid from the Escrow Deposit except to the
extent the cumulative amount of Losses to Parent Indemnifiable Parties exceeds
$100,000, whereupon all Losses in excess of $50,000 shall be recoverable in
accordance with the terms hereof. Notwithstanding the foregoing, the
$100,000/$50,000 threshold/deductible shall not apply to (i) Purchase Price
adjustments, (ii) claims with respect to any taxes not specifically assumed by
BOL hereunder, or (iii) as a result of fraud or intentional misrepresentation by
the Stockholders or the Company. The aggregate indemnification obligations of
the Company and the Stockholders hereunder shall be limited to the Purchase
Price of $15,000,000, as adjusted pursuant to Section 2 of this Agreement. After
payment of such amount, such indemnification obligations shall terminate.
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Notwithstanding the foregoing, solely with respect to a breach by a
Stockholder of the non-competition provisions contained in Section 10 or the
nondisclosure provisions contained in Section 11.1 hereof, the liabilities of
the Stockholders for any Losses or claims arising from such a breach shall be
separate, rather than joint and several, such that a Stockholder shall not be
liable for any claims or losses of the Parent or BOL arising solely from the
breach of said non-competition or non-disclosure provisions committed by another
Stockholder.
In the event of a Parent Indemnifiable Claim, the Parent and BOL agree
that the Parent Indemnified Parties shall first apply to the Escrow Agent under
the terms of the Escrow Agreement for satisfaction of any such claims, and that
the Company and the Stockholders will not be required to pay such claim directly
unless the amount of unpaid Parent Indemnifiable Claim(s) exceeds the value of
any then remaining Escrow Deposit (except to the extent such claim is based on a
breach of the non-competition or non-disclosure provisions set forth in Sections
10 and 11.1 hereof). The foregoing provision regarding payment from escrow shall
not in any way affect, reduce, limit, decrease or release the Stockholders'
liability for any Parent Indemnifiable Claim.
12.2 INDEMNIFICATION BY THE PARENT AND BOL. The Parent and BOL, jointly
and severally on behalf of themselves and their successors and assigns, agree to
indemnify and hold harmless the Stockholders and their successors, heirs and
assigns (individually, a Stockholder Indemnified Party" and collectively, the
"Stockholder 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
(including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against the Stockholders,
arising out of, based upon or in connection with:
(a) any breach of any representation or warranty made by the
Parent or BOL in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered under or in connection with this
Agreement as supplemented or amended, 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, as so supplemented; or
(b) any breach of any covenant or agreement made by the Parent
or BOL in this Agreement (including but not limited to the payment and
performance by the BOL of the Assumed Liabilities) 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; and
(c) any and all loss, liability, deficiency or damage suffered
or incurred by the Company or any Stockholder attributable to the use of the
acquired assets after the Closing Date, and any and all actions, suits,
proceedings, claims, demands, assessments, encumbrances, investigations,
judgments, costs and expenses (including, but no limited to, legal and
accounting fees and expenses) incident to any of the foregoing.
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Claims under clauses (a) through (c) of this SECTION 12.2 are
hereinafter collectively referred to as "Stockholder Indemnifiable Claims." The
rights of Stockholder Indemnified Parties to recover indemnification in respect
of any occurrence referred to in clauses (b) of this SECTION 12.2 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 12.2. The Parent and BOL shall not be obligated to indemnify the
Stockholder Indemnified Parties in respect of any such losses except to the
extent the cumulative amount of such losses to Stockholder Indemnified Parties
exceeds $100,000, whereupon all Losses in excess of $50,000 shall be recoverable
in accordance with the terms hereof. The indemnification obligations of the
Parent and BOL hereunder shall be limited to the unpaid portion of the Purchase
Price plus $5,000,000. After payment of such amount, such indemnification
obligations shall terminate.
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. If the Indemnifying
Party assumes the defense of such claim, then in no event shall the Indemnified
Party admit any liability with respect to, settle, compromise or discharge any
such claim without the prior written consent of the Indemnifying Party which
consent shall not be unreasonably withheld. 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
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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.
SECTION 13. MISCELLANEOUS.
13.1 LAW GOVERNING. This Agreement shall be construed under and
governed by the internal laws of the State of New York 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 THE PARENT AND BOL:
BiznessOnline.com, Inc.
1720 Route 34
P.O. Box 1347
Wall, NJ 07719
ATTN: Mark E. Munro, President and Chief Executive Officer
Phone: 732-280-6407
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:
Telecon Communications Corp.
P.O. Box 503
Johnstown, NY
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ATTN: Bruce Becker
Phone: (518) 762-3456
Fax: (518) 762-7602
with a copy to:
Hodgson Russ Andrews Woods & Goodyear, LLP
6 Fremont Street
Gloversville, NY 12078
ATTN: Mario J. Papa, Esq.
Phone: (518) 725-6347
Fax: (518) 773-7350
TO THE STOCKHOLDERS:
Joseph J. Sullivan III
122 Boblin Marina Drive
Mayfield, NY 12117
Bruce R. Becker
2 Woodland Drive
Johnstown, NY 12095
Kathleen A. Marshall
212 Priddle Point Road Extension
Mayfield, NY 12117
with a copy to:
Hodgson Russ Andrews Woods & Goodyear, LLP
6 Fremont Street
Gloversville, NY 12078
ATTN: Mario J. Papa, Esq.
Phone: (518) 725-6347
Fax: (518) 773-7350
Any notice given hereunder may be given on behalf of any party by its counsel or
other authorized representative.
13.3 PUBLICITY; SECURITIES LAWS. The Stockholders and the Company
acknowledge that the Parent is a publicly held company that is therefore subject
to certain disclosure requirements under federal securities laws. The
Stockholders, the Company 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 Stockholders further understand that this
Agreement represents information concerning the Parent and BOL 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 Stockholders and the Company 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.
13.4 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.
13.5 ASSIGNABILITY. This Agreement may not be assigned or delegated by
any party hereto without the prior written consent of all parties hereto. No
Stockholder may assign his, her or its rights or delegate his, her or its
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.
13.6 JURISDICTION; VENUE; ATTORNEY'S FEES. Each party hereto agrees
that any dispute regarding this Agreement shall be resolved 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 shall
award costs and expenses (including reasonable attorney's fees) to the
prevailing party and/or parties in any litigation.
13.7 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.
13.8 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.
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13.9 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.
13.10 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 and the
Stockholders, 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.
13.11 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 for a
period of 24 months; provided, however, (i) that the representation and warranty
set forth in SECTION 3.6(a)(i) (ii) AND (iii) shall terminate on the Closing
Date and (ii) that any representation and warranty with respect to any tax
matter shall survive for the period of the applicable statute of limitation or
repose.
13.12 LIQUIDATION AND DISSOLUTION OF THE COMPANY. The Buyer
acknowledges that the Stockholders intend to cause the Company to be liquidated
and dissolved as soon as practicable after the Closing. The liquidation and
dissolution of the Company after the Closing shall not be deemed a breach of any
obligation of the Company under this Agreement. The Stockholders agree (i) to
assume any and all obligations of the Company hereunder and as otherwise
required by law upon such dissolution and (ii) such dissolution shall in no way
reduce, release, modify or limit their obligations hereunder.
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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.
ATTEST: BiznessOnline.com, Inc.
By:/S/ MARK E. MUNRO
- - -------------------------------- ----------------------------------
, Assistant Secretary Mark E. Munro, President and
Chief Executive Officer
ATTEST: BOL Acquisition Co. III, Inc.
By:/S/ MARK E. MUNRO
- - -------------------------------- ----------------------------------
, Assistant Secretary Mark E. Munro, President
ATTEST: Telecon Communications Corp.
By:/S/ BRUCE BECKER
- - -------------------------------- ----------------------------------
, Secretary Bruce Becker, President
STOCKHOLDERS:
WITNESS:
/S/ JOSEPH SULLIVAN
- - -------------------------------- -------------------------------------
Joseph Sullivan
WITNESS
/S/ BRUCE BECKER
- - -------------------------------- -------------------------------------
Bruce Becker
WITNESS
/S/ KATHLEEN MARSHALL
- - -------------------------------- -------------------------------------
Kathleen Marshall
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Exhibit 10.27
CONFIDENTIAL
March 15, 2000
Mr. Mark Munro
BiznessOnline.com, Inc.
President & Chief Executive Officer
1720 Route 34, P.O. Box 1347
Wall, NJ 07719
Dear Mr. Munro:
This will confirm that the agreement between Prudential Securities
Incorporated ("Prudential Securities") and BiznessOnline.com, Inc. (the
"Company") dated November 22, 1999 is hereby terminated, and will further
confirm that the agreement (the "Agreement") between Prudential Securities
Incorporated and BiznessOnline.com, Inc. is as follows:
1. SCOPE OF ENGAGEMENT
The Company hereby engages Prudential Securities as its exclusive agent
in the private placement of securities of the Company and/or any
affiliate or subsidiary thereof in one or more related transactions (a
"Transaction") to one or more financial investors, strategic corporate
investors and/or others (collectively, the "Investors") in the form of
common stock, convertible preferred stock, convertible debt securities,
equity-linked securities, equity or equity-linked joint ventures or
other equity or equity-linked arrangements including without
limitation, debt securities with warrants (collectively, the
"Securities"), except any debt securities with warrants that the
Company places with MCG Finance Corporation and/or its affiliates
2. OFFERING PROCESS
Prudential Securities hereby accepts the engagement and in that
connection agrees to:
(a) prepare, in consultation with the Company, a Private Placement
Memorandum (the "Memorandum") describing the Company and the
Securities; this Memorandum will not be made available to
potential Investors until such Memorandum and its use shall be
approved by the Company;
(b) prepare and review with the Company a mutually acceptable list of
Investors to be contacted by Prudential Securities in connection
with the Transaction (the "Investor Contact List"); these
Investors will only be contacted after the Company has approved
the Investor Contact List;
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(c) use its best efforts to privately place the Securities;
(d) if appropriate, assist the Company with the preparation of any
other communications to be used in placing the Securities,
whether in the form of letter, circular, notice or otherwise; and
(e) assist with the negotiation of the final terms and conditions for
the sale of the Securities to the Investors.
3. COMPANY'S RESPONSIBILITIES, REPRESENTATIONS AND WARRANTIES
In connection with Prudential Securities' engagement, the Company will
furnish Prudential Securities with all information concerning the
Company that Prudential Securities reasonably requests and will provide
Prudential Securities with access to the Company's officers, directors,
accountants, counsel and other advisors. The Company represents and
warrants to Prudential Securities that: (a) all such information,
including the Memorandum and any communications prepared pursuant to
paragraph 2(d) above, is and will be true and accurate in all material
respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements made, in light of the circumstances under which
they were made, not misleading; and (b) any projected financial
information or other forward-looking information which the Company
provides to Prudential Securities will be made by the Company in good
faith, based on management's best estimates then available and based on
facts and assumptions which the Company believes to be reasonable. The
Company acknowledges and agrees that Prudential Securities will be
using and relying upon such information supplied by the Company and its
officers, agents and others and any other publicly available
information concerning the Company without any independent
investigation or verification thereof or independent appraisal by
Prudential Securities of the Company or its business or assets nor will
Prudential Securities be providing a solvency opinion with respect to
the Company.
4. COMPENSATION
As compensation for the services rendered by Prudential Securities
hereunder, the Company shall pay Prudential Securities as follows:
(a) At any closing of a Transaction, subject to a minimum fee of
$500,000, a cash fee equal to 7.0% of the Aggregate Consideration
(as defined below) paid for the Securities by Investors;
The fees set forth in paragraph 4 (a) above shall be payable with
respect to any transaction involving the sale of Securities that occurs
either (a) during the term of Prudential Securities' engagement
hereunder regardless of whether the Investor was identified by
Prudential Securities or (b) at any time during a period of 12 months
following the effective date of termination of Prudential Securities'
engagement hereunder without cause if the transaction includes a sale
of Securities to an Investor who is named on the Investor Contact List
or any parent, subsidiary or other affiliate thereof.
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FOLLOW-ON TRANSACTION COMPENSATION
If a Transaction has been consummated and one or more additional
Transactions ("Additional Transactions") are consummated by the Company
(or any parent, subsidiary or other affiliate thereof) within 12 months
from the closing date of the initial Transaction with any party (or any
parent, subsidiary or other affiliate thereof) whose name is on the
Investor Contact List (including Investors in such initial
Transaction), Prudential Securities shall be entitled to receive (i) a
fee equal to 3.25% of the Aggregate Consideration of any such
Additional Transactions at the closings of any such Additional
Transactions.
DEFINITION OF AGGREGATE CONSIDERATION
The "Aggregate Consideration" for purposes of calculating Prudential
Securities' fee shall be deemed to include:
(a) the total consideration for the Securities sold which is
received, directly or indirectly, by the Company and/or any
selling shareholders, including the assumption or
extinguishment of indebtedness, the issuance of guarantees
and contingent payment obligations;
(b) consideration, if any, received or receivable upon exercise
of options and/or any other similar instruments issued at
the closing of a Transaction (collectively, the "Options");
and
(c) any amounts paid into escrow and amounts payable in the
future whether or not subject to any contingency.
To the extent that:
(i) the consideration received is to include in whole or in part
consideration which is contingent in amount or payable in
the future (e.g., installment payments), the portion of
Prudential Securities' fee relating thereto shall be paid
when such consideration is received by the Company;
(ii) future payments relating to the exercise of the Options
which are not currently ascertainable or payable, the
portion of Prudential Securities' fee relating thereto shall
be calculated and paid upon exercise of the Options; and
(iii) the consideration received is, in whole or in part, in the
form of securities or other noncash consideration, including
without limitation contractual rights such as joint venture
interests, the value of such consideration, for purposes of
calculating Prudential Securities' fee, shall be the fair
market value thereof, as the parties hereto shall mutually
agree, on the day prior to the closing date; provided,
however, that if such consideration consists of securities
with an existing public trading market, the value thereof
shall be determined by the average of the last
3
<PAGE>
sales price for such securities on the five trading days
ending five days prior to such consummation.
5. FUTURE INVESTMENT BANKING ROLES
During the term of this Agreement or at any time within 12 months
following the closing of a Transaction, if the Company or any of its
affiliates proposes (i) to dispose of an interest in any assets or
businesses of the Company to which paragraph 6 herein does not apply,
(ii) to acquire or purchase any interest or investment in any other
company or business, or (iii) to place privately or offer publicly and
underwrite any debt or equity securities other than in a Transaction or
an Additional Transaction for which fees are payable to Prudential
Securities under, and in accordance with, paragraph 4 above (each of
such transactions referred to in clauses (i), (ii) or (iii) hereof
being hereinafter referred to as a "Financing Transaction"), the
Company shall consider using, but shall not be obligated to use,
Prudential Securities and its affiliates to act as its exclusive
financial advisor, lead manager or sole placement agent, as the case
may be, with respect to such Financing Transaction. Any decision by the
Company to engage Prudential Securities or its affiliates to act as
exclusive financial advisor, lead manager or sole placement agent, as
the case may be, with respect to such Financing Transaction will be
contained in a separate agreement or amendment hereto, which would
include, among other things, the terms of any such financing,
provisions for customary fees for transactions of similar size and
nature, indemnification of Prudential Securities, conditions precedent,
including due diligence, market conditions and approval by the
requisite committees of Prudential Securities, and customary
representations and warranties.
6. PSI ROLE IN THE EVENT OF SALE OF THE COMPANY
In the event that, directly or indirectly, control of, or a material
interest in, the Company is proposed to be sold, leased or otherwise
transferred to any party including, without limitation, a sale or
exchange of capital stock or assets, a merger or consolidation, a
tender or exchange offer, a leveraged buy-out, a restructuring or a
recapitalization (a "Sale Transaction") and a definitive agreement for
such sale transaction is entered into or a term sheet or a letter of
intent for such sale transaction is signed prior to the Closing of a
private placement Transaction and prior to June 1, 2000, provided the
Company is still in active pursuit of a Transaction with Prudential
Securities, the Company shall either: (i) agree to use Prudential
Securities as the Company's exclusive financial advisor for such Sale
Transaction, and the Company shall pay Prudential Securities a
customary fee for a transaction of this size and type at the closing of
such Sale Transaction, equal to 2.0% of the aggregate value of the Sale
Transaction, which is equivalent to the enterprise value of the
Company; or (ii) pay to Prudential Securities a fee of $500,000 if the
Company decides to use another advisor and such Sale Transaction is
consummated, such fee to be paid at the closing of such Sale
Transaction. For purposes of this paragraph 5, "control of the Company"
shall mean 50% or more of the Company's voting securities, and
"material interest in the Company" shall mean any assets or businesses
which, individually or in the aggregate, represent a percentage in
excess of 25% of the assets or net worth of the Company and its
affiliates, whichever is less, taken as a whole. Any decision by the
Company to appoint Prudential Securities as exclusive financial advisor
in connection with such Sale Transaction shall be contained in a
separate agreement or amendment hereto providing for, among other
matters, indemnification of Prudential Securities, conditions precedent
regarding due diligence, current market conditions and other customary
4
<PAGE>
matters, and approval by the requisite committees of Prudential
Securities, and customary representations and warranties.
7. BREAK-UP FEE
If (i) Prudential Securities' engagement is terminated other than for
cause prior to June 1, 2000; and (ii) within a period of six months
following such termination, the Company pursues any Transaction
involving an investor other than an Investor who is named on the
Investor Contact List (hereinafter referred to as an "Alternative
Transaction"), and the Company consummates an Alternative Transaction
without using Prudential Securities, Prudential Securities shall be
entitled to a breakup fee of $250,000 (the "Breakup Fee") payable in
cash upon the closing of such Alternative Transaction.
8. REIMBURSABLE EXPENSES
The Company shall reimburse Prudential Securities for its reasonable
out-of-pocket and incidental expenses incurred in connection with any
Transaction (whether or not consummated), including the reasonable fees
and expenses of its legal counsel and those of any advisor retained by
Prudential Securities (such advisor will be retained upon the consent
of the Company, which consent shall not be unreasonably withheld or
delayed). Prudential Securities shall bill the Company monthly for
expenses, and the Company shall reimburse Prudential Securities for
such expenses within 30 days of receiving a bill.
9. INDEMNIFICATION
Because Prudential Securities will be acting for the benefit of the
Company in connection with this engagement, the Company agrees to
indemnify Prudential Securities and certain other persons as set forth
in the separate indemnification agreement attached hereto.
10. EXCLUSIVE ASSIGNMENT
Without the consent of Prudential Securities, the Company agrees that
during the term of Prudential Securities' engagement hereunder, it will
not, and will not permit its representatives to, contact or solicit
institutions, corporations or other entities other than the Investors
on the Investor Contact List as potential purchasers of the Securities
in a Transaction. Furthermore, the Company agrees that during the term
of Prudential Securities' engagement hereunder, all inquiries, whether
direct or indirect, from prospective Investors for the purchase of
Securities in a Transaction will be referred to Prudential Securities
and will be deemed to be added to the Investor Contact List.
11. ADVERTISEMENTS
Upon completion of a Transaction, Prudential Securities may place
advertisements in financial and other publications and media at its own
expense describing its services to the Company hereunder.
5
<PAGE>
12. SURVIVAL OF TERMS OF AGREEMENT
Subject to the provisions of paragraph 3 (excluding the first sentence
thereof) through 9, and 12 through 19 which shall survive any
termination of this Agreement, either party may terminate Prudential
Securities' engagement hereunder at any time, with or without cause, by
giving the other party at least 10 days' prior written notice. Upon
termination of Prudential Securities engagement hereunder by any party
hereto, Prudential Securities may provide the Company with a final
Investor Contact List.
13. DISCLOSURE TO THIRD PARTIES
Without the prior written consent of Prudential Securities, the Company
will not publicly refer to Prudential Securities or publicly disclose
or otherwise make available to third parties other than to Investors
(except the Company's counsel or other advisers, provided the Company
informs them of this provision) and other than in the Memorandum, any
advice, either oral or written, which Prudential Securities provides to
the Company in connection with this engagement.
14. SUCCESSORS AND ASSIGNS
The benefits of this Agreement, together with the separate
indemnification agreement, shall inure to the respective successors and
permitted assigns of the parties hereto and of the indemnified parties
under such indemnification agreement and their respective successors,
permitted assigns and representatives, and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be
binding upon their respective successors and assigns. This Agreement
and the related indemnification agreement may not be assigned without
the prior written consent of the non-assigning party.
OTHER TERMS AND CONDITIONS
15. The Company further represents and warrants to Prudential Securities
that:
(a) the Company has taken no action that would give any brokers,
representatives, finders or other persons an interest in the
compensation due to Prudential Securities in connection with any
Transaction contemplated herein; and
(b) this Agreement does not violate or constitute a breach or default
under any contract, agreement, arrangement or understanding,
whether written or oral, to which the Company or any of its
subsidiaries is a party or by which its or their assets are
bound.
16. This Agreement may not be amended or modified except in a writing
signed by the party against whom enforcement is sought and shall be
governed by and construed in accordance with the laws of the State of
New York, without regard to its principles of conflicts of laws.
17. EACH OF PRUDENTIAL SECURITIES AND THE COMPANY (ON ITS OWN BEHALF AND,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS AFFILIATES
AND STOCKHOLDERS) WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
CLAIM, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) RELATING TO OR ARISING OUT OF THE
6
<PAGE>
ENGAGEMENT OF PRUDENTIAL SECURITIES PURSUANT TO, OR THE PERFORMANCE BY
PRUDENTIAL SECURITIES OF THE SERVICES CONTEMPLATED BY, THIS AGREEMENT.
18. The purpose of this Agreement is to set forth the services that
Prudential Securities will provide to the Company, as an independent
contractor, either as specifically provided herein or as subsequently
requested in writing by the Company and agreed to by Prudential
Securities. The parties hereto do not intend to create any special,
fiduciary or agency relationship between them. In addition, the
exclusivity of the relationship between Prudential Securities and the
Company refers to the fact that the services to be provided by
Prudential Securities hereunder are to be provided solely by
Prudential Securities and that the fees to be paid by the Company
hereunder are solely for the benefit of Prudential Securities. There
may be other services which are required to be provided to the Company
in connection with any transaction contemplated by this Agreement and
which will be provided by others (e.g., independent auditors or
appraisers). Furthermore, the parties hereto understand that
Prudential Securities is not required to purchase any Securities. This
Agreement is solely for the benefit of Prudential Securities and the
Company and is not intended to create rights or obligations of either
party for the benefit of third parties, including without limitation
the creditors of the Company.
19. The Company acknowledges that Prudential Securities is a full service
securities firm and in the ordinary course of its business, for its own
account or the accounts of its customers, holds long or short positions
in securities or derivative securities (including options), which may
include securities or derivative securities relating to the Company or
other entities which may be involved in the engagement contemplated
hereby. Nothing in this Agreement shall be deemed to prohibit
Prudential Securities from providing any services permitted by
applicable law to any third party or from engaging in any lawfully
permitted activity on its own behalf.
Prudential Securities is delighted to accept this engagement and looks forward
to working with the Company on this assignment. Please confirm Prudential
Securities' engagement as set forth herein by signing the enclosed duplicate of
this letter and the separate indemnification agreement and returning them
whereupon, following approval by the requisite committees of Prudential
Securities, this letter and the separate indemnification agreement shall
constitute binding agreements as of the date first above written.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Simon Gill /s/ Michael Mortell
----------------------- ------------------------
Simon Gill Michael Mortell
Managing Director Managing Director
Accepted and agreed as of the
date first above written:
7
<PAGE>
BiznessOnline.com, Inc.
By: /S/ MARK MUNRO
Mark Munro
President & CEO
8
<PAGE>
[INDEMNIFICATION AGREEMENT]
March 15, 2000
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
New York, N.Y. 10292
Ladies and Gentlemen:
In connection with the engagement agreement, dated the date hereof,
between Prudential Securities Incorporated ("Prudential Securities") and
BiznessOnline.com, Inc. (the "Company"), the Company agrees to indemnify and
hold harmless Prudential Securities and its affiliates, their respective
directors, officers, controlling persons (within the meaning of Section 15 of
the Securities Act of 1933 or Section 20(a) of the Securities Exchange Act of
1934), if any, agents and employees of Prudential Securities or any of
Prudential Securities' affiliates (collectively, "Indemnified Persons" and
individually, an "Indemnified Person") from and against any and all actions,
claims, suits, proceedings, liabilities, losses, damages and expenses
incurred, joint or several (collectively, "Claims"), by any Indemnified
Person (including fees and disbursements of Prudential Securities' and an
Indemnified Person's counsel) which are related to or arise from Prudential
Securities' engagement by the Company, including Claims that relate to or
arise from any actions taken or omitted to be taken (including any untrue or
alleged untrue statements made or any statements omitted or alleged to be
omitted) by the Company or which relate to or arise from securities laws or
any other law or legal theory, and will reimburse Prudential Securities and
any other Indemnified Person for all costs and expenses (including fees and
disbursements of Prudential Securities' or an Indemnified Person's counsel),
as they are incurred, in connection with investigating, preparing for,
providing depositions for, testifying in or defending any such action or
claim, formal or informal, investigation, inquiry or other proceeding,
whether or not in connection with pending or threatened litigation, whether
or not Prudential Securities or any Indemnified Person is named as a party
thereto and whether or not any liability results therefrom related to or
arising from the foregoing (collectively, "Costs"). The Company will not,
however, be responsible for any Claims which are found in a final judgment by
a court of competent jurisdiction (not subject to further appeal) to have
resulted directly and primarily from an Indemnified Person's gross negligence
or willful misconduct.
The Company agrees that neither Prudential Securities nor any other
Indemnified Person shall have any liability to the Company for or in
connection with such engagement except liability for Claims which are found
in a final judgment by a court of competent jurisdiction (not subject to
further appeal) to have resulted directly and primarily from an Indemnified
Person's gross negligence or willful misconduct. The Company also agrees that
the Company will not, without the prior written consent of Prudential
Securities, settle or compromise or consent to the entry of any judgment in
any pending or threatened Claim in respect of which indemnification
<PAGE>
may be sought hereunder (whether or not Prudential Securities or any
Indemnified Person is an actual or potential party to such Claim). Such prior
written consent of Prudential Securities shall be required only with respect
to Prudential Securities determining that such settlement, compromise or
consent complies with the terms of the following sentence and does not impose
any material obligation on Prudential Securities or any other Indemnified
Person or contain any admission of culpability on the part of Prudential
Securities or any Indemnified Person. Such settlement, compromise or consent
shall include an unconditional release of Prudential Securities and each
other Indemnified Person from all liability arising out of such Claim, and
the Company shall furnish Prudential Securities with a copy of such
settlement reasonably in advance of entering into such settlement.
In order to provide for just and equitable contribution, if a demand
for indemnification or reimbursement for Claims or Costs is made pursuant to
these provisions but is not available for any reason, then the Company, on
the one hand, and Prudential Securities, on the other hand, shall contribute
to such Claims or Costs for which such indemnification or reimbursement is
held unavailable in such proportion as is appropriate to reflect the relative
benefits to the Company, on the one hand, and Prudential Securities on the
other hand, in connection with the transaction or transactions from which the
Claims or Costs in question arose. The relative benefits received by the
Company, on the one hand, and by Prudential Securities, on the other hand,
shall be deemed to be in the same proportion as the value (before deducting
expenses) of the consideration paid by or received by the Company or its
stockholders or comparable equity owners, as the case may be, in connection
with the transaction or transactions from which the Claims or Costs in
question arose bears to the total fees actually received by Prudential
Securities in connection therewith. If the allocation provided by the
foregoing sentence is not permitted by applicable law, then such allocation
shall be based not only on such relative benefits determined as aforesaid but
also on the relative fault of the Company, on the one hand, and Prudential
Securities, on the other, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, the parties' relative intents, knowledge,
access to information and, if applicable, whether any untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by
Prudential Securities, and any other equitable considerations appropriate in
the circumstances. Any such contribution shall be subject to the limitation
that in any event Prudential Securities' aggregate contribution to all Claims
or Costs for which contribution is available hereunder shall not exceed the
amount of fees actually received by Prudential Securities pursuant to the
particular engagement relating to the transaction or transactions from which
the Claims or Costs in question arose.
The foregoing rights to indemnity, reimbursement and contribution
shall be in addition to any rights that Prudential Securities and/or any
other Indemnified Person may have at common law or otherwise. The Company
hereby consents to personal jurisdiction, service of process and venue in any
court in which any Claim which is subject to this Indemnification Agreement
is brought against Prudential Securities or any other Indemnified Person.
2
<PAGE>
EACH OF PRUDENTIAL SECURITIES AND THE COMPANY (ON ITS OWN BEHALF
AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF ITS
STOCKHOLDERS) WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, SUIT,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE)
RELATING TO OR ARISING OUT OF THIS INDEMNIFICATION AGREEMENT.
In connection with Prudential Securities' engagement of even date
herewith, Prudential Securities may also be engaged to act for the Company in
one or more additional capacities. The terms of any such engagement may be
embodied in one or more separate written agreements. This Indemnification
Agreement shall apply to the engagement of even date herewith, all such other
engagements (whether written or oral) and any modification thereof and shall
remain in full force and effect following the completion or termination of
any such engagement.
The benefits of this Indemnification Agreement shall inure to the
respective successors and permitted assigns of the parties hereto and of the
Indemnified Persons hereunder and their successors, permitted assigns and
representatives, and the obligations and liabilities assumed in this
Indemnification Agreement by the parties hereto shall be binding upon their
respective successors and permitted assigns. This Indemnification Agreement
may not be assigned without the prior written consent of the nonassigning
party (or parties).
This Indemnification Agreement may not be amended or modified except
in a writing signed by the party hereto against which enforcement of this
Indemnification Agreement is sought and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to
principles of conflicts of laws.
Very truly yours,
BiznessOnline.com, Inc.
By: /s/ Mark Munro
----------------------------
Mark Munro
President & CEO
Accepted and agreed as of the
date first above written:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Simon Gill /s/ Michael Mortell
----------------------- -----------------------
Simon Gill Michael Mortell
Managing Director Managing Director
3
<PAGE>
Exhibit 10.28
================================================================================
CREDIT FACILITY AGREEMENT
BY AND AMONG
BIZNESSONLINE.COM, INC.
AND
EACH OF ITS DIRECT AND INDIRECT SUBSIDIARIES
AND
MCG FINANCE CORPORATION
(AS AGENT FOR ITSELF AND ANY OTHER LENDER)
Executed and Effective as of March 16, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE 1: THE CREDIT FACILITIES..............................................1
1.1. Term Loan Facility..................................................1
1.1.1. Establishment of Credit Facility............................1
1.1.2. Facility Maturity...........................................1
1.1.3. Use of Proceeds.............................................2
1.1.4. Term Loan Notes.............................................2
1.1.5. Interest....................................................2
1.1.5.1. Intentionally Blank.................................2
1.1.5.2. Establishment of Portions...........................3
1.1.5.3. Interest Rate Determination.........................3
1.1.5.4. Selection of Rate Index.............................3
1.1.5.5. Applicable Rate Margins.............................3
1.1.5.6. Calculation of Interest.............................4
1.1.5.7. Special LIBO Rate Provisions........................4
1.1.6. Repayment and Prepayment....................................5
1.1.6.1. Interest Payments...................................6
1.1.6.2. Principal Payments -- Amortization..................6
1.1.6.3. Intentionally Blank.................................6
1.1.6.4. Payments at Maturity................................6
1.1.6.5. Prepayments.........................................6
1.1.6.6. Availability for Reborrowing........................7
1.2. Intentionally Blank.................................................7
1.3. Determination of Commitment Amounts.................................7
1.3.1. Initial Commitment..........................................7
1.3.2. Available Credit Portion....................................7
1.3.3. Voluntary Reduction of Commitment...........................8
1.4. Advances............................................................8
1.4.1. Requesting Advances.........................................8
1.4.2. Funding Advances............................................8
1.4.3. Indemnification for Revocation or Failure to Satisfy
Conditions..................................................9
1.4.4. Obligation to Advance.......................................9
1.5. Payments in General.................................................9
1.5.1. Manner and Place of Payments................................9
1.5.2. Special Payment Timing Issues...............................9
1.5.3. Application of Payments.....................................9
1.5.4. LIBO Rate Payments Not at End of Interest Period...........10
1.5.5. Capital Adequacy, Taxes and Other Adjustments..............10
1.5.6. Payment of Expenses, Indemnities and Protective Advances...10
1.5.7. Payments upon Termination..................................10
1.5.8. Late Payments..............................................10
1.5.9. Default Interest...........................................11
1.5.10. Usury Savings Provision...................................11
1.6. Release of Security................................................11
1.7. Fees and Other Compensation........................................11
1.7.1. Origination Fee............................................11
1.7.2. Issuance of Warrants.......................................12
1.7.3. Success Fee................................................12
1.7.4. Other Fees.................................................12
ARTICLE 2: CONDITIONS PRECEDENT..............................................13
2.1. Closing Conditions.................................................13
2.1.1. Compliance.................................................13
2.1.1.1. Fees and Expenses..................................13
2.1.1.2. Representations....................................13
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2.1.1.3. No Default.........................................13
2.1.1.4. No Material Change.................................13
2.1.2. Documents..................................................13
2.1.3. Telecon Acquisition........................................16
2.2. Future Term Loan Advances..........................................17
2.2.1. Advance Request............................................17
2.2.2. Cash Flow Leverage.........................................17
2.2.3. Other Documents............................................17
2.2.4. Additional Acquisitions....................................17
2.2.5. Compliance.................................................17
2.2.5.1. Fees and Expenses..................................17
2.2.5.2. Representations....................................17
2.2.5.3. No Default.........................................17
2.2.6. No Material Change.........................................18
ARTICLE 3: REPRESENTATIONS AND WARRANTIES....................................18
3.1. Organization and Good Standing.....................................18
3.2. Power and Authority................................................18
3.3. Validity and Legal Effect..........................................18
3.4. No Violation of Laws or Agreements.................................18
3.5. Title to Assets; Existing Encumbrances; Identification of
Intellectual and Real Property.....................................18
3.6. Capital Structure and Equity Ownership.............................19
3.7. Subsidiaries, Affiliates and Investments...........................19
3.8. Material Contracts.................................................19
3.9. Licenses and Authorizations........................................20
3.10. Taxes and Assessments.............................................20
3.11. Litigation and Legal Proceedings..................................20
3.12. Accuracy of Financial Information.................................21
3.13. Accuracy of Other Information.....................................21
3.14. Compliance with Laws Generally....................................21
3.15. ERISA Compliance..................................................21
3.16. Environmental Compliance..........................................21
3.17. Margin Rule Compliance............................................21
3.18. Fees and Commissions..............................................21
3.19. Solvency..........................................................22
3.20. Additional FCC and Other Regulatory Representations...............22
3.20.1. General Compliance........................................22
3.20.2. No Unresolved Application, Complaint or Proceeding........22
3.20.3. Status and Renewal of Licenses............................22
ARTICLE 4: AFFIRMATIVE COVENANTS.............................................22
4.1. Financial and Operating Covenants and Ratios.......................23
4.1.1. Interest Coverage Ratio....................................23
4.1.2. Total Charge Coverage Ratio................................23
4.1.3. Cash Flow Leverage Ratio...................................23
4.2. Periodic Financial Statements and Compliance Certificates..........23
4.2.1. Monthly Financial Statements...............................23
4.2.2. Quarterly Financial Statements.............................23
4.2.3. Annual Financial Statements................................24
4.3. Other Financial and Specialized Reports............................24
4.3.1. Financial Forecasts; Operating Budgets.....................24
4.3.2. Additional Material Contracts, Licenses and
Authorizations.............................................24
4.3.3. Tax Returns................................................24
4.3.4. SEC Filings and Press Releases.............................25
4.3.5. Operating Reports..........................................25
4.4. Fiscal Year........................................................25
4.5. Books and Records; Maintenance of Properties.......................26
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4.6. Existence and Good Standing........................................26
4.7. Deposit Accounts...................................................26
4.8. Insurance; Disaster Contingency....................................26
4.8.1. General Insurance Provisions...............................26
4.8.2. Disaster Recovery and Contingency Program..................26
4.9. Loan Purpose.......................................................27
4.10. Taxes.............................................................27
4.11. Management Changes................................................27
4.12. Litigation and Administrative Proceedings.........................27
4.13. Monitoring Compliance; Occurrence of Certain Events...............27
4.14. Compliance with Laws..............................................27
4.15. Further Actions...................................................27
4.15.1. Additional Collateral.....................................28
4.15.2. Further Assurances........................................28
4.15.3. Estoppel Certificates.....................................28
4.15.4. Waivers and Consents......................................28
4.15.5. Access and Audits.........................................28
4.15.6. Attendance at Board of Directors Meetings.................29
4.16. Costs and Expenses................................................29
4.17. Other Information.................................................29
4.18. Additional FCC and Other Regulatory Affirmative Covenants.........29
4.18.1. Service Interruption......................................29
4.18.2. Correspondence, Orders and Filings........................30
4.19. Billing System Integration........................................30
4.20. Post-Closing Items................................................30
ARTICLE 5: NEGATIVE COVENANTS................................................31
5.1. Capital Expenditures...............................................31
5.2. Additional Indebtedness............................................31
5.3. Guaranties.........................................................32
5.4. Loans..............................................................32
5.5. Liens and Encumbrances; Negative Pledge............................32
5.6. Transfer of Assets.................................................34
5.7. Acquisitions and Investments.......................................34
5.8. New Ventures; Mergers..............................................35
5.9. Transactions with Affiliates.......................................35
5.10. Distributions or Dividends........................................35
5.11. Payment of Subordinated Indebtedness..............................36
5.12. Payment of Management Fees and Other Compensation.................36
5.13. Issuance of Additional Equity.....................................36
5.14. Removal of Assets.................................................36
5.15. Modifications to Organic Documents................................37
5.16. Terms of and Modifications to Material Relationships..............37
5.17. Margin Stock Restrictions; Other Federal Statutes.................37
5.18. Holding Company Structure.........................................37
ARTICLE 6: ADDITIONAL COLLATERAL AND RIGHT OF SET OFF........................37
6.1. Additional Collateral..............................................37
6.2. Right of Set-Off...................................................38
6.3. Additional Rights..................................................38
ARTICLE 7: DEFAULT AND REMEDIES..............................................38
7.1. Events of Default..................................................38
7.1.1. Payment Obligations........................................38
7.1.2. Representations and Warranties.............................38
7.1.3. Financial Covenants........................................38
7.1.4. Other Covenants in Loan Documents..........................38
7.1.5. Default Under Other Agreements with Administrative
Agent or Lenders...........................................39
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7.1.6. Default Under Material Agreements with Other Parties.......39
7.1.7. Security Interest..........................................39
7.1.8. Change of Control..........................................39
7.1.9. Government Action..........................................40
7.1.10. Insolvency................................................40
7.1.11. Additional Liabilities....................................40
7.1.12. Business Interruption.....................................40
7.1.13. FCC and Other Regulatory-Action Defaults..................40
7.1.14. Material Adverse Change...................................41
7.2. Remedies...........................................................41
7.2.1. Acceleration, Termination and Pursuit of Collateral........41
7.2.2. Other Remedies.............................................41
7.2.3. Special Regulatory-Related Remedies........................41
ARTICLE 8: RELATIONSHIP AMONG LENDERS........................................43
8.1. Appointment, Authorization and Grant of Authority..................43
8.2. Acceptance of Appointment..........................................43
8.3. Administrative Agent's Relationship with Borrowers.................43
8.4. Non-Reliance on Administrative Agent and Other Lenders.............43
8.5. Reliance by Administrative Agent...................................44
8.6. Delegation of Duties; Additional Reliance by Administrative Agent..44
8.7. Acting on Instructions of Lenders..................................45
8.8. Actions Upon Occurrence of Default or Event of Default.............45
8.9. Administrative Agent's Rights as Lender in Individual Capacity.....45
8.10. Advances By Administrative Agent..................................46
8.11. Payments to Lenders...............................................46
8.12. Pro-Rata Sharing of Setoff Proceeds...............................46
8.13. Limitation on Liability of Administrative Agent...................46
8.14. Indemnification...................................................47
8.15. Resignation; Successor Administrative Agent.......................47
ARTICLE 9: DEFINITIONS AND RULES OF CONSTRUCTION.............................48
9.1. Definitions........................................................48
9.2. Rules of Interpretation and Construction...........................60
9.2.1. Plural; Gender.............................................60
9.2.2. Section and Schedule References............................60
9.2.3. Titles and Headings........................................61
9.2.4.............................................................61
9.2.5."Shall", "Will", "Must", "Can" and "May" References.........61
9.2.6. Time of Day References.....................................61
9.2.7.............................................................61
9.2.8. Successors and Assigns.....................................61
9.2.9. Modifications to Documents.................................61
9.2.10. References to Laws and Regulations........................62
9.2.11. Financial and Accounting Terms............................62
9.2.12. Conflicts Among Loan Documents............................62
9.2.13. Independence of Covenants and Defaults....................62
9.2.14. Administrative Agent......................................62
ARTICLE 10: MISCELLANEOUS....................................................63
10.1. Indemnification, Reliance and Assumption of Risk..................63
10.2. Assignments and Participations....................................63
10.3. No Waiver; Delay..................................................64
10.4. Modifications and Amendments......................................64
10.5. Disclosure of Information to Third Parties........................65
10.6. Binding Effect and Governing Law..................................66
10.7. Notices...........................................................66
10.8. Relationship with Prior Agreements................................67
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10.9. Severability......................................................68
10.10. Termination and Survival.........................................68
10.11. Reinstatement....................................................68
10.12. Counterparts.....................................................68
10.13. Waiver of Suretyship Defenses....................................68
10.14. Waiver of Liability..............................................69
10.15. Forum Selection; Consent to Jurisdiction.........................69
10.16. Waiver of Jury Trial.............................................70
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SCHEDULES:
Schedule A List of Borrowers
Schedule 1.1.3 Indebtedness Being Satisfied
Schedule 1.4.2 Funding Instructions
Schedule 3.1 Good Standing / Foreign Qualification Jurisdictions
Schedule 3.2 Missing Consents
Schedule 3.5A Intellectual Property
Schedule 3.5B Real Property Interests
Schedule 3.5C Operating Names / Trade Names
Schedule 3.6 Capital Structure / Equity Ownership
Schedule 3.7 Subsidiaries, Affiliates & Investments
Schedule 3.8 Material Contracts
Schedule 3.9 Licenses and Authorizations
Schedule 3.10 Taxes and Assessments
Schedule 3.11 Material Litigation
Schedule 3.18 Fees and Commissions
Schedule 3.20 Pending Regulatory Matters
Schedule 4.7 Existing Deposit Accounts
Schedule 5.2 Permitted Additional Indebtedness
Schedule 5.3 Permitted Additional Guaranties
Schedule 5.4 Permitted Additional Loans
Schedule 5.5 Permitted Additional Liens
Schedule 5.7 Permitted Additional Investments
EXHIBITS:
Exhibit 1.4.1 Form of Advance Request
Exhibit 4.2 Form of Periodic Compliance Certificate
Exhibit 10.2 Form of Assignment and Assumption Agreement
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<PAGE>
CREDIT FACILITY AGREEMENT
THIS CREDIT FACILITY AGREEMENT (as defined in Article 9, along with all
other defined terms, this "Agreement") is made and effective as of March 16,
2000, by and among BIZNESSONLINE.COM, INC. ("BiznessOnline") and each direct and
indirect Subsidiary of BiznessOnline (which either are listed on Schedule A with
the consent of Lenders or are hereafter added as borrowing Subsidiaries pursuant
to the terms hereof) (as more fully defined in Article 9, BiznessOnline and each
such Subsidiary are referred to individually as a "Borrower" and collectively as
the "Borrowers"), and each financial institution that from time to time is a
"Lender" hereunder (as more fully defined in Article 9, each, a "Lender";
collectively, the "Lenders"), and MCG FINANCE CORPORATION (as more fully defined
in Article 9, "MCG" or "Administrative Agent").
R E C I T A L S
WHEREAS, Borrowers desire and have applied to Lenders and Administrative
Agent for a credit facility consisting of a term loan pursuant to which $15.0
million can be borrowed from time to time on a senior secured basis; and
WHEREAS, Lenders and Administrative Agent are each willing to accommodate
the request for credit upon and subject to the terms, conditions and provisions
of the Loan Documents;
NOW, THEREFORE, for good and valuable consideration (receipt and
sufficiency of which are hereby acknowledged), and intending to be legally bound
hereby, Borrowers (jointly and severally) and each Lender and Administrative
Agent hereby agree as follows:
ARTICLE 1: THE CREDIT FACILITIES
1.1. Term Loan Facility.
1.1.1. Establishment of Credit Facility. Subject to the terms and
conditions of and in reliance upon the representations and warranties in the
Loan Documents, each Lender (severally and on a Pro Rata basis with the other
Lenders) will lend funds to Borrowers on a senior secured basis through Advances
from time to time prior to September 16, 2000 (the "Final Term Draw Date") in an
aggregate principal amount advanced not to exceed the Available Credit Portion
(as determined in accordance with Section 1.3.
1.1.2. Facility Maturity. The Term Loan Facility will mature on
February 28, 2001 (as may be extended from time to time in Lenders' sole and
absolute discretion, "Term Loan Maturity Date"). Notwithstanding the foregoing,
Borrowers (at their election) shall have the option (upon delivery of written
notice to Administrative Agent at any time prior to the then effective Term Loan
Maturity Date) of (a) extending such Term Loan Maturity Date for additional
successive periods of 364 calendar days from the date of such notice but in no
event beyond February 28, 2005 and/or (b) extending the then effective Term Loan
Maturity Date until February 28, 2005 upon
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delivery to Administrative Agent of evidence satisfactory to Administrative
Agent that Borrowers have obtained all necessary final regulatory approvals for
the incurrence of indebtedness having a term with such a maturity date.
1.1.3. Use of Proceeds. The funds advanced under this Term Loan
Facility may be used exclusively as follows:
a. Up to $100,000 to satisfy and refinance the indebtedness
owed by Borrowers to the various Persons set forth on Schedule 1.1.3 (which
Schedule shall identify each payee, the corresponding amounts being satisfied,
and the purpose for which such indebtedness being satisfied was initially
incurred), and
b. Up to $5,000,000 to fund acquisitions that have been
approved by Required Lenders (in their sole and reasonable discretion), and
c. Up to $10,000,000 to fund the Telecon Acquisition, and
d. The balance of the Term Loan Commitment (if any) to pay (i)
for fees and expenses associated with consummating and documenting the
transactions contemplated by this Agreement, and (ii) to fund the costs
associated with the development of additional Internet data centers and
integration of acquired networks and services such as salaries, promotional
expenses, advertising expenses and professional fees, and (iii) for such other
purposes as specifically authorized hereunder or in writing by Required Lenders
(in their sole and absolute discretion).
1.1.4. Term Loan Notes. The indebtedness under the Term Loan
Facility and the corresponding (joint and several) obligation of Borrowers to
repay each Lender with interest in accordance with the terms hereof will be
evidenced by one or more Term Loan Notes (as amended, restated, replaced,
supplemented, extended or renewed from time to time, each, a "Term Loan Note";
collectively, the "Term Loan Notes") payable to the order of each Lender. The
Term Loan Notes will be due and payable in full on the Term Loan Maturity Date.
The aggregate stated principal amount of the Term Loan Notes will be the Term
Loan Commitment established as of the Closing Date pursuant to Section 1.3;
provided, however, that the maximum liability under such Term Loan Notes will be
limited at all times to the actual amount of indebtedness (including principal,
interest, fees, expenses and indemnities) then outstanding under the Term Loan
Facility. Each Lender is authorized to note or endorse the date and amount of
each Advance and each payment under the Term Loan Facility on a schedule annexed
to and constituting a part of the Term Loan Notes. Such notations or
endorsements, if made, will constitute prima facie evidence of the information
noted or endorsed on such schedule, but the absence of any such notation or
endorsement will not limit or otherwise affect the obligations or liabilities of
Borrowers thereunder and hereunder.
1.1.5. Interest. Interest under the Term Loan Facility (and with
respect to any other amounts advanced to or on behalf of Borrowers or otherwise
outstanding under the Loan Documents) will be determined and imposed in
accordance with the following provisions (and, as applicable, Sections 1.5 and
1.7):
1.1.5.1. Intentionally Blank.
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<PAGE>
1.1.5.2. Establishment of Portions. For purposes of
determining interest, Borrowers may designate and subdivide the outstanding
balance under the Term Loan Facility (including any other amounts advanced to or
on behalf of Borrowers under the Loan Documents) into a maximum of two (2)
Portions accruing interest at an Adjusted LIBO Rate and one (1) Portion accruing
interest at the Prime Rate. No Portion accruing interest at an Adjusted LIBO
Rate may be less than $100,000, and all Portions under the Term Loan Facility
collectively must total the outstanding balance under the Term Loan Facility.
1.1.5.3. Interest Rate Determination. The outstanding
principal balance under each Portion will bear interest (computed daily until
paid in immediately available funds, whether prior to or after the Term Loan
Maturity Date) at the applicable Rate Index (as determined in accordance with
Section 1.1.5.4) plus the applicable Rate Margin (as determined in accordance
with Section 1.1.5.5). If the Prime Rate is the applicable Rate Index for a
Portion, then the interest rate on such Portion will change when and as the
Prime Rate or Rate Margin changes; and if an Adjusted LIBO Rate is the
applicable Rate Index for a Portion, then the interest rate on such Portion will
be established on the first day of each Interest Period for such Portion and
will not change during such Interest Period (except as otherwise permitted under
Section 1.1.5). Notwithstanding the foregoing, the applicable interest rate for
the outstanding balance under the Term Loan Facility from the Closing Date until
the first date on which the Rate Index or Rate Margin may be changed will be
13.91% per annum (i.e., the Adjusted LIBO Rate applicable for a 3-month period
as of the Closing Date plus a Rate Margin of 7.75% per annum).
1.1.5.4. Selection of Rate Index. The applicable Rate Index
for each Portion will be either the Prime Rate or an Adjusted LIBO Rate. The
applicable Rate Index for each Portion may be changed by Borrowers as of the
first calendar day after the end of the applicable Interest Period for such
Portion. At least 3 Business Days (but not more than 10 Business Days) before
any day on which the Rate Index may be changed, Borrowers must notify
Administrative Agent in writing of (a) the dollar amount of each Portion (if
more than one exists) and (b) the selected Rate Index for each Portion during
the subsequent rate period (including, if applicable, the selected length of the
Interest Period for balances accruing interest at an Adjusted LIBO Rate). If
Administrative Agent does not timely receive such written notification as to any
Portion, then the then-current Rate Index will be the applicable Rate Index for
the outstanding balance of such unspecified Portion during the subsequent
Interest Period. With respect to the proceeds of each Advance under the Term
Loan Facility, unless Borrowers request a particular Rate Index at the time of
such Advance, then Administrative Agent may select the applicable Rate Index
from the corresponding Settlement Date for such Advance until the next date on
which the Rate Index may be changed hereunder.
1.1.5.5. Applicable Rate Margins. The Rate Margin applicable
to the Term Loan Facility will be established as of the Closing Date and as of
the first calendar day of each Interest Period after the date that
Administrative Agent and Lenders receive or should have received the most recent
periodic financial statements of Borrowers delivered in accordance with Section
4.2. The Rate Margin will be based upon the Leverage Ratio of (a) Funded Debt as
of the date of establishment of such Rate Margin to (b) OCF as of the last day
of the fiscal quarter reflected on the most recent quarterly financial
statements delivered to Administrative Agent and Lenders in accordance with
Section 4.2, and will be determined according to the following schedule:
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<TABLE>
<CAPTION>
Prime Rate Adjusted LIBO
Leverage Ratio Margin Rate Margin
-------------- ---------- -------------
<S> <C> <C>
--LESS THAN--3 3.25% 4.75%
--GREATER THAN OR EQUAL
TO--3.0 but --LESS THAN--4.0 3.75% 5.25%
--GREATER THAN OR EQUAL
TO--4.0 but --LESS THAN--5.0 4.25% 5.75%
--GREATER THAN OR EQUAL
TO--5.0 but --LESS THAN--6.0 5.00% 6.50%
--GREATER THAN OR EQUAL TO--6.0 6.25% 7.75%
</TABLE>
If Administrative Agent and Lenders do not timely receive acceptable quarterly
financial statements prepared and delivered in accordance with Section 4.2, then
Administrative Agent (in its sole and absolute discretion) may deem the
applicable Rate Margin for each Portion to be the highest Rate Margin for the
applicable Rate Index reflected in the chart above, either prospectively or
retroactive to the first calendar day of the then-current fiscal quarter and
continuing at such rate until Administrative Agent and Lenders have received
acceptable quarterly financial statements prepared and delivered in accordance
with Section 4.2. Upon the funding of any Advance after the Closing Date in
excess of $250,000, then Administrative Agent (in its sole and absolute
discretion) may elect to prospectively adjust the Rate Margin applicable to each
Portion to reflect the additional amount of Funded Debt thereby outstanding.
Even though the pricing schedule above may contemplate Rate Margins for Leverage
Ratios in excess of the Leverage Ratios from time to time permitted under
Section 4.1: (1) the existence of such pricing in the above schedule (or the
effectiveness thereof) does not amend any of the requirements under Section 4.1
or waive any Default or Event of Default caused by any non-compliance therewith
from time to time and (2) Administrative Agent and Lenders may nevertheless
exercise from time to time during the occurrence of an Event of Default any and
all rights and remedies that are permitted by any Loan Document or applicable
law.
1.1.5.6. Calculation of Interest. Interest under the Term Loan
Facility will be calculated, accrued, imposed and payable on the basis of a
360-day year for the actual number of days elapsed. Interest will begin to
accrue on any amounts advanced to or on behalf of Borrowers under the Loan
Documents on and as of the date such funds are advanced. Unless prohibited by
applicable law, interest will be compounded on a monthly basis and added to the
outstanding principal balance.
1.1.5.7. Special LIBO Rate Provisions. The following
provisions apply with respect to Adjusted LIBO Rates (notwithstanding any other
provision hereof).
a. Change in Adjusted LIBO Rate. Any Adjusted LIBO Rate
may be prospectively adjusted by a particular Lender from time to time to
account for any additional or increased cost of maintaining any necessary
reserves for Eurodollar deposits (including any increase in the Reserve
Percentage) or any increased costs due to changes in the applicable law
occurring subsequent to the commencement of the then-applicable Interest Period.
Such Lender will give Administrative Agent notice of any such determination and
adjustment within a reasonable period of time thereafter. Upon receipt of such
notice, Administrative Agent will provide a copy thereof to Borrowers, and (upon
written request) such Lender will furnish a statement to Administrative Agent
and Borrowers setting forth the basis and the method for determining the amount
of such adjustment. A determination by any Lender hereunder will be conclusive
absent manifest error. If any Lender
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provides any such notice of adjustment, then Borrowers may elect to change the
then-applicable Rate Index (using the same Rate Margin category) to the Prime
Rate for any Portion then subject to an Adjusted LIBO Rate. Such election to
change the Rate Index must be made by providing Administrative Agent written
notice thereof at any time within 10 Business Days after receipt of such notice
of adjustment (notwithstanding any restriction hereunder limiting Rate Index
changes to certain dates, but subject to the requirement to pay all associated
costs therewith). Upon Administrative Agent's receipt of any such written
election, the identified Portion will thereupon begin to accrue interest at the
Prime Rate plus the Rate Margin (as applicable for the same Leverage Ratio as
previously was applicable for the Adjusted LIBO Rate) for the remainder of the
then-current Interest Period for such Portion.
b. Unavailability of Eurodollar Funds. An Adjusted LIBO
Rate will not be available for the Term Loan Facility if a particular Lender at
any time determines or reasonably believes that (1) Eurodollar deposits equal to
the amount of principal under the Term Loan Facility for the applicable Interest
Period are unavailable, or (2) an Adjusted LIBO Rate will not adequately and
fairly reflect the cost of maintaining balances under the Term Loan Facility, or
(3) by reason of circumstances affecting Eurodollar markets, adequate and
reasonable means do not then exist for ascertaining an Adjusted LIBO Rate. Such
Lender will give Administrative Agent notice of any such determination and
adjustment within a reasonable period of time thereafter. Upon receipt of such
notice, Administrative Agent will provide a copy thereof to Borrowers, and (upon
written request) such Lender will furnish to Administrative Agent and Borrowers
a statement setting forth the basis for such determination or reasonable belief.
A determination or belief by any Lender hereunder will be conclusive absent
manifest error.
c. Illegality. An Adjusted LIBO Rate also will not be
available under the Term Loan Facility if a particular Lender at any time
determines or reasonably believes that it is unlawful or impossible to fund or
maintain sufficient Eurodollar liabilities for the Term Loan Facility under an
Adjusted LIBO Rate. Such Lender will give Administrative Agent notice of any
such determination and adjustment within a reasonable period of time thereafter.
Upon receipt of such notice, Administrative Agent will provide a copy thereof to
Borrowers, and (upon written request) such Lender will furnish to Administrative
Agent and Borrowers a statement setting forth the basis for such determination
or reasonable belief. A determination or belief by any Lender hereunder will be
conclusive absent manifest error.
d. Continuance of a Default. An Adjusted LIBO Rate,
unless Required Lenders otherwise consent, also will not be available under the
Term Loan Facility during the existence of any Default or Event of Default under
the Loan Documents.
e. Alternative Rate. During the occurrence of any event
described in either Clauses "b," "c" or "d" of this Subsection, each Lender's
obligation hereunder to fund or maintain balances under an Adjusted LIBO Rate
will be suspended, and during such period, the outstanding balance under the
Term Loan Facility will bear interest at the Prime Rate plus the appropriate
Rate Margin (determined in accordance with Section 1.1.5.5).
1.1.6. Repayment and Prepayment. Each Borrower (jointly and
severally) hereby promises to pay Administrative Agent the aggregate
indebtedness under the Term Loan Facility (and
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other Loan Documents) in accordance with the following provisions (and, as
applicable, Sections 1.3, 1.5 and 1.7):
1.1.6.1. Interest Payments. Interest accrued under the Term
Loan Facility is due and payable monthly in arrears on the last calendar day of
each month and also, at the option of Administrative Agent, on the last calendar
day of each Interest Period for any Portion accruing interest at an Adjusted
LIBO Rate. Such payments shall commence on the first such date after the Closing
Date. Upon prior written notice of at least 30 calendar days from Administrative
Agent to Borrowers, Administrative Agent may change the date during a month on
which such payments are due and payable.
1.1.6.2. Principal Payments -- Amortization. Subject to the
earlier occurrence of the Term Loan Maturity Date pursuant to Section 1.1.2, on
the last calendar day of each May, August, November and February, beginning with
May 31, 2001, a payment of principal equal to the applicable percentage set
forth below of the principal balance under the Term Loan Facility after
accounting for all Advances is due and payable in its entirety. Upon prior
written notice of at least 30 calendar days from Administrative Agent to
Borrowers, Administrative Agent may change the date during a quarter on which
such payments are due and payable.
Date Percentage
---- ----------
May 31, 2001 through
May 30, 2002 3.75% each
May 31, 2002 through
May 30, 2003 6.25% each
May 31, 2003 through
May 30, 2005 7.50% each
1.1.6.3. Intentionally Blank.
1.1.6.4. Payments at Maturity. The outstanding indebtedness
under the Term Loan Facility (including all principal, interest, fees, expenses
and indemnities) is due and payable in its entirety on the Term Loan Maturity
Date.
1.1.6.5. Prepayments.
a. Voluntary Prepayments. At any time, upon prior
written notice to Administrative Agent of at least five (5) Business Days, the
outstanding principal balance under the Term Loan Facility may be prepaid in
whole or in part without premium or penalty, except as provided in Section 1.1.6
or Section 1.5. Any voluntary partial prepayment must be in an amount of not
less than $100,000 or in an integral multiple thereof.
b. Mandatory Prepayments -- Excessive Balance. If the
outstanding indebtedness under the Term Loan Facility at any time exceeds the
Available Credit
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Portion as determined in accordance with Section 1.3, then such excess amount
outstanding must be re-paid to Administrative Agent in its entirety immediately
upon the earlier of (1) awareness by Borrowers of the advance or incurrence
thereof or (2) demand by Administrative Agent for payment thereof.
c. Mandatory Prepayments -- Equity Issuances and Asset
Sales. If any Borrower issues any equity securities (other than equity
securities to another Borrower and/or in connection with an acquisition that is
otherwise permitted hereunder) the proceeds of which are less than $5,000,000 or
greater than $30,000,000, or if Borrowers collectively sell, lease, license,
transfer or otherwise dispose of any assets (other than inventory or other
assets either sold in the ordinary course of business with the proceeds thereof
promptly reinvested in similar assets at similar locations or sold to another
Borrower) exceeding an aggregate fair market value of $1,000,000 in any 12
consecutive calendar months, then a prepayment must be immediately made on the
outstanding indebtedness under the Term Loan Facility, unless Required Lenders
otherwise consent. The amount of any such mandatory prepayment will be the
higher of the cash proceeds or the cash equivalent of the fair market value of
any such equity issuance or asset dispositions net of (1) reasonable commissions
and expenses actually paid to unrelated third parties in connection with such
transactions and (2) taxes actually due as a direct result of such transactions
(as such taxes are estimated and certified to Administrative Agent by an
acceptable certified public accountant or Borrowers' chief financial officer).
d. Mandatory Prepayment - Telecon Acquisition. If the
proceeds of the initial Advance placed in the Escrow Account have not been
released on or prior to April 30, 2000, then on May 1, 2000 such funds shall be
returned to Lenders and shall constitute a prepayment on the outstanding
indebtedness under the Term Loan Facility, unless Required Lenders otherwise
consent.
e. In General. Any prepayments under the Term Loan
Facility must include all accrued but unpaid interest under the Term Loan
Facility allocable to the amount prepaid through the date of such prepayment.
1.1.6.6. Availability for Reborrowing. Principal amounts
repaid or prepaid under the Term Loan Facility prior to the Term Loan Maturity
Date will not be available for reborrowing hereunder.
1.2. Intentionally Blank.
1.3. Determination of Commitment Amounts.
1.3.1. Initial Commitment . Upon the execution of this Agreement and
satisfaction of the conditions precedent set forth in Section 2.1, the Term Loan
Commitment established hereunder will be $15.0 million ("Term Loan Commitment").
1.3.2. Available Credit Portion. The maximum amount of credit
available at any time under the Term Loan Facility may not exceed the amount
resulting from the following formula:
a. The Term Loan Commitment, and
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b. Minus the aggregate amount of Advances previously made to
Borrowers, and
c. Minus such portion of the Term Loan Commitment as is
reserved for future acquisitions under Section 1.1.3 (until such time as such
acquisitions occur), and
d. Minus the then-aggregate amount of all prepayments relating
to equity issuances and asset sales required to have been paid since the Closing
Date under Section 1.1.6.5.c, and
e. Minus the aggregate amount of all voluntary commitment
reductions requested under Section 1.3.3.
(Collectively, the amount resulting from the equation under categories "a"
through "e" above is referred to as the "Available Credit Portion".) On the
effective date of any such reduction in the Available Credit Portion, a
prepayment must be made to the extent required under Section 1.1.6.5.b.
1.3.3. Voluntary Reduction of Commitment. Upon giving Administrative
Agent prior written notice of at least five (5) Business Days, Borrowers at any
time and from time to time may reduce the Term Loan Commitment in multiples of
$100,000. On the effective date of any such reduction, a prepayment must be made
to the extent required under Section 1.1.6.5.b. Any such reduction in the Term
Loan Commitment will be permanent, and such Commitment cannot thereafter be
increased without the written consent of Lenders.
1.4. Advances.
1.4.1. Requesting Advances. To request an Advance (other than the
initial Advances on the Closing Date) under the Term Loan Facility, Borrowers
must give Administrative Agent written notice (or verbal notice by telephone
with immediate written confirmation to follow) at least three (3) Business Days
(but not more than ten (10) Business Days) prior to the requested Settlement
Date for such Advance (such notice, an "Advance Request"). Such Advance Request,
together with certain certifications, must be substantially in the form of
Exhibit 1.4.1 or such other form as Administrative Agent may reasonably request.
Each Advance under the Term Loan Facility pursuant to an Advance Request (unless
Administrative Agent otherwise consents) must be in an amount of at least
$100,000 and may not be greater than the un-borrowed balance of the Available
Credit Portion. Unless Administrative Agent otherwise consents, Borrowers may
only request up to three (3) Advances after the Closing Date.
1.4.2. Funding Advances. Subject to the satisfaction of and
compliance with the terms and conditions hereof (including, as applicable, the
conditions precedent specified in Article 2), Administrative Agent will make
each Lender's Pro Rata portion of each requested Advance (to the extent such
funds are received by Administrative Agent) available by crediting such amount
to the Account with Administrative Agent (or by such other means as
Administrative Agent may consider reasonable). At the written request and
expense of Borrowers, Administrative Agent will wire transfer all or any portion
of an Advance in accordance with such written instructions therefor. By
executing this Agreement, each Borrower (jointly and severally) hereby requests
Administrative Agent and each Lender to make and fund the initial Advances (to
the extent that Administrative
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Agent receives each Lender's Pro Rata portion of the initial Advances) in
accordance with the funding instructions attached as Schedule 1.4.2 (including
placing $10,000,000 in the Escrow Account). MCG acknowledges that it is the only
Lender as of the Closing Date.
1.4.3. Indemnification for Revocation or Failure to Satisfy
Conditions. Each Borrower (jointly and severally) will indemnify each Lender and
Administrative Agent against all losses and costs incurred by such Lender and
Administrative Agent as a result of any revocation of any requested Advance or
any failure to fulfill the applicable conditions precedent to such Advance on or
before the requested Settlement Date specified in an Advance Request. Such
indemnification will include (among other things) all losses and costs incurred
by reason of the liquidation or reemployment of funds required by such Lender or
Administrative Agent to fund the Advance when such Advance, as a result of such
failure, is not made on the requested Settlement Date. Such Lender's or
Administrative Agent's (as applicable) calculation of such losses and costs will
be conclusive absent manifest error.
1.4.4. Obligation to Advance. No Lender will be obligated to make
any Advance under the following circumstances: (a) if the principal amount of
such Advance plus the aggregate amount outstanding under the Term Loan Facility
would exceed the Available Credit Portion, or (b) during the existence of a
Default or an Event of Default hereunder, or (c) if such Advance would cause a
Default or Event of Default hereunder, or (d) after the Final Term Draw Date.
1.5. Payments in General.
1.5.1. Manner and Place of Payments. All payments of principal,
interest, fees, expenses, indemnities and other amounts due under the Loan
Documents must be received by Administrative Agent by wire transfer (unless
Administrative Agent otherwise consents) in immediately available funds in U.S.
dollars (and without any deduction, offset, netting, reservation of rights or
counterclaim) on or before Two O'clock (2:00) p.m. Eastern Time ("ET") on the
due date therefor at the principal office of Administrative Agent set forth in
Notice Section hereof or at such other place as Administrative Agent may
designate from time to time.
1.5.2. Special Payment Timing Issues. Whenever any payment to be
made under any Loan Document is due on a day that is not a Business Day, then
such payment may be made on the next succeeding Business Day, and such extension
of time will be included in the computation of interest under such Loan
Document. Any funds received by Administrative Agent after 2:00 p.m. ET on any
day will be deemed to be received on the next succeeding Business Day.
1.5.3. Application of Payments. All payments and other funds
received by Administrative Agent under the Loan Documents will be applied in the
following order: (a) first to the payment of any fees and charges due under the
Loan Documents, and (b) then to any obligations for the payment of expenses,
costs and indemnities due under the Loan Documents, and (c) then to the payment
of interest due and owing under the Loan Documents, and (d) then to the
principal indebtedness due under the Term Loan Facility, and (e) then to
principal outstanding (but not yet due) under the Term Loan Facility, and (f)
then to any other interest accrued under the Loan Documents, and (g) then to any
other indebtedness of any Borrower or other Obligor to any Lender.
Notwithstanding the foregoing, payments allocable to principal (other than
scheduled periodic payments) will be applied to reduce future scheduled payments
in the inverse order of maturity.
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1.5.4. LIBO Rate Payments Not at End of Interest Period. Upon
payment of any amount accruing interest based upon an Adjusted LIBO Rate on any
day other than the last day of the corresponding Interest Period (whether such
payment is voluntary, mandatory, by demand, acceleration or otherwise), then
Borrowers must pay Administrative Agent the greater of (a) $500 or (b) all costs
and losses (including funding costs and any losses associated with the
re-deployment of such funds for the balance of such Interest Period) that may
arise or be incurred as a result of or in connection with such payment (as such
costs and losses may be calculated by Lenders). Upon written request, Lenders
(through Administrative Agent) will furnish a statement setting forth the basis
for such calculation. A determination or calculation by any Lender hereunder
will be conclusive absent manifest error.
1.5.5. Capital Adequacy, Taxes and Other Adjustments. If any Lender
determines that (a) the adoption, implementation or interpretation after the
Closing Date of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline, directive, policy or order regarding capital adequacy,
reserve requirements, taxes or similar requirements, or (b) compliance by such
Lender or any entity controlling or funding the operations of such Lender with
any request or directive regarding capital adequacy, reserve requirements, taxes
or similar requirements (whether or not having the force of law and whether or
not failure to comply therewith would be unlawful) from any central bank,
governmental agency, controlling entity, funding source or body having
jurisdiction would, in either instance, have the effect of increasing the amount
of capital, reserves, taxes (other than income taxes of Administrative Agent or
any Lender), funding costs or other funds required to be maintained or paid by
such Lender and thereby reducing the rate of return on such Lender's capital as
a consequence of its obligations under the Loan Documents, then Borrowers must
pay to such Lender additional amounts sufficient to compensate such Lender for
such reduction. Such Lender will give Administrative Agent notice of any such
determination and payment amount within a reasonable period of time thereafter.
Upon receipt of such notice, Administrative Agent will provide a copy thereof to
Borrowers, and (upon written request) such Lender will furnish a statement to
Administrative Agent and Borrowers setting forth the basis and the method for
determining the amount of such payment. A determination by any Lender hereunder
will be conclusive absent manifest error.
1.5.6. Payment of Expenses, Indemnities and Protective Advances. If
any funds are advanced or costs are incurred by Administrative Agent or any
Lender to or on behalf of Borrowers or otherwise as permitted under the Loan
Documents (including as protective advances), other than Advances pursuant to
Section 1.4, then such advances or costs must be re-paid to Administrative Agent
in their entirety immediately upon the earlier of (a) awareness by Borrowers of
the advance or incurrence thereof or (b) demand by Administrative Agent for
payment thereof.
1.5.7. Payments upon Termination. Notwithstanding any other
provision hereof, the entire outstanding indebtedness under each Facility
(including all principal, interest, fees, expenses and indemnities) is due and
payable in its entirety upon any termination of such Facility, the corresponding
Commitment therefor, or this Agreement.
1.5.8. Late Payments. If any payment (of principal, interest, fees,
expenses, indemnities or other amounts) due under any Loan Document is not
received by Administrative Agent in immediately available funds on or before the
7th calendar day after the due date therefor, then each Borrower (jointly and
severally) hereby agrees (to the maximum extent not prohibited by
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applicable law) to pay to Lenders (through Administrative Agent and upon
Administrative Agent's request) a late payment charge equal to 5% of the amount
of such late payment. Additional and separate late payment charges (to the
maximum extent not prohibited by applicable law) may be subsequently imposed
hereunder by Administrative Agent from time to time (a) if any late payment or
late payment charge is not received by Administrative Agent in immediately
available funds on or before the 30th calendar day after any demand therefor,
and (b) if any other payment due under any Loan Document is not received by
Administrative Agent in immediately available funds on or before the 7th
calendar day after the due date therefor. The late payment charges due under
this Section are in addition to any other interest, fees, charges, expenses or
indemnities due under the Loan Documents.
1.5.9. Default Interest. During the existence of a Default or an
Event of Default hereunder, each Borrower (jointly and severally) hereby agrees
(to the maximum extent not prohibited by applicable law) to pay to Lenders
(through Administrative Agent and upon Administrative Agent's request but
commencing on the date of occurrence of such Default or Event of Default)
interest on any indebtedness outstanding hereunder at the rate of Three Percent
(3%) per annum in excess of the rate then otherwise applicable to such
indebtedness. Notwithstanding the foregoing, if the relevant Default is under
Section 7.1.10, then such rate increase (to the maximum extent not prohibited by
applicable law) will occur automatically without any request by Administrative
Agent.
1.5.10. Usury Savings Provision. Notwithstanding any provision of
any Loan Document, Borrowers (individually and collectively) are not and will
not be required to pay interest at a rate or any fee or charge in an amount
prohibited by applicable law. If interest or any fee or charge payable on any
date would be in a prohibited amount, then such interest, fee or charge will be
automatically reduced to the maximum amount that is not prohibited, and any
interest, fee or charge for subsequent periods (to the extent not prohibited by
applicable law) will be increased accordingly until Administrative Agent and
each Lender receives payment of the full amount of each such reduction. To the
extent that any prohibited amount is actually received by Administrative Agent
or any Lender, then such amount will be automatically deemed to constitute a
repayment of principal indebtedness hereunder.
1.6. Release of Security. Upon termination of the Loan Documents in
accordance with Section 10.10, then Administrative Agent (at the written request
and expense of Borrowers) (i) will release the Obligors and the property serving
as Collateral under the Loan Documents (without representation, warranty,
recourse, liability or indemnification of any kind by or to Administrative Agent
or any Lender), and (ii) will execute and deliver such UCC termination
statements, mortgage releases, deed of trust releases, and other documentation
and instruments (all in form and substance reasonably acceptable to
Administrative Agent) as may be reasonably requested and provided to
Administrative Agent to effect such releases and terminations, and (iii) will
terminate and cancel all Commitments and all Facilities under the Loan
Documents.
1.7. Fees and Other Compensation.
1.7.1. Origination Fee.
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1.7.1.1. On the Closing Date, Borrowers will pay
Administrative Agent an Origination Fee in the amount of $300,000, which amount
is treated as prepaid non-refundable interest.
1.7.1.2. If (a) the Advance made on the Closing Date is
greater than $10 million, or (b) after the Closing Date, Lenders make an
Advance(s) the proceeds of which are not used to fund one or more acquisitions
that have been approved by Required Lenders (other than either the Telecon
Acquisition or the Additional Acquisitions), then, as an additional Origination
Fee, BiznessOnline will issue to Lenders entitled thereto (or their designated
Affiliates) such number of shares of the common stock of BiznessOnline resulting
from the following formula: $500,000 divided by the "Block A Exercise Price" (as
defined in the Warrant Agreement) applicable on the Settlement Date for such
Advance. provided, however, in no event shall the actual number of shares to be
issued under this subsection (if any) be equal to or greater than 20% of the
outstanding shares of BiznessOnline immediately prior to such issuance, or such
lesser percentage that is adopted by the Nasdaq from time to time which would
give rise to a shareholder approval requirement for this financing transaction
or such issuance of shares under Nasdaq marketplace rules and regulations in
force from time to time (the "Nasdaq Limit"). If the number of shares to be
issued under this Section 1.7.1.2 exceeds the Nasdaq Limit then BiznessOnline
shall pay to Lenders entitled thereto (or their designated Affiliates) cash
equal to the fair market value of the shares in excess of the Nasdaq Limit in
lieu of issuing such shares that exceed the Nasdaq Limit.
1.7.2. Issuance of Warrants. As additional compensation for the cost
and risk incurred associated with underwriting and establishing the Term Loan
Facility including but not limited to funding the initial Advance (but in no way
affecting or relieving any Borrower of any of its obligations to fully and
timely perform and to repay the entire indebtedness due under the Loan
Documents), BiznessOnline will issue and grant to Lenders entitled thereto (or
their designated Affiliates) warrants exercisable into shares of common stock of
BiznessOnline sufficient to represent approximately 7.5% of its issued and
outstanding shares of common stock as of the Closing Date, on a fully diluted
basis pursuant to the Warrant Agreement ("Warrants"). The Warrants will be fully
earned by such Lenders (or their Affiliates) as of the Closing Date. The
Warrants (and all of Lenders' rights in connection therewith) are freely
assignable and transferable at any time and from time to time by any Lender
entitled thereto (or any of its Affiliates or assignees) to any other Person,
provided that such Lender complies with any applicable restrictions thereon (and
obtains any necessary approvals in connection therewith) required by any
applicable State PUC (but only to the extent non-compliance therewith could
reasonably be expected to have or cause a Material Adverse Effect), the FCC, the
SEC or the Warrant Agreement itself.
1.7.3. Success Fee. If on or before April 1, 2001, the Borrowers
prepay the Term Loan Facility such that the remaining principal balance of the
Term Loan Facility after application of such prepayment is $3,000,000 or less,
then Borrowers shall also pay to Lenders a Success Fee in the amount of $400,000
on the date of such prepayment.
1.7.4. Other Fees. Other fees and charges may be imposed by
Administrative Agent or any Lender for services rendered under and in accordance
with other agreements with Administrative Agent or such Lender.
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ARTICLE 2: CONDITIONS PRECEDENT
2.1. Closing Conditions. The obligation of Administrative Agent or any
Lender to execute and perform the Loan Documents, and to establish the Term Loan
Facility, and to fund the Advances listed on Schedule 1.4.2 are subject to the
following conditions precedent (unless and except to the extent expressly waived
by Administrative Agent and each Lender in their sole and absolute discretion):
2.1.1. Compliance.
2.1.1.1. Fees and Expenses. Borrowers must have paid (or made
acceptable arrangements with Administrative Agent to pay or authorize
Administrative Agent to deduct from the Term Loan proceeds) all fees and
expenses due and payable hereunder, including all fees due and payable under
Section 1.7 and the reasonable fees and expenses of Administrative Agent's and
each Lender's attorneys and in-house documentation personnel with respect to the
preparation, negotiation and execution of the Loan Documents.
2.1.1.2. Representations. Each, and all, representations and
warranties contained in this Agreement (including those in Article 3) and in
each other Loan Document, certificate or other writing delivered to
Administrative Agent or any Lender pursuant hereto or thereto on or prior to the
Closing Date must be true, correct and complete in all material respects on and
as of the Closing Date, except for such deviations disclosed in writing and
acceptable to Administrative Agent and each Lender.
2.1.1.3. No Default. There must not be any Default or Event of
Default hereunder or any default under any other Loan Document on the Closing
Date, and there must not be any such Default or Event of Default occurring as a
result of executing or advancing funds under the Loan Documents, except for such
defaults disclosed in writing and acceptable to Administrative Agent and each
Lender.
2.1.1.4. No Material Change. There must not have been (in
Administrative Agent's or Lenders' reasonable opinion) any Material Adverse
Change between the date for the most recent financial statements delivered to
Administrative Agent and the Closing Date.
2.1.2. Documents. Administrative Agent must have received the
following documents, agreements and certificates (together with all exhibits and
schedules thereto), each duly executed, in form, substance and amount
satisfactory to Administrative Agent and, when applicable, recorded or filed in
the appropriate public office:
2.1.2.1. Credit Agreement. This Agreement.
2.1.2.2. Promissory Notes. The Term Loan Notes as described in
Section 1.1.4.
2.1.2.3. Security Agreement, Collateral Assignment and Pledge.
A master security agreement, collateral assignment and pledge by each Borrower
in favor of Administrative Agent granting Administrative Agent a security
interest in and collaterally assigning
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to Administrative Agent all of such grantor's tangible and intangible personal
property assets (including fixtures), whether now owned or hereafter acquired,
and the proceeds and products thereof, as collateral security for the
indebtedness and obligations hereunder, together with all necessary financing
statements and termination statements (each as filed), stock certificates and
powers executed in blank, waivers and consents, and evidence of any other
recordations required by applicable law or by Administrative Agent to perfect
such security interests in a manner that will be subject only to Permitted
Liens.
2.1.2.4. Intellectual Property Security Agreements. One or
more separate intellectual property security agreements by each Borrower in
favor of Administrative Agent encumbering all of such grantor's copyrights,
patents, trade names, trademarks, service names, service marks and other
intellectual property (including any and all applications and licenses
therefor), all as now owned or hereafter acquired, and the proceeds and goodwill
thereof, together with all appropriate financing statements and termination
statements (each as filed), waivers and consents, and any other documents or
recordations required by applicable law or by Administrative Agent to perfect
such interests.
2.1.2.5. Estoppel and Consent Agreements. One or more estoppel
and consent agreements in favor of Administrative Agent by each party to any
real property lease with any Borrower and/or any other Material Contract with
any Borrower consenting to the encumbrance of such property and/or the
collateral assignment of the rights with respect thereto in favor of
Administrative Agent and granting to Administrative Agent certain other rights
pursuant thereto.
2.1.2.6. Warrants. One or more separate warrant agreements by
BiznessOnline issuing and granting to each Lender entitled thereto (or its
designated Affiliate) the Warrants, together with all underlying warrant
certificates and evidence of necessary actions by BiznessOnline to authorize and
issue such warrants and related warrant shares.
2.1.2.7. Escrow Agreement. An escrow agreement among Borrowers
to Escrow Agent and Administrative Agent pursuant to which $10,000,000 is placed
in escrow pending closing on the Telecon Acquisition and satisfaction of the
conditions to release of such $10,000,000.
2.1.2.8. Insurance. Current proof of insurance with an
indication of loss payee and additional insured endorsements in favor of
Administrative Agent with respect to all of the coverages required under Section
4.8. Such proof of insurance must be indicated pursuant to one or more
certificates on (a) an ACORD 27 form (3/93) for property-related insurance
coverages and (b) a modified version of an ACORD 25-S form (3/93), in each
instance permitting reliance by Administrative Agent and requiring cancellation
notification.
2.1.2.9. Compliance Certificates. A certificate from an
Authorized Officer of each Borrower dated as of the Closing Date certifying as
to compliance with the matters described under Section 2.1.1.
2.1.2.10. Opinions of Counsel. One or more written opinions
from legal counsel to Borrowers addressed to Administrative Agent and each
Lender and Administrative Agent's counsel and dated as of the Closing Date
opining as to such matters as Administrative Agent may request.
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2.1.2.11. Payoff Instructions for Prior Indebtedness. A letter
from Borrowers to Administrative Agent, consistent with the requirements of
Section 1.1.3, Section 1.4 and Section 2.1.1, instructing Administrative Agent
how to disburse the proceeds of the initial Advance, together with payoff and
release letters from each Person receiving any such proceeds.
2.1.2.12. Authorization Documents. A certificate of an
Authorized Officer of each Borrower and each other non-natural person executing
any Loan Document delivering true, accurate and complete versions of (a) its
Articles of Incorporation, Articles of Organization or Certificate of
Partnership (as applicable) and all amendments thereto, and (b) its Bylaws,
Operating Agreements or Partnership Agreements (as applicable) and all
amendments thereto, and (c) the resolutions authorizing its execution, delivery
and full performance of the Loan Documents and all other documents, certificates
and actions required hereunder or in connection herewith, and (d) an incumbency
certificate setting forth its officers (together with the corresponding
signatures), and (e) a long-form good standing and qualification certificate
(issued within 15 calendar days before the Closing Date) with respect to each
jurisdiction listed on Schedule 3.1, and (f) a copy of each License (or renewal
thereof) issued to it by the FCC (and/or, if applicable, any State PUC).
2.1.2.13. Officer's Certificates. One or more certificates of
an Authorized Officer of each Borrower delivering true, accurate and complete
copies of the following documents (together with all amendments, exhibits and
schedules thereto):
a. Lien Searches -- Searches (conducted within 15
calendar days before the Closing Date)
satisfactory to Administrative Agent with respect
to consensual liens, tax liens, judgments and
bankruptcy, listing respectively (1) all effective
UCC financing statements that name any Borrower
(including any predecessor thereto and any
operating or tradenames thereof) as "debtor" that
are filed in the States of New York, Connecticut,
New Jersey, Massachusetts or any other U.S.
jurisdiction in which such debtor currently
operates or has had assets at any time within the
immediately preceding 12 calendar months (together
with copies of such financing statements), and (2)
all tax liens against any Obligor (or the assets
thereof), and (3) all outstanding judgments
against any Obligor (or the assets thereof), and
(4) whether any Obligor has filed bankruptcy
within the preceding 5 years.
b. Financial Statements -- A set of the monthly
financial statements of Borrowers for the month
ending January 31, 2000.
c. Equityholder Agreements -- Each shareholder
agreement, member agreement, partner agreement,
voting agreement, buy-sell agreement, option,
warrant, put, call, right of first refusal, and
any other agreement or instrument with conversion
rights into equity of any Borrower either
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(1) between any Borrower and any holder or
prospective holder of any equity interest of any
Borrower (including interests convertible into
such equity) or (2) otherwise between any two or
more such holders of equity interests.
d. Employment and Non-Compete Agreements -- Each
employment agreement, consulting agreement and
non-compete agreement to which BiznessOnline is a
party.
e. Inter-Affiliate Agreements -- Each written
agreement between any Borrower and any Affiliate
of any Borrower.
f. Disaster Recovery and Contingency Program -- A
description of the currently effective disaster
recovery and contingency program of each Borrower,
as required to be delivered under Section 4.8.
g. Leases as Lessee -- Each lease between any
Borrower and any owner or landlord of real or
personal property used in connection with such
Borrower's business either (1) for which it has an
annual rent obligation in excess of $36,000 or (2)
for a switch site or call center or for a location
at which a Borrower has application hosting
servers, routing equipment or other critical
systems.
h. Leases as Lessor -- Each lease between any
Borrower and any lessee of real or personal
property owned or leased by any Borrower, but only
to the extent the lessee thereunder has an annual
rent obligation in excess of $36,000.
i. Other Agreement -- Such other agreements and
documents as Lender may reasonably request,
including a complete set of the executed asset
purchase agreements and/or merger agreements
governing the Additional Acquisitions.
2.1.2.14. Other Documents. Administrative Agent must have
received any additional agreements, documents and certificates as Administrative
Agent or its counsel may reasonably request.
2.1.3. Telecon Acquisition. All conditions precedent to closing the
Telecon Acquisition other than final approval for such acquisition from the New
York Public Service Commission (and such other conditions as have been disclosed
and are acceptable to Required Lenders) shall have been satisfied or waived
under terms and conditions reasonably acceptable to Required Lenders. In
addition, the due diligence program conducted by Borrowers in connection with
such acquisition separately must be reasonably acceptable to Required Lenders in
form, content and results.
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2.2. Future Term Loan Advances. The obligation of Administrative Agent and
each Lender to fund any request for an Advance under the Term Loan Facility is
subject to the following conditions precedent (unless and except to the extent
expressly waived by Administrative Agent in its sole and absolute discretion,
but with the concurrence of the Required Lenders):
2.2.1. Advance Request. Administrative Agent must have received an
Advance Request under and in accordance with Section 1.4.1.
2.2.2. Cash Flow Leverage. As of the Settlement Date for such
Advance (and in addition to any other requirements and covenants hereunder),
Borrowers must be in compliance with the Pro Forma Leverage Ratio requirement
under Section 4.1 using an amount for Funded Debt that is as of such Settlement
Date and inclusive of the proposed Advance, provided that the $10,000,000 held
in the Escrow Account shall be excluded from such calculation while it is held
in the Escrow Account.
2.2.3. Other Documents. Administrative Agent must have received any
additional documents, certificates and opinions as Administrative Agent or its
counsel may reasonably request, including UCC-1 financing statements, fixture
filings and leasehold mortgages regarding new locations for other assets of any
Borrower.
2.2.4. Additional Acquisitions. Borrowers must have already
consummated or must simultaneously consummate and complete the Additional
Acquisitions under terms and conditions reasonably acceptable to Required
Lenders. In addition, the due diligence program conducted by Borrowers in
connection with such acquisitions separately must be reasonably acceptable to
Required Lenders in form, content and results.
2.2.5. Compliance.
2.2.5.1. Fees and Expenses. Borrowers must have paid (or made
acceptable arrangements with Administrative Agent to pay) all fees and expenses
due and payable hereunder, including all reasonable expenses incurred in
connection with or as a result of reviewing and funding such Advance Request.
2.2.5.2. Representations. Each, and all, representations and
warranties contained in the Loan Documents (including those in Article 3) and in
each other certificate or other writing delivered to Administrative Agent
pursuant hereto or thereto on or prior to the Settlement Date must be true,
correct and complete in all material respects on and as of the Settlement Date,
except for such deviations disclosed in writing and acceptable to Administrative
Agent and each Lender (which disclosure will not constitute Lenders' waiver or
acceptance thereof).
2.2.5.3. No Default. There must not be any Default or Event of
Default hereunder or any default under any other Loan Document on the Settlement
Date, and there must not be any such Default or Event of Default occurring as a
result of funding such Advance, except for such defaults disclosed in writing
and acceptable to Administrative Agent and each Lender (which disclosure will
not constitute Lenders' waiver or acceptance thereof).
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2.2.6. No Material Change. There must not have been (in
Administrative Agent's or Lenders' reasonable opinion) any Material Adverse
Change between the Closing Date and the Settlement Date.
ARTICLE 3: REPRESENTATIONS AND WARRANTIES
Each Borrower, as of the Closing Date and the Settlement Date for each
Advance hereunder, hereby (jointly and severally) represents and warrants as
follows:
3.1. Organization and Good Standing. Each Borrower (a) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and (b) has all requisite power and authority (corporate,
partnership, LLC and otherwise) to own its properties and to conduct its
business as now conducted and as currently proposed to be conducted, and (c) is
duly qualified to conduct business as a foreign organization and is currently in
good standing in each state and jurisdiction in which it conducts business,
except where failure to be duly qualified and in good standing could not have a
Material Adverse Effect. Each state and jurisdiction in which any Borrower is
organized or is (or should be) qualified to conduct business under applicable
law is listed on Schedule 3.1.
3.2. Power and Authority. Each Borrower has all requisite power and
authority under applicable law and under its Organic Documents, Authorizations
and Licenses to execute, deliver and perform the obligations under the Loan
Documents to which it is a party. Except as disclosed on Schedule 3.2, all
actions, waivers and consents (corporate, regulatory and otherwise) necessary or
appropriate for any Borrower to execute, deliver and perform the Loan Documents
to which it is a party have been taken and/or received.
3.3. Validity and Legal Effect. This Agreement constitutes, and the other
Loan Documents to which any Borrower is a party constitute (or will constitute
when executed and delivered), the legal, valid and binding obligations of each
Borrower (jointly and severally) enforceable against it in accordance with the
terms thereof.
3.4. No Violation of Laws or Agreements. The execution, delivery and
performance of the Loan Documents (a) will not violate or contravene any
material provision of any material law, rule, regulation, administrative order
or judicial decree (federal, state or local), and (b) will not violate or
contravene any provision of the Organic Documents of any Borrower, and (c) will
not result in any material breach or violation of (or constitute a material
default under) any material agreement or instrument by which any Borrower or any
of its property may be bound, and (d) will not result in or require the creation
of any Lien (other than pursuant to the Loan Documents) upon or with respect to
any properties of any Borrower, whether such properties are now owned or
hereafter acquired.
3.5. Title to Assets; Existing Encumbrances; Identification of
Intellectual and Real Property.
3.5.1. Each Borrower has good and marketable title to all of its
owned real and personal
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property assets and the right to possess and use all of its leased or licensed
real and personal property assets. All such property interests are free and
clear of any Liens, except for Permitted Liens (as defined in Section 5.5). Each
such property and asset owned, leased or licensed by any Borrower is titled,
leased or licensed in the current legal name of such Borrower.
3.5.2. Intellectual Property -- Schedule 3.5A lists each trademark,
service mark, copyright, patent, database, customized application software and
systems integration software, trade secret and other intellectual property
owned, licensed, leased, controlled or applied for by any Borrower, whether or
not such intellectual property is recorded with the Copyright Office or the
Patent and Trademark Office, together with relevant identifying information with
respect to such intellectual property describing (among other things) the date
of creation, the method of protection against adverse claims and the
registration number.
3.5.3. Real Property -- Schedule 3.5B lists each real property
interest owned, leased or otherwise used by any Borrower, together with relevant
identifying information describing (among other things) the use of each such
real property interest, the location and mailing address for each such real
property, a legal description for each such real property, an indication of
whether such interest is owned or leased (and, if leased, the lessor and record
owner thereof), and the estimated appraised value thereof. Each such property
and asset is in good order and repair (ordinary wear and tear excepted) and is
covered by the insurance required under Section 4.8.
3.5.4. Schedule 3.5C identifies each legal, operating and trade name
that any Borrower has used (or permitted the filing of a UCC financing statement
under) at any time during the twelve (12) consecutive calendar years immediately
preceding the Closing Date.
3.6. Capital Structure and Equity Ownership. Schedule 3.6 accurately and
completely discloses (a) the number of shares and classes of equity ownership
rights and interests of each Borrower authorized and/or outstanding (whether
existing as common or preferred stock, general or limited partnership interests,
or LLC membership interests, or warrants, options or other instruments
convertible into such equity), and (b) the ownership thereof (except
BiznessOnline which is publicly traded) and the price per share or interest paid
therefor, and (c) the existence of preferential returns or liquidation rights
with respect to any such class of equity, and (d) the existence of any enhanced
voting rights, veto rights or director designation rights with respect to any
such class of equity, and with respect to options, warrants and convertible
instruments, the price, duration and conversion factor thereof. All such shares
and interests are validly existing, fully paid and non-assessable.
3.7. Subsidiaries, Affiliates and Investments. Schedule 3.7 accurately and
completely discloses (a) each Subsidiary and Affiliate of each Borrower (other
than its officers and directors) and (b) each investment in or loan to any other
Person by any Borrower in excess of $25,000.
3.8. Material Contracts. Schedule 3.8 (a) accurately and completely
discloses each Material Contract (as defined below) of each Borrower, and (b)
also indicates the following information with respect to each such contract: (1)
the contract parties thereunder, and (2) the contract term and any options or
renewals thereto, and (3) the monthly payment required thereunder, and (4) any
restrictions on assignments, and (5) any restrictions on disclosure of the terms
thereof, and (6) the existence of any breaches or defaults thereunder. No
Borrower has committed any unwaived breach or default under any Material
Contract (whether or not listed on Schedule 3.8), and after due inquiry and
investigation, no Borrower has any knowledge or reason to believe that any
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other party to any such Material Contract (whether or not listed on Schedule
3.8) has or might have committed any unwaived breach or default thereof. For
purposes of this Section 3.8, a "Material Contract" of a Borrower includes the
following types of agreements to which a Borrower is a party: (1) any contract
either with annual compensation, consideration or payments in excess of $250,000
or with aggregate compensation, consideration or payments in excess of $500,000,
and (2) any lease of real estate or office space from which a Borrower conducts
its primary business operations or from which a Borrower conducts retail
operations, and (3) any lease of real estate or space at which a Borrower has
application hosting servers, routing equipment, or other systems (including
backups) critical to the operation of such Borrower's business, and (4) any
contract, agreement or lease under the terms of which a Borrower obtains the
right to own, use or operate a switch Internet connectivity equipment or
telecommunications equipment for consideration or payments in excess of $250,000
(including, without limitation, the master lease agreement with Cisco Systems),
and (5) leased line agreements with Quest, Frontier and UUNet, and (6) any
carrier agreement which has a term longer than one year and has annual
consideration or payments in excess of $25,000, and (7) any interconnection
agreement which has a term longer than one year, and (8) any software
development agreements for consideration or payments in excess of $100,000, and
(9) any contract relating to any Borrower's billing or provisioning system, and
(10) any other agreement or contract the loss or breach of which could
reasonably be expected to have or cause a Material Adverse Effect.
3.9. Licenses and Authorizations. Each Borrower possesses all Licenses and
other Authorizations necessary or required in the conduct of its businesses
and/or the operation of its properties. Each material Authorization is valid,
binding and enforceable on, against and by such Borrower. Each material
Authorization is subsisting without any defaults thereunder or enforceable
adverse limitations thereon, and no Authorization is subject to any proceedings
or claims opposing the issuance, continuance, renewal, development or use
thereof or contesting the validity or seeking the revocation thereof. Schedule
3.9 accurately and completely lists each material Authorization of each Borrower
(including, whether or not otherwise "material", each License and other
Authorization issued by the FCC or any State PUC, and further including all
pending applications and renewals therefor), together with relevant identifying
information describing such Authorizations. With respect to each License issued
by the FCC or any State PUC listed on Schedule 3.9, the description includes (to
the extent applicable) the call sign, frequency, class, location, file number,
issuance date (original or most recent renewal), and expiration date. For
purposes of this Section 3.9, each Authorization issued by the FCC or any State
PUC will be deemed to be "material".
3.10. Taxes and Assessments. Except as disclosed on Schedule 3.10, each
Borrower has timely filed all required tax returns and reports (federal, state
and local) or has properly and timely filed for extensions of the time for the
filing thereof. No Borrower has knowledge of any deficiency, penalty or
additional assessment due or appropriate in connection with any such taxes. All
taxes (federal, state and local) imposed upon any Borrower or any of its
properties, operations or income have been paid and discharged prior to the date
when any interest or penalty would accrue for the nonpayment thereof, except for
those taxes being contested in good faith by appropriate proceedings diligently
prosecuted and with adequate reserves reflected on the financial statements in
accordance with GAAP (all as also disclosed on Schedule 3.10).
3.11. Litigation and Legal Proceedings. Except as disclosed on Schedule
3.11, there is no litigation, claim, investigation, administrative proceeding,
labor controversy or similar action that is
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pending or (to the best of each Borrower's knowledge and information after due
inquiry) threatened against any Borrower or its properties that, if adversely
resolved, could reasonably be expected to have or cause a Material Adverse
Effect.
3.12. Accuracy of Financial Information. All financial statements
previously furnished to Administrative Agent or any Lender concerning the
financial condition and operations of any one or more Borrowers (a) have been
prepared in accordance with GAAP consistently applied, and (b) fairly present
the financial condition of the organization covered thereby as of the dates and
for the periods covered thereby (but, with respect to interim periodic financial
statements, subject to normal and customary year end audit adjustments), and (c)
disclose all material liabilities (contingent and otherwise) of each Borrower.
In addition, all written information previously furnished to Administrative
Agent or any Lender concerning the financial condition and operations of any
Borrower are true, accurate and complete in all material respects.
3.13. Accuracy of Other Information. All written information contained in
any application, schedule, report, certificate, or any other document furnished
to Administrative Agent or any Lender by any Borrower or any other Person (on
behalf of any Borrower) in connection with the Loan Documents is in all material
respects true, accurate and complete, and no such Person (including Borrowers)
has omitted to state therein (or failed to include in any such document) any
material fact or any fact necessary to make such information not misleading. All
written projections furnished to Administrative Agent or any Lender by any
Borrower or any other Person on behalf of any Borrower have been prepared with a
reasonable basis and in good faith, making use of such information as was
available at the date such projection was made.
3.14. Compliance with Laws Generally. Each Borrower is in compliance in
all material respects with all material laws, rules, regulations, administrative
orders and judicial decrees (federal, state, local and otherwise) applicable to
it, its operations and its properties.
3.15. ERISA Compliance. Each Borrower is in compliance in all material
respects with all applicable provisions of ERISA.
3.16. Environmental Compliance. Each Borrower has received all permits and
filed all notifications necessary under and is otherwise in compliance in all
material respects with the Environmental Control Statutes.
3.17. Margin Rule Compliance. No Borrower owns or has any present
intention of acquiring any "Margin Stock" within the meaning of the following
Margin Regulations of the FRB: Regulation T at 12 C.F.R. Pt. 220, and Regulation
U at 12 C.F.R. Pt. 221, and Regulation X at 12 C.F.R. Pt. 224. The credit
extended under this Agreement does not constitute "Purpose Credit" within the
meaning of the FRB's Margin Regulations.
3.18. Fees and Commissions. Except as disclosed on Schedule 3.18 or as
required by Section 1.7, no Borrower owes any fees or commissions of any kind in
connection with this Agreement or the transactions contemplated hereby, and no
Borrower knows of any claim (or any basis for any claim) for any fees or
commissions in connection with this Agreement or the transactions contemplated
hereby.
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3.19. Solvency. No Borrower is "insolvent," as such term is defined in
Section 101(32) of the Bankruptcy Code (11 U.S.C. ss. 101(32)). No Borrower, by
virtue of its obligations and actions in connection with the Loan Documents, has
engaged or is engaging in any transaction that constitutes a fraudulent transfer
or fraudulent conveyance under applicable federal or state law (including under
Section 548 of the Bankruptcy Code or under the Uniform Fraudulent Transfer Act
or the Uniform Fraudulent Conveyance Act).
3.20. Additional FCC and Other Regulatory Representations. Without
limiting the generality of the foregoing representations and warranties, each
Borrower further represents and warrants as follows:
3.20.1. General Compliance. Each Borrower is in compliance in all
material respects with all material laws, rules, regulations, administrative
orders, policies and procedures issued, implemented or administered by the FCC
and/or any State PUC applicable to such Borrower, its operations and its
properties.
3.20.2. No Unresolved Application, Complaint or Proceeding. Except
as described on Schedule 3.20, there is no outstanding or unresolved (a)
application by any Borrower for any FCC or State PUC Authorization (including
any renewal of any License), or (b) material complaint to the FCC or any State
PUC regarding any Borrower or any of its Authorizations, or (c) litigation,
investigation or other inquiry by or before the FCC or any State PUC involving
any Borrower or any of its Authorizations, or (d) FCC or State PUC enforcement
proceeding against any Borrower or any of its Authorizations (including any
notice of violation, any notice of apparent liability for forfeiture, or any
forfeiture).
3.20.3. Status and Renewal of Licenses. The Licenses identified on
Schedule 3.9 constitute all of the Licenses currently required by the Federal
Communications Act or any State Communications Act for the operation of each
Borrower's business as it is currently being operated. Each such License is
validly outstanding and effective and has been renewed by the FCC or a State PUC
without condition for a full term in accordance with the Federal Communications
Act or a State Communications Act. There are no modifications, amendments or
revocations (pending or, to the best of the knowledge of each Borrower after due
inquiry, threatened) that could adversely affect the operations or financial
condition of any Borrower. After due inquiry, no Borrower knows of any reason
why the FCC or any State PUC would not routinely grant (for a full term and
without condition) the application by such Borrower for the renewal of each such
License over which the FCC or such State PUC has jurisdiction, when and as such
application shall become due to be filed with the FCC or such State PUC.
ARTICLE 4: AFFIRMATIVE COVENANTS
Each Borrower (jointly and severally) hereby covenants and agrees that, so
long as any indebtedness remains outstanding hereunder, each Borrower will
comply with the following affirmative covenants:
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4.1. Financial and Operating Covenants and Ratios. As of the end of each
fiscal quarter, beginning with the fiscal quarter ending September 30, 2000,
Borrowers will satisfy each of the following financial and operating ratios and
characteristics, each of which will be determined (as applicable) using GAAP
consistently applied, except as otherwise expressly provided:
4.1.1. Interest Coverage Ratio. A ratio of Pro Forma OCF to Interest
Expense of not less than the following:
a. 1.5-to-1.0, from September 30, 2000 through December 31,
2000; and
b. 2.0-to-1.0, after December 31, 2000.
4.1.2. Total Charge Coverage Ratio. A ratio of Pro Forma OCF to
Total Charges of not less than 1.1-to-1.0.
4.1.3. Cash Flow Leverage Ratio. A ratio of Funded Debt to Pro Forma
OCF of not more than the following:
a. 5.0-to-1.0, from July 1, 2000 through December 31, 2000;
and
b. 4.0-to-1.0, from January 1, 2001 through June 30, 2001; and
c. 3.0-to-1.0, from July 1, 2001 through December 31, 2001;
and
d. 2.0-to-1.0, after January 1, 2002.
4.2. Periodic Financial Statements and Compliance Certificates.
4.2.1. Monthly Financial Statements. Within 30 calendar days after
the end of each calendar month (including the last calendar month of each year),
Borrowers must prepare and deliver to Lender a complete set of unaudited
internal monthly financial statements, in form and substance as required by and
acceptable to Administrative Agent. Together with the monthly financial
statements, Administrative Agent and each Lender must also receive a certificate
executed by the chief financial officer or such other senior executive officer
of each Borrower as is acceptable to Administrative Agent (a) stating that the
financial statements fairly present the financial condition of each Borrower as
of the date thereof and for the periods covered thereby and (b) calculating, as
of the end of such monthly period, the then current amount for the Available
Credit Portion, and (c) certifying that as of the date of such certificate there
is not any existing Default or Event of Default.
4.2.2. Quarterly Financial Statements. Within thirty (30) calendar
days after the end of each fiscal quarter (including the fourth fiscal quarter
of each year), Borrowers must prepare and deliver to Administrative Agent and
each Lender unaudited quarterly financial statements, in form and substance as
required by and acceptable to Administrative Agent. Such financial statements
must include a balance sheet and an income statement (with appropriate notes and
schedules). Such financial statements must be prepared in accordance with GAAP
consistently applied (except as approved by Administrative Agent in its sole and
absolute discretion). Together with the quarterly financial statements,
Administrative Agent and each Lender must also receive a
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certificate executed by the chief financial officer or such other senior
executive officer of each Borrower as is acceptable to Administrative Agent (a)
stating that the financial statements fairly present the financial condition of
each Borrower as of the date thereof and for the periods covered thereby, and
(b) calculating, as of the end of such quarterly period, the then-current amount
for the Available Credit Portion, and (c) providing a reconciled calculation
demonstrating compliance with each financial covenant and ratio under Section
4.1 (using the form attached as Exhibit 4.2), and (d) certifying that as of the
date of such certificate there is not any existing Default or Event of Default.
4.2.3. Annual Financial Statements. Within one hundred twenty (120)
calendar days after the close of each fiscal year, Borrowers must prepare and
deliver to Administrative Agent and each Lender a complete set of audited annual
consolidated financial statements (with accompanying notes and consolidating
schedules). Such financial statements (a) must include the types of financial
statements and information required on a quarterly basis under this Section 4.2
as well as a cash flow statement and a reconciliation of consolidated net worth,
and (b) must be prepared in accordance with GAAP consistently applied, and (c)
must be certified without qualification by an independent certified public
accounting firm satisfactory to Administrative Agent. Together with the annual
financial statements, Administrative Agent and each Lender must also receive all
related management letters prepared by such accountants and a certificate signed
by such accountants, (a) stating that the financial statements fairly present
the consolidated financial condition of each Borrower as of the date thereof and
for the periods covered thereby, and (b) providing a reconciled calculation
demonstrating compliance with each financial covenant and ratio under Section
4.1, and (c) calculating, as of the end of such fiscal year, the then-current
amount for the Available Credit Portion, and (d) certifying that as of the date
of such certificate, to the best of such accountant's knowledge (after due
inquiry), there is not any existing Default or Event of Default.
4.3. Other Financial and Specialized Reports.
4.3.1. Financial Forecasts; Operating Budgets. Within 10 Business
Days after receiving, preparing, materially revising or otherwise assembling any
periodic budgets or financial forecasts, Borrowers must deliver a complete copy
thereof to Administrative Agent and each Lender, provided, however, that such
recipients agree to abide by the confidentiality/non-use provisions of Section
10.5 for purposes of complying with federal securities laws and restrictions on
the use of non-public information. In addition, Borrowers must prepare and
deliver to Administrative Agent and each Lender a final annual operating budget
(in form and substance satisfactory to Administrative Agent) at least 30
calendar days prior to the beginning of each fiscal year.
4.3.2. Additional Material Contracts, Licenses and Authorizations.
Each Borrower (a) will notify Administrative Agent in writing within 90 calendar
days after executing or becoming bound by any contract, agreement, License or
other Authorization that should have been listed on Schedule 3.5A, Schedule 3.8
or Schedule 3.9 if it had existed as of the Closing Date, and (b) will
concurrently update Schedule 3.5A, Schedule 3.8 or Schedule 3.9 (as
appropriate).
4.3.3. Tax Returns. Within 10 Business Days after the date that any
Borrower makes any filing with the Internal Revenue Service relating to its
liability for income taxes (or otherwise delivers to any equity owner of such
Borrower annual tax and capital information on Form
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K-1), such Borrowers must deliver a complete copy thereof to Administrative
Agent and each Lender.
4.3.4. SEC Filings and Press Releases. Within 10 Business Days after
the date that any Borrower or any organization that owns or controls at least
50% of any class of equity interests of any Borrower makes any filing with the
Securities Exchange Commission (whether as a registration statement or a filing
on Form 8-K, Form 10-K, Form 10-Q, or otherwise) or issues any press release,
Borrowers must deliver a complete copy thereof to Administrative Agent and each
Lender.
4.3.5. Operating Reports. Within 30 calendar days after the end of
each calendar month, Borrowers must prepare and deliver to Lender reports
containing the following information and data with respect to such month
reported for each Borrower (and division, as applicable), in form and substance
as required by and acceptable to Administrative Agent:
a. the total number of customers at the end of such month;
; and
b. the total number of dial-up customers at the end of such
month; and
c. the total number of dedicated customers at the end of
such month; and
d. the total number of web-hosting and co-location
customers at the end of such month; and
e. the total number of non-classified accounts at the end
of such month; and
f. the average revenue per class of accounts for such
month; and
g. the total number of residential customers at the end of
such month; and
h. the total number of new residential customers and the
total number of discontinued residential customers for
such month; and
i. the total number of commercial customers at the end of
such month; and
j. the total number of new commercial customers and the
total number of discontinued commercial customers for
such month.
4.4. Fiscal Year. Each Borrower will maintain a fiscal year that has a
December 31st year end.
4.5. Books and Records; Maintenance of Properties. Each Borrower will keep
and maintain satisfactory and adequate books and records of account in
accordance with GAAP. Each
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Borrower will also keep, maintain and preserve all of its property and assets in
good order and repair (ordinary wear and tear excepted).
4.6. Existence and Good Standing. Each Borrower will preserve and maintain
(a) its existence as a corporation under the laws of its jurisdiction of
organization, and (b) its good standing in all jurisdictions where it conducts
business, and (c) the validity of all its Authorizations and Licenses required
or otherwise appropriate in the conduct of its businesses.
4.7. Deposit Accounts. Borrowers (a) will maintain commercial deposit
accounts only at federally insured depository institutions rated as "well
capitalized" by their primary federal regulator and (b) will provide
Administrative Agent with written notice of the institution's name and location
and the account name and number with respect to each such account within twenty
(20) calendar days after opening or acquiring any such account. The
institution's name and location and the account name and number for each such
account currently in existence, as well as an approximate current balance (i.e.,
a current balance at any time within the preceding thirty (30) calendar days),
are listed on Schedule 4.7.
4.8. Insurance; Disaster Contingency.
4.8.1. General Insurance Provisions. Each Borrower will keep all of
its property and assets fully covered by insurance with reputable and
financially sound insurance companies (reasonably acceptable to Administrative
Agent). Each Borrower must also maintain such protection against such hazards
and liability (including casualty, liability, fire, flood, business
interruption, earthquake, workmen's compensation, and other material risks to
its property and business), in such amounts and with such deductibles as is
customary in the relevant industry and appropriate under the relevant
circumstances (and, in each instance, as is reasonably acceptable to
Administrative Agent). If any Borrower fails or refuses to obtain or maintain
any such insurance coverage, then Administrative Agent (at its election) may
(but is not obligated to) obtain and maintain such insurance coverage on behalf
of such Borrower, and the premiums and other costs thereof (a) will be included
in the indebtedness hereunder secured by the Collateral and (b) will be due and
payable by such Borrower to Administrative Agent immediately upon demand. Each
such policy for liability insurance must name Administrative Agent as loss
payee, and each such other policy for insurance must name Administrative Agent
as loss payee and as additional insured. Each such policy must also require the
insurer to furnish Administrative Agent with written notice at least 25 calendar
days prior to any termination, cancellation or lapse of coverage and must
provide Administrative Agent with the right (but not the obligation) to cure any
non-payment of premium. Upon Administrative Agent's request, each Borrower (from
time to time) will furnish Administrative Agent with proof of such insurance (in
form and substance acceptable to Administrative Agent) and a copy of the related
policy.
4.8.2. Disaster Recovery and Contingency Program. Each Borrower will
maintain (and at least annually review the sufficiency of) a disaster recovery
and contingency plan that addresses each Borrower's plans for continuing
operations upon the occurrence of a natural disaster or other event that
destroys or prevents the use of or access to such Borrower's primary computer
systems, information databases, software applications, business records and
operations facility and/or such Borrower's switch sites and call centers. Such
contingency plan at all times must
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be in form and substance reasonably acceptable to Administrative Agent. Upon
request, each Borrower will provide Administrative Agent with a current copy of
such plan.
4.9. Loan Purpose. Borrowers will use the proceeds of each Advance
hereunder exclusively as set forth in Section 1.1.3.
4.10. Taxes. Each Borrower will pay and discharge all taxes, assessments
or other governmental charges or levies imposed on it or any of its property or
assets prior to the date upon which any penalty for non-payment or late payment
is incurred, unless (a) the same are then being contested in good faith by
appropriate proceedings diligently prosecuted, and (b) adequate reserves
therefor acceptable to Administrative Agent have been established, and (c)
Administrative Agent has been notified thereof in writing, and (d) the
consequences of such non-payment (in Administrative Agent's reasonable judgment)
will not have a Material Adverse Effect.
4.11. Management Changes. Borrowers will notify Administrative Agent in
writing within thirty (30) calendar days after any change (including any
dismissal or material change in title or status) in the senior management
personnel of any Borrower.
4.12. Litigation and Administrative Proceedings. Each Borrower will notify
Administrative Agent in writing immediately upon the institution or commencement
of any litigation, legal or administrative proceeding, or labor controversy (a)
with a purported amount in controversy in excess of $100,000, or (b) that could
otherwise reasonably be expected to have or cause a Material Adverse Effect.
4.13. Monitoring Compliance; Occurrence of Certain Events. Each Borrower
at all times will maintain (and comply with) commercially reasonable procedures
and systems designed to monitor compliance and to detect instances of
non-compliance with the Loan Documents. Each Borrower will notify Administrative
Agent in writing immediately upon (a) the occurrence of any Default or Event of
Default hereunder, or (b) the occurrence of any Default or Event of Default
under any other Loan Document, or (c) the happening of any event or the
assertion or threat of any claim that could reasonably be expected to have or
cause a Material Adverse Effect.
4.14. Compliance with Laws. Each Borrower will comply in all material
respects (a) with all material laws, rules, regulations and orders (federal,
state, local and otherwise) applicable to its business, and (b) with the
provisions and requirements of all Authorizations. Each Borrower will notify
Administrative Agent immediately in detail of any actual or alleged material
failure to comply with or violation of any such laws, rules, regulations or
orders, or under the terms of any of such Authorizations, or of the occurrence
or existence of any facts or circumstances that with the passage of time, the
giving of notice or otherwise could create such a failure to comply or violation
or could reasonably be expected to occasion the termination of any of such
Authorization. Such "material" laws, rules, regulations and orders shall
include, as applicable, (i) the Federal Communications Act and each State
Communications Act and the rules, regulations, policies, procedures and orders
of the FCC and each such State PUC, and (ii) the Environmental Control Statutes,
and (iii) ERISA.
4.15. Further Actions.
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4.15.1. Additional Collateral. Each Borrower will execute, deliver
and record (or, as appropriate, cause the execution, delivery and recordation)
at any time upon Administrative Agent's request and in form and substance
reasonably satisfactory to Administrative Agent, any of the following
instruments in favor of Administrative Agent as additional Collateral hereunder:
(a) mortgages, deeds of trust and/or assignments on or of any real or personal
property owned, leased or licensed by it, and (b) certificates of title
encumbrances against any of its titled vehicles, and (c) any other like
assignments or agreements specifically covering any of its properties or assets
(including assignments of any patents, trademarks, copyrights, databases, trade
secrets and other forms of intellectual property and deposit account control
agreements), and (d) any financing or continuation statements requested by
Administrative Agent.
4.15.2. Further Assurances. From time to time, each Borrower will
execute and deliver (or will cause to be executed and delivered) such
supplements, amendments, modifications to and/or replacements of the Loan
Documents and such further instruments as may be reasonably required to
effectuate the intention of the parties to (or to otherwise facilitate the
performance of) the Loan Documents.
4.15.3. Estoppel Certificates. Upon Administrative Agent's request,
each Borrower will execute, acknowledge and deliver (or, as appropriate, cause
the execution, acknowledgment and delivery) to such Persons as Administrative
Agent may request a statement in writing certifying as follows (to the best of
its knowledge, after diligent inquiry): (a) that the Loan Documents (as amended,
if applicable) are unmodified and in full force and effect, and (b) that the
payments under the Loan Documents required to be paid by Borrowers have been
paid, and (c) the then unpaid principal balance of Facilities hereunder, and (d)
whether or not any Default is then occurring under any of the Loan Documents
and, if so, specifying each such Default of which the signer may have knowledge,
and (e) whether or not any Borrower is then entitled to assert any claims,
defenses or causes of action that would impose any liability upon Administrative
Agent or any Lender or that would otherwise challenge the enforceability any
Loan Document or any provision thereof (including, the existence of any
so-called "Lender Liability" claims or defenses). Unless such Borrower otherwise
consents (which consent will not be unreasonably withheld, delayed or
conditioned), Administrative Agent must give such Borrower at least ten (10)
Business Days to complete and deliver any such certificate. Each Borrower
understands and agrees that any such certificate delivered pursuant to this
Section may be relied upon by Administrative Agent, each Lender, and, if
different, by the recipient thereof.
4.15.4. Waivers and Consents. At any time upon Administrative
Agent's request, each Borrower will use its best efforts to obtain and deliver
(in form and substance reasonably satisfactory to Administrative Agent) a waiver
or consent to the assignment to Administrative Agent of any contract, lease,
Authorization or other agreement to which it is a party.
4.15.5. Access and Audits. Administrative Agent and each Lender
(from time to time at its discretion) may conduct audits of the Collateral and
of the performance and operations of any Borrower. Each Borrower (upon
Administrative Agent's request from time to time) will use its best efforts to
provide Administrative Agent and each Lender (and their representatives and
agents) with reasonable access to such Borrower's management personnel, books
and records, property and operations (including its financial records), whether
such property, books and records are in the possession of such Borrower or are
in the possession of a third party (including the possession of
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such Borrower's Affiliates, accountants and legal counsel). In connection with
any such audit, Administrative Agent and each Lender may also make notes and
copies of (and extracts from) relevant records.
4.15.6. Attendance at Board of Directors Meetings. Any Lender (from
time to time at its discretion and at its sole cost and expense) may attend any
or all meetings of the board of directors of any Borrower (including the
meetings of any committees or sub-committees thereof) provided, however, that
such recipients agree to abide by the confidentiality/non-use provisions of
Section 10.5 for purposes of complying with federal securities laws and
restrictions on the use of non-public information. Borrowers will provide
Administrative Agent with written notice thereof at least ten (10) Business Days
prior to each such meeting and also will provide Administrative Agent with a
copy of all written communications, minutes and materials distributed in
connection therewith. Notwithstanding the foregoing, at the request of
Borrowers, representatives of such Lenders will temporarily leave a meeting of
the board of directors if such action is necessary to preserve the Borrowers'
attorney-client privilege with respect to such meetings or the information
disseminated therein.
4.16. Costs and Expenses. Borrowers will pay or reimburse Administrative
Agent and each Lender for all fees and costs (including all reasonable
attorneys' fees and disbursements and the reasonable fees and disbursements of
in-house counsel and documentation personnel) that Administrative Agent or any
Lender may pay or incur in connection with (a) the preparation, negotiation and
review of the Loan Documents, any waivers, consents and amendments in connection
herewith or therewith and all other documentation related hereto or thereto, and
(b) the funding of the indebtedness or any Advance hereunder, and (c) the
initial and continuing perfection or protection of Administrative Agent's or any
Lender's interest in any of the Collateral, and (d) the collection or
enforcement of any of the Loan Documents, and (e) the periodic examination and
auditing of the Collateral and the books, records and operations of Borrowers,
and (f) Administrative Agent's release of its interests in the Collateral in
accordance with the terms of the Loan Documents. Borrowers will pay any and all
recordation taxes or other fees due upon the filing of the financing statements
or documents of similar effect required to be filed under the Loan Documents,
and will provide Administrative Agent with a copy of any receipt or other
evidence reflecting such payments. All obligations provided for in this Section
shall survive the termination of this Agreement and/or the repayment of
indebtedness hereunder.
4.17. Other Information. Each Borrower will provide Administrative Agent
with any other documents and information (financial or otherwise) reasonably
requested by Administrative Agent or its counsel from time to time.
4.18. Additional FCC and Other Regulatory Affirmative Covenants. Without
limiting the generality of the foregoing affirmative covenants, each Borrower
further covenants and agrees as follows:
4.18.1. Service Interruption. Each Borrower will notify
Administrative Agent in writing within 36 hours after any period during which
the transmission at any internet data center or call center owned or used by any
Borrower is interrupted or curtailed for an aggregate of 24 hours or more
(whether or not consecutive) during any period of 48 consecutive hours. Each
Borrower will
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make every effort to restore such transmission as soon as possible to the level
that was obtained prior to such interruption or curtailment.
4.18.2. Correspondence, Orders and Filings. Within 5 Business Days
after mailing or receipt (as applicable), each Borrower will provide
Administrative Agent with a copy of each significant or material correspondence,
application or filing with, to or from the FCC or any State PUC. Within 5
Business Days after the release of any order of the FCC or any State PUC (a)
designating or proposing to designate an application by any Borrower to the FCC
or a State PUC for an evidentiary hearing, or designating or proposing to
designate for an evidentiary hearing the possible non-renewal, revocation or
modification of any License or Authorization issued to it by the FCC or a State
PUC, or (b) imposing a fine, penalty or other forfeiture upon any Borrower, or
(c) initiating any other enforcement action against any Borrower, or as soon as
any Borrower ascertains that any such order will be forthcoming from the FCC or
any State PUC, then such Borrower must notify Administrative Agent of the same
and, if any such order has been issued by the FCC or a State PUC, must provide a
copy of such order to Administrative Agent.
4.19. Billing System Integration. On or before June 30, 2000 Borrowers
shall fully integrate the billing systems for all Borrowers into one
consolidated and comprehensive billing system. Borrowers shall provide
Administrative Agent satisfactory evidence of compliance with this Section 4.19.
4.20. Post-Closing Items. Notwithstanding anything to the contrary
contained in this Agreement or the other Loan Documents, the Borrowers shall
deliver the following documents, agreements and certificates, each duly
executed, in form and substance satisfactory to Administrative Agent and, when
applicable, recorded or filed in the appropriate public office, within the time
periods set forth below:
a. A mortgage or deed of trust, as appropriate, in a form provided
by the Lenders, covering the those certain premises with an address at 131
Enterprise Drive, Johnstown, New York 12095, as acquired by the Borrowers in the
Telecon Acquisition within 20 Calendar Days of the closing date of the Telecon
Acquisition.
b. Amended articles of incorporation and executed UCC-1 financing
statements with respect to the surviving companies in the Telecon Acquisition,
whose names shall be "Telecon Communications Corp." and "Telesupport, Inc."
within 10 calendar days of the closing date of the Telecon Acquisition.
c. Lien releases on all companies acquired pursuant to, or certain
assets of which are acquired pursuant to, the Additional Acquisitions,
including, but not limited to, Supernet, Inc. and I-Conn, Inc., on the closing
date, from time to time, of the Additional Acquisitions.
d. Lien releases on Ulsternet, Inc. and Webway, LLC within 30
calendar days of the Closing Date. However, Borrowers will use their best
efforts to obtain such lien releases at the earliest possible date.
e. Copies of the referenced and scheduled leases for the Landlord
Estoppel and Consent Agreements on the premises occupied by (i)
BiznessOnline.com, Inc.; (ii) Borg Internet
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Services, Inc.; (iii) Caravela Software, Inc.; and (iv) Ulsternet, Inc. within
10 calendar days of the Closing Date.
f. An Estoppel and Consent Agreement in a form provided by the
Lenders from Cisco Systems Capital Corporation regarding the Master Lease
Agreement #2581 entered into by Global 2000 Communications, Inc. within 30 days
of the Closing Date.
ARTICLE 5: NEGATIVE COVENANTS
Each Borrower (jointly and severally) hereby covenants and agrees that, so
long as any indebtedness remains outstanding hereunder, each Borrower will
comply with the following negative covenants (unless Required Lenders through
Administrative Agent otherwise consent in writing, which consent will not be
unreasonably withheld while no Default is occurring):
5.1. Capital Expenditures. Borrowers (on a consolidated basis) will not
incur (a) Capital Expenditures in connection with the design and construction of
Internet data centers in their fiscal year ending December 31, 2000 in excess of
$4,000,000 and (b) Capital Expenditures for other items in their fiscal year
ending December 31, 2000 in excess of $2,500,000; and, (c) Capital Expenditures
in any fiscal year thereafter in excess of $2,500,000.
5.2. Additional Indebtedness. No Borrower will borrow any monies or
create, incur, assume or permit to exist any additional indebtedness,
obligations or liabilities (including monitory obligations evidenced by a
promissory note and monetary obligations under non-compete and consulting
arrangements) except as follows (collectively, the "Permitted Indebtedness"):
a. Borrowings from Lenders hereunder; and ---
b. Trade indebtedness, if and to the extent (i) such indebtedness is
incurred in the normal and ordinary course of business for value received and
(ii) such indebtedness (to the extent it exceeds $10,000 to any single vendor)
is paid on a current basis or is less than 60 calendar days past due; and
c. Indebtedness and obligations incurred to purchase fixed or
capital assets, consistent with the restrictions in Section 5.1 and Section 5.5,
provided, however, that (1) the aggregate amount of such asset acquisition
indebtedness outstanding at any time (together with the aggregate amount of
Capital Lease indebtedness outstanding under Subsection 5.2.d) may not exceed
$3,000,000, and (2) such indebtedness must be immediately included in the
calculation of Funded Debt, and (3) such fixed or capital assets being purchased
may not constitute (a) customized application software or systems integration
software unless Borrowers have furnished Administrative Agent with an estoppel
and consent from the holder of the Lien in form and substance satisfactory to
Lenders, or (b) equity interests in or substantially all of the assets of
another enterprise other than Permitted Investments, or (c) any other asset the
loss of which could reasonably be expected to have or cause a Material Adverse
Effect unless Borrowers have furnished Administrative Agent with an estoppel and
consent from the holder of the Lien in form and substance satisfactory to
Lenders, and (4) if such asset acquisition indebtedness is secured, and if the
agreement giving rise to such
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indebtedness is a Material Contract, Borrower shall have furnished
Administrative Agent with an estoppel and consent from the holder of the Lien in
form and substance satisfactory to Lenders; and
d. Indebtedness and obligations incurred under Capital Leases,
consistent with the restrictions in Section 5.1 and Section 5.5, provided,
however, that (1) the aggregate amount of such Capital Lease indebtedness
outstanding at any time (together with the aggregate amount of asset acquisition
indebtedness outstanding under Subsection 5.2.c) may not exceed $3,000,000, and
(2) such indebtedness must be immediately included in the calculation of Funded
Debt, and (3) such fixed or capital assets being leased may not constitute (a)
customized application software or systems integration software unless Borrowers
have furnished Administrative Agent with an estoppel and consent from the lessor
in form and substance satisfactory to Lenders, or (b) any asset the loss of
which could reasonably be expected to have or cause a Material Adverse Effect
unless Borrowers have furnished Administrative Agent with an estoppel and
consent from the lessor in form and substance satisfactory to Lenders, and (4)
if the Capital Lease is a Material Contract, Borrower shall have furnished
Administrative Agent with an estoppel and consent from the lessor in form and
substance satisfactory to Lenders; and
e. Indebtedness in favor of another Borrower if and to the extent
permitted under Section 5.4(b); and
f. Subordinated Indebtedness if and to the extent permitted under
Section 5.11; and
g. Such indebtedness listed on Schedule 5.2 with the prior written
consent of Lenders through Administrative Agent (which consent will not be
unreasonably withheld while no Default is occurring). Unless Lenders through
Administrative Agent otherwise expressly consent in writing (or unless otherwise
specified on Schedule 5.2), all indebtedness listed on Schedule 5.2 must be
included in the calculation of Funded Debt.
5.3. Guaranties. No Borrower will guarantee, assume or otherwise be or
agree to become liable in any way, either directly or indirectly, for any
additional indebtedness or liability of any other Person, except as follows
(collectively, the "Permitted Guaranties"): (a) in favor of Lenders or
Administrative Agent, or (b) to endorse checks, drafts and negotiable
instruments for collection in the ordinary course of business, or (c) as listed
on Schedule 5.3 with the consent of Lenders, or (d) to the extent that Lenders
through Administrative Agent otherwise consent in writing.
5.4. Loans. No Borrower will make any loans or advances to any other
Person, except as follows (collectively, the "Permitted Loans"): (a) loans to
employees that do not exceed $25,000 to any individual employee and do not at
any time in the aggregate outstanding exceed $150,000 among all such loans to
all such employees, and (b) as listed on Schedule 5.4 with the consent of
Lenders through Administrative Agent, and (c) demand loans to other Borrowers
that are appropriately reflected on each Borrower's financial records and
evidenced by a written promissory note assigned to Administrative Agent as
additional Collateral.
5.5. Liens and Encumbrances; Negative Pledge. No Borrower will create,
permit or suffer the creation or existence of any Liens on any of its property
or assets (real or personal, tangible or intangible), except as follows
(collectively, the "Permitted Liens"):
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a. Liens in favor of Administrative Agent as security for the
Obligations under the Loan Documents; and
b. Liens arising in favor of sellers or lessors for indebtedness and
obligations incurred to purchase or lease fixed or capital assets as permitted
under Section 5.2.c or Section 5.2.d, provided, that (1) such Liens secure only
the indebtedness and obligations created thereunder (but not any related
monetary obligations under non-compete and consulting arrangements) and are
limited to the assets purchased or leased pursuant thereto, and (2) such fixed
or capital assets do not constitute (a) customized application software or
systems integration software unless Borrowers have furnished Administrative
Agent with an estoppel and consent from the holder of such Lien in form and
substance satisfactory to Lenders, or (b) equity interests in or substantially
all of the assets of another enterprise, or (c) any other asset the loss of
which could reasonably be expected to have or cause a Material Adverse Effect
unless Borrowers have furnished Administrative Agent with an estoppel and
consent from the holder of such Lien in form and substance satisfactory to
Lenders, and, (3) if the agreement giving rise to such Lien constitutes a
Material Contract, Borrower shall have furnished Administrative Agent with an
estoppel and consent from the holder of such Lien in form and substance
satisfactory to Lenders; and
c. Liens for taxes, assessments or other governmental charges
(federal, state or local) that are not yet delinquent or that are then being
currently contested in good faith by appropriate proceedings diligently
prosecuted, provided, however, that (1) the existence of such Liens and
challenge of such charges must have been fully disclosed to Administrative
Agent, and (2) adequate reserves therefor in accordance with GAAP must have been
established, and (3) such Liens (in Administrative Agent's reasonable opinion)
could not reasonably be expected to have or cause a Material Adverse Effect; and
d. Deposits in the ordinary course of business to secure obligations
under workmen's compensation, unemployment insurance or social security laws or
similar legislation; and
e. Deposits to secure performance or payment bonds, bids, tenders,
contracts, leases, franchises or public and statutory obligations required in
the ordinary course of business; and
f. Deposits to secure surety, appeal or custom bonds required in the
ordinary course of business; and
g. Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not past due or
for sums being currently contested in good faith by appropriate proceedings
diligently prosecuted, provided, however, that (1) the existence of such Liens
and challenge of such sums allegedly due must have been fully disclosed to
Administrative Agent, and (2) adequate reserves therefor in accordance with GAAP
must have been established, and (3) such Liens (in Administrative Agent's
reasonable opinion) could not reasonably be expected to have or cause a Material
Adverse Effect; and
h. Easements, rights-of-way, restrictions and other similar
encumbrances on real property of a Borrower that, independently and in the
aggregate, do not (1) materially interfere with the occupation, use or enjoyment
by such Borrower of the property or assets encumbered thereby in the normal
course of business or (2) materially impair the value of the property subject
thereto; and
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i. Liens listed on Schedule 5.5 with the consent of Required Lenders
through Administrative Agent (which consent will not be unreasonably withheld
while no Default is occurring).
No Borrower will similarly covenant to or in favor of any other Person that it
will not create, permit or suffer the creation or existence of any Liens on any
of its property or assets. In addition, no Borrower will purchase or otherwise
acquire any additional assets (including any leasehold interest therefor) unless
Administrative Agent's interest in such property either (a) is already covered
and perfected pursuant to an existing and effective UCC-1 financing statement,
fixture filing, mortgage and/or leasehold mortgage (as appropriate) in favor of
Administrative Agent or (b) otherwise becomes properly perfected within 5
calendar days after any such acquisition by such Borrower's filing (at its
expense) all necessary UCC-1 financing statements, fixture filings, mortgages
and/or leasehold mortgages (as appropriate, and in form and substance reasonably
acceptable to Administrative Agent). Moreover, no Borrower will establish or
maintain any "securities account" with any "securities intermediary" (as such
terms are defined in Article 8 of the UCC) except as permitted under Section
5.7.
5.6. Transfer of Assets. No Borrower will sell, lease, license, transfer
or otherwise dispose of all or substantially all of its assets. In addition, no
Borrower will sell, lease, license, transfer or otherwise dispose of any of its
assets other than as follows (collectively, the "Permitted Transfers"): (a)
pursuant to a transaction with an unrelated third party in the normal and
ordinary course of business for value received and otherwise in accordance with
the terms hereof (including Section 1.1.6.5.c) provided that proceeds received
by the Borrower for such transactions shall, singly or in the aggregate, be less
than $250,000, or (b) with respect to obsolete or replaced equipment no longer
useful in the operation of any Borrower's business, pursuant to a reasonable and
customary transaction with an unrelated third party and otherwise in accordance
with the terms hereof, and (c) pursuant to a reasonable and customary
transaction with another Borrower that is appropriately reflected on each
Borrower's financial records.
5.7. Acquisitions and Investments. No Borrower will purchase or otherwise
acquire (including by way of share exchange) any part or amount of the equity
ownership or assets of, or make any investments in, any other corporation,
partnership, limited liability company or other venture or enterprise.
Notwithstanding the foregoing, Borrowers may acquire or invest in the following
(collectively, the "Permitted Investments"):
a. Government and agency securities backed by the full faith and
credit of the U.S. federal government; and
b. Commercial paper of a U.S. domestic issuer rated A-1+ or A-1 by
Standard & Poor's Ratings Group or P-1 by Moody's Investor Services, Inc. and
maturing not more than 90 calendar days from the date of acquisition thereof;
and
c. Certificates of deposit (maturing within 12 calendar months after
the date of issuance), time deposits, other deposits and bankers' acceptances
issued by or established with U.S. federally insured commercial banks rated as
"well capitalized" by their primary federal regulators, and having unimpaired
capital and unimpaired surplus (collectively) of at least $250 million, and
whose commercial paper (or commercial paper that is supported by such bank's
letter of credit or
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commitment to lend) is rated as A-1+ or A-1 by Standard & Poor's Ratings Group
or P-1 by Moody's Investor Services, Inc.; and
d. Assets acquired pursuant to transactions permitted under Section
5.1 or Section 5.2; and
e. Inventory sold in the ordinary course of business for value
received; and
f. Equity interests in other Borrowers; and
g. Investments listed on Schedule 5.7 with the consent of Required
Lenders through Administrative Agent (which consent will not be unreasonably
withheld while no Default is occurring).
No Borrower will establish or maintain any "securities account" with any
"securities intermediary" (as such terms are defined in Article 8 of the UCC),
unless a control agreement acceptable in form and substance to Administrative
Agent is first executed by such "securities intermediary" securing
Administrative Agent's first priority interest and rights in and to all
"financial assets" and "security entitlements" associated with such "securities
account."
5.8. New Ventures; Mergers. No Borrower will (a) enter into any new
business activities or ventures not directly related to its current business, or
(b) merge or consolidate with or into any other corporation, partnership,
limited liability company or other organization, or (c) create or acquire (or
cause or permit the creation or acquisition of) any Subsidiary or Affiliate
(except the hiring of officers and directors). Notwithstanding the foregoing,
Borrowers may create or acquire (or cause or permit the creation or acquisition
of) one or more wholly-owned Subsidiaries provided that (1) each such Subsidiary
(at Required Lenders' sole discretion) becomes a "Borrower," "Guarantor" and/or
"Obligor" under the Loan Documents, and (2) a first priority security interest
in and pledge of 100% of the assets and equity of each such Subsidiary is
perfected in favor of Administrative Agent as additional Collateral under the
Loan Documents (except as otherwise permitted under Section 5.5).
5.9. Transactions with Affiliates. No Borrower will enter into any
transaction or agreement with any Subsidiary, Affiliate or other related
enterprise except as follows: (a) reasonable and customary compensation
arrangements in the ordinary course of business with its officers and directors,
and (b) guaranties (if any) to the extent permitted by Section 5.3, and (c)
employee loans (if any) to the extent permitted under Section 5.4, and (d)
reasonable and customary asset transfers among Borrowers (if any) to the extent
permitted under Section 5.6, and (e) reasonable dividends and distributions (if
any) to the extent permitted by Section 5.10, and (f) reasonable and customary
management fees (if any) to the extent permitted under Section 5.12, and (g)
transactions in the ordinary course of business between Borrowers.
5.10. Distributions or Dividends. No Borrower will declare or make
(directly or indirectly) any payment or distribution with respect to, or incur
any liability for the purchase, acquisition, redemption or retirement of, any of
its equity interests (including warrants therefor) or as a dividend, return of
capital or other payment or distribution of any kind to any holder of any such
equity interest. Notwithstanding the foregoing, so long as no Default then
exists under the Loan
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Documents or would otherwise be caused by the payment of such dividend, then any
Borrower may declare and distribute reasonable and lawful dividends to any of
its owners that are also a Borrower. Notwithstanding the foregoing,
BiznessOnline will make all payments and distributions to the Lenders entitled
thereto required under Section 1.7.1.2 or under or in connection with the
Warrant Agreement, the Warrants and/or any related warrant shares.
5.11. Payment of Subordinated Indebtedness. No Borrower will incur or make
any payments on Subordinated Indebtedness except as subsequently permitted by
this Section or by a separate intercreditor or subordination agreement executed
between such other creditor and Administrative Agent. Notwithstanding the
foregoing, if any Subordinated Indebtedness is subsequently authorized by
Lenders and if any Default occurs under the Loan Documents, then no Borrower
will make any further payments in connection with its Subordinated Indebtedness
unless and until such Default has been waived or cured to Administrative Agent's
and Lenders' satisfaction.
5.12. Payment of Management Fees and Other Compensation. No Borrower will
pay any funds or otherwise incur or accrue any liabilities for any management or
related services except (a) reasonable and customary compensation to bona fide
resident employees of such Borrower and (b) as otherwise permitted by this
Section.
5.13. Issuance of Additional Equity. No Borrower other than BiznessOnline
will permit the issuance, reissuance, conversion or exercise of any equity
interests (common stock, preferred stock, partnership interests, member
interests or otherwise) or any options, warrants, convertible securities or
other rights to purchase such beneficial or equity interest. Notwithstanding the
foregoing, a Borrower may issue additional equity interests provided that: (a)
such Borrower has provided written notice thereof to Administrative Agent at
least 15 Business Days prior to such issuance (which notice must at least
describe the type and amount of equity interests being purchased, the
consideration to be received by such Borrower in exchange for such issuance, and
the identity of the purchaser), and (b) such equity interests are pledged to
Administrative Agent (with a first lien priority) as additional Collateral
hereunder at the time of issuance thereof using documentation that is in form
and substance reasonably acceptable to Administrative Agent, and (c) the
proceeds thereof are utilized in a manner in compliance with Section 1.1.6.5.c,
and (d) no Default or Event of Default then exists under the Loan Documents or
would otherwise result from the issuance of such equity interest (including a
Default under the change in control restrictions set forth in Section 7.1.8).
5.14. Removal of Assets. No Borrower will remove or permit the removal of
any asset or group of assets (with a collective fair market value exceeding
$10,000) to a jurisdiction or a county in which no financing statement on Form
UCC-1 has been filed naming Administrative Agent as "secured party" with respect
to such assets. Notwithstanding the foregoing, a Borrower may remove the
following types of assets under the following conditions: (a) temporary removal
of equipment for repair or replacement provided that Administrative Agent has
received prior written notice thereof indicating the type of equipment, its
approximate fair market value, the destination location and an estimate of the
length of time that such equipment will be removed from the relevant
jurisdiction, and (b) booths, displays, marketing materials and related
accompanying equipment of a Borrower being used temporarily in connection with
marketing such Borrower's business at trade shows or otherwise (provided that
the aggregate fair market value thereof does not exceed $25,000), and (c)
portable computers and related accompanying equipment being used by the
officers, employees and independent representatives of a Borrower in connection
with accomplishing such
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Borrower's business activities at home offices or otherwise (provided that the
aggregate fair market value thereof does not exceed $25,000). Moreover, no
Borrower will move the location of its chief executive office (or change its
official mailing address) without providing Administrative Agent with prior
written notice thereof.
5.15. Modifications to Organic Documents. No Borrower will (a) amend or
otherwise modify any of its Organic Documents, or (b) change its official name,
its operating names or the names under which it executes contracts and conducts
business.
5.16. Terms of and Modifications to Material Relationships. No Borrower
will (and will not permit any other party to) cancel, terminate, amend, modify
or otherwise alter (a) any Subordinated Indebtedness, or (b) any agreement
regarding the provision of management services to any Borrower, or (c) any
Material Contract listed (or contract that should be listed) on Schedule 3.8. In
addition, each Borrower will use commercially reasonable efforts to ensure that
no Material Contract entered into by any Borrower after the Closing Date
(including the renewal or extension of any Material Contract existing as of the
Closing Date) will restrict any Borrower's ability to collaterally assign or
encumber such Material Contract in favor of Administrative Agent.
5.17. Margin Stock Restrictions; Other Federal Statutes. No Borrower will
use any of the proceeds hereunder, directly or indirectly, to purchase or carry,
or to reduce or retire any indebtedness that was originally incurred to purchase
or carry, any Margin Stock or for any other purpose that might constitute the
transactions contemplated hereby as a "Purpose Credit" within the meaning of the
FRB's Margin Regulations. In addition, no Borrower will engage as its principal
business in the extension of credit for purchasing or carrying Margin Stock. No
Borrower will cause or permit any Loan Document to violate any other regulation
of the FRB or the SEC or any provision of the Securities Act of 1933, the
Securities Exchange Act of 1934, the Investment Company Act of 1940 or the Small
Business Investment Act of 1958, each as amended, or any rules or regulations
promulgated under any of such statutes.
5.18. Holding Company Structure. BiznessOnline shall not conduct any
business operations (other than as a holding company of the other Borrowers).
BiznessOnline shall not own, hold or lease any operating assets, excluding the
leasing of its corporate headquarters and related office furniture and office
equipment and the employment of senior management and administrative staff.
ARTICLE 6: ADDITIONAL COLLATERAL AND RIGHT OF SET OFF
6.1. Additional Collateral. As additional collateral for the payment of
any and all indebtedness and obligations of each Borrower to Administrative
Agent or any Lender (whether matured or unmatured, and whether now existing or
hereafter incurred or created hereunder or otherwise), each Borrower hereby
grants Administrative Agent and each Lender a security interest in and a lien
upon all funds, balances and other property of any kind of such Borrower, or in
which such Borrower has any interest (limited to the interest of such Borrower
therein), now or hereafter in the possession, custody or control of
Administrative Agent or such Lender or any Affiliate of Administrative Agent or
such Lender.
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6.2. Right of Set-Off. Administrative Agent and each Lender are hereby
authorized at any time and from time to time during the existence of an Event of
Default hereunder (unless expressly prohibited by applicable law) to set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) and other indebtedness at any time held or owing by Administrative Agent
or any Lender (or any of their Affiliates) to or for the credit or the account
of any Borrower against any and all of the indebtedness and monetary obligations
of any Borrower now or hereafter existing under the Loan Documents or any other
evidence of indebtedness originated, acquired or otherwise held by
Administrative Agent or any Lender, irrespective of whether Administrative Agent
or such Lender shall have made any demand under the Loan Documents or other
indebtedness and although such obligations may be unmatured. Administrative
Agent or such Lender agrees to notify Borrowers within a commercially reasonable
time after any such set-off and application made by Administrative Agent or such
Lender; provided, however, that the failure to give such notice shall not in any
way affect the validity of such set-off and application.
6.3. Additional Rights. The rights of Administrative Agent and each Lender
under this Article 6 are in addition to the other rights and remedies (including
other rights of set-off) that Administrative Agent and Lenders may have by
contract, at law, or otherwise.
ARTICLE 7: DEFAULT AND REMEDIES
7.1. Events of Default. Each of the following events separately
constitutes an independent Event of Default hereunder:
7.1.1. Payment Obligations. If any payment of principal, interest,
fees, expenses, indemnities or other sums payable to Administrative Agent or any
Lender under any Loan Document (including under any Note) is not received by
Administrative Agent in immediately available funds on the date such payment is
due and payable and such failure to receive payment in immediately available
funds continues for a period of five (5) Business Days after the due date
therefor.
7.1.2. Representations and Warranties. If any representation,
warranty or other statement made in any Loan Document, or in any written report,
schedule, exhibit, certificate, agreement, or other document given by or on
behalf of any Borrower or any other Obligor (or otherwise furnished in
connection herewith) when made was misleading or incorrect in any material
respect.
7.1.3. Financial Covenants. If Borrowers default in or fail to
observe at any time any of the covenants set forth in Section 4.1.
7.1.4. Other Covenants in Loan Documents. If any Borrower or any
other Obligor defaults in the full and timely performance when due of any other
covenant or agreement contained in any Loan Document (or in any other document
or agreement now or hereafter executed or delivered in connection herewith), and
such default remains uncured for a period of ten (10) Business Days after the
earlier of the date that Administrative Agent or any Lender notifies any
Borrower thereof or the date that any Borrower otherwise acquires knowledge or
should have acquired knowledge thereof.
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7.1.5. Default Under Other Agreements with Administrative Agent or
Lenders. If any event of default (as described or defined therein, which term
shall include any notice and cure periods provided therein) occurs or exists
under the provisions of any other credit agreement, security agreement,
mortgage, deed of trust, indenture, debenture, cash management or account
agreement, contract, lease or other agreement between any Borrower, any
Affiliate of any Borrower or any other Obligor and Administrative Agent or any
Lender (or any Affiliate of Administrative Agent or any Lender), unless such
default is waived by Administrative Agent or such Lender or cured to
Administrative Agent's or such Lender's satisfaction.
7.1.6. Default Under Material Agreements with Other Parties. (a) If
any Borrower fails or refuses to make any required payment (whether principal,
interest or otherwise) with respect to any Funded Debt (or with respect to any
guaranty or reimbursement obligation of any such indebtedness) prior to the
expiration of any applicable grace period with respect to such payment, or (b)
if any such indebtedness for borrowed money is accelerated prior to its express
maturity as a result of any default thereunder, or (c) if any event of default
(as described or defined therein, which term shall include any notice and cure
periods provided therein) occurs or exists under the provisions of any Material
Contract listed on Schedule 3.8 (or a contract that should be listed on Schedule
3.8 under the terms hereof).
7.1.7. Security Interest. If the security interest or lien in any of
the Collateral (with a fair market value exceeding collectively $25,000), other
than Collateral consisting of equity ownership interest in Borrowers or in
subsidiaries or other securities of Borrowers (for which there is no permissible
threshold for non-compliance), at any time does not constitute a legal, valid
and enforceable security interest or lien in favor of Administrative Agent.
Notwithstanding the foregoing, the occurrence of such an event involving
Collateral (other than Collateral consisting of equity ownership interests or
other securities) with a fair market value of less than $100,000 will not
constitute an Event of Default hereunder if and so long as (1) Lender was
notified of such Default in writing within 10 Business Days after the occurrence
thereof, and (2) such Lien is subsequently created and/or perfected in an legal,
valid and enforceable manner to Lender's satisfaction (and without in any way
adversely affecting Lender's rights in or to such Collateral) within 30 calendar
days after such event occurs.
7.1.8. Change of Control.
a. If there occurs any direct or indirect change in the
ownership (i.e. any change exceeding 50% of the voting or beneficial interest
for such structure as of the Closing Date) or in the control of BiznessOnline.
b. If BiznessOnline ceases to own and control 100% of each
class of securities of each other Borrower.
c. If Mark Munro ceases to hold a senior management position
with active involvement in the management and operations of each Borrower,
unless (1) such event is by reason of his or her death or disability and (2)
replacement management arrangements satisfactory to Required Lenders (in their
sole and absolute discretion) are made within 60 calendar days after such death
or within 120 calendar days after the commencement of such period of disability.
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7.1.9. Government Action.
a. If custody or control of any substantial part of the
property of any Borrower is assumed by any governmental agency or any court of
competent jurisdiction at the instance of any governmental agency.
b. If any governmental regulatory authority or judicial body
makes any other final non-appealable determination that (in Required Lenders'
reasonable judgment) could reasonably be expected to have or cause a Material
Adverse Effect.
7.1.10. Insolvency. If any Borrower or any holder of equity
interests of any Borrower other than BiznessOnline (whether as common stock,
preferred stock, partnership interest, membership interest or otherwise) (a)
becomes insolvent, bankrupt or generally fails to pay its, his or her debts as
such debts become due; or (b) is adjudicated insolvent or bankrupt in any
proceeding; or (c) admits in writing an inability to pay its, his or her debts;
or (d) comes under the authority of a custodian, receiver or trustee (or one is
appointed for substantially all of its, his or her property); or (e) makes an
assignment for the benefit of creditors; or (f) has commenced against it, him or
her any proceedings under any law related to bankruptcy, insolvency,
liquidation, dissolution or the reorganization, readjustment or release of
debtors that is either not contested or if contested is not dismissed or stayed
within thirty (30) calendar days after the commencement thereof; or (g)
commences or institutes any proceedings under any law related to bankruptcy,
insolvency, liquidation, dissolution or the reorganization, readjustment or
release of debtors; or (h) calls a meeting of creditors with a view to arranging
a composition or adjustment of debt; or (i) by any act or failure to act that
indicates consent to, approval of or acquiescence in any of the foregoing.
7.1.11. Additional Liabilities. If any judgment, writ, warrant,
attachment or execution or similar process that calls for payment or presents
liability in excess of $250,000 is rendered, issued or levied against any
Borrower or any of its properties or assets and such liability is not paid,
waived, stayed, vacated, discharged, settled, satisfied or fully bonded within
thirty (30) calendar days after it is rendered, issued or levied.
7.1.12. Business Interruption. If the operations of any internet
backbone connection used, owned or controlled by any Borrower is interrupted or
curtailed at any time for a period in excess of 48 hours (whether or not
consecutive) during any period of 10 consecutive calendar days.
7.1.13. FCC and Other Regulatory-Action Defaults. In addition to the
events described in Section 7.1.9, (a) if any Official Body terminates, revokes
or substantially and adversely modifies any material Authorization of any
Borrower (or any Affiliate thereof), or (b) if any Official Body commences an
action or proceeding seeking the termination, suspension, revocation,
non-renewal or substantial and adverse modification of any material
Authorization, or (c) if any material Authorization expires by its terms and is
not renewed in a timely manner, or any material agreement which is necessary to
the operation of any broadcast facility, transmission site or switch facility
expires or is revoked or terminated and is not replaced by a comparable
substitute or a substitute reasonably acceptable to Required Lenders. For
purposes of this Section 7.1.13, a "material" Authorization is (1) any License
or other Authorization issued by the FCC or any State PUC, and (2) any other
License or other Authorization (alone or in conjunction with other Licenses and
Authorizations then subject to any of the circumstances described in this
Section) the loss of which
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(in Required Lenders' reasonable judgment) could reasonably be expected to have
or cause a Material Adverse Effect.
7.1.14. Material Adverse Change. If Required Lenders determine in
good faith that a Material Adverse Change has occurred with respect to any
Borrower from the condition set forth in the financial statements furnished to
Administrative Agent and each Lender for the fiscal year ended immediately prior
to the Closing Date, or from the condition of any Borrower most recently
disclosed to Administrative Agent or any Lender in any other manner.
7.2. Remedies.
7.2.1. Acceleration, Termination and Pursuit of Collateral. At any
time during the existence of any Event of Default, at the election of Required
Lenders but with notice thereof to a Borrower (unless an Event of Default
described in Section 7.1.10 has occurred, in which case acceleration will occur
automatically with respect to the entire indebtedness and without any notice),
then Lenders (a) may terminate any or all Commitments and/or Facilities, and/or
(b) may accelerate the Term Loan Maturity Date, and/or (c) may declare all or
any portion of the indebtedness of any or all Borrowers to Lenders (hereunder or
otherwise, and including all principal, interest, fees, expenses and indemnities
hereunder) to be immediately due and payable. At any time during the existence
of any Event of Default, Lenders and Administrative Agent will also have the
immediate right to enforce and realize upon any collateral security granted
under any Loan Document in any manner or order that Required Lenders or
Administrative Agent (at the direction of Required Lenders) deems expedient
without regard to any equitable principles of marshaling or otherwise.
7.2.2. Other Remedies. In addition to the rights and remedies
expressly granted in the Loan Documents, each Lender and Administrative Agent
also will have all other legal and equitable rights and remedies granted by or
available under all applicable law (including the "self help" and other rights
of a secured party under the UCC), and all rights and remedies will be
cumulative in nature.
7.2.3. Special Regulatory-Related Remedies.
a. Each Borrower and Administrative Agent hereby acknowledge
their intent that, during the existence of an Event of Default, to the fullest
extent permitted by applicable law and governmental policy (including the rules,
regulations and policies of the FCC and each State PUC), Administrative Agent
will have all rights necessary or desirable to obtain, use and/or sell the
assets and operations of each Borrower and the other Collateral, and to exercise
all remedies available to Administrative Agent and each Lender under the Loan
Documents, the Uniform Commercial Code or other applicable law. Each Borrower
and Administrative Agent agree that, if any applicable law or governmental
policy changes subsequent to the date hereof that affects in any manner
Administrative Agent's rights of access to, or use or sale of, any Borrower's
assets or other Collateral (including Authorizations) or the procedures
necessary to enable Administrative Agent to obtain such rights of access, use or
sale during an Event of Default, then Administrative Agent and each Borrower
will amend the Loan Documents (in such manner as Administrative Agent reasonably
requests) in order to provide Administrative Agent with all such rights to the
greatest extent possible consistent with then-applicable law and governmental
policy.
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b. Each Borrower hereby agrees (during the existence of a
Default) to take any actions that Administrative Agent may reasonably request in
order to enable Administrative Agent to receive the full rights and benefits
granted to Administrative Agent and each Lender by the Loan Documents. Without
limiting the generality of the foregoing, at any time during the existence of an
Event of Default, at the cost and expense of Borrowers (jointly and severally),
each Borrower will use its best efforts to assist and cooperate in obtaining all
approvals (including all FCC and State PUC approvals) which are then required by
applicable law or contract for or in connection with any action or transaction
contemplated by the Loan Documents or the Uniform Commercial Code. Each Borrower
further agrees, upon Administrative Agent's request and at the expense of
Borrowers (jointly and severally), at any time during the existence of an Event
of Default, to prepare, sign, file and diligently prosecute (and to use its best
efforts to cause the preparation, execution, filing and diligent prosecution by
others) with the FCC the assignor's or transferor's portion of any applications
for consent to the assignment of Authorizations or transfer of control thereof
necessary or appropriate under the rules of each Official Body for approval of
any sale or transfer of any Collateral or any Authorization pursuant to the
exercise of Administrative Agent's and Lenders' remedies under the Loan
Documents. Each Borrower further agrees that, during the existence of a Default,
each Borrower will assist and cooperate with Administrative Agent and each
Lender (and will use its best efforts to cause others to assist and cooperate
with Administrative Agent and each Lender) to ensure that each Borrower
continues (a) to operate in the normal course of business, and (b) to fulfill
all of its legal, regulatory and contractual obligations, and (c) to otherwise
be properly and professionally managed. At Administrative Agent's request and
the expense of Borrowers (jointly and severally), at any time during the
existence of an Event of Default, such assistance and cooperation may include
the employment of (and, to the maximum extent not prohibited by the rules,
regulations and orders of the FCC, delegation of appropriate management
authority to) one or more qualified and independent consultants and professional
managers acceptable to Administrative Agent to assist in the interim operations
of Borrowers; all of which each Borrower hereby agrees not to challenge. Each
Borrower further consents to (and agrees that it will not challenge), at any
time during the existence of an Event of Default, the transfer of control or
assignment of Authorizations and other assets to a receiver, trustee,
transferee, or similar official or to any purchaser of the Collateral pursuant
to any public or private sale, judicial sale, foreclosure or exercise of other
remedies available to Administrative Agent or any Lender as permitted by
applicable law.
c. Notwithstanding anything to the contrary contained in any
Loan Document, neither Administrative Agent nor any Lender nor any Borrower will
take any action pursuant to the Loan Documents that would constitute or result
in any assignment of an Authorization or any transfer of control of any Borrower
if such assignment of Authorization or transfer of control would require under
then existing law (including the written rules and regulations promulgated by
the FCC) the prior approval of the FCC or any State PUC, unless such approval
has been obtained (as applicable) from such State PUC (to the extent failure to
obtain such approval by Administrative Agent could reasonably be expected to
have or cause a Material Adverse Effect) or from the FCC. Without limiting the
generality of the foregoing, Administrative Agent and each Lender each
specifically agrees that (a) voting rights with respect to the pledged equity
interests of each Borrower will remain with the holders of such voting rights
during the existence of an Event of Default unless and until any required prior
approvals to the transfer of such voting rights have been obtained (as
applicable) from such State PUC (to the extent failure to obtain such approval
by Administrative Agent could reasonably be expected to have or cause a Material
Adverse Effect) or
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from the FCC, and (b) during the existence of any Event of Default and
foreclosure upon the Collateral by Administrative Agent, there will be either a
private or public sale of the Collateral, and (c) prior to the exercise of
voting rights by the purchaser at any such sale, any consent of any State PUC or
the FCC required pursuant to any State Communications Act (to the extent failure
to obtain such consent could reasonably be expected to have or cause a Material
Adverse Effect) or the Federal Communications Act (respectively) will be
obtained.
ARTICLE 8: ADMINISTRATIVE AGENT AND RELATIONSHIP AMONG LENDERS
8.1. Appointment, Authorization and Grant of Authority. Each Lender hereby
irrevocably designates and appoints MCG as the Administrative Agent of such
Lender to act as specified in this Agreement and the other Loan Documents, and
each such Lender hereby irrevocably authorizes MCG (in its capacity as
Administrative Agent) to take actions on behalf of such Lender, to exercise such
powers and to perform such other duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with all such other powers and authority as are reasonably
incidental thereto. Without limiting the generality of the foregoing, the
Administrative Agent (on behalf of each Lender) is authorized (a) to execute
each Loan Document (other than this Agreement, but including, without
limitation, all financing statements, continuation statements and other
collateral agreements and documents) for and on behalf of each Lender, and (b)
to accept each Loan Document and all other agreements, documents, instruments,
certificates and opinions reasonably required to implement the intent of the
parties to this Agreement, and (c) to file and record all financing statements,
continuation statements and other collateral agreements and documents, and (d)
to receive and deliver communications and notifications to Lenders and to
Borrowers, and (e) to receive and distribute payments and Advances between
Lenders and Borrowers. The duties and responsibilities of the Administrative
Agent shall be ministerial and administrative in nature. Notwithstanding any
provision to the contrary in any Loan Document, the Administrative Agent (a)
shall not have any duties or responsibilities other than those expressly set
forth in the Loan Documents (which duties and responsibilities shall be subject
to the limitations and qualifications set forth in this Article), and (b) shall
not have any fiduciary relationship with any Lender; and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Administrative Agent.
8.2. Acceptance of Appointment. MCG hereby accepts such appointment and
agrees to act as such Administrative Agent upon the express terms and conditions
(but subject to the limitations and qualifications) set forth in this Article.
8.3. Administrative Agent's Relationship with Borrowers. The provisions of
this Article are solely for the benefit of the Administrative Agent and Lenders,
and no Borrower shall have any rights as a third party beneficiary (or
otherwise) under this Article. In performing its functions and duties under the
Loan Documents, the Administrative Agent shall act solely as an agent of the
Lenders, and the Administrative Agent does not assume (and shall not be deemed
to have assumed) any obligation or relationship of agency or trust with or for
any Borrower.
8.4. Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges and agrees (a) that the Administrative Agent (and its
directors, officers, employees,
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agents, attorneys-in-fact and Affiliates) have not made any representations or
warranties to such Lender and (b) that no act by the Administrative Agent
hereinafter taken (including, without limitation, any review of the affairs of
any Borrower or other Obligor) shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it (independently and without any reliance upon
the Administrative Agent or any other Lender, and based upon such documents and
information as it has deemed necessary or appropriate) has made its own
appraisal, investigation and credit analysis of the business, assets,
operations, properties, financial and other condition, prospects and
creditworthiness of each Borrower and each other Obligor and has made its own
decision to make its Loans hereunder and to enter into this Agreement. Each
Lender also covenants and represents that it (independently and without any
reliance upon the Administrative Agent or any other Lender, and based upon such
documents and information as it shall deem necessary or appropriate) will
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, and will continue to make such
investigations as it deems necessary or appropriate to inform itself as to the
business, assets, operations, properties, financial and other condition,
prospects and creditworthiness of each Borrower and each other Obligor. Except
as otherwise expressly provided in the Loan Documents, the Administrative Agent
shall not have any duty or responsibility (a) to keep any Lender informed as to
the performance or observance by any Borrower or any other Obligor of its
obligations under the Loan Documents, or (b) to inspect the books or properties
of any Borrower or any other Obligor, or (c) to provide any Lender with any
credit or other information concerning the business, operations, assets,
properties, financial and other condition, prospects or creditworthiness of any
Borrower or any other Obligor which may come into the possession of the
Administrative Agent (or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates). The Administrative Agent will make reasonable
efforts to furnish to the Lenders material information concerning Borrowers of
which the Administrative Agent has actual knowledge; however, in the absence of
gross negligence, willful misconduct or fraud, the Administrative Agent shall
not be liable to any Lender for any failure to relay or furnish to such Lender
any such information.
8.5. Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely and act (and shall be fully protected in relying and acting)
upon any note, writing, resolution, instrument, report, notice, consent,
certificate, affidavit, letter, request, electronic transmission or any other
message, statement, instruction, notice, order or other writing, conversation or
communication believed by Administrative Agent in good faith to be genuine and
correct and to have been signed, sent or made by the proper Person. The
Administrative Agent shall not be bound to ascertain or inquire as to the
satisfaction, performance or observance of any of the terms, provisions,
covenants or conditions of or the accuracy of any statements or representations
in any Loan Document by any Borrower or any other Obligor. The Administrative
Agent may deem and treat the stated payee of any Note as the holder thereof for
all purposes under the Loan Documents unless and until Administrative Agent has
received and accepted an assignment and assumption agreement relating thereto in
form and substance acceptable to the Administrative Agent.
8.6. Delegation of Duties; Additional Reliance by Administrative Agent.
The Administrative Agent may consult with, employ and perform any of its duties
under the Loan Document by or through agents, attorneys-in-fact, legal counsel,
independent public accountants and other experts. The Administrative Agent shall
not be responsible for the negligence or misconduct of any such Persons selected
by Administrative Agent with reasonable care, and the Administrative
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Agent shall be fully protected in any action or inaction taken by it in good
faith in reliance upon or in accordance with the advice or statements of legal
counsel (including, without limitation, counsel to Borrowers), independent
accountants and other experts selected by Administrative Agent.
8.7. Acting on Instructions of Lenders. The Administrative Agent shall be
entitled to act or refrain from acting (and shall be fully protected in acting
or refraining from acting) under the Loan Documents in accordance with a written
request of or written instructions from the Required Lenders. The Administrative
Agent shall also be entitled to refrain from acting (and shall be fully
protected in refraining from acting) under the Loan Documents unless
Administrative Agent first (a) receives such advice or concurrence of the
Required Lenders as Administrative Agent deems appropriate or (b) is indemnified
to its satisfaction by the Lenders against any and all liability and expense
which it may incur by reason of taking or continuing to take any such action.
Except as otherwise expressly stated in the Loan Documents, any requests or
instructions by the Required Lenders (and any action or inaction by
Administrative Agent pursuant thereto) shall be binding upon all the Lenders.
8.8. Actions Upon Occurrence of Default or Event of Default. Each Lender
will use its best efforts to notify the Administrative Agent immediately in
writing upon becoming aware of the occurrence of any Default or Event of
Default. The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Borrower referring
to this Agreement, describing such Default or Event of Default, and stating that
such notice is a "notice of default". If the Administrative Agent receives any
such notice of default, then the Administrative Agent shall use its best efforts
to give notice thereof to each Lender as soon as reasonably practical. Upon the
occurrence of any Default or Event of Default, the Lenders shall promptly
consult with one another in an attempt to agree upon a mutually acceptable
course of conduct. In the absence of unanimous agreement among the Lenders as to
the appropriate course of conduct, the Administrative Agent shall exercise
rights and take such other action on behalf of all Lenders with respect to such
Default or Event of Default as directed by the Required Lenders. Unless and
until the Administrative Agent shall have received such directions from the
Lenders (or, as applicable, the Required Lenders), the Administrative Agent may
take (but shall not be obligated to take) such action (or may refrain from
taking such action) with respect to such Default or Event of Default as
Administrative Agent shall deem advisable in the best interest of the Lenders.
8.9. Administrative Agent's Rights as Lender in Individual Capacity. The
Administrative Agent (and its Affiliates) may make loans to, may have cash
management agreements with, may accept deposits from, may issue letter of credit
on behalf of, and may otherwise generally engage (and continue to engage) in any
kind of business with any Borrower or other Obligor as though the Administrative
Agent were not the Administrative Agent under the Loan Documents. With respect
to any Loans made by Administrative Agent as a Lender hereunder and all
obligations owing to it as a Lender under the Loan Documents, the Administrative
Agent shall have the same rights, powers duties and obligations under the Loan
Documents as any other Lender and may exercise such rights, powers, duties and
obligations as though it were not the Administrative Agent hereunder. To the
extent that the Administrative Agent is a Lender hereunder, the terms "Lender",
"Lenders" and "Required Lenders" shall include the Administrative Agent in its
individual capacity.
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8.10. Advances By Administrative Agent. Unless the Administrative Agent
has been notified in writing by a Lender prior to the Settlement Date for any
Advance or Loan that such Lender will not make the amount constituting its Pro
Rata share of such Advance or Loan available to the Administrative Agent on or
prior to such applicable Settlement Date, then the Administrative Agent may
assume (but shall not be required to assume) that such Lender will make such
amount available to the Administrative Agent in immediately available funds on
or before such Settlement Date, and in reliance upon such assumption, the
Administrative Agent may make available to Borrowers a corresponding amount on
behalf of such Lender. If the amount of such Pro Rata share is not made
available to the Administrative Agent in immediately available funds by a Lender
until after the applicable Settlement Date, then such Lender shall pay to the
Administrative Agent on demand and in immediately available funds an amount
equal to the result of the following equation (which shall be in addition to the
amount of such Lender's Pro Rata share of such Advance or Loan): the product of
(a) the average (computed for the period determined under clause (c) below) of
the weighted average interest rate for Federal Funds as determined by the
Administrative Agent during each day included in such period, multiplied by (b)
the amount of such Lender's Pro Rata share of such Advance or Loan, multiplied
by (c) a fraction (i) the numerator of which is the number of days that elapsed
from and including such Settlement Date to and including the date on which such
Lender's Pro Rata share of such Advance or Loan is actually received by the
Administrative Agent in immediately available funds and (ii) the denominator of
which is 360. A statement from the Administrative Agent submitted to any Lender
with respect to any amounts owing under this Section shall be conclusive (absent
manifest error) as to the amount owed to the Administrative Agent by such
Lender. If such Lender's Pro Rata share is not actually received by the
Administrative Agent in immediately available funds within three (3) Business
Days after the applicable Settlement Date for such Advance or Loan, then the
Administrative Agent shall be entitled to recover from such Lender, on demand,
the amount of such Pro Rata share with interest thereon for the entire such
period since such Settlement Date at the highest interest rate per annum then
applicable under the Facilities.
8.11. Payments to Lenders. Promptly after receipt in immediately available
funds from Borrowers of any payment of principal, interest or any fees or other
amounts due to any Lender under the Loan Documents, the Administrative Agent
shall distribute to each Lender that Lender's Pro Rata share of such funds so
received.
8.12. Pro-Rata Sharing of Setoff Proceeds. Any sums obtained by the
Administrative Agent or any Lender from any Borrower or other Obligor by reason
of any exercise of a right of setoff or banker's lien shall be shared Pro Rata
among Lenders. Notwithstanding the foregoing, neither the Administrative Agent
nor any Lender shall be required to so share with any other Lender collections
from any Borrower or other Obligor specifically relating to (or the proceeds of
any item of collateral that is not subject to the Loan Documents) any other
indebtedness (i.e. other than indebtedness under the Loan Documents) of such
Borrower or other Obligor to the Administrative Agent or such Lender.
8.13. Limitation on Liability of Administrative Agent. The Administrative
Agent (and its directors, officers, employees, agents, attorneys-in-fact and
Affiliates) shall not be liable to any Lender for any action taken or inaction
by Administrative Agent or such Person under or in connection with any Loan
Document, except to the extent of foreseeable actual loses resulting directly
and exclusively from Administrative Agent's own gross negligence, willful
misconduct or fraud. Without limiting the generality of the foregoing, the
Administrative Agent (and its directors,
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officers, employees, agents, attorneys-in-fact and Affiliates) shall not be
liable, responsible or have any duty with respect to any of the following: (a)
the genuineness, execution, authorization, validity, effectiveness,
enforceability, collectibility, value or sufficiency of any Loan Document, or
(b) the collectibility of any amount owed by any Obligor to any Lender, or (c)
the accuracy, completeness or truthfulness of any recital, statement,
representation or warranty made to the Administrative Agent or to any Lender in
connection with any Loan Document or other certificate, affidavit, report,
opinion, financial statement, document or instrument executed or furnished
pursuant to or in connection with any Loan Document, or (d) any failure of any
Person to receive any notice or communication due such Person under any Loan
Document or applicable law, or (e) the assets, liabilities, financial condition,
results of operations, business, prospects or creditworthiness of any Borrower
or any other Obligor, or (f) ascertaining or inquiring into the satisfaction,
observance or performance of any condition, covenant or agreement in any Loan
Document (including, without limitation, the use of proceeds by any Borrower),
or (g) the inspection of any books, records or properties of any Obligor, or (h)
the existence or possible existence of any Default or Event of Default.
8.14. Indemnification. To the extent that Borrowers do not actually
reimburse, indemnify or hold harmless Administrative Agent (in accordance with
Section 10.1 hereof), then each Lender hereby agrees on a Pro Rata basis to
indemnify and hold harmless the Administrative Agent (and its directors,
officers, employees, agents, attorneys-in-fact and Affiliates) from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, reasonable expenses or disbursements of any kind
whatsoever that at any time (including, without limitation, at any time
following the payment of the Obligations of Borrowers hereunder) may be imposed
upon, incurred by or asserted against the Administrative Agent (or its
directors, officers, employees, agents, attorneys-in-fact or Affiliates) in its
capacity as such in any way relating to or arising out of any Loan Document, or
the transactions contemplated hereby or any action or inaction taken by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable to the Administrative Agent (or its directors,
officers, employees, agents, attorneys-in-fact or Affiliates) for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting directly
and exclusively from the gross negligence, willful misconduct or fraud of the
Administrative Agent. If any indemnity furnished to the Administrative Agent (or
its directors, officers, employees, agents, attorneys-in-fact or Affiliates) for
any purpose (in the opinion of the Administrative Agent) shall be insufficient
or become impaired, then the Administrative Agent may require additional
indemnity and cease (or not commence) to do the acts indemnified against until
such additional indemnity is furnished to the satisfaction of the Administrative
Agent. The agreement in this Section shall survive the payment of all Advances,
Loans, fees and other Obligations of each Borrower arising hereunder.
8.15. Resignation; Successor Administrative Agent. The Administrative
Agent at any time may resign as the Administrative Agent under the Loan
Documents by giving the Lenders and Borrowers written notice thereof at least 10
Business Days prior to the effective date of such resignation. During such
notice period, the Required Lenders shall appoint (from among the Lenders) a
successor Administrative Agent for the Lenders, subject to the consent of each
Lender (such approval or consent, as the case may be, not to be unreasonably
withheld, delayed or conditioned) and concurrent notice to the Borrowers. Upon
acceptance of such appointment by such
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successor agent, (a) such successor agent shall succeed to the rights, powers
and duties of the Administrative Agent, and (b) the term "Administrative Agent"
shall include such successor agent effective upon its appointment, and (c) the
resigning Administrative Agent's rights, powers and duties as the Administrative
Agent shall be terminated, all without any other or further act or deed on the
part of such former Administrative Agent or any of the parties to the Loan
Documents. Notwithstanding the foregoing, after the effectiveness of the
resigning Administrative Agent's resignation hereunder as the Administrative
Agent, the provisions of this Article shall continue to inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Agent under the Loan Documents.
ARTICLE 9: DEFINITIONS AND RULES OF CONSTRUCTION
9.1. Definitions. When used in this Agreement, the following terms shall
have the respective meanings set forth below:
9.1.1. "Account" means, at any relevant time, the designated or
principal deposit account of Borrowers at Administrative Agent for purposes of
effecting transactions hereunder.
9.1.2. "Additional Acquisitions" means the acquisition by one or
more of the Borrowers of substantially all the assets or 100% of the stock of
each of the entities listed on Schedule 5.7.
9.1.3. "Adjusted LIBO Rate" means the rate per annum (rounded
upwards, if necessary, to the next 1/100th of 1%) determined by Administrative
Agent pursuant to the following formula:
Adjusted LIBO Rate = LIBO Rate
----------------------
1 - Reserve Percentage
For purposes of this calculation, "LIBO Rate" means the London Interbank Offered
Rate per annum (determined by Administrative Agent) two (2) Business Days prior
to the first day of any Interest Period for which the Adjusted LIBO Rate is
applicable as published by Reuters Monitor Money Rate Service and displayed on
the LIBO page as the "Libo Rate" (or, if Reuters is not available, then as
published by Bloomberg or Dow Jones-Telerate and displayed on page 3750 as the
BBA LIBOR) (or, in any such instance, as published by such other service or
displayed on such other page as may replace such service or page for the purpose
of displaying rates or prices comparable to the designated rate) for the
offering of dollar deposits by leading banks in the London interbank market for
a period of approximately 3 months and in an amount approximately equal to the
amount outstanding hereunder to which such LIBO Rate will be applicable. If more
than one such rate is displayed on such page or its replacement, then the LIBO
Rate will be the arithmetic mean of such displayed rates. If the first day of
the applicable Interest Period is not a Business Day, then the applicable LIBO
Rate will be the rate in effect on the immediately preceding Business Day. For
purposes of this calculation, "Reserve Percentage" means that percentage
(expressed as a decimal) prescribed by the FRB (or any other governmental or
administrative agency or funding source to which Administrative Agent is
subject) for determining the reserve requirements (including any
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basic, supplemental, marginal or emergency reserves) for deposits of U.S.
Dollars with maturities of comparable duration in a non-U.S. or an international
banking office.
9.1.4. "Administrative Agent" means MCG Finance Corporation or any
successor, assignee, pledgee or other transferee of Administrative Agent.
9.1.5. "Advance" means any advance of funds under any Facility.
9.1.6. "Advance Request" has the meaning set forth in Section 1.4.1.
9.1.7. "Affiliate" of any Person means any other Person that
directly or indirectly controls, is controlled by or is under direct or indirect
common control with such Person. A Person shall be deemed to "control" another
Person if such first Person directly or indirectly possesses the power to direct
(or to cause the direction of or to materially influence) the management and
policies of the second Person, whether through the ownership of voting
securities, by contract or otherwise. Without limiting the generality of the
foregoing, each of the following Persons will be deemed to be an Affiliate of a
Person: (a) each Person who owns or controls 5% or more of any class or series
of any equity interest of such Person, and (b) each member, manager, partner,
director and/or senior executive officer of such Person or any Affiliate
thereof, and (c) any family member or other relative of such Person or any
Affiliate thereof, and (d) any trust of which any Person or Affiliate thereof is
either a trustee or beneficiary. Notwithstanding the foregoing, neither any
Lender nor Administrative Agent shall be deemed to be an Affiliate of any
Obligor.
9.1.8. "Agreement" means this Credit Facility Agreement and all the
exhibits and schedules hereto, all as may be amended and otherwise modified from
time to time hereafter.
9.1.9. "Authorized Officer" means any officer, employee or
representative of such organization who is expressly designated as such or is
otherwise authorized to borrow funds hereunder or, as appropriate, to sign loan
documents and/or deliver certificates on behalf of such organization pursuant to
the provisions of such organization's most recent resolution on file with
Administrative Agent.
9.1.10. "Authorization" means any License or other governmental
permit, certificate and/or approval issued by or any Tariff filed with any
Official Body.
9.1.11. "Available Credit Portion" means that portion of the Term
Loan Commitment that is generally available in the ordinary course for borrowing
at any time under the Term Loan Facility, as such amount is determined in
accordance with Section 1.3.
9.1.12. "Borrower" means, individually and collectively, the
following:
a. BiznessOnline.com, Inc., a Delaware corporation, having
its principal and chief executive office at the address
specified in the Notice Section hereof, or any successor
or authorized assignee thereof, and
b. Global 2000 Communications, Inc., a New York
corporation, having its principal and chief executive
office at the address specified in Schedule 9.1.12, or
any successor or authorized assignee thereof, and
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c. AlbanyNet, Inc., a New York corporation, having its
principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
d. WebWay Internet, Inc., a New York corporation, having
its principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
e. Ascent Networking, Inc., a New York corporation, having
its principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
f. Cyberzone, Inc., a Connecticut corporation, having its
principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
g. Caravela Software, Inc., a Connecticut corporation,
having its principal and chief executive office at the
address specified in Schedule 9.1.12, or any successor
or authorized assignee thereof, and
h. NECAnet, Inc., a Connecticut corporation, having its
principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
i. Prime Communications Systems, Inc., a New York
corporation, having its principal and chief executive
office at the address specified in Schedule 9.1.12, or
any successor or authorized assignee thereof, and
j. Infoboard, Inc., a Massachusetts corporation, having its
principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
k. Borg Internet Services, Inc., a New York corporation,
having its principal and chief executive office at the
address specified in Schedule 9.1.12, or any successor
or authorized assignee thereof, and
l. Ulsternet, Inc., a New York corporation, having its
principal and chief executive office at the address
specified in Schedule 9.1.12, or any successor or
authorized assignee thereof, and
m. BOL Acquisition Co. III, Inc., a New York corporation,
having its principal and chief executive office at the
address specified in Schedule 9.1.12, or any successor
or authorized assignee thereof, and
n. BOL Acquisition Co. II, Inc., a New York corporation,
having its principal and chief executive office at the
address specified in Schedule 9.1.12, or any successor
or authorized assignee thereof, and
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o. BOL Acquisition Co. VIII, Inc., a Connecticut
corporation, having its principal and chief executive
office at the address specified in Schedule 9.1.12, or
any successor or authorized assignee thereof, and
p. Any other entity subsequently added hereto as a Borrower
hereunder, or any successor or authorized assignee
thereof.
9.1.13. "Business Day" means any day that is not a Saturday, a
Sunday or a day on which banks under the laws of the Commonwealth of Virginia
(or, with respect to certain LIBO Rate matters, banks in London, England) are
authorized or required to be closed.
9.1.14. "Capital Expenditures" means expenditures (a) for any fixed
assets or improvements, replacements, substitutions or additions thereto that
have a useful life of more than one (1) year, including direct or indirect
acquisition of such assets or (b) for any Capital Leases.
9.1.15. "Capital Leases" means capital leases and subleases as
defined in the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 13 dated November 1976 (as amended and updated from
time to time).
9.1.16. "Closing Date" means the date on which all conditions
precedent to the effectiveness of this Agreement under Section 2.1 have been
satisfied or waived by Lenders.
9.1.17. "Code" means the Internal Revenue Code of 1986, as amended.
9.1.18. "Collateral" means the collateral security committed to
Administrative Agent under the Collateral Security Documents executed by any
Borrower or any other Obligor in favor of Administrative Agent pursuant to this
Agreement from time to time and/or pursuant to all similar or related documents
and agreements from time to time, all as amended from time to time.
9.1.19. "Collateral Security Documents" means, individually and
collectively, (a) the Security Agreements and the financing statements filed
pursuant thereto, and (b) the Pledge and Security Agreements, and (c) any
additional documents guaranteeing indebtedness, assuring performance of
obligations, subordinating indebtedness, or granting security or Collateral to
Administrative Agent hereunder, all as amended from time to time.
9.1.20. "Commitment" means any commitment for credit pursuant to a
Facility established hereunder.
9.1.21. "Commitment Percentage" means, with respect to each Lender,
that portion of the total Commitments as to which such Lender is obligated.
9.1.22. "Default" means any event or circumstance that with the
giving of notice or the passage of time would constitute an Event of Default.
The term Default shall include any Event of Default arising therefrom.
9.1.23. "Dollar" or "$" means U.S. dollars.
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9.1.24. "EBITDA" means, at the time of any determination, the sum of
the following items for Borrowers during the relevant fiscal period:
a. Net income from continuing operations (on a consolidated
basis) during such period -- i.e., excluding
extraordinary gains and income items and the cumulative
effect of accounting changes, and income associated with
transactions with Affiliates for which payment is
received in a form other than cash or cash equivalents
-- determined in accordance with GAAP, and
b. Plus Interest Expense during such period, but subtract
interest income accrued during such period, and
c. Plus federal and state income taxes paid or required to
be paid during such period and, and
d. Plus depreciation permitted under GAAP during such
period, and
e. Plus amortization expense permitted under GAAP during
such period.
For purposes of this calculation, interest shall include interest accrued under
Capital Leases, determined in accordance with GAAP.
9.1.25. "Environmental Control Statutes" means all federal, state
and local laws, rules, ordinances and regulations (as implemented and as
interpreted) governing the control, removal, storage, transportation, spill,
release or discharge of hazardous or toxic wastes, substances and petroleum
products, including as provided in the provisions of (a) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendment and Reauthorization Act of 1986, and (b) the Solid Waste
Disposal Act, and (c) the Clean Water Act, and (d) the Clean Air Act, and (e)
the Hazardous Materials Transportation Act, and (f) the Resource Conservation
and Recovery Act of 1976, and (g) the Federal Water Pollution Control Act
Amendments of 1972, and (h) the rules, regulations and ordinances of the EPA,
and any departments of health services, regional water quality control boards,
state water resources control boards, and/or cities in which any of such
Borrower's assets are located.
9.1.26. "EPA" means the United States Environmental Protection
Agency or any other entity that succeeds to its responsibilities and powers.
9.1.27. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and as implemented and interpreted.
9.1.28. "ERISA Affiliate" means any company, whether or not
incorporated, which is considered a single employer with Borrower under Titles
I, II and IV of ERISA.
9.1.29. "Escrow Account" means the escrow account created pursuant
to the Escrow Agreement.
9.1.30. "Escrow Agent" means Riggs Bank, N.A. or any successor or
assignee.
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9.1.31. "Escrow Agreement" means the escrow agreement among
Borrowers, Escrow Agent and Administrative Agent pursuant to which $10,000,000
is placed in escrow on the Closing Date.
9.1.32. "Event of Default" means each of the events described in
Section 7.1.
9.1.33. "Facility" means any credit facility established under
Article 1.
9.1.34. "FCC" means the Federal Communications Commission or any
other entity or agency that succeeds to its responsibilities and powers.
9.1.35. "Federal Communications Act" means the Communications Act of
1934, as amended, and as implemented by the FCC and interpreted by the FCC or
any court of competent jurisdiction.
9.1.36. "Final Term Draw Date" has the meaning set forth in Section
1.1.1, as may be extended from time to time in Lenders' sole and absolute
discretion.
9.1.37. "Fixed Charges" means, at the time of any determination, the
sum of the following items (without duplication) for Borrowers during the
relevant four consecutive fiscal quarter period:
a. The amount of principal required to be paid under this
Agreement during such period, and
b. Plus the amount of principal paid or required to be paid
and mandatory commitment reductions on other Funded Debt
(i.e., Funded Debt other than under this Agreement)
during such period, and
c. Plus Interest Expense during such period, and
d. Plus the amount of cash Capital Expenditures during such
period.
9.1.38. "FRB" means the Board of Governors of the Federal Reserve
System or any other entity or agency that succeeds to its responsibilities and
powers.
9.1.39. "Funded Debt" means, at the time of any determination, the
aggregate principal amount of indebtedness of all Borrowers (on a consolidated
basis) for the following:
a. Borrowed money (including the indebtedness under the
Loan Documents, but not including trade indebtedness
permitted under Section 5.2.b), and
b. Installment purchases of real or personal property, and
c. Subordinated Indebtedness, and
d. Capital Leases, and
e. Deferred purchase price in connection with acquisitions,
and
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f. Reimbursement obligations under letters of credit, and
g. Any indebtedness evidenced by a promissory note, and
h. Guaranties of indebtedness and obligations that would
constitute Funded Debt hereunder if the primary obligor
thereof were a Borrower, and
i. Indebtedness otherwise required to be included as part
of "Funded Debt" under Section 5.2.
9.1.40. "GAAP" means generally accepted accounting principles
applied on a consistent basis set forth in the Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
and/or in statements of the Financial Accounting Standards Board and/or in such
other statements by such other entity as Administrative Agent may reasonably
approve, which are applicable in the circumstances as of the date in question,
and the requirement that such principles be applied on a consistent basis shall
mean that the accounting principles observed in a current period are comparable
in all material respects to those applied in preceding periods.
9.1.41. "Hazardous Materials" includes (a) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.
6901 et seq.), as amended from time to time, and regulations promulgated
thereunder; or (b) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. ss.
9601 et seq.), as amended from time to time, and regulations promulgated
thereunder; or (c) any other substance the use or presence of which on, in,
under or above any real property ever owned, controlled or used by Borrower is
similarly regulated or prohibited by any federal, state or local law, rule,
ordinance, regulation or decree of any court or governmental authority as a
hazardous material.
9.1.42. "Interest Coverage Ratio" means, at any time such ratio is
being computed, the ratio of "Pro Forma OCF" to "Interest Expense" (for the
immediately preceding four fiscal quarters).
9.1.43. "Interest Expense" means, at the time of any determination,
the amount of interest and other finance charges of Borrowers (on a consolidated
basis) required to be charged as an expense under GAAP during the immediately
preceding four consecutive fiscal quarter period (including the fees under
Section 1.7 and any other such charges with respect to any Funded Debt). For
purposes of this calculation, interest includes interest accrued under Capital
Leases.
9.1.44. "Interest Period" means (a) with respect to the Prime Rate,
a period of one (1) Business Day, and (b) with respect to the Adjusted LIBO
Rate, a period of 3 months duration commencing initially on the date of the
relevant Advance and ending 3 months thereafter and (after such initial Interest
Period) commencing on the day immediately following the last day of the
preceding Interest Period and ending on the corresponding day 3 months
thereafter.
9.1.45. "Lender" means, individually and collectively, the
following:
a. MCG Finance Corporation or any successor, assignee,
participant, pledgee or other transferee of such Lender
hereunder, and
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b. Any other entity subsequently added hereto as a Lender
hereunder, or any successor, assignee, participant or
other transferee thereof.
9.1.46. "Leverage Ratio" means, at any time such ratio is being
computed, the ratio of "Funded Debt" to "OCF" (for the immediately preceding
four fiscal quarters).
9.1.47. "LIBO Rate" has the meaning set forth in the definition of
"Adjusted LIBO Rate".
9.1.48. "License" means any authorization, construction or other
permit, consent, franchise, ordinance, registration, certificate, license, call
sign, frequency designation, agreement or other right filed with, granted by,
issued by or entered into with any Official Body.
9.1.49. "Lien" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), reversionary or reclamation interest, charge against or interest in
property to secure payment of a debt or performance of an obligation or other
priority or preferential arrangement of any kind or nature whatsoever.
9.1.50. "LLC" means a limited liability company.
9.1.51. "Loan" means any loan or Advance of funds under any Facility
as well as any other credit extended by Administrative Agent or any Lender to
any Borrower under this Agreement.
9.1.52. "Loan Documents" means this Agreement, any Notes, the
Collateral Security Documents and any other documents, agreements and
certificates entered into or delivered in connection herewith or therewith or
pursuant hereto or thereto, all as may be amended, modified and supplemented
from time to time.
9.1.53. "Local Authorities" means, individually and collectively,
the state and local governmental authorities that govern the activities of any
Borrower.
9.1.54. "Margin Regulation" has the meaning set forth in Section
3.17.
9.1.55. "Margin Stock" has the meaning set forth in Section 3.17.
9.1.56. "Material Adverse Change" means any change that has or
causes or could reasonably be expected to have or cause a Material Adverse
Effect.
9.1.57. "Material Adverse Effect" means, relative to any occurrence
of whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), a material adverse
change to, or, as the case may be, a materially adverse effect on:
a. The business, assets, revenues, financial condition,
operations, Collateral or prospects of any Borrower or
other Obligor; or
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b. The ability of any Borrower to perform any of its
payment obligations when due or to perform any other
material obligations under any Loan Document; or
c. Any right, remedy or benefit of Administrative Agent or
any Lender under any Loan Document.
9.1.58. "Material Contract" has the meaning set forth in Section
3.8.
9.1.59. "MCG" means MCG Finance Corporation, a Delaware corporation,
or any successor or assignee thereof, having an office at the address specified
in the Notice Section hereof, and which is Administrative Agent and a Lender
hereunder at the time of execution hereof.
9.1.60. "Notes" means, individually and collectively, each
promissory note delivered to each Lender pursuant to any Loan Document and
evidencing any indebtedness to such Lender under the Loan Documents (each as may
be amended, modified, supplemented, restated, extended, renewed or replaced from
time to time).
9.1.61. "Obligations" means all of the indebtedness and obligations
(monetary or otherwise) of any Borrower and any other Obligor arising under or
in connection with any Loan Document as well as all indebtedness and obligations
(monetary or otherwise) of any Affiliate of any Borrower or other Obligor
arising under or in connection with any agreement between any such Affiliate and
Administrative Agent or any Lender (or any Affiliate of Administrative Agent or
any Lender).
9.1.62. "Obligor" means each Borrower or any other Person (other
than Administrative Agent and Lenders) obligated under any Loan Document.
9.1.63. "OCF" (or "Operating Cash Flow") has the meaning set forth
in the definition of EBITDA determined for the immediately preceding four fiscal
quarter period.
9.1.64. "Official Body" means any federal, state, local, or other
government (or any political subdivision, agency, authority, bureau, commission,
department or instrumentality thereof) and any court, tribunal, grand jury or
arbitrator, in each instance whether foreign or domestic.
9.1.65. "Operating Agreement" means any consulting agreement,
management agreement, employment agreement, cost allocation agreement, or other
similar agreement relating to the operations of any Borrower.
9.1.66. "Option" has the meaning set forth in Section 1.7.
9.1.67. "Organic Document" means, relative to any entity, its
certificate and articles of incorporation or organization, its by-laws or
operating agreements, and all equityholder agreements, voting agreements and
similar arrangements applicable to any of its authorized shares of capital
stock, its partnership interests or its member interests, and any other
arrangements relating to the control or management of any such entity (whether
existing as a corporation, a partnership, an LLC or otherwise).
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9.1.68. "PBGC" means the Pension Benefits Guaranty Corporation or
any other entity that succeeds to its responsibilities and powers under ERISA.
9.1.69. "Permitted Guaranties" has the meaning set forth in Section
5.3.
9.1.70. "Permitted Indebtedness" has the meaning set forth in
Section 5.2.
9.1.71. "Permitted Investments" has the meaning set forth in Section
5.7.
9.1.72. "Permitted Liens" has the meaning set forth in Section 5.5.
9.1.73. "Permitted Loans" has the meaning set forth in Section 5.4.
9.1.74. "Permitted Transfers" has the meaning set forth in Section
5.6.
9.1.75. "Person" means any natural person, corporation, LLC,
partnership, firm, association, trust, government, governmental agency or any
other entity, whether acting in an individual, fiduciary or other capacity.
9.1.76. "Plan" means any pension benefit or welfare benefit plan as
defined in Sections 3(1), (2) or (3) of ERISA covering employees of any Borrower
or any ERISA Affiliate of any Borrower.
9.1.77. "Pledge and Security Agreements" means, individually and
collectively, each pledge and security agreement relating to a pledge of an
equity interest in an enterprise (all as may be amended, modified and
supplemented from time to time) required to be executed and delivered in favor
of Administrative Agent pursuant to the Loan Documents.
9.1.78. "Portion" means a designated portion of the indebtedness
hereunder as to which a specified Rate Index (and a corresponding Rate Margin)
has been selected or deemed to be applicable.
9.1.79. "Prime Rate" means a variable rate of interest per annum
equal to the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System in Federal Reserve statistical release
H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate. The
Prime Rate also includes rates published in any successor publications of the
Federal Reserve System reporting the Bank prime loan rate or its equivalent. In
the event that the Board of Governors of the Federal Reserve System ceases to
publish a Bank prime loan rate or equivalent, the term "Prime Rate" shall mean a
variable rate of interest per annum equal to the highest of the "prime rate,"
"reference rate," "base rate" or other similar rate as determined by
Administrative Agent announced from time to time by any of First Union National
Bank, NationsBank, the Chase Manhattan Bank or Citibank, N.A. Such term,
however, does not necessarily mean Administrative Agent's best or lowest rate
available.
9.1.80. "Pro Forma Leverage Ratio" means, at any time such ratio is
being computed, the ratio of "Funded Debt" to "Pro forma OCF."
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9.1.81. "Pro Forma OCF" means, at the time of any determination, the
sum of the following items (without duplication) for Borrowers during the
relevant single fiscal quarter period (multiplied by four):
a. EBITDA during such period, and
b. Plus or minus such adjustments as set forth on Schedule
9.1.81 which Schedule will be updated from time to time
as approved in Lenders' sole and absolute discretion.
9.1.82. "Pro Rata" means from or to each Lender in proportion to its
Commitment Percentage.
9.1.83. "Rate Index" has the meaning set forth in Section 1.1.5.
9.1.84. "Rate Margin" has the meaning set forth in Section 1.1.5.
9.1.85. "Required Lender" means Lenders holding at least 66% of the
aggregate outstanding principal amount of the Loans (or, if no Loans at the time
of such determination are outstanding, then Lenders obligated with respect to at
least 66% of the Commitments).
9.1.86. "Reserve Percentage" has the meaning set forth in the
definition of "Adjusted LIBO Rate".
9.1.87. "Revenue" means revenue of Borrowers (on a consolidated
basis) as determined in accordance with GAAP.
9.1.88. "SEC" means the Securities and Exchange Commission or any
other entity that succeeds to its responsibilities and powers.
9.1.89. "Securities Acts" means, collectively, the Securities Act of
1933 and the Securities Exchange Act of 1934, each as amended, and as
implemented by the SEC and interpreted by the SEC or any court of competent
jurisdiction.
9.1.90. "Security Agreements" means, collectively, each security
agreement (as may be amended, modified and supplemented from time to time)
required to be executed and delivered in favor of Administrative Agent pursuant
to Article 2, and any other security agreement required or delivered in
connection with the Loan Documents, including any intellectual property
assignments or security agreements required to be delivered pursuant to Article
2.
9.1.91. "Settlement Date" means, with respect to any Advance
hereunder, the date on which funds are advanced by Administrative Agent.
9.1.92. "State Communications Acts" means the laws of any state in
which any Borrower does business that govern the provision of communications
services offered or performed by any Borrower within such state and are
applicable to such Borrower, as amended from time to time, and as implemented by
the rules, regulations, and orders of the applicable State PUC or any court of
competent jurisdiction.
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9.1.93. "State PUC" means the public utility commission or other
regulatory agency of any state in which any Borrower does business that is
vested with jurisdiction over such Borrower and over State Communications Acts
or the provision of communication services within such state.
9.1.94. "Subordinated Indebtedness" means all indebtedness and
monetary obligations of any Borrower (other than indebtedness in favor of
Administrative Agent or any Lender or indebtedness and obligations expressly
excluded therefrom by Required Lenders), including all indebtedness treated or
defined as "Subordinated Indebtedness" under any separate Subordination
Agreement by and among a Borrower, Administrative Agent and another Person.
Notwithstanding the foregoing, the term "Subordinated Indebtedness" (unless
Required Lenders otherwise require) does not include indebtedness permitted
under Section 5.2.a or 5.2.b or (to the extent consistent with Section 5.5.b)
under Section 5.2.c or 5.2.d.
9.1.95. "Subsidiary" of any Person or entity means any Person as to
which such other Person or entity (a) directly or indirectly owns, controls or
holds 25% or more of the outstanding beneficial interest or (b) is otherwise
required in accordance with GAAP to be considered as part of a consolidated
organization.
9.1.96. "Tariff" means any tariff, rate schedule or similar document
that is either (a) required by law or applicable regulation to be filed with the
FCC or a State PUC or (b) permitted by law or applicable regulation so to be
filed and actually filed by any Borrower.
9.1.97. "Telecon Acquisition" means collectively, (a) the
acquisition by BOL Acquisition Co. III, Inc. of substantially all of the assets
of Telecon Communications Corporation, a New York corporation ("Telecon"),
pursuant to the Asset Purchase Agreement dated December 5, 1999 by and among
BiznessOnline, BOL Acquisition Co. III, Inc., Telecon and the shareholders of
Telecon, and (b) the simultaneous merger of Telesupport, Inc., a New York
corporation, into BOL Acquisition Co. II, Inc. pursuant to the Agreement and
Plan of Merger and Reorganization dated December 5, 1999 by and among
BiznessOnline, BOL Acquisition Co. II, Inc., Telesupport and the shareholders of
Telesupport, each under the terms and conditions set forth in such agreements
(other than the provisions permitting payment of $5,000,000 of the purchase
price of Telecon by promissory notes) and such other terms and conditions
reasonably acceptable to Lender.
9.1.98. "Term Loan Commitment" means the Commitment established
pursuant to Section 1.1 and Section 1.3.
9.1.99. "Term Loan Commitment Percentage" means, with respect to
each Lender, that portion of the total Term Loan Commitment as to which such
Lender is obligated.
9.1.100. "Term Loan Facility" means the term loan Facility as
described in Article 1.
9.1.101. "Term Loan Maturity Date" has the meaning set forth in
Section 1.1.2, as may be extended from time to time in Lenders' sole and
absolute discretion.
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9.1.102. "Term Loan Note" means any Note payable to the order of a
Lender prepared in accordance with Section 1.1.4, as may be amended, modified,
restated, replaced, supplemented, extended or renewed from time to time
hereafter.
9.1.103. "Total Charges" means, at the time of any determination,
the sum of the following items (without duplication) for Borrowers during the
relevant four consecutive fiscal quarter period:
a. The amount of Fixed Charges during such period, and
b. Plus the amount of all payments (principal, interest and
otherwise) made or required to be made on the
Subordinated Indebtedness during such period (but only
to the extent not already included under one of the
other categories of Total Charges), and
c. Plus the amount of federal and state income taxes paid
or required to be paid during such period (but only to
the extent not already included under one of the other
categories of Total Charges).
For purposes of this calculation, interest includes interest accrued under
Capital Leases, and principal includes principal obligations under Capital
Leases.
9.1.104. "Total Charge Coverage Ratio" means, at any time such ratio
is being computed, the ratio of "Pro Forma OCF" to "Total Charges" (for the
immediately preceding four fiscal quarters).
9.1.105. "UCC" means the Uniform Commercial Code as in effect in the
applicable jurisdiction.
9.1.106. "Warrant Agreement" means that certain Warrant Agreement
between BiznessOnline and MCG dated as of the date hereof, as amended from time
to time.
9.1.107. "Warrants" has the meaning set forth in Section 1.7.
9.2. Rules of Interpretation and Construction.
9.2.1. Plural; Gender. Unless otherwise expressly stated or the
context clearly indicates a different intention, then (as may be appropriate in
the particular context) (a) a singular number or noun used in any Loan Document
includes the plural, and a plural number or noun includes the singular, and (b)
the use of the masculine, feminine or neuter gender pronouns in any Loan
Document includes each and all genders.
9.2.2. Section and Schedule References. Unless otherwise expressly
stated or the context clearly indicates a different intention, then all
references to sections, paragraphs, clauses, schedules and exhibits in any Loan
Document are to be interpreted as references to sections, paragraphs, clauses,
schedules and exhibits of such Loan Document (rather than of some other Loan
Document). In addition, the words "herein", "hereof", "hereunder", "hereto" and
other words of
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similar import in any Loan Document refer to such Loan Document as a whole, and
not to any particular section, paragraph or clause in such Loan Document.
9.2.3. Titles and Headings. Unless otherwise expressly stated or the
context clearly indicates a different intention, then the various titles and
headings in the Loan Documents are inserted for convenience only and do not
affect the meaning or interpretation of such Loan Document or any provision
thereof.
9.2.4. "Including" and "Among Other" References. Unless otherwise
expressly stated or the context clearly indicates a different intention, then
all references in the Loan Documents to phrases containing or list preceded by
the words "include", "includes", "including", "among other", "among other
things" or other words or phrases of similar import are to be interpreted to
mean such "without limitation" (whether or not such additional phrase is
actually added). In other words, such words and phrases connote an illustrative
example or list rather than an exclusive example or list.
9.2.5. "Shall", "Will", "Must", "Can" and "May" References. Unless
otherwise expressly stated or the context clearly indicates a different
intention, then all references in the Loan Documents to the words "shall",
"will" and "must" (including, when modified by "not") are to be interpreted to
indicate mandatory actions or restrictions (as applicable), and all references
in the Loan Documents to the words "may" and "can" (unless modified by "not")
are to be interpreted to indicate permissive actions.
9.2.6. Time of Day References. Unless otherwise expressly stated or
the context clearly indicates a different intention, then all time of day
references in and restrictions imposed under the Loan Documents are to be
calculated using Eastern Time.
9.2.7. "Knowledge" of a Person. Unless otherwise expressly stated or
the context clearly indicates a different intention, then (a) all references to
the "knowledge," "awareness" or "belief" of any Person that is not a natural
person are to be interpreted to mean the knowledge, awareness or belief of
senior and executive management of such Person (and including the knowledge or
awareness of managers of limited liability companies and general partners of
partnerships), and (b) all representations qualified by the "knowledge,"
"awareness" or "belief" of a Person are to be interpreted to mean (unless a
different standard is specified) that such Person has conducted a commercially
reasonable inquiry and investigation prior to making such representation.
9.2.8. Successors and Assigns. Unless otherwise expressly stated or
the context clearly indicates a different intention, then all references to any
Person (including any Official Body) in any Loan Document are to be interpreted
as including (as applicable) such Person's successors, assigns, estate, heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, no Borrower or other Obligor may assign or delegate any Loan Document
(or any right or obligation thereunder) except to the extent expressly permitted
hereunder or under such other Loan Document.
9.2.9. Modifications to Documents. Unless otherwise expressly stated
or the context clearly indicates a different intention, then all references to
any Loan Document or other agreement or instrument in any Loan Document are to
be interpreted as including all extensions,
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renewals, amendments, supplements, substitutions, replacements and waivers
thereto and thereof from time to time.
9.2.10. References to Laws and Regulations. Unless otherwise
expressly stated or the context clearly indicates a different intention, then
all references to any law, regulation, rule, order or policy in any Loan
Document are to be interpreted references to such law, regulation, rule or
policy (a) as implemented and interpreted from time to time by Official Bodies
with appropriate jurisdiction therefor, and (b) as amended, modified,
supplemented, replaced and repealed from time to time.
9.2.11. Financial and Accounting Terms. Unless otherwise expressly
stated or the context clearly indicates a different intention, financial and
accounting terms used in the foregoing definitions or elsewhere in the Loan
Documents shall be defined and determined in accordance with GAAP.
9.2.12. Conflicts Among Loan Documents. Unless otherwise expressly
stated or the context clearly indicates a different intention, then any
irreconcilable conflict between the terms and conditions of this Agreement and
the terms and conditions of any other Loan Document (other than a Note or any
warrant issued to any Lender) are to be resolved by having the terms and
conditions of this Agreement govern.
9.2.13. Independence of Covenants and Defaults. All covenants and
defaults contained in the Loan Documents shall be given independent effect. If a
particular action or condition is not permitted by any covenant in the Loan
Documents, then the fact that such action or condition would be permitted by an
exception to (or would otherwise be within the limitations of) another covenant
in the Loan Documents shall not avoid the occurrence or existence of a Default
if such action is taken or if such condition exists.
9.2.14. Administrative Agent. References in this Agreement and the
other Loan Documents to Administrative Agent shall mean either to Administrative
Agent in such capacity or (where appropriate) to Administrative Agent for the
benefit of Lenders. Unless otherwise indicated in this Agreement or another Loan
Document, all Collateral held and all payments received by Administrative Agent
are deemed to be held and received, respectively, for the benefit of Lenders.
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ARTICLE 10: MISCELLANEOUS
10.1. Indemnification, Reliance and Assumption of Risk. Without limiting
any other indemnification in any Loan Document, each Borrower (jointly and
severally) hereby agrees to defend Administrative Agent and each Lender (and
their directors, officers, employees, agents, counsels and Affiliates) from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages, interests, judgments, or costs (including fees and disbursements of
counsel) incurred by any of them arising out of or in any way connected with any
Loan Document, except for losses resulting directly and exclusively from
Administrative Agent's or any Lender's own gross negligence, willful misconduct
or fraud. In addition, each Borrower will reimburse and (jointly and severally)
indemnify Administrative Agent and each Lender for all costs and losses
resulting from the following: (1) any failure or refusal by any Borrower or by
any Affiliate of any Borrower to provide any requested assistance or cooperation
in connection with any attempt by Administrative Agent or any Lender to
liquidate any Collateral in the event of any Event of Default and/or any attempt
by Administrative Agent or any Lender to otherwise exercise its rights
hereunder, and (2) any misrepresentation, gross negligence, fraud or willful
misconduct by any Borrower (or any of its employees or officers), or any other
person or entity pledging Collateral hereunder. Moreover, with respect to any
Advance Request or other communication between any Borrower and Administrative
Agent and/or Lenders hereunder and all other matters and transactions in
connection therewith, each Borrower hereby irrevocably authorizes Administrative
Agent and each Lender to accept, rely upon, act upon and comply with any verbal
or written instructions, requests, confirmations and orders of any Authorized
Officer of any Borrower. Each Borrower acknowledges that the transmissions of
any such instruction, request, confirmation, order or other communication
involves the possibility of errors, omissions, mistakes and discrepancies, and
each Borrower agrees to adopt such internal measures and operational procedures
to protect its interest. By reason thereof, each Borrower hereby assumes all
risk of loss and responsibility for -- and hereby releases and discharges
Administrative Agent and each Lender from any and all risk of loss and
responsibility for, and agrees to indemnify, reimburse on demand and hold
Administrative Agent and each Lender harmless from -- any and all claims,
actions, damages, losses, liability and costs by reason of or in any way related
to (a) Administrative Agent's or any Lender's accepting, relying and acting
upon, complying with or observing any such instructions, requests, confirmations
or orders from or on behalf of any such Authorized Officer, and (b) any such
errors, omissions, mistakes and discrepancies by (or otherwise resulting from or
attributable to the actions or inactions of) any Authorized Officer or any
Borrower; provided, however, no Borrower assumes hereby the risk of any
foreseeable actual loss resulting directly and exclusively from Administrative
Agent's or any Lender's own gross negligence, fraud or willful misconduct. Each
Borrower's obligations provided for in this Section will survive any termination
of this Agreement, and the repayment of the outstanding balances hereunder.
10.2. Assignments and Participations. No Loan Document may be assigned (in
whole or in part) by any Borrower without the prior written consent of each
Lender. Notwithstanding any other provision of any Loan Document, without
receiving any consent of any Borrower, each Lender at any time and from time to
time may syndicate, participate or otherwise transfer, pledge or assign all (or
any proportionate part of) its rights and obligations under any of the Loan
Documents (or any indebtedness evidenced thereby) to any Person. Lenders
(through Administrative Agent) will make reasonable efforts to notify Borrowers
of any such absolute transfer or assignment within twenty (20) Business Days
thereafter; however, a failure to so notify will in no way impair any rights of
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Administrative Agent or Lenders or any participant, transferee or assignee. Upon
execution and delivery of an appropriate instrument between any such
participant, transferee or assignee and an assigning Lender, then (at
Administrative Agent's request) such participant, transferee or assignee will
become a Lender party to this Agreement and will have all the rights and
obligations of a Lender as set forth in such instrument. At Administrative
Agent's request, each Borrower will execute (or re-execute) and deliver (or
otherwise obtain) any documents necessary to reflect or implement any such
participation, transfer or assignment (including replacement promissory notes
and any requested letters authorizing such participant, transferee or assignee
to rely on existing certificates and opinions) and will otherwise fully
cooperate in any such syndication process. Attached as Exhibit 10.2 is a form of
Assignment and Assumption Agreement, a substantially similar version of which is
to be used in connection with assignment of Lenders hereunder.
10.3. No Waiver; Delay. To be effective, any waiver by Lenders must be
expressed in a writing executed by Administrative Agent (with the approval of
Required Lenders). Once a Default occurs under the Loan Documents, then such
Default will continue to exist until it either is cured (to the extent
specifically permitted) in accordance with the Loan Documents or is otherwise
expressly waived by Lenders (in their sole and absolute discretion) in writing;
and once an Event of Default occurs under the Loan Documents, then such Event of
Default will continue to exist until it is expressly waived by Lenders (in their
sole and absolute discretion) in writing. If Administrative Agent or any Lender
waives any power, right or remedy arising hereunder or under any applicable law,
then such waiver will not be deemed to be a waiver (a) upon the later occurrence
or recurrence of any events giving rise to the earlier waiver or (b) as to any
other Obligor. No failure or delay by Administrative Agent or any Lender to
insist upon the strict performance of any term, condition, covenant or agreement
of any of the Loan Documents, or to exercise any right, power or remedy
hereunder, will constitute a waiver of compliance with any such term, condition,
covenant or agreement, or preclude Administrative Agent or any Lender from
exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any amount payable under this Agreement
or any other Loan Document, neither Administrative Agent nor any Lender will be
deemed to waive the right either to require prompt payment when due of all other
amounts payable under this Agreement or any other Loan Document or to declare an
Event of Default for failure to effect such prompt payment of any such other
amount. The remedies provided herein are cumulative and not exclusive of each
other, the remedies provided by law, and the remedies provided by the other Loan
Documents.
10.4. Modifications and Amendments. Except as otherwise expressly provided
in this Agreement, no modification or amendment to any Loan Document will be
effective unless made in a writing signed by appropriate officers of
Administrative Agent (with the consent of the Required Lenders) and each
Borrower. Notwithstanding the foregoing, to the extent that any such
modification or amendment attempts to implement any of the following, then such
amendment or modification must approved by all Lenders:
a. Increase the Commitment Percentage of any Lender, or
b. Alter any provision that effectively reduces that interest
rate applicable to the Loans, or
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c. Reduce the amount of any fees due to Lenders under any Loan
Document (other than fees payable to the Administrative Agent
for its own account), or
d. Reduce the amount of any payment (whether for principal,
interest or any fee, other than a fee payable to the
Administrative Agent for its own account), or
e. Postpone or extend the Maturity Date for any Facility or any
scheduled payment date (whether for principal, interest or any
fee, other than a fee payable to the Administrative Agent for
its own account), or
f. Change the definition of "Pro Rata" or "Required Lenders" or
otherwise change the number or percentage of Lenders that are
required to take or approve (or direct the Administrative
Agent to take) any action under the Loan Documents, or
g. Release or discharge any Borrower as a "Borrower" under the
Loan Documents or permit any Borrower to assign to another
Person any of its rights or obligations under the Loan
Documents, or
h. Release all or any part of any guaranty of any part of the
Indebtedness under the Loan Documents or any security interest
in or pledge of any Collateral (except as otherwise already
expressly authorized under the Loan Documents), or
i. Amend this Section.
In addition, no provision of any Loan Document relating to the rights or
obligations of the Administrative Agent may be modified or amended without the
consent of the Administrative Agent.
10.5. Disclosure of Information to Third Parties. Administrative Agent and
each Lender will employ reasonable procedures to treat as confidential all
written, non-public information delivered to Administrative Agent or such Lender
pursuant to this Agreement concerning the performance, operations, assets,
structure and business plans of Borrowers that is conspicuously designated by
Borrowers as confidential information. While other or different confidentiality
procedures may be employed by Administrative Agent or any Lender, the actual
procedures employed by Administrative Agent and each Lender for this purpose
will be conclusively deemed to be reasonable if they are at least as protective
of such information as the procedures generally employed by Administrative Agent
and such Lender to safeguard the confidentiality of Administrative Agent's and
Lenders' own confidential information. Notwithstanding the foregoing,
Administrative Agent and each Lender may disclose any information concerning any
Borrower in Administrative Agent's or such Lender's possession from time to time
(a) to permitted participants, transferees, assignees, pledgees and investors
(including prospective participants, transferees, assignees, pledgees and
investors), but subject to a reasonable confidentiality agreement regarding any
non-public confidential information thereby disclosed, and (b) in response to
credit inquiries consistent with general banking practices, and (c) to any
federal or state regulator of Administrative Agent or such Lender, and (d) to
Administrative Agent's or such Lender's Affiliates, employees, legal counsel,
appraisers, accountants, agents and investors, and (e) to any Person pursuant to
compulsory judicial process, and (f) to any judicial or arbitration forum in
connection with enforcing the Loan Documents or defending any action based upon
the Loan Documents or the relationship
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between Administrative Agent, Lenders, and Borrowers, and (g) to any other
Person with respect to the public or non-confidential portions of any such
information. Moreover, Administrative Agent and each Lender (without any
compensation, remuneration or notice to Borrowers) may also include operational
and performance and structural information and data relating to Borrowers in
compilations, reports and data bases assembled by Administrative Agent or such
Lender (or their Affiliates) and used to conduct, support, assist in and
validate portfolio, industry and credit research and analysis for itself and
other Persons; provided, however, that neither Administrative Agent nor any
Lender may thereby disclose to other Persons any information relating to
Borrowers in a manner that is attributable to Borrowers unless (1) such
disclosure is permitted under the standards outlined above in this Section or
(2) Borrowers otherwise separately consent thereto (which consent may not be
unreasonably withheld). Notwithstanding the foregoing, Administrative Agent and
Lenders agree to comply with applicable federal securities laws and regulations
regarding dissemination, use and/or disclosure of non-public information.
10.6. Binding Effect and Governing Law. This Agreement and the other Loan
Documents have been delivered by Borrowers and the other Obligors and have been
received by Administrative Agent in the Commonwealth of Virginia. This Agreement
and all documents executed hereunder are binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This
Agreement and all documents executed hereunder are governed as to their
validity, interpretation, construction and effect by the laws of the
Commonwealth of Virginia (without giving effect to the conflicts of law rules of
Virginia).
10.7. Notices. Any notice, request, consent, waiver or other communication
required or permitted under or in connection with the Loan Documents will be
deemed satisfactorily given if it is in writing and is delivered either
personally to the addressee thereof, or by prepaid registered or certified U.S.
mail (return receipt requested), or by a nationally recognized commercial
courier service with next-day delivery charges prepaid, or by telegraph, or by
facsimile (voice confirmed), or by any other reasonable means of personal
delivery to the party entitled thereto at its respective address set forth
below:
If to any Borrower [Party Entitled to Notice]
or its Affiliates: c/o BiznessOnline.com, Inc.
1720 Route 34
P.O. Box 1347
Wall, New Jersey 07719
Attention: President
Facsimile: (732) 280-6409
With a copy to the following listed counsel or such other counsel as may
be designated by Borrowers from time to time (and which notice shall not
constitute notice to Borrowers and failure to give such notice shall not
affect the effectiveness of notice to Borrowers):
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Duffy & Sweeney Ltd.
300 Turks Head Building
Providence, Rhode Island 02903
Attention: Michael Sweeney, Esquire
Facsimile: (401) 455-0701
If to Administrative: MCG Finance Corporation
Agent or Lenders: 1100 Wilson Boulevard, Suite 800
Arlington, VA 22209
Attention: Loan Administration
Facsimile: (703) 247-7505
With a copy to the following listed counsel or such other counsel as may
be designated by Administrative Agent from time to time (and which notice
shall not constitute notice to Administrative Agent or any Lender and
failure to give such notice shall not affect the effectiveness of notice
to Administrative Agent or Lenders):
Karen W. Fries, Esquire
Bryan Cave LLP
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Facsimile: (314) 259-2020
Any party to a Loan Document may change its address or facsimile number for
notice purposes by giving notice thereof to the other parties to such Loan
Document in accordance with this Section, provided that such change shall not be
effective until 2 calendar days after notice of such change. All such notices
and other communications will be deemed given and effective (a) if by mail, then
upon actual receipt or 5 calendar days after mailing as provided above
(whichever is earlier), or (b) if by facsimile, then upon successful transmittal
to such party's designated number, or (c) if by telegraph, then upon actual
receipt or 2 Business Days after delivery to the telegraph company (whichever is
earlier), or (d) if by nationally recognized commercial courier service, then
upon actual receipt or 2 Business Days after delivery to the courier service
(whichever is earlier), or (e) if otherwise delivered, then upon actual receipt.
For any and all purposes related to giving and receiving notices and
communications between any Borrower and Administrative Agent and Lenders under
any Loan Document, each Borrower hereby irrevocably appoints BiznessOnline (and
each Authorized Officer thereof ) as its agent to whom Administrative Agent and
each Lender may give and from whom Administrative Agent and each Lender may
receive all such notices and communications, and Administrative Agent and each
Lender is entitled to rely upon (and treat as being properly authorized by
Borrowers) any verbal or written notices or communications purportedly received
from (or that Administrative Agent or such Lender believes in good faith to be
received from) such Authorized Officer.
10.8. Relationship with Prior Agreements. This Agreement completely and
fully supersedes all oral agreements and all other and prior written agreements
by and among Borrowers and Administrative Agent and any Lender concerning the
terms and conditions of this credit arrangement.
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10.9. Severability. If fulfillment of any provision of or any transaction
related to any Loan Document at the time performance is due involves
transcending the limit of validity prescribed by applicable law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity. If any clause or provision of this Agreement operates or would
prospectively operate to invalidate this Agreement or any other Loan Document in
whole or in part, then such clause or provision only shall be void (as though
not contained herein or therein), and the remainder of this Agreement or such
other Loan Document shall remain operative and in full force and effect;
provided, however, if any such clause or provision pertains to the repayment of
any indebtedness hereunder, then the occurrence of any such invalidity shall
constitute an immediate Event of Default hereunder.
10.10. Termination and Survival. All representations, warranties,
covenants and other agreements of any Obligor contained in any Loan Document or
any other documentation required thereunder will survive the execution and
delivery of the Loan Documents and the funding of the Advances hereunder and
will continue in full force and effect until terminated in accordance with this
Agreement. Upon (a) indefeasible receipt by Administrative Agent of the entire
indebtedness and all other amounts then due or owing to Administrative Agent or
any Lender under the Loan Documents (without any condition, deduction, offset,
netting, counterclaim or reservation of rights), and (b) receipt by
Administrative Agent of an instruction from Borrowers to terminate and cancel
the Loan Documents, all Commitments and all Facilities thereunder (together with
an acknowledgment that neither Administrative Agent nor any Lender will have any
further obligations or liabilities under or in connection with any Loan
Document), then Administrative Agent (at the written request and expense of
Borrowers) will terminate and cancel all Loan Documents (other than the waivers,
reinstatement rights, and reimbursement and indemnification protections in favor
of Administrative Agent and each Lender under the Loan Documents, which
provisions shall survive any such termination of the Loan Documents).
10.11. Reinstatement. To the maximum extent not prohibited by applicable
law, this Agreement and the other Loan Documents (and the indebtedness hereunder
and Collateral therefor) will be reinstated and the indebtedness correspondingly
increased (as though such payment(s) had not been made) if at any time any
amount received by Administrative Agent or any Lender in respect of any Loan
Document is rescinded or must otherwise be restored, refunded or returned by
Administrative Agent or such Lender to Borrower or any other Person (a) upon or
as a result of the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Borrower or any other Person, or (b) upon or as a result
of the appointment of any receiver, intervenor, conservator, trustee or similar
official for any Borrower or any other Person or for any substantial part of the
assets of any Borrower or any other Person, or (c) for any other reason.
10.12. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document. Each such counterpart will be deemed to be an original
but all counterparts together will constitute one and the same instrument.
10.13. Waiver of Suretyship Defenses. Each Borrower hereby waives any and
all defenses and rights of discharge based upon suretyship or impairment of
collateral (including lack of attachment or perfection with respect thereto)
that it may now have or may hereafter acquire with respect to Administrative
Agent or any Lender or any of its obligations hereunder, under any Loan
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Document or under any other agreement that it may have or may hereafter enter
into with Administrative Agent or any Lender.
10.14. Waiver of Liability. Each Borrower (a) agrees that neither
Administrative Agent nor any Lender (nor any of their directors, officers,
employees or agents) shall have any liability to any Borrower (whether sounding
in tort, contract or otherwise) for losses or costs suffered or incurred by any
Borrower in connection with or in any way related to the transactions
contemplated or the relationship established by any Loan Document, or any act,
omission or event occurring in connection herewith or therewith, except for
foreseeable actual losses resulting directly and exclusively from Administrative
Agent's or such Lender's own gross negligence, willful misconduct or fraud and
(b) waives, releases and agrees not to sue upon any claim against Administrative
Agent or any Lender (or their directors, officers, employees or agents) whether
sounding in tort, contract or otherwise, except for claims for foreseeable
actual losses resulting directly and exclusively from Administrative Agent's or
such Lender's own gross negligence, willful misconduct or fraud. Moreover,
whether or not such damages are related to a claim that is subject to the waiver
effected above and whether or not such waiver is effective, neither
Administrative Agent nor any Lender (nor their directors, officers, employees or
agents) shall have any liability with respect to (and each Borrower hereby
waives, releases and agrees not to sue upon any claim for) any special,
indirect, consequential, punitive or non-foreseeable damages suffered by any
Borrower in connection with or in any way related to the transactions
contemplated or the relationship established by any Loan Document, or any act,
omission or event occurring in connection herewith or therewith.
10.15. Forum Selection; Consent to Jurisdiction. Any litigation in
connection with or in any way related to any Loan Document, or any course of
conduct, course of dealing, statements (whether verbal or written), actions or
inactions of Administrative Agent, any Lender or any Borrower will be brought
and maintained exclusively in the courts of the Commonwealth of Virginia or in
the United States District Court for the Eastern District of Virginia; provided,
however, that any suit seeking enforcement against any Borrower, any Collateral
or any other property may also be brought (at Administrative Agent's and
Lenders' option) in the courts of any other jurisdiction where such Collateral
or other property may be found or where Administrative Agent or any Lender may
otherwise obtain personal jurisdiction over such Borrower. Each Borrower hereby
expressly and irrevocably submits to the jurisdiction of the courts of the
Commonwealth of Virginia and of the United States District Court for the Eastern
District of Virginia for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final and non-appealable judgment
rendered thereby in connection with such litigation. Each Borrower further
irrevocably consents to the service of process by registered or certified mail,
postage prepaid, or by personal service within or outside the Commonwealth of
Virginia. Each Borrower hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in an
inconvenient forum. To the extent that any Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect
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to itself or its property, then such Borrower hereby irrevocably waives such
immunity in respect of its obligations under this Agreement.
10.16. Waiver of Jury Trial. Administrative Agent, each Lender and each
Borrower each hereby knowingly, voluntarily and intentionally waives any rights
it may have to a trial by jury in respect of any litigation (whether as claim,
counter-claim, affirmative defense or otherwise) in connection with or in any
way related to any of the Loan Documents, or any course of conduct, course of
dealing, statements (whether verbal or written), actions or inactions of
Administrative Agent, any Lender or any Borrower. Each Borrower acknowledges and
agrees (a) that it has received full and sufficient consideration for this
provision (and each other provision of each other Loan Document to which it is a
party), and (b) that it has been advised by legal counsel in connection
herewith, and (c) that this provision is a material inducement for
Administrative Agent and each Lender entering into the Loan Documents and
funding Advances thereunder.
[BALANCE OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, have executed this Credit Facility Agreement, as an instrument under
seal (whether or not any such seals are physically attached hereto), as of the
day and year first above written.
ATTEST: BIZNESSONLINE.COM, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ALBANYNET, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: WEBWAY INTERNET, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: ASCENT NETWORKING, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: CYBERZONE, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: CARAVELA SOFTWARE, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: NECANET, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: PRIME COMMUNICATION
SYSTEMS, INCORPORATED
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: INFOBOARD, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BORG INTERNET SERVICES, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ULSTERNET, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: BOL ACQUISITION CO. II, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. III, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. VIII, INC.
By: By: /s/ Mark E. Munro
-------------------------------- -------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: /s/ Steven Tunney
- - ----------------------------------- -------------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
<PAGE>
Exhibit 10.29
TERM LOAN NOTE
$15,000,000 March 16, 2000
Arlington, Virginia
This TERM LOAN NOTE (hereinafter, the "Note" or the "Term Loan
Note") is executed and delivered under and pursuant to the terms of that certain
Credit Facility Agreement dated as of March 16, 2000 (as may be amended from
time to time hereafter, the "Credit Agreement") by and among BIZNESSONLINE.COM,
INC. and each of its direct and indirect Subsidiaries (including any successor
or permitted assignee thereof, each, a "Borrower"; collectively, the
"Borrowers"), and the Lenders which are or which become parties to the Credit
Agreement, and MCG FINANCE CORPORATION, a Delaware corporation (including any
successor, assignee, transferee, pledgee or participant thereof, "Administrative
Agent" or, in its capacity as the Lender under this Note, "Payee Lender").
FOR VALUE RECEIVED, each undersigned Borrower (jointly and
severally) hereby unconditionally promises to pay to the order of Payee Lender
on or before the Term Loan Maturity Date, the principal sum of FIFTEEN MILLION
DOLLARS ($15,000,000) (as such amount may be increased from time to time in
Lenders' sole and absolute discretion in accordance with the terms of the Credit
Agreement), or such other amount as may have been advanced to or on behalf of
Borrowers and is at the time outstanding hereunder or under the Term Loan
Facility of the Credit Agreement, together with all accrued but unpaid interest
thereon computed daily until paid at the varying rates per annum set forth in
the Credit Agreement and all unpaid expenses, fees and other advances connected
herewith.
The outstanding principal amount hereunder and under the Term Loan
Facility will bear interest (computed daily until paid, whether prior to or
after the Term Loan Maturity Date) that will be accrued, calculated imposed, due
and payable in accordance with the terms of the Credit Agreement.
Repayments of principal, together with all accrued but unpaid
interest on the outstanding balance under the Term Loan Facility, are due and
payable in accordance with the terms of the Credit Agreement. On the Term Loan
Maturity Date, Borrowers will pay Administrative Agent (for the ratable benefit
of Payee Lender and the other Lenders and without necessity of notice or demand)
the entire outstanding balance hereunder and under the Term Loan Facility,
together with all accrued but unpaid interest hereunder and all fees, expenses
and other advances connected herewith.
All payments (including prepayments) of principal, interest, fees
and any other amounts due hereunder must be received by Administrative Agent in
immediately available funds on or before Two O'clock (2:00) p.m. Eastern Time
("ET") on the due date therefor at the principal office of Administrative Agent
at 1100 Wilson Boulevard, Suite 800, Arlington, Virginia 22209 or at such other
place as Administrative Agent or any other holder of this Term Loan Note may at
any time or from time to time designate in writing.
<PAGE>
Whenever any payment to be made hereunder is due on a day that is
not a Business Day, such payment may be made on the next succeeding Business
Day, and such extension of time will be included in the computation of interest
due hereunder. Any funds received by Administrative Agent after 2:00 p.m. ET on
any day will be deemed to be received on the next succeeding Business Day.
A default or breach of any term, condition or covenant under this
Note will constitute a Default under the Credit Agreement, and an Event of
Default under the Credit Agreement or any other Loan Document will constitute an
immediate Event of Default under this Note. In addition, it shall also
constitute an Event of Default hereunder if any Borrower fails to pay when due
any payment of principal or interest or any other sum payable to Administrative
Agent or any Lender under the Term Loan Facility and such failure continues for
five (5) Business Days after the due date therefor. Upon the occurrence of any
Event of Default hereunder and at any time thereafter (at the election of
Administrative Agent, but with notice to a Borrower), Administrative Agent may
declare all or any portion of the indebtedness of any or all Borrowers to Payee
Lender (hereunder or otherwise, but including the unpaid balance of principal,
interest and fees hereunder) to be immediately due and payable. Notwithstanding
the foregoing, if the relevant Event of Default relates to the insolvency or
bankruptcy of any Borrower, then such acceleration will occur automatically with
respect to the entire indebtedness and without notice. Upon any such
declaration, Administrative Agent and Lenders will have the immediate right to
enforce and realize upon any guaranty and/or collateral security for the
indebtedness hereunder in any manner or order that Required Lenders or
Administrative Agent (at the direction of Required Lenders) deems expedient
without regard to any equitable principles of marshalling or otherwise. In
addition to any rights granted hereunder or in any documents delivered in
connection herewith, Administrative Agent and Lenders will also have all other
rights and remedies permissible under any applicable law (including the rights
of a secured party under the Uniform Commercial Code), and all such rights and
remedies will be cumulative in nature.
Upon the occurrence and during the existence of any Default or Event
of Default hereunder or under the Credit Agreement, each Borrower (jointly and
severally) hereby agrees (to the maximum extent not prohibited by applicable
law) to pay to Administrative Agent (for the ratable benefit of Payee Lender and
the other Lenders) (upon Administrative Agent's request) a default rate of
interest as provided for in the Credit Agreement. In addition, if Administrative
Agent does not receive any payments (of principal, interest, fees or other
charges) in immediately available funds on or before the seventh (7th) calendar
day after the due date therefor, then each Borrrower (jointly and severally)
hereby agrees (to the maximum extent not prohibited by applicable law) to pay to
Administrative Agent (for the ratable benefit of Payee Lender and the other
Lenders) (upon Administrative Agent's request) a late payment charge as provided
for in the Credit Agreement.
If, after the occurrence of any Default under any Loan Document,
counsel is retained to advise Administrative Agent or any Lender in connection
therewith, to collect, compromise or settle the indebtedness evidenced hereby or
to otherwise protect the security hereof, each Borrower (jointly and severally)
agrees to pay (to the maximum extent not
2
<PAGE>
prohibited by applicable law) reasonable fees and all other costs and expenses
of such counsel incurred by Administrative Agent or such Lender.
Each Borrower hereby waives diligence, presentment, protest, demand
for payment, notice of protest and non-payment, notice of dishonor, and any and
all other notices or demands in connection with the delivery, acceptance,
performance, default, acceleration or enforcement of this Term Loan Note. Each
Borrower, in addition, hereby consents (without the necessity of prior notice)
to any extensions of time, renewals, releases of any party hereto or guarantor
hereof, waivers and/or modifications in connection herewith that may be granted
or consented to by Administrative Agent from time to time. Each Borrower also
waives any defenses and rights of discharge to its obligations hereunder that it
may have or may hereafter acquire based on suretyship or impairment of
collateral (including lack of attachment or perfection with respect thereto).
No delay on the part of Administrative Agent or any Lender in
exercising any power or right hereunder will operate as a waiver thereof nor
will any single or partial exercise of any power or right hereunder preclude
other or further exercises thereof or the exercise of any other power or right.
This Term Loan Note is binding on each Borrower and each Borrower's successors
and assigns and is enforceable by Administrative Agent, Payee Lender and their
successors, assigns, transferees and participants. If any term or provision of
this Term Loan Note is held invalid, illegal or unenforceable, the validity of
all other terms and provisions hereof will in no way be affected thereby.
Nothing contained in this Term Loan Note will require any Borrower
to pay interest at a rate or any fee or expense in an amount prohibited by
applicable law. If interest or any fee or expense payable to Administrative
Agent on any date would be in a prohibited amount, such interest, fee or expense
will be automatically reduced to an amount that is not prohibited, and interest
or such fee or expense for subsequent periods, to the extent not prohibited,
will be increased by the amount of such reduction until payment of the full
amount of each such reduction. Any prohibited amount previously paid will be
credited towards reduction of the outstanding principal balance.
Liability Waiver. Each Borrower (a) agrees that neither
Administrative Agent nor any Lender (nor any director, officer, employee or
agent of Administrative Agent or any Lender) shall have any liability to any
Borrower (whether sounding in tort, contract or otherwise) for losses or costs
suffered or incurred by any Borrower in connection with or in any way related to
the transactions contemplated or the relationship established by this Note or
any other Loan Document, or any act, omission or event occurring in connection
therewith, except for foreseeable actual losses resulting directly and
exclusively from Administrative Agent's or such Lender's own gross negligence,
willful misconduct or fraud and (b) waives, releases and agrees not to sue upon
any claim against Administrative Agent or any Lender (or their directors,
officers, employees or agents) whether sounding in tort, contract or otherwise,
except for claims for foreseeable actual losses resulting directly and
exclusively from Administrative Agent's or such Lender's own gross negligence,
willful misconduct or fraud. Moreover, whether or not such damages are related
to a claim that is subject to the waiver effected above and whether or not such
waiver is effective, neither Administrative Agent nor any Lender (nor any
director, officer,
3
<PAGE>
employee or agent of Administrative Agent or any Lender) shall have any
liability with respect to (and each Borrower hereby waives, releases and agrees
not to sue upon any claim for) any special, indirect, consequential, punitive or
non-foreseeable damages suffered by any Borrower in connection with or in any
way related to the transactions contemplated or the relationship established by
any Loan Document, or any act, omission or event occurring in connection
herewith or therewith.
Jurisdictional and Related Consents. Any litigation in connection
with or in any way related to this Note, or any course of conduct, course of
dealing, statements (whether verbal or written), actions or inactions of
Administrative Agent, any Lender or any Borrower will be brought and maintained
exclusively in the courts of the Commonwealth of Virginia or in the United
States District Court for the Eastern District of Virginia; provided, however,
that any suit seeking enforcement hereof against any Borrower, any Collateral or
any other property may also be brought (at Administrative Agent's or such
Lender's option) in the courts of any other jurisdiction where such Collateral
or other property may be found or where Administrative Agent or such Lender may
otherwise obtain personal jurisdiction over such Borrower. Each Borrower hereby
expressly and irrevocably submits to the jurisdiction of the courts of the
Commonwealth of Virginia and of the United States District Court for the Eastern
District of Virginia for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final and non-appealable judgment
rendered thereby in connection with such litigation. Each Borrower further
irrevocably consents to the service of process by registered or certified mail,
postage prepaid, or by personal service within or outside the Commonwealth of
Virginia. Each Borrower hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in an
inconvenient forum. To the extent that any Borrower has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, then such
Borrower hereby irrevocably waives such immunity in respect of its obligations
under this Note.
Jury Trial Waiver. Administrative Agent, each Lender and each
Borrower each hereby knowingly, voluntarily and intentionally waives any rights
it may have to a trial by jury in respect of any litigation (whether as claim,
counter-claim, affirmative defense or otherwise) in connection with or in any
way related to this Note or any of the Loan Documents or any course of conduct,
course of dealing, statements (whether verbal or written), actions or inactions
of Administrative Agent, any Lender or any Borrower. Each Borrower acknowledges
and agrees (a) that it has received full and sufficient consideration for this
provision (and each other provision of each other Loan Document to which it is a
party), and (b) that it has been advised by legal counsel in connection
herewith, and (c) that this provision is a material inducement for
Administrative Agent and each Lender entering into the Loan Documents and
funding the Advance thereunder.
4
<PAGE>
Payee Lender, and its successors or assigns, at any time and from
time to time, may assign, participate and syndicate all or any part of its
rights under this Term Loan Note pursuant to the terms of Section 10.2 of the
Credit Agreement.
This Term Loan Note is the "Term Loan Note" referred to in, and
arises out of, the Credit Agreement. The Credit Agreement contains, among other
things, provisions for acceleration of the maturity hereof upon the occurrence
of certain stated events and also for prepayments of the principal hereunder
prior to the maturity hereof upon the terms and conditions specified therein.
Payment of this Note is secured by various forms of property pledged and
encumbered to Administrative Agent as Collateral pursuant to the Loan Documents.
In the event of any irreconcilable conflict between the terms and
conditions of this Term Loan Note and the terms and conditions of the Credit
Agreement or other Loan Documents, the terms and conditions of this Term Loan
Note shall govern.
This Term Loan Note is governed by and is to be construed in
accordance with the laws of the Commonwealth of Virginia, without reference to
the conflicts of law provisions thereof.
[BALANCE OF PAGE INTENTIONALLY BLANK]
5
<PAGE>
IN WITNESS WHEREOF, each Borrower has caused this Term Loan Note to
be executed in its name and on its behalf, as an instrument under seal (whether
or not any such seals are physically attached hereto), on the day and year first
written above.
ATTEST: BIZNESSONLINE.COM, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ALBANYNET, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: WEBWAY INTERNET, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: ASCENT NETWORKING, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: CYBERZONE, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: CARAVELA SOFTWARE, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: NECANET, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: PRIME COMMUNICATION
SYSTEMS, INCORPORATED
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: INFOBOARD, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BORG INTERNET SERVICES, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ULSTERNET, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: BOL ACQUISITION CO. II, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. III, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. VIII, INC.
By: By: /s/ Mark E. Munro
- - ----------------------------- -----------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
Exhibit 10.30
MASTER SECURITY AGREEMENT,
COLLATERAL ASSIGNMENT AND EQUITY PLEDGE
THIS MASTER SECURITY AGREEMENT, COLLATERAL ASSIGNMENT AND EQUITY
PLEDGE (as defined in Article 6 hereof, along with all other defined terms, this
"Security Agreement") is made and effective as of March 16, 2000, by EACH
"GRANTOR" THAT IS FROM TIME TO TIME LISTED ON SCHEDULE 1 HERETO OR OTHERWISE
ADDED AS A SIGNATORY HERETO (each, as more fully defined below, a "Grantor";
collectively, the "Grantors"), in favor of MCG FINANCE CORPORATION (including
any successor, participant, assignee, pledgee or transferee thereof,
"Administrative Agent"), as Administrative Agent for itself and the Lenders (as
defined in the Credit Agreement referred to below).
R E C I T A L S
WHEREAS, pursuant to that certain Credit Facility Agreement by and
among Borrowers, Lenders and Administrative Agent dated as of March 16, 2000 (as
may be amended from time to time, "Credit Agreement"), each Grantor is required
to have executed and delivered this Security Agreement encumbering all of each
Grantor's tangible and intangible personal property assets in favor of
Administrative Agent; and
WHEREAS, each Grantor has determined that it is in its best interest
to execute this Security Agreement inasmuch as each Grantor will derive
substantial direct and indirect benefits from the funding of the Advances by
Lenders pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged) and intending to be legally bound
hereby, each Grantor and Administrative Agent hereby agree as follows:
ARTICLE 1: SECURITY INTEREST, COLLATERAL ASSIGNMENT AND PLEDGE
1.1. Grant of Security. Each Grantor (as of the effective date of becoming
a signatory hereto) hereby collaterally assigns and pledges to Administrative
Agent, and hereby grants to Administrative Agent a present, absolute,
unconditional and continuing security interest in, all of the following
property, assets and equity interests, whether or not such property and assets
are covered by Article 9 of the applicable UCC (collectively, and including all
Pledged Collateral, "Collateral"):
a. Fixtures and Improvements -- All of such Grantor's fixtures and
improvements to real property in all of its forms, including the following: all
buildings, structures, furnishings, and all heating, electrical, lighting, power
and air conditioning equipment, and all antennas, transmitters, receivers and
related equipment, and all other equipment that under applicable law constitutes
a
<PAGE>
fixture, and all parts thereof and all accessions, additions, attachments,
improvements, substitutions and replacements thereto and therefor (any and all
of the foregoing being the "Fixtures"); and
b. Equipment (and Computer Hardware) -- All of such Grantor's
equipment in all of its forms, including the following: all machinery, tools,
motor vehicles, furniture and furnishings, and all antennas, transmitters,
receivers and related equipment, all communications, telecommunications,
switches and related equipment, and all computer and other electronic data
processing hardware, integrated computer systems, central processing units,
memory units, display terminals, printers, features, computer elements, card
readers, tape drives, hard and soft disk drives, cables, electrical supply
hardware, generators, power equalizers, accessories and all peripheral devices
and other related computer hardware, and all documentation manuals and materials
with respect to such hardware, and all rights with respect to all of the
foregoing, including any and all licenses, options, warranties, service
contracts, program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications, and any model
conversions of any of the foregoing, and all parts thereof and all accessions,
additions, parts (including replacement parts), attachments, improvements,
substitutions and replacements thereto and therefor (any and all of the
foregoing being the "Equipment"); and
c. Inventory -- All of such Grantor's inventory in all of its forms,
including the following: (1) all raw materials and work in process therefor,
finished goods thereof, and materials used or consumed in the preparation,
manufacture, creation or production thereof, and (2) all goods in which any
Grantor has an interest in mass or a joint or other interest or right of any
kind (including goods in which any Grantor has an interest or right as
consignee), and (3) all goods which are returned to or repossessed by any
Grantor, and in each instance all accessions thereto, products thereof and
documents therefor (any and all of the foregoing being the "Inventory"); and
d. Receivables, Accounts, Contracts, Money, Instruments, Chattel
Paper and Related Documents -- All of such Grantor's accounts, receivables, cash
collateral accounts, lock box accounts, other deposit accounts, security
deposits, advance payments, contracts, contract rights, leases, licenses,
insurance policies, chattel paper, documents, instruments (whether or not
negotiable), money, general intangibles and other obligations of any kind, and
whether or not arising out of or in connection with the sale or lease of goods
or the rendering of services (any and all of the foregoing being the "Contract
Rights"), and all rights of any Grantor in and to all agreements, security
agreements, guaranties, leases and other contracts securing or otherwise
relating to any such Contract Rights (any and all such security agreements,
guaranties, leases and other contracts being the "Related Contracts"); and
e. Intellectual Property -- Without limiting any of the foregoing,
all of such Grantor's intellectual and information related property, rights and
assets, including the following (collectively, "Intellectual Property
Collateral"):
1. Computer Software and Data -- (a) All software programs and
data bases (including source code, object code and all related applications and
data files) owned, licensed or leased by any Grantor, and (b) all firmware
associated therewith or with any of the Equipment, and (c) all documentation and
materials (including all flow charts, logic diagrams, algorithms, manuals,
guides, instructions, indices, abstracts and specifications) with respect to
such software and
2
<PAGE>
firmware, and (d) all rights with respect to all of the foregoing, including any
and all copyrights, trademarks, licenses, options, warranties, service
contracts, program services, test rights, maintenance rights, support rights,
improvement rights, renewal rights and indemnifications, and any substitutions,
replacements, additions or model conversions of any of the foregoing
(collectively, "Computer Software Collateral"), and
2. Copyrights -- All copyrights of such Grantor in each work
or authorship and derivative works thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, whether statutory or
common law, registered or unregistered, throughout the world, including all of
such Grantor's right, title and interest in and to all copyrights registered in
the United States Copyright Office or anywhere else in the world, and all
applications for registration thereof, whether pending or in preparation, and
all copyright licenses, and further including the right to sue for past, present
and future infringements of any thereof, all rights corresponding thereto
throughout the world, and all goodwill associated therewith, all extensions,
continuations and renewals of any thereof, and all proceeds of the foregoing,
including licenses, fees, royalties, income, payments, claims, damages and
proceeds of suit (collectively, "Copyright Collateral"), and
3. Patents -- All patents and like protections, including all
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, and all applications for registration
thereof, whether pending or in preparation, all patent licenses, the right to
sue for past, present and future infringements of any thereof, all rights
corresponding thereto throughout the world, and all goodwill associated
therewith, all extensions, continuations and renewals of any thereof, and all
proceeds of the foregoing, including licenses, fees, royalties, income,
payments, claims, damages and proceeds of suit (collectively, "Patent
Collateral"), and
4. Trademarks -- (a) All trademarks, service marks, trade
names, corporate names, company names, business names, operating names, domain
names, fictitious business names, trade styles, certification marks, collective
marks, call signs, logos, other source of business identifiers, prints, labels
and goods on which any of the foregoing appear or have appeared, designs
(including product designs) and general intangibles of a like nature (any and
all of the foregoing being the "Trademarks"), anywhere in the world, whether
registered or not and whether currently in use or not, all registrations and
recordings thereof and all applications to register the same, whether pending or
in preparation for filing, including registrations, recordings and applications
in the United States Patent and Trademark Office or in any office or agency of
the United States of America or any State thereof or any foreign country, and
(b) all Trademark licenses, and (c) all reissues, extensions or renewals of any
of the foregoing, and (d) all of the goodwill of the business connected with the
use of, and symbolized by, the items described in the foregoing, and (e) all
proceeds, fees, royalties, income or payments of, and rights associated with,
the foregoing, including any claim by any Grantor against third parties for
past, present or future infringement or dilution of any Trademark, Trademark
registration or Trademark license, or for any injury to the goodwill associated
with the use of any such Trademark or for breach or enforcement of any Trademark
license (collectively, "Trademark Collateral"), and
5. Trade Secrets -- All common law and statutory trade secrets
and all other confidential or proprietary or useful information and all know-how
obtained by or used in or contemplated at any time for use in any Grantor's
business (any and all of the foregoing being the
3
<PAGE>
"Trade Secrets"), whether or not such Trade Secret has been reduced to a writing
or other tangible form, including all documents and things embodying,
incorporating or referring in any way to such Trade Secrets, all Trade Secret
licenses, and including the right to sue for and to enjoin and to collect
damages for the actual or threatened misappropriation of any Trade Secret and
for the breach or enforcement of any such Trade Secret license (collectively,
"Trade Secret Collateral"); and
f. Publication, Programming and Production-Related Property --
Without limiting any of the foregoing, all of such Grantor's right, title,
interest and benefits in, to and under (a) all books, writings, journals,
articles and publications, and (b) all customer, subscriber, prospect, inquiry,
circulation, marketing, advertising, publicity, promotional and programming
files, lists, records, documents, contracts and agreements, including all files,
lists and records of active, expired, prospective, trial and conditional
customers and subscribers, and all files, lists and records of current, former
and prospective advertisers, and all internally generated, purchased and rented
mailing lists (but only to the extent of any Grantor's rights therein), and all
promotional letters, catalogues, flyers, reply cards, sales materials,
promotional materials, sample mailing pieces, artwork, drawings, advertising
materials, space advertising and any similar materials, and (c) all publication
rights, programming rights, editorial rights, promotional rights, advertising
rights, licensing rights, distribution and redistribution rights, and printing
and reprinting rights (and any and all agreements, contracts, documents and
materials in any way governing or relating to any of the foregoing rights), and
(d) all editorial, publishing, programming, manufacturing, prepublication and
post-publication, royalty, sales, pricing, cost and promotional files, lists,
records and documents, and (e) all indices, abstracts, compilations, summaries,
glossaries and archives of or for any of the foregoing items, and (f) all other
information and property relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to, any of the foregoing
property identified in this clause or elsewhere in this Section 1.1 and
regardless of whether such property is embodied in a tangible or intangible
medium; and
g. Licenses and Authorizations -- Without limiting any of the
foregoing, all of such Grantor's right, title, interest and benefits in, to and
under all present and future Licenses, Authorizations and other rights for the
construction, development, operation and ownership of its business and
properties including, without limitation, any Licenses and Authorizations issued
by the Federal Communication Commission ("FCC") or any state public utilities
commission ("State PUC") (but only to the extent that and only during such time
as it is not unlawful to grant and enforce a security interest therein), and all
proceeds of such Licenses, Authorizations and other rights, and all rights of
such Grantor in and to all agreements, security agreements, guaranties, leases
and other contracts securing or otherwise relating to any such Licenses,
Authorizations and other rights; and
h. Other General Intangibles -- Without limiting any of the
foregoing, all of such Grantor's right, title, interest and benefits in, to and
under all other general intangibles, wherever arising, including the following:
(a) all corporate, partnership, limited liability company and joint venture
investments and other interests in and to any other entity (including all
ownership rights and interests in such Grantor's subsidiaries, whether or not
such rights and interests are certificated), and the proceeds and general
intangibles related thereto (including all dividends, distributions, capital
accounts and proceeds thereof), and (b) all leasehold interests (whether as
lessee or as lessor) and all related rights thereunder and proceeds thereof, and
(c) all tax refunds and other refunds or rights to
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receive payment from U.S. federal, state, or local governments or from foreign
governments, whether or not arising out of or in connection with the sale or
lease of goods or the rendering of services, and (d) all settlements, judgments
and other awards (whether or not resulting from judicial or arbitration
proceedings) and all tort and contract claims and causes of action; and all
rights of such Grantor in and to all security agreements, guaranties, leases and
other contracts securing or otherwise relating to any such general intangibles;
and
i. Securities and Investment Property -- Without limiting any of the
foregoing, all of such Grantor's right, title, interest and benefits in, to and
under all stocks, options, warrants, bonds, and other securities, security
entitlements, securities accounts, financial assets and other investment
property (including all such securities representing ownership in such Grantor's
subsidiaries), and the proceeds and general intangibles related thereto
(including all dividends and distributions); and
j. Other General Property -- All of such Grantor's other property
and rights of every kind and description and interests therein; and
k. Products and Proceeds -- All products, offspring, rents, issues,
profits, returns, refunds, income and proceeds of and from any and all of the
foregoing Collateral, including the following: all proceeds of the Licenses and
Authorizations, all proceeds that constitute property of the types described in
this Section 1.1, all proceeds deposited from time to time in any lock boxes of
any Grantor, and, to the extent not otherwise included, all payments, unearned
premiums and cash or surrender value under insurance policies (whether or not
Administrative Agent or any Lender is a loss payee or additional insured
thereof), and any indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral;
in each instance (whether or not expressly specified above), wherever located,
and whether now existing, owned, leased or licensed or hereafter acquired ,
leased, licensed, arising, developed, generated, adopted or created for or by
any Grantor, and howsoever any Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
1.2. Security for Secured Obligations. This Security Agreement secures the
payment and performance in full of (a) all obligations (monetary or otherwise)
of each Borrower and each other Obligor now or hereafter existing under the
Credit Agreement or any other Loan Document as well as under any other agreement
with Administrative Agent or any Lender to extend credit to any Obligor or to
any Affiliate of any such Obligor (whether for principal, interest, costs, fees,
expenses, protective advances or otherwise), and (b) all obligations (monetary
or otherwise) of any Grantor now or hereafter existing under this Security
Agreement or any other Loan Document (all such obligations under Clauses "(a)"
and "(b)" being referred to collectively as the "Secured Obligations").
1.3. Continuing Security Interest; Assignment; Termination. This Security
Agreement creates a continuing security interest in and collateral assignment
and pledge of the Collateral and will remain in full force and effect until
terminated as described below in this Section. This Security Agreement is
binding upon each Grantor and its successors, transferees and assignees, and
(together with the rights and remedies of Administrative Agent hereunder) inures
to the benefit of
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Administrative Agent and its successors, transferees, participants and
assignees. Without limiting the generality of the foregoing, except to the
extent restricted under the Credit Agreement, Administrative Agent and each
Lender may assign, syndicate, participate or otherwise transfer (in whole or in
part, and without any Grantor's consent) any Loan Document and any indebtedness
thereunder to any other Person, and such other Person or entity will thereupon
become vested with all the rights and benefits in respect thereof granted to
Administrative Agent or such Lender under any such Loan Document (including this
Security Agreement) or otherwise, subject, however, to any contrary provisions
in such assignment or transfer. The security interest, collateral assignment and
pledge granted herein will terminate (and all rights to the Collateral will
revert to Grantors) upon satisfaction of the following conditions: (a) payment
and performance in full of all Secured Obligations (unconditionally and
indefeasibly) and (b) the termination of the Credit Agreement (and the
Facilities thereunder). Upon any such termination, Administrative Agent (at
Grantors' request and sole expense) (a) will execute and deliver to a Grantor
(without any representation, warranty or recourse of any kind whatsoever) such
documents as such Grantor may reasonably request and provide to Administrative
Agent to evidence such termination, and (b) will deliver to a Grantor or to
another Person that Administrative Agent reasonably believes may be entitled
thereto (without any representation, warranty or recourse of any kind
whatsoever) all stock certificates and instruments representing or evidencing
Collateral being physically held by Administrative Agent hereunder.
1.4. Security Interest Absolute. All rights of Administrative Agent and
Lenders and the security interests, collateral assignments and pledges granted,
assigned and pledged to Administrative Agent hereunder, and all obligations of
each Grantor hereunder, are absolute and unconditional, irrespective of the
occurrence of any one or more of the following:
a. Any lack of validity or enforceability of any Loan Document;
or
b. The failure of Administrative Agent or any Lender or any
holder of any Note:
1. To assert any claim or demand or to enforce any right or
remedy under the provisions of any Loan Document or
otherwise, or
2. To exercise any right or remedy against any other
Obligor of, or any collateral securing, any obligations
of any Borrower owing to any Lender; or
c. Any change in the time, manner or place of payment of, or in
any other term of, any Secured Obligation; or
d. Any other extension, increase, refinancing, restructuring,
compromise or renewal of any Secured Obligation; or
e. Any reduction, limitation, impairment or termination of any
Secured Obligation for any reason, including any waiver,
release, surrender, alteration or compromise; or
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f. Any amendment to, rescission, waiver, or other modification
of, or any consent to departure from, the terms of any Loan
Document; or
g. Any addition, exchange, release, surrender or nonperfection of
any collateral (including the Collateral), or any amendment to
or waiver or release of or addition to or consent to departure
from any guaranty, for any Secured Obligation; or
h. Any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of,
any Grantor or its obligations hereunder, including, without
limitation, any and all suretyship defenses.
Each Grantor hereby waives any right to or any claim of any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of any invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any Secured Obligation.
1.5. Equity Pledge.
a. Grant of Security Interest. Pursuant to Section 1.1, without
limiting the generality thereof, each Grantor pledges, hypothecates, assigns,
charges, mortgages, delivers, and transfers to Administrative Agent and grants
to Administrative Agent a present, absolute, unconditional and continuing
security interest in all of the following property (collectively, "Pledged
Equity Collateral"):
1. All Pledged Equity currently owned by such Grantor; and
2. All Pledged Equity issued from time to time hereafter to
such Grantor; and
3. All other Pledged Equity Property (including, all
options and warrants for Pledged Equity) owned by such
Grantor, whether now or hereafter delivered to
Administrative Agent in connection with this Security
Agreement; and
4. All Dividends, Distributions, capital accounts, and
other payments and rights with respect to any Pledged
Equity Property received or receivable by such Grantor;
and
5. All proceeds of any of the foregoing; and
in each case, whether now existing or owned or hereafter acquired by such
Grantor and howsoever such Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
b. Delivery of Pledged Equity Property. To the extent that any of
the Collateral is evidenced by a certificate or instrument, then all such
certificates or instruments (a) must be
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delivered to and held by or on behalf of Administrative Agent pursuant hereto,
and (b) must be in suitable form for transfer by delivery, and (c) must be
accompanied by all necessary powers, appointments and instruments of transfer or
assignment, duly executed in blank.
c. Dividends and Distributions on Pledged Shares. Except as
otherwise provided in the Credit Agreement, all Dividends, Distributions,
non-Dividend cash payments, and proceeds thereof paid or payable to any Grantor
must be paid directly to Administrative Agent (properly endorsed if required
hereby or requested by Administrative Agent) as additional Collateral hereunder,
unless and until Administrative Agent has terminated this Security Agreement as
provided in Section 1.3. All Dividends, Distributions, cash payments, and
proceeds that at any time and from time to time may be delivered to any Grantor
but which such Grantor is then obligated to deliver to Administrative Agent,
until delivery to Administrative Agent, must be held by such Grantor (a) in
trust for Administrative Agent and (b) separate, segregated and apart from its
other property.
1.6. Collateral Assignment of Contracts.
a. Grant of Security Interest. Pursuant to Section 1.1, without
limiting the generality thereof, each Grantor collaterally assigns to
Administrative Agent all of such Grantor's right, title and interest in and to
all of such Grantor's contracts, licenses, leases and other agreements and all
rights, interests, powers, privileges and other benefits thereunder (including
the rights to receive all proceeds and payments under each such contract,
license, lease and other agreement). This assignment of each contract, license,
lease and other agreement constitutes a fully perfected, absolute, unconditional
and present assignment, provided, however, that prior to the occurrence of an
Event of Default, such Grantor may exercise any rights and powers under and may
receive all payments and enjoy all other benefits of each such contract,
license, lease and other agreement, subject to the terms and provisions of this
Security Agreement and the other Loan Documents.
b. Administrative Agent's Right to Cure. Administrative Agent shall
have the right (but not the obligation) to cure or remedy any breach or default
under any contract, license, lease or other agreement on the part of any
Grantor. The exercise by Administrative Agent of any of its rights hereunder
will not release any Grantor from any of its duties or obligations under any
such contracts, licenses, leases or other agreements included in the Collateral.
Neither Administrative Agent nor any Lender has any obligation or liability
under any such contracts, licenses, leases or other agreements included in the
Collateral by reason of this Security Agreement, nor is Administrative Agent or
any Lender obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
1.7. Collateral Interest in Certain Intellectual Property. Notwithstanding
the language of Section 1.1, Administrative Agent's interest in Copyrights,
Patents and Trademarks (and any applications therefor) is as a security interest
and pledge and not as an absolute assignment.
1.8. Restrictions on Granting Security Interests and Collateral
Assignments. Notwithstanding the terms of this Security Agreement, the
collateral assignment of and security interest in a Grantor's interests in
contracts, licenses, leases and other agreements shall not apply to
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any contract, license, lease or other agreement to the extent that each of the
following characteristics are satisfied with respect thereto: (a) it either (i)
exists on the Closing Date, or (ii) is a Material Contract entered into after
the Closing Date in accordance with the standards under Section 5.16 of the
Credit Agreement, or (iii) is not a Material Contract, and (b) its existence has
been disclosed to the Administrative Agent to the extent it is a Material
Contract, and (c) it expressly prohibits the granting of a security interest in
or the collateral assignment of such Grantor's interest therein, and (d) such
prohibition is enforceable under applicable law.
ARTICLE 2: REPRESENTATIONS AND WARRANTIES
Each Grantor hereby represents and warrants to Administrative Agent as set
forth in this Article. These representations and warranties are qualified in
their entirety by any and all disclosures made in the schedules to the Credit
Agreement.
2.1. Location of Collateral. Except as identified on Schedule 2.1, all of
the Equipment and Inventory of each Grantor is located at the address set forth
below the name of such Grantor on the signature page hereof. Except as
identified on Schedule 2.1, within the four months preceding the date of this
Security Agreement, none of the Equipment or Inventory has been located at any
place other than at such address. The principal places of business and chief
executive office of each Grantor and the offices where each Grantor keeps its
records concerning the Contract Rights and Related Contracts are located at the
address identified on Schedule 2.1.
2.2. Operating Names. Except as identified on Schedule 2.2, during the
preceding 12 years, no Grantor has been (a) operating under or known by any
legal or trade name different from the one set forth on the signature page
hereto or (b) the subject of any merger or other corporate reorganization.
2.3. Ownership; No Liens. Except as identified on Schedule 2.3, Grantors
are the sole and exclusive owners of or have the irrevocable, exclusive and
transferable right to possess and use the Collateral, and Grantors have full
authority to pledge, assign and grant a security interest in the Collateral. The
Collateral is free and clear of any Lien except (a) the security interest,
collateral assignment and pledge created by this Security Agreement and (b) as
otherwise permitted by the Credit Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of the Collateral is
on file in any recording office, except (1) financing statements and
intellectual property security agreements filed in favor of Administrative Agent
relating to this Security Agreement and (2) such other financing statements and
instruments as identified on Schedule 2.3.
2.4. Government Contracts. Except as identified on Schedule 2.4, no
Grantor is a party to any Federal, state or local government contract (either
domestic or foreign).
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2.5. Negotiable Documents, Instruments, Certificated Securities and
Chattel Paper. Contemporaneously with the execution hereof, each Grantor has
delivered to Administrative Agent possession of all originals of all negotiable
documents, certificated securities, instruments and chattel paper (other than
checks received in the ordinary course of business) currently owned or held by
such Grantor (duly endorsed in blank, if requested by Administrative Agent).
2.6. Intellectual Property Collateral. Except as disclosed on the
schedules to the Credit Agreement, with respect to each item of Intellectual
Property Collateral:
a. Such Intellectual Property Collateral is subsisting, valid and
enforceable, and to each Grantor's knowledge (after due inquiry), such
Intellectual Property Collateral has not been adjudged invalid or unenforceable,
in whole or in part.
b. To each Grantor's knowledge (after due inquiry), no claim has
been made that the use of any Intellectual Property Collateral does or may
violate the asserted rights of any third party.
c. Each Grantor has performed all acts and has paid all required
fees and taxes to maintain each and every item of its Intellectual Property
Collateral in full force and effect throughout the world, as applicable, except
where such fees and taxes are being contested in good faith with diligent
prosecution.
d. Each Grantor owns directly, or is entitled to use by license or
otherwise, all Patents, Trademarks, Trade Secrets, Copyrights, licenses,
technology, know-how, processes and rights with respect to any of the foregoing
used in, necessary for or of importance to the conduct of such Grantor's
business. To the extent any such Intellectual Property Collateral was developed
or created for or on behalf of any Grantor as a "work for hire," then such
Grantor has obtained a waiver of any rights herein by the author or creator
hereof.
2.7. As to Pledged Shares. With respect to any Pledged Equity constituting
Collateral, all of such Pledged Equity is duly authorized and validly issued,
fully paid, and non-assessable. The Pledged Equity constitutes all of the issued
and outstanding shares (and other rights) of equity ownership of each Pledged
Equity Issuer owned by any Grantor.
2.8. Valid and Perfected Security Interest. This Security Agreement
creates a valid security interest in and collateral assignment and pledge of the
Collateral and proceeds thereof securing the payment of the Secured Obligations.
All filings and other actions necessary or desirable to perfect and protect such
security interest, collateral assignment and pledge have been duly taken or will
be duly taken as of the effective date hereof. Schedule 2.8 (a) lists each
filing (including filing locations and "debtor" names) that is necessary or
appropriate to perfect the security interests, collateral assignments and
pledges created hereby (including with respect to Intellectual Property
Collateral), and (b) identifies the items of Collateral that must be delivered
to or possessed by Administrative Agent to perfect Administrative Agent's
interest hereunder. Upon perfection (as described in this Section), such
security interest, collateral assignment and pledge will be of a first priority
ranking except as and to the extent noted in Section 2.3 (or on the
corresponding schedule thereto).
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2.9. Authorization and Approval. Except as noted in Section 2.8 (or on the
corresponding schedule thereto), no authorization, approval or other action by
(and no notice to or filing with) any Official Body or other Person is required
either (a) for the grant by any Grantor of the security interest, collateral
assignment and pledge granted hereby, or (b) for the execution, delivery and
performance of this Security Agreement by any Grantor, or (c) for the perfection
by Administrative Agent of its rights and interests hereunder, or (d) except as
provided in Section 5.9(d), for the exercise by Administrative Agent of its
rights and remedies hereunder.
2.10. Compliance with Laws and Contracts. Each Grantor is (and after
execution and delivery of the Loan Documents to which such Grantor is a party,
such Grantor will be) in compliance in all material respects with the
requirements of all applicable laws, rules, regulations, policies, orders and
decrees of every Official Body and with all contractual restrictions, in either
instance the non-compliance with which individually or in the aggregate could
reasonably be expected to have or cause a Material Adverse Effect.
2.11. Validity of Obligations. This Security Agreement constitutes the
legal, valid and binding obligation of each Grantor and is enforceable against
each Grantor in accordance with the terms hereof.
2.12. Solvency; Fraudulent Transfers. No Grantor is "insolvent," as such
term is defined in Section 101(32) of the Bankruptcy Code (11 U.S.C. ss.
101(32)). No Grantor, by virtue of its obligations and actions in connection
with the Loan Documents, has engaged or is engaging in any transaction that
constitutes a fraudulent transfer or fraudulent conveyance under applicable
federal or state law (including under Section 548 of the Bankruptcy Code or
under the Uniform Fraudulent Transfer Act or the Uniform Fraudulent Conveyance
Act).
ARTICLE 3: COVENANTS
Each Grantor covenants and agrees that, so long as this Security Agreement
remains effective, each Grantor will comply with the covenants set forth in this
Article, unless Administrative Agent otherwise consents in writing.
3.1. As to Equipment and Inventory.
a. Except as permitted by Section 5.14 of the Credit Agreement, each
Grantor will keep all the Equipment and Inventory (other than Inventory and
Equipment sold in the ordinary course of business or as otherwise permitted by
the Credit Agreement) at the places therefor specified in Section 2.1 or (upon
prior written notice to Administrative Agent of at least 30 calendar days) at
such other places in a jurisdiction where all of the representations and
warranties in Article 2 at that time will be true and correct. Each Grantor will
take all actions necessary to ensure the continued perfection of Administrative
Agent's interest in such Equipment and Inventory.
b. Each Grantor will maintain and preserve the Equipment in the same
condition, repair and working order as when new (ordinary wear and tear
excepted) and in all material respects
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in accordance with all manufacturer's manuals. Each Grantor will forthwith (or,
in the case of any loss or damage to any Equipment, as quickly as practicable
after the occurrence thereof) make or cause to be made all repairs, replacements
and other improvements in connection with the Equipment that are necessary or
desirable to maintain the Equipment in accordance with the standard set forth in
this Section. Each Grantor will promptly furnish to Administrative Agent a
statement respecting any loss or damage to any of the Equipment.
c. Each Grantor will pay promptly before delinquent all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (whether for labor, materials or supplies) against, the Equipment and
Inventory, except to the extent the validity thereof is being contested in good
faith by appropriate proceedings diligently prosecuted and for which adequate
reserves in accordance with GAAP have been set aside.
3.2. As to Contracts and Related Rights.
a. Each Grantor will keep its principal place of business and chief
executive office and the office where it keeps its records concerning the
Contract Rights and Related Contracts, and all originals of all chattel paper
which evidence Contract Rights, located at the places therefor specified in
Section 2.1 or (upon prior written notice to Administrative Agent of at least 30
calendar days) at such other places in a jurisdiction where all of the
representations and warranties in Article 2 at that time will be true and
correct. Each Grantor will take all actions necessary to ensure the continued
perfection of Administrative Agent's interest in the Contract Rights and Related
Contracts. No Grantor will change its name except upon prior written notice to
Administrative Agent of at least 30 calendar days. Each Grantor will hold and
preserve such records and chattel paper concerning the Contract Rights and
Related Contracts and will permit representatives of Administrative Agent or any
Lender at any time during normal business hours to inspect and make abstracts
from such records and chattel paper.
b. Each Grantor will remain liable under the contracts, licenses,
leases and other agreements included in the Collateral to the extent set forth
therein. Without limiting the foregoing, unless a Grantor otherwise receives
Administrative Agent's prior written consent (which consent will not be
unreasonably withheld while no Default is occurring), then such Grantor (a) will
faithfully abide by, perform and discharge each and every material obligation,
covenant and agreement under each Material Contract (as such term is defined in
the Credit Agreement) to be performed by such Grantor, and (b) will not
materially amend, modify or otherwise alter the terms of any Material Contract
(including the term or duration thereof or the amount of or methodology for
calculating the compensation due thereunder), and (c) will not assign its rights
under any Material Contract, and (d) will not accept (and will not take any
action to cause) a surrender, termination, revocation or cancellation of any
Material Contract unless replaced by a substantially similar contractual
relationship reasonably acceptable to Administrative Agent, and (e) will enforce
the performance of each and every material obligation, covenant and condition of
each Material Contract to be performed by the other parties thereto, and (f)
will appear in and defend any action or proceeding arising under or in any
manner connected with any Material Contract.
c. Each Grantor will give prompt written notice to Administrative
Agent of the occurrence of any default, breach or other material event,
condition or circumstance relating to any
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of such Grantor's Material Contracts (together, if applicable, with a true and
complete copy of any related written notice that such Grantor may have given to
or received from any other party thereto).
3.3. As to Pledged Equity Collateral.
a. Powers and Appointments. Each Grantor agrees that all Pledged
Equity (and all other equity ownership interests constituting Pledged Equity
Collateral) delivered by any Grantor pursuant to this Security Agreement will be
accompanied by duly executed undated blank powers, appointments or other
equivalent instruments of transfer acceptable to Administrative Agent. From time
to time at Administrative Agent's request, each Grantor will promptly deliver to
Administrative Agent such powers, appointments, instruments and similar
documents (satisfactory in form and substance to Administrative Agent) with
respect to the Collateral. From time to time at Administrative Agent's request
after the occurrence of any Event of Default, each Grantor will promptly
transfer any Pledged Equity or other shares of capital stock or ownership
interests constituting Collateral into the name of any nominee designated by
Administrative Agent.
b. Continuous Pledge; Protect Pledged Equity Collateral. At all
times, each Grantor will keep pledged to Administrative Agent pursuant hereto
all Pledged Equity, all other Pledged Collateral, all Dividends and
Distributions with respect thereto (subject, however, to Section 1.5.c), and all
other securities, instruments, proceeds, capital accounts, and rights from time
to time received by or distributable to any Grantor in respect of any Pledged
Equity Collateral. Each Grantor will warrant and defend the right and title
herein granted to Administrative Agent in and to the Pledged Equity Collateral
(and all right, title, and interest represented by the Pledged Equity
Collateral) against the claims and demands of all persons whomsoever.
c. Delivery of Dividends, Distributions and Other Collateral. Except
as provided in the Credit Agreement, promptly upon receipt and without any
request by Administrative Agent, each Grantor agrees to deliver to
Administrative Agent (properly endorsed if required hereby or requested by
Administrative Agent) all Distributions, all Dividends (subject, however, to
Section 1.5.c), all other non-Dividend cash payments, and all proceeds thereof,
all of which will be held by Administrative Agent as additional Pledged Equity
Collateral. All Dividends, Distributions, cash payments, and proceeds that at
any time and from time to time may be delivered to any Grantor but which such
Grantor is then obligated to deliver to Administrative Agent, until delivery to
Administrative Agent, must be held by such Grantor (a) in trust for
Administrative Agent and (b) separate, segregated and apart from its other
property.
d. Voting Rights.
1. Unless and until an Event of Default has occurred and is
continuing, each Grantor will have the exclusive right to exercise all voting
rights with respect to its Pledged Equity. Upon written request from a Grantor
(and at such Grantor's sole expense), Administrative Agent will promptly execute
and deliver such proxies and other documents, if any, as reasonably requested in
writing by such Grantor (together with a reasonably acceptable form thereof)
that are necessary to allow such Grantor to exercise voting power with respect
to any such Pledged Equity owned by such Grantor constituting Pledged Equity
Collateral; provided, however, that no vote may be cast or other action taken by
any Grantor (including, the giving of any consent, waiver, or
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ratification) that could impair any Pledged Equity Collateral or would otherwise
be inconsistent with or violate any provision of any Loan Document (including
this Security Agreement).
2. After any Event of Default has occurred and is continuing
and Administrative Agent has notified any Grantor of Administrative Agent's
intention to exercise its voting power, unless otherwise then expressly
impermissible under applicable law, Administrative Agent may exercise (to the
exclusion of each Grantor) the voting power and all other incidental rights of
ownership with respect to any Pledged Equity or other ownership interests
constituting Pledged Equity Collateral. Each Grantor hereby grants
Administrative Agent an irrevocable proxy, exercisable under such circumstances,
to vote the Pledged Equity and such other Pledged Equity Collateral. Each
Grantor hereby covenants to promptly deliver to Administrative Agent such
additional proxies, appointments and other documents as may be necessary to
allow Administrative Agent to exercise such voting power and other incidental
ownership rights.
3.4. As to Intellectual Property Collateral.
a. No Grantor (1) will fail to maintain (in a manner consistent with
its historical practices) the quality of products and services offered under all
of the Trademark Collateral, or (2) will fail to employ with all of the
Trademark Collateral (whether or not registered with any Official Body) an
appropriate notice of such trademark, or (3) will fail to employ with all of the
Copyright Collateral an appropriate notice of such copyright, or (4) will fail
to employ with any Patent Collateral registered with the U.S. Patent and
Trademark Office, or in a foreign country, an appropriate notice of such
registration.
b. No Grantor will do or permit any act (or knowingly omit to do any
act) whereby any of the Intellectual Property Collateral may lapse or become
abandoned, forfeited, invalid, dedicated to the public or unenforceable (except
upon expiration of the end of an unrenewable term of a registration thereof)
without the prior written consent of Administrative Agent (which consent will
not be unreasonably withheld while no Default is occurring).
c. Each Grantor will promptly notify Administrative Agent if such
Grantor believes (or has reason to believe) that (1) any application or
registration relating to any material item of the Intellectual Property
Collateral may become abandoned, dedicated to the public, placed in the public
domain, invalid or unenforceable, or (2) there has been or will be an adverse
determination or development (including the institution of, or any determination
or development in, any proceeding in the United States Patent and Trademark
Office, the United States Copyright Office or any other Official Body) regarding
such Grantor's ownership of any material item of the Intellectual Property
Collateral, its right to register the same, or its right to keep, maintain and
enforce the same.
d. If any Grantor files an application for the registration of any
Intellectual Property Collateral with the United States Patent and Trademark
Office, the United States Copyright Office or any other Official Body, then such
Grantor must notify Administrative Agent thereof within 30 calendar days
thereafter, and upon request of Administrative Agent, must promptly execute and
deliver any and all agreements, instruments, documents and papers that
Administrative
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Agent may request to evidence Administrative Agent's security interest in such
Intellectual Property Collateral.
e. Each Grantor will perform all acts and will pay all required fees
and taxes (including in any proceeding before the United States Patent and
Trademark Office, the United States Copyright Office or any other Official Body)
to maintain each and every item of Intellectual Property Collateral in full
force and effect throughout the world and to pursue any application filed with
respect to the Intellectual Property Collateral, including the filing of
applications for renewal, affidavits of use, affidavits of incontestability and
opposition, and interference and cancellation proceedings.
f. Upon any Grantor's acquiring any Intellectual Property Collateral
the acquisition of which must be recorded in order to perfect such Grantor's
interest therein, then such Grantor will promptly record its interest therein
and will notify Administrative Agent thereof within 30 calendar days thereafter.
g. Each Grantor (1) will protect, defend and maintain the validity
and enforceability of the Intellectual Property Collateral, and (2) will use its
best efforts to detect infringements of the Intellectual Property Collateral and
promptly notify Administrative Agent in writing of material infringements
detected.
h. Each Grantor, on a continuing basis, will register such Grantor's
Trademarks, pursue patent protection for such Grantor's inventions, and register
the most recent versions of any of such Grantor's Copyrights.
i. No Grantor will enter into any agreement that would materially
impair or conflict with such Grantor's obligations hereunder with respect to its
Intellectual Property Collateral. No Grantor will permit the inclusion in any
material contract to which it becomes a party any provisions that could in any
way prevent the creation of a security interest in such Grantor's rights and
interest in any property included within the definition of the Intellectual
Property Collateral acquired or licensed under such contracts. No Grantor will
arrange for the creation or development of any Intellectual Property Collateral
as a "work for hire" without concurrently obtaining a waiver of all rights
therein by the author or creator thereof.
j. Each Grantor will promptly notify Administrative Agent in writing
upon obtaining knowledge of any event that materially adversely affects (1) the
value of any material Intellectual Property Collateral, or (2) the ability of
such Grantor to dispose of any material Intellectual Property Collateral, or (3)
the rights and remedies of Administrative Agent in relation thereto, including
the levy of any legal process against any of the Intellectual Property
Collateral.
k. Each Grantor, on a continuing basis, will make, execute,
acknowledge and deliver, and will file and record in the proper filing and
recording places in the United States, all such instruments, collateral
agreements and filings (including all appropriate financing and continuation
statements) with the United States Patent and Trademarks Office and the Register
of Copyrights, and will take all such action as Administrative Agent may
reasonably deem to be necessary or advisable to perfect or protect
Administrative Agent's security interest in all Intellectual
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Property Collateral and otherwise to carry out the intent and purpose of this
Security Agreement, or for assuring and confirming to Administrative Agent the
grant or perfection of a security interest in all Intellectual Property
Collateral.
3.5. As to Customer and Material Business Records and Computer Software.
a. Upon Administrative Agent's request, each Grantor (at its cost
and expense) will maintain at a separate location a duplicate current copy of
(1) all lists, files and records of active and prospective customers and
subscribers, and (2) all material computer software and data bases (including
all material application and operating system software and all material data
files and operating manuals), and (3) all other material business files, records
and software that Administrative Agent may reasonably request in writing from
time to time. Unless Administrative Agent otherwise consents, such records,
materials and information must be kept (at Grantors' election) either with
Administrative Agent or with an unrelated business that is engaged in the
business of storing such items and that is reasonably acceptable to
Administrative Agent. For purposes of this Clause, such records, materials and
information will be considered "current" if they were accurate and complete
within the immediately preceding 30 calendar days.
b. If any Grantor elects to keep such records, materials and
information with an unrelated business, then (upon Administrative Agent's
request) such Grantor will notify such business at which such records, materials
and information are maintained (1) that Administrative Agent, each Lender and
their representatives are authorized from time to time to inspect, examine,
audit and make copies and abstracts of such records, materials and information
during normal business hours, and (2) that, upon receipt of written notice from
Administrative Agent that an Event of Default has occurred under the Loan
Documents, such business is to release and deliver such records, materials and
information to Administrative Agent in such manner and at such place as
Administrative Agent may direct (in its sole and absolute discretion), and (3)
that such business is not to release or return such records, materials or
information to any Grantor without Administrative Agent's prior written consent
unless (a) such Grantor has delivered a more current version thereof to such
business or (b) this Security Agreement has been terminated in accordance with
Section 1.3.
c. Each Grantor will also otherwise utilize standard industry
precautions to safeguard the utility, value and confidentiality of all such
records, materials and information covered by this Section.
3.6. As to Certain Investment Property (including Margin Stock). Without
obtaining Administrative Agent's prior written consent (which consent will not
be unreasonably withheld while no Default is occurring), no Grantor will
establish or maintain any "securities account" or "financial asset" with any
"securities intermediary" (as such terms are defined in Article 8 of the UCC),
unless a control agreement acceptable in form and substance to Administrative
Agent is first executed by such "securities intermediary" securing
Administrative Agent's first priority interest and rights in and to all
"financial assets" and "security entitlements" associated with such "securities
account". Without obtaining Administrative Agent's prior written consent (which
consent will not be unreasonably withheld while no Default is occurring), no
Grantor will purchase or carry any "Margin Stock" within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System.
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3.7. Insurance. Each Grantor will maintain insurance coverages to the same
extent and subject to the same requirements and conditions as required for
Borrowers under the Credit Agreement. Payments and proceeds of claims or losses
in respect of insurance coverage are to be delivered to Administrative Agent and
may be held by Administrative Agent (at its discretion) as additional Collateral
for, and at any time during the occurrence of an Event of Default may be applied
by Administrative Agent in whole or in part against, all or any part of the
Secured Obligations in such order as Administrative Agent elects.
3.8. Transfers and Other Liens.
a. No Grantor will sell, transfer, assign, lease, license or
otherwise dispose of any of the Collateral, except (1) Inventory sold, leased or
licensed in the ordinary course of business to unrelated third parties for value
received, and (2) Equipment that has become obsolete or worn out, and (3)
Equipment leased or licensed in the ordinary course of business to unrelated
third parties for value received, and (4) Intellectual Property Collateral
licensed to unrelated third parties for value received and subject to at least
commercially reasonable terms and conditions from the perspective of such
Grantor, and (5) as otherwise permitted by the Credit Agreement.
b. Each Grantor will maintain the security interest, collateral
assignment and pledge created hereby as a first priority interest (except as
otherwise permitted by the Credit Agreement), and no Grantor will create or
suffer to exist any Lien upon or with respect to any of the Collateral to secure
any indebtedness or obligations of any Person, (except as otherwise permitted by
the Credit Agreement).
3.9. Further Assurances. Each Grantor (from time to time at its own
expense) will promptly execute and deliver all further instruments and
documents, and will take all further action, that may be necessary or desirable
(or that Administrative Agent may reasonably request) in order to perfect,
preserve and protect any security interest, collateral assignment or pledge
granted or purported to be granted hereby or to enable Administrative Agent to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, each Grantor:
a. Will mark conspicuously each chattel paper included in the
Contract Rights and, at the request of Administrative Agent, each of its records
pertaining to the Collateral with a legend (in form and substance reasonably
satisfactory to Administrative Agent) indicating that such chattel paper is
subject to the security interest, collateral assignment and pledge granted
hereby; and
b. If any Contract Rights shall be evidenced by a promissory note or
other instrument, negotiable document or chattel paper, then will deliver and
pledge to Administrative Agent hereunder such promissory note, instrument,
negotiable document or chattel paper duly endorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
reasonably satisfactory to Administrative Agent; and
c. Will execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices as may be necessary
(or as
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Administrative Agent may reasonably request) in order to perfect and preserve
the security interests, collateral assignments, pledges and other rights granted
or purported to be granted to Administrative Agent hereby; and
d. Will furnish to Administrative Agent (from time to time at
Administrative Agent's request) statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Administrative Agent may reasonably request, all in reasonable
detail.
With respect to the foregoing and the grant of the security interest, collateral
assignment and pledge hereunder, each Grantor hereby authorizes Administrative
Agent to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signature of
such Grantor where permitted by law. A carbon, photographic or other
reproduction of this Security Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
ARTICLE 4: LENDER
4.1. Administrative Agent Appointed Attorney-in-Fact. Each Grantor hereby
irrevocably appoints Administrative Agent as such Grantor's attorney-in-fact,
with full authority in the name, place and stead of such Grantor or otherwise,
from time to time in Administrative Agent's reasonable discretion, to take any
action and to execute any instrument which Administrative Agent may deem
reasonably necessary or advisable to accomplish the purposes of this Security
Agreement upon the occurrence and during the continuation of an Event of
Default. This authority includes the following:
a. To ask, demand, collect, sue for, recover, compromise,
restructure, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the
Collateral; and/or
b. To notify the parties obligated on any of the Collateral to
make payment to Administrative Agent of any amount due or to
become due in connection therewith; and/or
c. To receive, endorse, and collect any drafts, checks or other
instruments, documents and chattel paper in connection with
Clause "a" of this Section; and/or
d. To file any claims or take any action or institute any
proceedings which Administrative Agent may deem reasonably
necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of
Administrative Agent, any Lender or any Grantor with respect
to any of the Collateral; and/or
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e. To execute (in the name, place and stead of any Grantor)
endorsements, assignments, powers and other instruments of
conveyance or transfer with respect to all or any of the
Collateral; and/or
f. To perform any and all of the affirmative obligations and
covenants of such Grantor hereunder (with notice thereof to be
provided to such Grantor by Administrative Agent within a
reasonable time thereafter).
Each Grantor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest,
but that it will terminate upon the termination of this Security Agreement
pursuant to Section 1.3.
4.2. Administrative Agent May Perform. From time to time, Administrative
Agent (at its option) may perform (or may cause the performance of) any act
which any Grantor agrees hereunder to perform and which such Grantor fails to
perform after being requested in writing so to perform (it being understood that
no such request need be given during the continuance of an Event of Default),
and Administrative Agent from time to time may also take any other action which
Administrative Agent reasonably deems necessary for the maintenance,
preservation or protection of any of the Collateral or of its security interest
therein or collateral assignments or pledges thereof. The costs and expenses of
Administrative Agent incurred in connection with any such performance will be
payable by Grantors (jointly and severally) pursuant to Section 5.3 hereof.
4.3. Administrative Agent Has No Duty. The rights and powers conferred
upon Administrative Agent hereunder are solely to protect Administrative Agent's
and each Lender's interest in the Collateral and do not impose any duty on
Administrative Agent to exercise any such rights or powers. Except for
reasonable care of any Collateral in Administrative Agent's possession and the
accounting for moneys actually received by it hereunder, Administrative Agent
has no duty as to any Collateral or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral.
4.4. Reasonable Care. Administrative Agent is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, Administrative Agent will be deemed to have
exercised such reasonable care in the custody and preservation of any of the
Collateral if Administrative Agent takes such action for that purpose as any
Grantor reasonably requests in writing at times other than after the occurrence
or during the continuance of a Default. Notwithstanding the foregoing, any
failure or refusal by Administrative Agent at any time to comply with any such
request by any Grantor will not in itself be deemed a failure to exercise
reasonable care.
ARTICLE 5: DEFAULTS AND REMEDIES
5.1. Events of Default. The occurrence of any "Event of Default" under and
as defined in the Credit Agreement will constitute an independent Event of
Default ("Event of Default") hereunder.
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5.2. Certain Remedies. If any Event of Default occurs and is continuing:
a. In addition to other rights and remedies provided for herein
(including under Article 4) or otherwise available to Administrative Agent or
any Lender (including under the other Loan Documents and/or applicable law),
Administrative Agent may also exercise in respect of the Collateral all the
rights and remedies of a secured party upon default under the UCC (whether or
not the UCC applies to the affected Collateral). Upon the occurrence of any
Event of Default, Administrative Agent will have the immediate right to enforce
and realize upon any and all collateral security granted under the Loan
Documents (including the Collateral hereunder) in any manner or order that
Administrative Agent deems expedient without regard to any equitable principles
of marshalling or otherwise. All rights and remedies available to Administrative
Agent or any Lender are to be considered cumulative in nature.
b. Without notice except as expressly specified herein or required
by applicable law, Administrative Agent may also sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Administrative Agent may deem
commercially reasonable. To the extent notice of sale is required by law, each
Grantor agrees that prior notice to a Grantor of at least ten (10) calendar days
indicating the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification.
Administrative Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Administrative Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale (without further notice) may be made at the
time and place to which it was so adjourned.
c. Administrative Agent may require Grantors to, and each Grantor
hereby agrees (at its expense) that it will, forthwith assemble all or part of
the Collateral as directed by Administrative Agent and make it available to
Administrative Agent at a place designated by Administrative Agent that is
reasonably convenient to both Administrative Agent and Grantors.
d. Unless Administrative Agent otherwise consents, each Grantor will
remit to Administrative Agent all cash proceeds received in respect of any sale
of, or collection from, or other realization upon all or any part of the
Collateral. All cash proceeds received by Administrative Agent from any Grantor
or otherwise in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral (in the discretion of Administrative
Agent) may be held by Administrative Agent as additional Collateral for the
Secured Obligations, and/or then or at any time thereafter may be applied in
whole or in part by Administrative Agent against all or any part of the Secured
Obligations in an order consistent with the designated application of payments
provided for in Section 1.5 of the Credit Agreement. Any surplus of such cash or
cash proceeds held by Administrative Agent and remaining after payment in full
of all the Secured Obligations will be paid over to a Grantor or to whomsoever
Administrative Agent reasonably believes may be lawfully entitled to receive
such surplus.
e. To the extent any of the Collateral represents an interest in a
partnership, a limited liability company or other unincorporated enterprise, in
addition to any other rights and remedies available to Administrative Agent or
any Lender under the Loan Documents or applicable
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law, Administrative Agent (at its option but with notice to the relevant
Grantor) may also exercise all rights and privileges of the holder of such
interest under the agreements governing such Collateral and the Organic
Documents for the related organization or may instruct such Grantor how to
exercise such rights and privileges (with which instructions each Grantor hereby
agrees to comply). Each Grantor, in addition, covenants and agrees (at
Administrative Agent's request) to amend (and to use its best efforts to cause
others to amend) any of the Organic Documents for such organization in order to
authorize Administrative Agent to so exercise any such rights and privileges
associated with such Collateral (including voting rights and the rights to
participate in management decisions). The rights of Administrative Agent under
this Subsection may be transferred to and exercised by any subsequent acquiror
or transferee of the Collateral pursuant to any sale of or foreclosure on such
Collateral. Each Grantor hereby agrees that the rights of Administrative Agent
and each Lender (or any subsequent acquiror or transferee of the Collateral)
under this Subsection may be enforced by specific performance or otherwise.
5.3. Special Securities-Related Remedies.
a. Compliance with Restrictions. Each Grantor agrees that, in any
sale of any of the Pledged Equity Collateral, Administrative Agent is authorized
to comply with any limitation or restriction in connection with the type of such
sale pursued as Administrative Agent may be advised by counsel is necessary or
reasonably desirable in order to avoid any violation of applicable law
(including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications, and restrict such prospective bidders
and purchasers to persons who will represent and agree that they are purchasing
for their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any Official Body. Each Grantor further agrees that
such compliance will not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor will Administrative
Agent or any Lender be liable or accountable to any Grantor for any discount
allowed by reason of the fact that such Collateral is sold at foreclosure or
otherwise in compliance with any such limitation or restriction or by reason of
the fact that such Pledge Equity Collateral may represent a minority interest in
any Grantor.
5.4. Special IP-Related Remedies (License of Intellectual Property
Collateral). Each Grantor hereby grants Administrative Agent a royalty-free,
non-exclusive, worldwide, irrevocable license (the "Remedies License") to make,
use and sell from time to time after the occurrence of any Event of Default that
is not waived by Administrative Agent and delivery of notice thereof by
Administrative Agent (unless such Event of Default is under Section 7.1.10 of
the Credit Agreement, in which case no such notification shall be required) all
present and future Intellectual Property Collateral of such Grantor (including
the right to sub-license such Intellectual Property Collateral) in connection
with the maintenance, preservation, preparation, sale, disposition, collection,
foreclosure, or other realization of, upon, or with respect to the Collateral or
payment of the Secured Obligations in accordance with the Loan Documents. The
Remedies License shall remain in full force and effect until this Security
Agreement is terminated in accordance with Section 1.3 (but any sub-license or
transfer of the Remedies License prior to the termination of the Remedies
License shall survive such termination of the Remedies Licenses unless otherwise
provided on such sub-license or transfer document). The rights of Administrative
Agent under the Remedies License are assignable by
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Administrative Agent (without the consent of such Grantor) in connection with
(a) any sale or other disposition of Collateral in accordance with the Loan
Documents to the extent necessary or appropriate to permit the purchaser of such
Collateral to have continuing and royalty-free, worldwide rights with respect to
such Collateral or (b) any assignment or other transfer by Administrative Agent
of all or any part of its rights under and in accordance with the Loan
Documents. Upon or at any time after the occurrence of any Event of Default,
each Grantor will deliver to Administrative Agent (at Administrative Agent's
request but at such Grantor's expense) a copy of all such Intellectual Property
Collateral and all related other Collateral in a form requested by
Administrative Agent. Administrative Agent's rights as a licensee under this
Section constitute a separately enforceable contract from the balance of this
Security Agreement.
5.5. Indemnity and Expenses.
a. Each Grantor agrees (jointly and severally) to indemnify and hold
Administrative Agent and each Lender harmless from and against any and all
claims, losses and liabilities arising out of or in any manner resulting from
any or all of the following: (1) any Grantor's failure to perform or otherwise
observe any of its obligations hereunder, or (2) Administrative Agent's
enforcement of any of the provisions hereof, or (3) any Grantor's gross
negligence, misrepresentation, willful misconduct or fraud.
b. Upon demand, each Grantor (jointly and severally) will pay
Administrative Agent the amount of any and all costs and expenses that
Administrative Agent or any Lender may incur in connection with any of the
matters described under clause "a" of this Section. Without limitation, each
Grantor's obligation to reimburse Administrative Agent for such fees, costs and
expenses includes all reasonable fees and disbursements of Administrative
Agent's or any Lender's counsel and any other experts and agents that
Administrative Agent or any Lender may retain in connection herewith (whether or
not litigation is commenced).
c. If any Grantor fails or refuses to pay Administrative Agent any
amount due hereunder or to otherwise deliver to Administrative Agent any
property required to be delivered hereunder, then such amount (or, as
appropriate, the fair market value of such property) will accrue interest until
paid or delivered at a per annum rate equal to the lesser of: (i) two percent
(2%) per annum in excess of the highest rate then otherwise applicable to
indebtedness under the Credit Agreement (not including the default rate) or (ii)
the maximum amount permitted by applicable law.
5.6. Administrative Agent's Rights Upon Occurrence of Liquidation Events.
a. Right to Certain Payments and Distributions. Upon the occurrence
of any Liquidation Event, any payment or distribution of any kind or character
(whether in cash, securities or other property) that but for this Security
Agreement would be payable or deliverable to a Grantor must instead be paid or
delivered directly to Administrative Agent for application on the Secured
Obligations, whether or not then due or mature.
b. Non-Cash Payments and Distributions. Notwithstanding the
provisions of Clause "a" of this Section, if Administrative Agent receives
delivery of any such payment or distribution in connection with a Liquidation
Event in a form other than cash, then Administrative
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Agent may hold such property as additional Collateral for the Secured
Obligations, and neither any Grantor nor any other Obligor of the Secured
Obligations will be entitled to a credit with respect to the Secured
Obligations, nor will the Secured Obligations otherwise be adjusted in any
respect, until such time as Administrative Agent (in its sole and absolute
discretion) has sold, discounted or otherwise liquidated such distribution (at a
price considered by Administrative Agent to be in its sole best interest) and
then (subject to the terms of Section 7.8), such credit or adjustment to the
Secured Obligations will be limited only to the net cash proceeds realized
therefrom after the payment of all costs and expenses associated with such sale
or liquidation.
c. Collection of Payments and Distributions. In addition to any
rights otherwise permitted under the Loan Documents or applicable law, each
Grantor hereby irrevocably authorizes and empowers Administrative Agent, upon
the occurrence of a Liquidation Event, to file and/or vote claims and take such
other proceedings, in each instance in Administrative Agent's own name or in the
name of a Grantor, or otherwise, all as Administrative Agent may deem reasonably
necessary or advisable for the enforcement of this Security Agreement. Each
Grantor further agrees duly and promptly (i) to take such action as may be
requested by Administrative Agent to assist in the collection and/or compromise
of any amounts owed to any Grantor, and (ii) to file appropriate proofs of claim
in respect of such amounts, and (iii) to execute and deliver to Administrative
Agent on demand such powers of attorney, proofs of claim, assignments of claim
or other instruments as may be requested by Administrative Agent to enable
Administrative Agent to enforce any and all claims upon or with respect to such
amounts, and (iv) to collect, compromise and receive any and all payments or
distributions which may be payable or deliverable at any time upon or with
respect to such amounts.
5.7. Delivery of Payments and Distributions. If any Grantor receives any
payment, distribution or any other funds or property in contravention of the
provisions hereof or any other Loan Document, then such Grantor must immediately
forthwith deliver such payment, distribution or other funds or property (or
proceeds thereof) to Administrative Agent in precisely the form received (except
for the endorsement or assignment without recourse of such Grantor where
necessary) for application on the Secured Obligations (or, at Administrative
Agent's option, held as additional Collateral therefor), whether or not then due
or mature. Until such funds or property are delivered to Administrative Agent,
such Grantor must hold such payment, distribution or other funds or property (or
proceeds thereof) (a) in trust for the benefit of and as property of
Administrative Agent and (b) separate from (i.e., not commingled with) its other
assets. If a Grantor fails or refuses to make any such endorsement or
assignment, then Administrative Agent (or any of its officers or employees) are
hereby irrevocably authorized by such Grantor to make the endorsement and/or
assignment.
5.8. Cooperation and Assistance. Each Grantor agrees (during the existence
of a Default) to take any actions that Administrative Agent may reasonably
request in order to enable Administrative Agent and each Lender to receive the
full rights and benefits granted to Administrative Agent and each Lender by the
Loan Documents. Each Grantor further agrees that, during the existence of a
Default or an Event of Default, each Grantor will assist and cooperate with
Administrative Agent (and will use its best efforts to cause others to assist
and cooperate with Administrative Agent) to ensure that each Grantor continues
(a) to operate in the normal course of business, and (b) to fulfill all of its
legal, regulatory and contractual obligations and (c) to otherwise
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be properly and professionally managed. At Administrative Agent's request and
the expense of Grantors (jointly and severally), at any time during the
existence of an Event of Default, such assistance and cooperation may include
the employment of (and, to the maximum extent not prohibited by the rules,
regulations and orders of any Official Body with jurisdiction, the delegation of
appropriate management authority to) one or more qualified and independent
consultants and professional managers acceptable to Administrative Agent to
assist in the interim operations of Grantors; all of which each Grantor hereby
agrees not to challenge.
5.9. Special Regulatory (FCC) Remedies.
a. Each Grantor and Administrative Agent hereby acknowledge their
intent that, during the existence of an Event of Default, to the fullest extent
permitted by applicable law and governmental policy (including the rules,
regulations and policies of the FCC and each State PUC), Administrative Agent
will have all rights necessary or desirable to obtain, use and/or sell the
assets and operations of each Grantor and the other Collateral, and to exercise
all remedies available to Administrative Agent and each Lender under the Loan
Documents, the Uniform Commercial Code or other applicable law. Each Grantor and
Administrative Agent agree that, if any applicable law or governmental policy
changes subsequent to the date hereof that affects in any manner Administrative
Agent's rights of access to, or use or sale of, any Grantor's assets or other
Collateral (including Authorizations) or the procedures necessary to enable
Administrative Agent to obtain such rights of access, use or sale during an
Event of Default, then Administrative Agent and each Grantor will amend the Loan
Documents (in such manner as Administrative Agent reasonably requests) in order
to provide Administrative Agent with all such rights to the greatest extent
possible consistent with then-applicable law and governmental policy.
b. At any time during the existence of an Event of Default, at the
cost and expense of Grantors (jointly and severally), each Grantor will use its
best efforts to assist and cooperate in obtaining all approvals (including all
FCC and State PUC approvals) which are then required by applicable law or
contract for or in connection with any action or transaction contemplated by the
Loan Documents or the Uniform Commercial Code. Each Grantor further agrees, upon
Administrative Agent's request and at the expense of Grantors (jointly and
severally), at any time during the existence of an Event of Default, to prepare,
sign, file and diligently prosecute (and to use its best efforts to cause the
preparation, execution, filing and diligent prosecution by others) with the FCC
the assignor's or transferor's portion of any applications for consent to the
assignment of Authorizations or transfer of control thereof necessary or
appropriate under the rules of each Official Body for approval of any sale or
transfer of any Collateral or any Authorization pursuant to the exercise of
Administrative Agent's and Lenders' remedies under the Loan Documents. Each
Grantor further consents to (and agrees that it will not challenge), at any time
during the existence of an Event of Default, the transfer of control or
assignment of Authorizations and other assets to a receiver, trustee,
transferee, or similar official or to any purchaser of the Collateral pursuant
to any public or private sale, judicial sale, foreclosure or exercise of other
remedies available to Administrative Agent or any Lender as permitted by
applicable law.
c. In addition to the other rights and remedies provided for herein
or otherwise available to Administrative Agent or any Lender, upon the
occurrence of an Event of Default, Administrative Agent may require each Grantor
to, and each Grantor (at its sole expense) hereby
24
<PAGE>
agrees that it will take all actions necessary or reasonably advisable (1) to
cooperate with Administrative Agent in effecting the transfer of any or all of
its Licenses to a transferee acceptable to the FCC or (2) to sell any or all of
its Licenses at public or private sale for cash, on credit or for future
delivery. Each Grantor will also use its best efforts to sell its Licenses for
the best available price, and (in furtherance of such efforts) each Grantor (a)
will hire one or more brokers to solicit buyers, and (b) will cause such
information and materials regarding its Licenses and operations to be compiled
as is customarily prepared or as is needed under the circumstances, and (c) will
make available to prospective purchasers such information (including any
information compiled in accordance with Clause "(b)") as is customary or as is
needed under the circumstances.
d. Notwithstanding anything to the contrary contained in any Loan
Document, neither Administrative Agent nor any Lender nor any Grantor will take
any action pursuant to the Loan Documents that would constitute or result in any
assignment of an Authorization or any transfer of control of any Grantor if such
assignment of Authorization or transfer of control would require under then
existing law (including the written rules and regulations promulgated by the
FCC) the prior approval of the FCC or any State PUC, unless such approval has
been obtained (as applicable) from such State PUC (to the extent failure to
obtain such approval by Administrative Agent could reasonably be expected to
have or cause a Material Adverse Effect) or from the FCC. Without limiting the
generality of the foregoing, Administrative Agent and each Lender each
specifically agrees that (a) voting rights with respect to the pledged equity
interests of each Grantor will remain with the holders of such voting rights
during the existence of an Event of Default unless and until any required prior
approvals to the transfer of such voting rights have been obtained (as
applicable) from such State PUC (to the extent failure to obtain such approval
by Administrative Agent could reasonably be expected to have or cause a Material
Adverse Effect) or from the FCC, and (b) during the existence of any Event of
Default and foreclosure upon the Collateral by Administrative Agent, there will
be either a private or public sale of the Collateral, and (c) prior to the
exercise of voting rights by the purchaser at any such sale, any consent of any
State PUC or the FCC required pursuant to any State Communications Act (to the
extent failure to obtain such consent could reasonably be expected to have or
cause a Material Adverse Effect) or the Federal Communications Act
(respectively) will be obtained.
ARTICLE 6: DEFINITIONS
6.1. Credit Agreement Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Security Agreement (including the
preamble and recitals hereof) have the meanings provided in the Credit
Agreement.
6.2. Rules of Construction. The rules of interpretation and construction
set forth in Section 9.2 of the Credit Agreement apply to the interpretation and
construction of this Security Agreement.
6.3. Certain Terms. The following terms (whether or not underscored) when
used in this Security Agreement (including the preamble and recitals hereof)
have the following meanings:
a. "Administrative Agent" means MCG Finance Corporation and any
successor, assignee, transferee, pledgee or participant thereof.
25
<PAGE>
b. "Borrower(s)" means, individually and collectively, each Borrower
under and as defined in the Credit Agreement, including any successor or
assignee thereof.
c. "Collateral" is defined in Section 1.1.
d. "Computer Software Collateral" is defined in Section 1.1.
e. "Contract Rights" is defined in Section 1.1.
f. "Copyright Collateral" is defined in Section 1.1.
g. "Credit Agreement" is defined in the Recitals.
h. "Distribution" means all equity dividends, liquidating dividends,
shares or interests of equity resulting from (or in connection with the exercise
of) equity splits, reclassifications, warrants, options, non-cash dividends,
mergers, consolidations, distributions of capital accounts, and all other
distributions (whether similar or dissimilar to the foregoing) on or with
respect to any Pledged Equity or other shares or interests of equity
constituting Pledged Equity Collateral, but such term does not include
Dividends.
i. "Dividend" means cash dividends and cash distributions with
respect to any Pledged Equity or other Pledged Equity Property made in the
ordinary course of business, but such term shall not include a liquidating
dividend.
j. "Equipment" is defined in Section 1.1.
k. "Fixture" is defined in Section 1.1.
l. "Grantor" means each Person that from time to time executes this
Security Agreement (or a counterpart hereof or supplemental addendum hereto) as
a grantor hereunder, and any successor or permitted assignee thereof.
m. "Intellectual Property Collateral" means, collectively, the
Computer Software Collateral, the Copyright Collateral, the Patent Collateral,
the Trademark Collateral and the Trade Secrets Collateral, as defined in Section
1.1.
n. "Inventory" is defined in Section 1.1.
o. "License" means any authorization, permit, call sign, frequency
designation, consent, franchise, ordinance, registration, certificate, license,
agreement or other right filed with, granted by, or entered into by a federal,
state or local Official Body.
p. "Lien" means any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, option, claim, encumbrance, lien
(statutory or otherwise), charge
26
<PAGE>
against or interest in property to secure payment of a debt or performance of an
obligation or other priority or preferential arrangement of any kind or nature
whatsoever.
q. "Liquidation Event" means any foreclosure on or any sale of all
or any material part of the assets of any Grantor, or any liquidation,
dissolution or other winding up (partial or complete) of any Grantor or any
Grantor's business, or any sale, receivership, insolvency or bankruptcy
proceeding, any assignment for the benefit of creditors, or any other proceeding
by or against any Grantor or its assets for any relief under any bankruptcy or
insolvency law relating to the relief of debtors, readjustment of indebtedness,
arrangements, reorganizations, compositions or extensions.
r. "Official Body" means any federal, state, local, or other
government (or any political subdivision, agency, authority, bureau, commission,
department or instrumentality thereof, including the FCC and each State PUC) and
any court, tribunal, grand jury or arbitrator, in each instance whether foreign
or domestic.
s. "Operating Agreements" means any consulting agreement, management
agreement, employment agreement, cost allocation agreement or other similar
agreement relating to the operation of any Grantor's business.
t. "Patent Collateral" is defined in Section 1.1.
u. "Person" means any natural person, corporation, partnership,
limited liability company, firm, association, trust, government, governmental
agency or any other entity, whether acting in an individual, fiduciary or other
capacity.
v. "Pledged Equity" means all shares of capital stock and all other
forms of equity or ownership rights and interests (whether in the form of
partnership interests, membership interests or otherwise) of or in any
corporation, partnership, limited liability company business trust or other
business entity.
w. "Pledged Equity Collateral" is defined in Section 1.5.
x. "Pledged Equity Issuer" means each Person who is an issuer of
Pledged Equity Collateral.
y. "Pledged Equity Property" means all Pledged Equity and all other
forms of equity interests and rights, all other securities (including, without
limitation, all options, warrants and puts for Pledged Equity), all assignments
of any amounts due or to become due, all other instruments which are now being
delivered by any Pledgor to Administrative Agent or may from time to time
hereafter be delivered by any Pledgor to Administrative Agent for the purpose of
pledge under the Security Agreement, and all proceeds of any of the foregoing.
z. "Pledgor" means each Person (a) who is a Grantor hereunder and
(b) who pledges Pledged Equity Collateral.
aa. "Related Contracts" is defined in Section 1.1.
27
<PAGE>
bb. "Secured Obligations" is defined in Section 1.2.
cc. "Security Agreement" means this Master Security Agreement,
Collateral Assignment and Pledge and all exhibits, schedules and supplemental
addenda hereto, all as may be amended and otherwise modified from time to time
hereafter.
dd. "Securities Act" means the Securities Act of 1933, as amended
from time to time, and as implemented by the Securities Exchange Commission.
ee. "Trademark Collateral" is defined in Section 1.1.
ff. "Trade Secrets Collateral" is defined in Section 1.1.
gg. "UCC" means the Uniform Commercial Code as in effect in the
Commonwealth of Virginia or, if the laws of some other jurisdiction otherwise
dictates, then the Uniform Commercial Code as in effect in the jurisdiction
whose laws govern the interpretation of the relevant provisions of this Security
Agreement.
6.4. UCC Definitions. Unless otherwise defined herein or the context
otherwise requires, terms for which meanings are provided in the UCC are used in
this Security Agreement (including in the preamble and recitals hereof) with
such meanings.
28
<PAGE>
ARTICLE 7: MISCELLANEOUS PROVISIONS
7.1. Loan Document. This Security Agreement and each separate assignment
executed in connection herewith are Loan Documents executed pursuant to the
Credit Agreement and (unless otherwise expressly indicated herein) are to be
construed, administered and applied in accordance with the terms and provisions
thereof.
7.2. Amendments. No amendment to or waiver of any provision of this
Security Agreement, nor consent to any departure by any Grantor herefrom, shall
in any event be effective unless such amendment, waiver or consent is in writing
and signed by Administrative Agent. Any such waiver or consent will be effective
only in the specific instance and for the specific purpose for which given.
7.3. Addresses for Notices. Any notice, request, consent, waiver or other
communication required or permitted under or in connection with this Security
Agreement will be deemed satisfactorily given if it is in writing and is
delivered either personally to the addressee thereof, or by prepaid registered
or certified U.S. mail (return receipt requested), or by a nationally recognized
commercial courier service with next-day delivery charges prepaid, or by
telegraph, or by facsimile (voice confirmed), or by any other reasonable means
of personal delivery to the party entitled thereto at its respective address set
forth below its signature to this Security Agreement (or, if blank, then to such
party at its address or facsimile number set forth in the Credit Agreement). For
any notice, request, consent, waiver, or other communication to be sent to any
of the Grantors, it will be deemed satisfactorily given if it is sent in care of
BiznessOnline.com, Inc. at the address set forth below its signature to this
Security Agreement (with a copy to Michael Sweeney; Duffy & Sweeney, Ltd.; 300
Turks Head Building; Providence, Rhode Island 02903; Facsimile: (401) 455-0701).
If any Grantor fails to insert an address below (and in the Credit Agreement),
then such failure shall constitute a designation of its last known address as
the address for all notices, including notices of default and sale. Any party to
this Security Agreement may change its address or facsimile number for notice
purposes by giving notice thereof to the other parties hereto in accordance with
this Section, provided that such change shall not be effective until 2 calendar
days after notice of such change. All such notices and other communications will
be deemed given and effective (a) if by mail, then upon actual receipt or 5
calendar days after mailing as provided above (whichever is earlier), or (b) if
by facsimile, then upon successful transmittal to such party's designated
number, or (c) if by telegraph, then upon actual receipt or 2 Business Days
after delivery to the telegraph company (whichever is earlier), or (d) if by
nationally recognized commercial courier service, then upon actual receipt or 2
Business Days after delivery to the courier service (whichever is earlier), or
(e) if otherwise delivered, then upon actual receipt.
7.4. Severability. Wherever possible, each provision of this Security
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this Security Agreement shall be prohibited
by or invalid under such law, then such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Security Agreement.
7.5. Governing Law; Entire Agreement. This Security Agreement shall be
governed by and construed in accordance with the internal laws of the
Commonwealth of Virginia, except to the
29
<PAGE>
extent that the validity or perfection of the security interest, collateral
assignment or pledge hereunder (or remedies hereunder) in respect of any
particular Collateral are required to be governed by the laws of a jurisdiction
other than the Commonwealth of Virginia. This Security Agreement and the other
loan documents constitute the entire understanding among the parties hereto with
respect to the subject matter hereof and supersede any prior agreements (written
or oral) with respect thereto.
7.6. Reinstatement. To the maximum extent not prohibited by applicable
law, this Security Agreement shall continue to be effective or be reinstated if
at any time any amount received by Administrative Agent or any Lender in respect
of the Credit Agreement or any other Loan Document is rescinded or must
otherwise be restored or returned by Administrative Agent or such Lender upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Grantor or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for any Grantor or any substantial part of any
Grantor's assets, or otherwise, all as though such payments had not been made.
7.7. Conflict Provision. In the event of any irreconcilable conflict
between the terms and conditions of this Security Agreement and the terms and
conditions of the Credit Agreement, the terms and conditions of the Credit
Agreement shall govern.
7.8. Incorporation of Separate IP Security Agreements and Collateral
Assignments of Material Contracts. Each representation, warranty, covenant and
further assurance by any Grantor contained in any separate assignment or
security agreement relating to any Intellectual Property Collateral or any
material contract executed in connection the Credit Agreement is hereby
incorporated herein by reference.
7.9. Incorporation of Financing Statements and Exhibits Thereto. Each UCC
financing statement (including each exhibit thereto) executed by any Grantor in
connection with this Security Agreement is hereby incorporated herein by
reference.
7.10. Administrative Agent. References in this Security Agreement to
Administrative Agent shall mean either to Administrative Agent in such capacity
or (where appropriate) to Administrative Agent for the benefit of itself and
other Lenders. Unless otherwise indicated in this Security Agreement or the
other Loan Documents, all Collateral held and all payments received by
Administrative Agent are deemed to be held and received, respectively, for the
benefit of Lenders.
7.11. Waiver of Suretyship Defenses. Each Grantor hereby waives any and
all defenses and rights of discharge based on suretyship or impairment of
collateral (including any lack of attachment or perfection with respect thereto)
that it may now have or may hereafter acquire with respect to Administrative
Agent or any Lender or any of such Grantor's obligations hereunder or under any
other agreement that it may have or hereafter enter into with Administrative
Agent or any Lender.
7.12. Waiver of Subrogation. Until this Security Agreement is terminated
in accordance with Section 1.3, each Grantor hereby irrevocably waives any claim
or other rights which it may now have or may hereafter acquire against any other
Obligor that arise from the existence, payment,
30
<PAGE>
performance or enforcement of any Grantor's obligations under this Security
Agreement or any other Loan Document, including any right of subrogation,
reimbursement, contribution, exoneration, or indemnification, any right to
participate in any claim or remedy of Administrative Agent or any Lender against
any other Obligor or any collateral which Administrative Agent or any Lender now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law.
7.13. Waiver of Notice; Waiver of Bond. Each Grantor waives all rights of
notice and hearing of any kind prior to the exercise by Administrative Agent or
any Lender of its rights during the continuance of any Event of Default to
repossess the Collateral with judicial process or to replevy, attach or levy
upon the Collateral. Each Grantor waives the posting of any bond otherwise
required of Administrative Agent or any Lender in connection with any judicial
process or proceeding to obtain possession of, replevy, attach or levy upon
Collateral or other security for the Secured Obligations, to enforce any
judgment or other court order entered in favor of Administrative Agent or any
Lender, or to enforce by specific performance, temporary restraining order or
preliminary or permanent injunction this Security Agreement or any other Loan
Document.
7.14. Waiver of Liability. Each Grantor (a) agrees that neither
Administrative Agent nor any Lender (nor any director, officer, employee or
agent of Administrative Agent or any Lender) shall have any liability to any
Grantor (whether sounding in tort, contract or otherwise) for losses or costs
suffered or incurred by any Grantor in any way related to the transactions
contemplated or the relationship established by any Loan Document, or any act,
omission or event occurring in connection therewith, except for foreseeable
actual losses resulting directly and exclusively from Administrative Agent or
such Lender's own gross negligence, willful misconduct or fraud, and (b) waives,
releases and agrees not to sue upon any claim against Administrative Agent or
any Lender (or their directors, officers, employees or agents) whether sounding
in tort, contract or otherwise, except for claims for foreseeable actual losses
resulting directly and exclusively from Administrative Agent's or such Lender's
own gross negligence, willful misconduct or fraud. Moreover, whether or not such
damages are related to a claim that is subject to the waiver effected above and
whether or not such waiver is effective, neither Administrative Agent nor any
Lender (nor any director, officer, employee or agent of Administrative Agent or
any Lender) shall have any liability with respect to (and each Grantor hereby
waives, releases and agrees not to sue upon any claim for) any special,
indirect, consequential, punitive or non-foreseeable damages suffered by any
Grantor in any way related to the transactions contemplated or the relationship
established by any Loan Document, or any act, omission or event occurring in
connection therewith.
7.15. Forum Selection and Consent to Jurisdiction. Any litigation in any
way related to any Loan Document, or any course of conduct, course of dealing,
statements (whether verbal or written), actions or inactions of Administrative
Agent or any Lender or any Grantor will be brought and maintained exclusively in
the courts of the Commonwealth of Virginia or in the United States District
Court for the Eastern District of Virginia; provided, however, that any suit
seeking enforcement against any Grantor or any Collateral may also be brought
(at Administrative Agent's or such Lender's option) in the courts of any
jurisdiction where such Collateral may be found or where Administrative Agent or
any Lender may otherwise obtain
31
<PAGE>
personal jurisdiction over such Grantor. Each Grantor hereby expressly and
irrevocably submits to the jurisdiction of the courts of the Commonwealth of
Virginia and of the United States District Court for the Eastern District of
Virginia for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final and non-appealable judgment rendered
thereby in connection with such litigation. Each Grantor further irrevocably
consents to the service of process by registered or certified mail, postage
prepaid, or by personal service within or outside the Commonwealth of Virginia.
Each Grantor hereby expressly and irrevocably waives (to the fullest extent
permitted by law) any objection which it may have or hereafter may have to the
laying of venue of any such litigation brought in any such court referred to
above and any claim that any such litigation has been brought in an inconvenient
forum. To the extent that any Grantor has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of execution
or otherwise) with respect to itself or its property, then such Grantor hereby
irrevocably waives such immunity in respect of its obligations under this
Security Agreement.
7.16. Waiver of Jury Trial. Administrative Agent, each Lender and each
Grantor each hereby knowingly, voluntarily and intentionally waives any rights
it may have to a trial by jury in respect of any litigation (whether as claim,
counter-claim, affirmative defense or otherwise) in any way related to any Loan
Document, or any course of conduct, course of dealing, statements (whether
verbal or written), actions or inactions of Administrative Agent, any Lender or
any Grantor. Each Grantor acknowledges and agrees (a) that it has received full
and sufficient consideration for this provision (and each other provision of
each other Loan Document to which it is a party), and (b) that it has been
advised by legal counsel in connection herewith, and (c) that this provision is
a material inducement for Administrative Agent and each Lender entering into the
Loan Documents and funding Advances thereunder.
7.17. Counterparts. This Security Agreement may be executed in any number
of counterparts with the same effect as if all the signatures on such
counterparts appeared on one document. Each counterpart will be deemed to be an
original, but all counterparts together will constitute one and the same
instrument.
[BALANCE OF PAGE INTENTIONALLY BLANK]
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement, as an instrument under seal (whether or not any such seals are
physically attached hereto), through their duly authorized officers, as of the
date first written above.
ATTEST: BIZNESSONLINE.COM, INC.
(Grantor)
By: By: /s/ Mark E. Munro
---------------------------------- ---------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1720 Route 34
P. O. Box 1347
Wall, NJ 07719
Facsimile: (___) ___-____
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1873 Western Avenue
Albany, NY 12203
Facsimile: (518) 724-5001
ATTEST: ALBANYNET, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1873 Western Avenue
Albany, NY 12203
Facsimile: (518) 724-5001
<PAGE>
ATTEST: WEBWAY INTERNET, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1873 Western Avenue
Albany, NY 12203
Facsimile: (518) 724-5001
ATTEST: ASCENT NETWORKING, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 26 Conkey Avenue
Norwich, NY 13815
Facsimile: (518) 724-5001
ATTEST: CYBERZONE, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 942 Main Street
Hartford, CT 06103
Facsimile: (860) 520-6553
<PAGE>
ATTEST: CARAVELA SOFTWARE, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 6 Way Road
Middlefield, CT 06455-1080
Facsimile: (860) 349-7101
ATTEST: NECANET, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 18 Dog Lane
Storrs, CT 06268
Facsimile: (860) 429-1528
ATTEST: PRIME COMMUNICATION
SYSTEMS, INCORPORATED
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 2810 Sweet Home Road
Suites 3 & 4
Amherst, NY 14228
Facsimile: (716) 614-8010
<PAGE>
ATTEST: INFOBOARD, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 145 Munroe Street
Suite 200
Lynn, MA 01901
Facsimile: (781) 592-3042
ATTEST: BORG INTERNET SERVICES, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1001 Broad Street
Utica, NY 13501-1803
Facsimile: (315) 793-0213
ATTEST: ULSTERNET, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 276 Fair Street
Kingstown, NY 12401
Facsimile: (914) 339-2644
<PAGE>
ATTEST: BOL ACQUISITION CO. II, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1873 Western Avenue
Albany, NY 12203
Facsimile: (518) 724-5001
ATTEST: BOL ACQUISITION CO. III, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 1873 Western Avenue
Albany, NY 12203
Facsimile: (518) 724-5001
ATTEST: BOL ACQUISITION CO. VIII, INC.
(Grantor)
By: By: /s/ Mark E. Munro
----------------------------------- -----------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL] Address: 6 Way Road
Middlefield, CT 06455-1080
Facsimile: (860) 349-7101
<PAGE>
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: /s/ Steven Tunney
- - -------------------------------------- -----------------------------
Name: Steven Tunney
Title: Chief Operating Officer and Chief
Financial Officer
Address: 1100 Wilson Boulevard
Suite 800
Arlington, VA 22209
Facsimile: (703) 247-7505
<PAGE>
Exhibit 10.31
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
WARRANT AGREEMENT
Dated as of March 16, 2000
By and Between
BIZNESSONLINE.COM, INC.
(As Issuer of Warrants)
and
MCG FINANCE CORPORATION
(As Purchaser of Warrants)
------------------------------------------------------------
Warrants to Purchase 838,779 Shares of
Voting Common Stock of Company
------------------------------------------------------------
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1: GRANT OF WARRANTS..................................................1
1.1. GRANT OF WARRANTS......................................................1
1.2. WARRANT ENTITLEMENT....................................................1
1.3. WARRANTS AS ADDITIONAL COMPENSATION....................................2
ARTICLE 2: PURCHASER'S REPRESENTATIONS AND AGREEMENTS..........................2
ARTICLE 3: COMPANY'S REPRESENTATIONS AND WARRANTIES............................2
3.1. LEGAL EXISTENCE AND POWER..............................................2
3.2. AUTHORIZATION; NON-CONTRAVENTION.......................................3
3.3. EXECUTION, DELIVERY AND BINDING EFFECT.................................3
3.4. BROKER AND FINDER FEES.................................................3
3.5. OFFER AND SALE OF SECURITIES...........................................3
3.6. CAPITALIZATION; WARRANT SHARES AS A PERCENT OF CAPITAL STOCK...........3
3.7. RESERVATION AND ISSUANCE OF WARRANT SHARES.............................4
3.8. DISCLOSURES............................................................4
3.9. ACKNOWLEDGMENT REGARDING PURCHASER'S PURCHASE OF THE WARRANTS..........4
ARTICLE 4: THE WARRANTS AND WARRANT SHARES.....................................5
4.1. WARRANT CERTIFICATES...................................................5
4.2. EXERCISE OF WARRANTS...................................................6
4.3. TRANSFERS OF WARRANTS AND WARRANT SHARES...............................7
4.4. REGISTRATION AND RELATED RIGHTS........................................7
4.5. RIGHTS UPON EQUITY DISPOSITIONS, EQUITY REDEMPTIONS AND
NON-SURVIVING TRANSACTIONS ...........................................12
4.6. REPURCHASE OFFERS.....................................................13
4.7. CUMULATIVE RIGHTS.....................................................14
4.8. EXERCISE OF RIGHTS CONDITIONED UPON CLOSING OF TRANSACTION INVOLVED...15
4.9. PAYMENT OF TAXES AND EXPENSES.........................................15
4.10. RESERVATION AND ISSUANCE OF WARRANT SHARES............................15
4.11. CORRECTIVE ADJUSTMENTS................................................15
4.12. LISTING OF SHARES.....................................................16
4.13. LISTS OF HOLDERS......................................................16
4.14. STATEMENT OF WARRANT INTEREST.........................................16
4.15. RIGHT OF INSPECTION...................................................16
4.16. ATTENDANCE AND PARTICIPATION RIGHTS...................................16
4.17. COMPLIANCE WITH APPROVAL REQUIREMENTS.................................17
ARTICLE 5: ANTI-DILUTION PROVISIONS...........................................17
5.1. ADJUSTMENTS TO WARRANT SHARES PURCHASABLE AND EXERCISE PRICE..........17
5.2. NOTICE OF ADJUSTMENT..................................................19
5.3. PRESERVATION OF PURCHASE RIGHTS UPON CERTAIN TRANSACTIONS.............19
ARTICLE 6: COMPANY'S COVENANTS................................................20
6.1. INFORMATION...........................................................20
6.2. BOOKS AND RECORDS.....................................................21
6.3. NO AMENDMENTS TO ORGANIC DOCUMENTS....................................21
6.4. EXISTENCE AND GOOD STANDING...........................................22
6.5. TRANSACTIONS WITH RELATED PARTIES.....................................22
6.6. CONDUCT OF BUSINESS...................................................22
ARTICLE 7: DEFINITIONS........................................................22
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7.1. DEFINITIONS...........................................................22
7.2. GENERAL CONSTRUCTION AND INTERPRETATION...............................28
ARTICLE 8: MISCELLANEOUS......................................................29
8.1. COMPLIANCE WITH FCC AND STATE PUC REQUIREMENTS........................29
8.2. COMPLIANCE WITH PURCHASER'S REGULATORY REQUIREMENTS...................29
8.3. BINDING EFFECT AND GOVERNING LAW......................................29
8.4. SURVIVAL..............................................................30
8.5. NO WAIVER; DELAY......................................................30
8.6. MODIFICATION..........................................................30
8.7. NOTICES...............................................................30
8.8. PRIOR AGREEMENTS SUPERSEDED...........................................31
8.9. SEVERABILITY..........................................................31
8.10. COUNTERPARTS..........................................................31
8.11. LIMITATION OF LIABILITY...............................................31
8.12. FORUM SELECTION; CONSENT TO JURISDICTION..............................31
8.13. WAIVER OF JURY TRIAL..................................................32
EXHIBIT A -- Articles of Incorporation........................................34
EXHIBIT B -- Authorizing Resolutions..........................................35
EXHIBIT C -- Form of Warrant Certificate......................................36
EXHIBIT D -- Restrictive Legends..............................................37
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WARRANT AGREEMENT
THIS WARRANT AGREEMENT (as defined in Article 7 along with all the other
defined terms, this "Agreement") is made and effective as of March 16, 2000 by
and between BIZNESSONLINE.COM, INC. (as more fully defined in Article 7,
"Company"), and MCG FINANCE CORPORATION (as more fully defined in Article 7,
"Purchaser", "Lender" and/or a "Holder").
R E C I T A L S
WHEREAS, Company (together with certain of its Affiliates) has requested
Lender (and Lender has agreed) to enter into the Credit Agreement and various
related Loan Documents (as defined in the Credit Agreement) pursuant to which
Lender will provide Borrowers (as defined therein) with credit facilities
initially aggregating up to $15.0 million; and
WHEREAS, to induce Lender to enter into the Credit Agreement and other
Loan Documents and as additional consideration for the credit to be provided
thereunder, Company has agreed to issue and deliver to Purchaser the Warrants
(evidenced by Warrant Certificates) to purchase up to an aggregate of 838,779
shares (subject to adjustment as provided in Section 4.11 and Section 5.1) of
Common Stock of Company;
NOW, THEREFORE, for good and valuable consideration (receipt and
sufficiency of which are hereby acknowledged), and intending to be legally bound
hereby, Company and Purchaser hereby agree as follows:
ARTICLE 1. GRANT OF WARRANTS
1.1. Grant of Warrants. Company hereby grants to Purchaser warrants
(including all Block A Warrants and all Block B Warrants, each a "Warrant";
collectively, the "Warrants") to purchase up to an aggregate of 838,779 shares
of Common Stock (as such number may be adjusted from time to time as provided
herein). 559,186 Warrants shall be designated as Block A Warrants and shall have
a Block A Exercise Price, which Block A Exercise Price is set forth in Section
1.2. 279,593 Warrants shall be designated as Block B Warrants and shall have a
Block B Exercise Price, which Block B Exercise Price is set forth in Section
1.2. Each Warrant is exercisable immediately.
1.2. Warrant Entitlement. Each Block A Warrant entitles the registered
Holder of such Warrant to purchase (during the Exercise Period) one fully paid,
nonassessable Warrant Share at a price of $7.00 per share (as such amount may be
adjusted from time to time as provided herein, the "Block A Exercise Price").
Each Block B Warrant entitles the registered Holder of such Warrant to purchase
(during the Exercise Period) one fully paid, nonassessable Warrant Share at a
price per share equal to $12.00 (as such amount may be adjusted from time to
time as provided herein, the "Block B Exercise Price").
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1.3. Warrants as Additional Compensation. The Warrants (and the grant
thereof hereunder) are additional compensation for the cost, expense and risk
incurred by Lender (and/or its Affiliates) associated with the underwriting and
establishment of the loan credit facilities to be provided for in the Credit
Agreement, but neither the grant nor the exercise of any Warrants in any way
affects or relieves Company, Borrowers (or any Affiliate thereof) of any of its
obligations to fully and timely perform and to fully and timely repay the entire
indebtedness due under the Credit Agreement and related Loan Documents.
ARTICLE 2. PURCHASER'S REPRESENTATIONS AND AGREEMENTS
Purchaser represents and warrants that it is acquiring the Warrants (a)
solely for the purpose of investment and not with a view to any distribution of
the Warrants or any Warrant Shares within the meaning of the Securities Act, and
(b) with no present intention of selling or otherwise transferring the Warrants,
the Warrant Certificates or the Warrant Shares except as provided herein.
Purchaser further represents and warrants as follows: (1) it has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its prospective investment in the Warrants, and (2) it
has the ability to bear the economic risks of its prospective investment, and
(3) it is able (without materially impairing its financial condition) to hold
the Warrants and Warrant Shares for an indefinite period of time and to suffer a
complete loss on its investment in such Warrants and Warrant Shares. Purchaser
agrees that it will not offer, sell or otherwise transfer any Warrants, Warrant
Certificates or Warrant Shares except in compliance with this Agreement and the
Securities Act (and the regulations of the Commission thereunder), as well as in
compliance with any applicable laws, regulations and orders of and/or
administered by any State PUC (to the extent failure to so comply could
reasonably be expected to have or cause a material adverse effect on the
operations of Company) or the FCC. Purchaser further represents and warrants
that it is an "accredited investor" within the meaning of Rule 501 under
Regulation D of the Securities Act, has received a copy of Company's Information
Statement dated within 10 calendar days of the date of this Agreement disclosing
certain risks regarding investment in the Company's securities as well as other
information pertaining to the Company's business.
ARTICLE 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
Company represents and warrants that:
3.1. Legal Existence and Power. Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and (b) has all requisite corporate power to execute, deliver and
perform this Agreement, and (c) has all requisite corporate power to issue and
deliver the Warrants, to execute, deliver and perform the Warrant Certificates
(evidencing the Warrants), and to issue and deliver the Warrant Shares (if and
when any Warrants are exercised and upon payment of the purchase price
therefor). The Articles of Incorporation of Company (as amended from time to
time prior to the effective date hereof) are attached as Exhibit A.
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3.2. Authorization; Non-Contravention. Company has duly authorized each of
the following by all requisite actions thereof: (a) the execution, delivery and
performance of this Agreement, and (b) the issuance and delivery of the
Warrants, and (c) the execution, delivery and performance of the Warrant
Certificates, and (d) the issuance and delivery of the Warrant Shares upon any
exercise of the Warrants and payment of the purchase price therefor. None of the
actions or activities by Company the authorization of which is described in the
first sentence of this Section (when performed by Company) will violate, breach
or cause a default under (or will require any consent that has not been obtained
under) any applicable law or regulation (including the laws, regulations and
orders of and/or administered by the FCC or any State PUC), the Organic
Documents of Company, any voting or other equity-related agreements, any other
material agreements or instruments, any order, injunction or decree of any court
or governmental authority, or any permit, authorization or license that (with
respect to each of the foregoing items, as applicable) Company is a party to,
Company is bound by or Company operates pursuant to. The resolutions of
Company's Board of Directors authorizing the actions described in the first
sentence of this Section are attached as Exhibit B and are in full force and
effect as of the effective date hereof.
3.3. Execution, Delivery and Binding Effect. This Agreement and the
Warrant Certificates have been duly executed and delivered by Company. This
Agreement, the Warrant Certificates and the Warrants constitute valid and
binding obligations of Company enforceable against Company in accordance with
their terms except as (a) the enforceability hereof or thereof may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (b) the availability of equitable remedies may be limited by
equitable principles of general applicability.
3.4. Broker and Finder Fees. Company has not dealt with any broker,
finder, investment bank or other advisor in connection with the issuance and
sale of the Warrants or Warrant Shares, and no broker, finder, investment
banking or advisory fee or commission has been or will be payable by Company
with respect to the issuance and sale of the Warrants or the Warrant Shares.
3.5. Offer and Sale of Securities. Assuming the truth of the
representations and warranties of the Purchaser set forth in Article 2 as of the
date hereof and as of the date of exercise of the Warrants and acquisition of
the Warrant Shares, then the offer, sale and issuance of the Warrants complied
with or are exempt from, and the issuance of the Warrant Shares pursuant to the
terms hereof and thereof will comply with or will be exempt from, the
requirements of federal and applicable state securities or "Blue Sky" laws.
3.6. Capitalization; Warrant Shares as a Percent of Capital Stock.
a. Schedule 3.6 accurately and completely describes all of the
authorized, issued and outstanding shares of Capital Stock of Company. All of
such outstanding shares of Capital Stock have been validly issued and are fully
paid and nonassessable.
b. There are no outstanding warrants, options, convertible
securities or other rights, agreements or arrangements under which Company is or
may be obligated (contingently or otherwise) to issue any Capital Stock or to
purchase, redeem, retire or otherwise acquire any Capital Stock, except (1)
pursuant to this Agreement, and (2) warrants issued to the Company's
underwriters
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for its initial public offering exercisable for 290,000 shares of Common Stock
at an exercise price of $16.50 per share (the "Underwriters' Warrants"), and
warrants issued to certain financial advisors exercisable for 45,000 shares of
Common Stock at exercise prices of $7.00 and $9.00 per share (the "Advisors'
Warrants"), and options issued to directors, officers, employees and agents of
Company exercisable for 400,375 shares of Common Stock at exercise prices
ranging from $8.50 to $15.00 per share. No Person has any right of first
refusal, preemptive right, anti-dilution protection, put right, registration
right, or similar right with respect to any Capital Stock of Company, except (i)
Holders pursuant to this Agreement, and (ii) the holders of the Underwriters'
Warrants which warrants contain customary demand and piggyback registration
rights, and (iii) the holders of a portion of the Advisors' Warrants exercisable
for 15,000 shares which warrants are entitled to registration rights and
anti-dilution protection. To the knowledge of Company (after diligent inquiry),
no holder of any Capital Stock is a party to any equityholder or voting
agreement with respect to any such Capital Stock.
c. The Warrant Shares (if issued as of the effective date hereof)
would constitute 7.5% of the issued and outstanding shares of Capital Stock and
voting rights on a fully diluted basis assuming 8,609,574 shares are outstanding
as of the date hereof, warrants and options exercisable for up to an aggregate
of 735,375 are outstanding as of the date hereof and 1,000,000 shares of Common
Stock are issued in connection with the Telecon Acquisition and the Additional
Acquisitions.
3.7. Reservation and Issuance of Warrant Shares. Company has reserved
among its currently authorized but unissued shares of Common Stock the full
number of Warrant Shares deliverable upon exercise of all of the Warrants. The
Warrant Shares (when and if issued upon exercise of the Warrants in accordance
with the terms hereof) (a) will be duly authorized, validly issued, fully paid
and nonassessable, and (b) will be free from all taxes (other than income taxes
that may be imposed upon the Holder thereof), liens (other than liens that may
be created by the Holder thereof as and to the extent permitted under this
Agreement), preemptive rights, rights of first refusal or similar rights of
other equityholders of Company.
3.8. Disclosures. All information relating to or concerning Company (and
its direct and indirect Subsidiaries, if any) set forth in this Agreement or
otherwise provided to Purchaser in connection with the transactions contemplated
by this Agreement is true, correct and complete in all material respects, and
Company has not omitted to state any material fact necessary in order to make
the statements made herein or therein (in light of the circumstances under which
there were made) not misleading.
3.9. Acknowledgment Regarding Purchaser's Purchase of the Warrants.
Company acknowledges and agrees that (a) Purchaser is acting solely in the
capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby, and (b) Company has been advised by legal
counsel in connection herewith, and (c) Purchaser is not acting as a financial
advisor or fiduciary of Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, and (d) any advice given
by Purchaser or any of its representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to
Purchaser's purchase of the Warrants.
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ARTICLE 4. THE WARRANTS AND WARRANT SHARES
4.1. Warrant Certificates.
a. Form of Certificate; Registration Among Company's Records. The
Warrants shall be evidenced by one or more Warrant Certificates, each of which
will be substantially in the form of Exhibit C with the applicable legend
specified on Exhibit D (but such certificates shall incorporate such changes
therein as may be required from time to time to reflect any adjustments made
pursuant to Article 5, and the legend thereon shall be modified or removed from
time to time to reflect the applicable requirements of the Securities Act). Each
Warrant Certificate shall be uniquely numbered, shall identify the record Holder
thereof, and shall be registered on the books and records of Company in
substantially the same manner as other equity interests of Company.
b. Exchange and Transfer of Certificates. A Warrant Certificate (and
the Warrants evidenced thereby) may be exchanged or (subject to compliance with
the applicable requirements hereof) may be transferred from time to time at the
option of the Holder thereof. Upon surrender of any such Warrant Certificate to
Company, then Company shall issue and deliver to (or in accordance with the
written instructions of) such Holder one or more new Warrant Certificates
evidencing in the aggregate the same number of Warrants.
c. Missing and Mutilated Certificates. If any Warrant Certificate is
lost, stolen, mutilated or destroyed, then Company (upon request of the
registered Holder thereof) shall issue and deliver to (or in accordance with the
written instructions of) such Holder one or more replacement Warrant
Certificates evidencing in the aggregate the same number of Warrants. Company's
obligation under this Clause is conditioned upon its receipt of reasonably
satisfactory evidence of such loss, theft, mutilation or destruction.
d. Authorization of Certificate Signer. Any Warrant Certificate may
be signed on behalf of Company (and delivered to the Holder entitled thereto) by
any person who, on the actual date of execution of such Warrant Certificate, is
a proper officer of Company to sign such Warrant Certificate even though (1) on
the date of execution of this Agreement such person was not such an officer,
and/or (2) on the date of delivery of such Warrant Certificate such person has
ceased to serve as such officer of Company.
4.2. Exercise of Warrants.
a. Exercise Period. The Warrants are exercisable at any time and
from time to time after the effective date hereof and prior to 11:59 p.m.
(Eastern Time) on March 16, 2010 (as such period may be extended from time to
time by mutual agreement of the Holders and Company, "Exercise Period"), at
which time any unexercised Warrants shall expire.
b. Method of Exercise; Cashless Exercise. A Holder of any Warrant
Certificate may exercise any such Warrants from time to time during the Exercise
Period to purchase Warrant Shares upon (1) the surrender of such Warrant
Certificate evidencing such Warrants, and (2) the payment of the applicable
Exercise Price in cash, by certified or cashier's check payable to the order
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of Company or by wire transfer to Company. As an alternative to paying such
Exercise Price (or any portion thereof) in cash, a Holder may instead elect to
effect a cashless exercise pursuant to which such Holder will receive in
exchange for such tendered Warrants an amount of Warrant Shares determined by
multiplying (a) the number of Warrant Shares into which such Holder would
otherwise be entitled as a result of such exercise by (b) a fraction (i) the
numerator of which is the difference between the then Current Market Price per
Warrant Share and the Exercise Price then in effect and (ii) the denominator of
which is the then Current Market Price per Warrant Share. Such surrender and
payment must occur at an office of Company or at such other address as Company
may specify in writing to the then registered Holder of such Warrant
Certificate.
c. Issuance of Warrant Shares Upon Exercise. Upon surrender of any
Warrant Certificate and payment of the applicable Exercise Price (as described
above in this Section), then Company shall issue, sell and deliver to or upon
the instructions of the Holder of such Warrant Certificate and/or its designee
one or more certificates evidencing in the aggregate the number of Warrant
Shares represented by such Warrant Certificate that are then being purchased
(each of which Warrant Shares shall be validly issued, fully paid and
nonassessable). Any persons so designated to be named therein shall be deemed to
have become a Holder of record of such Warrant Shares as of the date of exercise
of such Warrants. If less than all of the Warrants evidenced by a Warrant
Certificate are exercised at any time prior to the last day of the Exercise
Period, then Company shall issue to such Holder (or its designee) one or more
new Warrant Certificates evidencing the remaining number of Warrants evidenced
by such Warrant Certificate that are not then exercised by Holder.
d. Rights of a Holder of Warrant Shares Upon Exercise. Upon any
exercise of Warrants by a Holder entitled thereto in accordance with and as
provided under this Agreement, the Holder of such issued Warrant Shares shall be
entitled to all of the rights and benefits of a holder of Common Stock under the
Organic Documents of Company as well as the rights and benefits of a Holder of
Warrant Shares under this Agreement (notwithstanding any provision of such
Organic Documents to the contrary). To the extent that the rights and benefits
of a holder of Capital Stock under the Organic Documents are inconsistent with
or less favorable than the rights and benefits of a Holder of Warrant Shares
under this Agreement, then the terms and provisions of this Agreement shall
control and govern with respect to the rights and benefits of such Holder.
4.3. Transfers of Warrants and Warrant Shares.
a. General Transferability. Except as otherwise expressly provided
herein, upon compliance with any applicable requirements under the Securities
Act and the laws, regulations and orders of and/or administered by each State
PUC (to the extent failure to so comply could reasonably be expected to have or
cause a material adverse effect on the operations of Company) or the FCC, then
the Warrants, the corresponding Warrant Certificates and the Warrant Shares may
be transferred by a Holder from time to time in whole or in part upon complying
with the applicable restrictions under this Section (but without the necessity
of otherwise obtaining any consent of Company).
b. Treatment of Holder Prior to Notice of Transfer. Prior to
receiving notice of any such transfer (either from such Holder or from such
transferee), Company shall be otherwise
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entitled to treat such known Holder as the Holder of record hereunder for
purposes of giving and receiving notices and for purposes of exercising rights
hereunder.
c. Rights of a Subsequent Holder. Unless otherwise limited or
restricted pursuant to the document of transfer, then a subsequent Holder of
Warrants, Warrant Certificates or Warrant Shares hereunder shall be entitled to
all of the rights and benefits of the transferring Holder under this Agreement
and under the Organic Documents.
4.4. Registration and Related Rights.
a. Incidental Registration in a Public Offering. Each Holder of
Warrant Shares and each Holder of Warrants shall have the right to require
Company to include all or (at such Holder's election) any portion of such
Warrants and the Warrant Shares purchasable upon exercise of any such Warrants
in any Public Offering of Company's securities, other than in connection with a
merger or pursuant to a Form S-8, Form S-4 or other comparable or successor
registration statement.
Company shall give written notice to each Holder of Warrants and each
Holder of Warrant Shares (at each such Holder's last known address as it appears
on Company's books and records) at least 30 days prior to the initial filing of
a registration statement pertaining to any Public Offering. In addition, Company
shall also notify such Holders promptly after the occurrence of any of the
following events: (i) the initial filing of a registration statement with the
Commission pertaining to any Public Offering, or (ii) any amendment, supplement
or modification to any registration statement for a Public Offering by Company
(other than amendments, supplements and modifications that occur automatically
through incorporation by reference as a result of subsequently prepared publicly
available materials), or (iii) any withdrawal of any registration statement for
a Public Offering by Company. Once any such registration statement is declared
effective by the Commission, then Company may not amend or modify it without
providing each Holder of Warrants and each Holder of Warrant Shares with written
notice thereof at least 2 Business Days prior to filing any such amendment or
modification with the Commission.
In connection with any such Public Offering, Company shall enter into an
underwriting agreement with one or more underwriters that shall provide, among
other things, that the underwriters shall offer to purchase at the closing of
such Public Offering all of the Warrant Shares and all of the Warrants (or such
lesser portion thereof as any Holder may request) at the price paid by the
underwriters for the Capital Stock (or if a security convertible into or
exchangeable for, or rights to purchase, Capital Stock, then the conversion,
exchange or purchase price for the Capital Stock provided for by such security
less the conversion, exchange or exercise premium on the date of such offering)
sold by Company and/or any selling shareholders (less, with respect to Warrants,
the applicable Exercise Price then in effect). Notwithstanding the foregoing, if
the underwriters shall advise Company in writing that, in their experience and
professional opinion arrived at in good faith based upon existing market
conditions, inclusion of such number of Warrant Shares (together with the shares
of Capital Stock requested for registration by any other selling equityholders)
will adversely affect the price or distribution of the securities to be offered
in such Public Offering solely for the account of Company, then (1) Company
shall promptly furnish each such Holder with a copy of such written advice by
the underwriters, and (2) such Holders shall then have the right to include only
such number of Warrant Shares and Warrants that such advice by the underwriters
indicates
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may be distributed without adversely affecting the distribution of the
securities solely for Company's account. As among Holders of Warrant Shares
and/or Warrants, such availability for inclusion in the registration for such
Public Offering shall be allocated pro rata based upon the total number of
Warrant Shares owned or purchasable by such Holder. As between such Holders and
any other holders of Capital Stock requesting to be included in such Public
Offering, priority for inclusion in the registration for such Public Offering
shall be allocated pro rata among the Holders of Warrant Shares and Warrants and
the other holders of securities entitled to incidental or piggyback registration
rights.
In connection with any Public Offering, provided that all other holders of
equity interests of Company are subject to identical (or more restrictive)
restrictions with respect to their equity interests, then each Holder of
Warrants and each Holder of Warrant Shares shall agree to refrain from selling
or otherwise transferring (other than to a Holder-Affiliated Transferee) any
Warrant Shares not included in such Public Offering for a period of time (not to
exceed 180 calendar days after the effective date of the registration statement
for such Public Offering) as may be appropriate under the circumstances and
reasonably requested by Company and the underwriters for such offering.
b. Demand Registration. In addition to any other registration rights
to which any Holder is entitled, at any time and from time to time after the
date hereof, Company (upon each request of Holders of at least 50% of the
Warrant Shares and Warrants) shall prepare, shall file with the Commission and
shall use its best efforts to cause to become effective as promptly as
reasonably possible a registration statement (on Form S-3 or any successor form,
if available) covering such number of Warrant Shares owned or then purchasable
as is requested by such Holders. Notwithstanding the foregoing, Company shall
not be required to so prepare and file upon the demand of such Holders either
(a) more than two (2) such registration statements that are declared effective
by the Commission and maintained in effect by Company for at least 90
consecutive calendar days and are not on a Form S-3 (or any successor form), or
(b) any such registration statement within the first 180 calendar days after the
closing of a Public Offering in which 50% or more of the Warrant Shares and
Warrants were included, or (c) any registration statement if the anticipated
gross proceeds of the Public Offering is less than the lesser of $1,000,000 or
the proceeds realized by registering all Warrants and Warrant Shares then held
by Holders.
In connection with any such demand registration, Company shall use its
best efforts to engage (or, at Holders' request, shall use its best efforts to
assist Holders in engaging) one or more underwriters to purchase on a
best-efforts or a firm-offer basis the Warrant Shares owned or then purchasable
at the price at which such Warrant Shares are to be resold under such
registration statement less the underwriters' discount (less, with respect to
Warrants, the applicable Exercise Price then in effect). The registration
statement shall also provide that sales of the Warrant Shares may be made by
dealers, on an exchange if listed, directly to purchasers or in any other
manner. No such registration statement filed pursuant to this demand
registration provision (without the consent of Holders of at least 50% of the
total Warrant Shares and Warrants) may relate to any securities other than the
Warrant Shares (other than the underwriters' warrants and the advisors' warrants
existing as of the date hereof), and no other securities (other than the
underwriters' warrants and the advisors' warrants existing as of the date
hereof) may be sold incidentally to any such underwritten public offering of
Warrant Shares so registered.
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In connection with any such demand registration, Company shall keep
effective and maintain the registration, qualification, approval or listing
covering the Warrant Shares for a period of at least 90 consecutive calendar
days (or in the event such registration is on Form S-3 or any successor form, on
a continuous basis). Company from time to time shall amend or supplement the
prospectus and registration statement used in connection with any such
registration to the extent necessary to comply with applicable law (including to
reflect additional information relating to the plan of distribution), and shall
immediately advise each Holder if any such prospectus or registration statement
does not so comply and/or if any stop order or similar order is issued or
threatened or any request for amendment or supplement is received from any
regulatory agency. Company shall make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment. Company shall comply with all
other applicable laws in connection with any offering of Warrant Shares and will
promptly make available an earnings statement in accordance with Section 11(a)
of the Securities Act and the regulations promulgated thereunder.
c. Holders Entitled to Equivalent Rights. Except for the
underwriters' warrants and the advisors' warrants existing as of the date
hereof, if Company has otherwise granted or hereafter grants to any Person any
other or additional registration rights with respect to any securities of
Company (or similar registration rights with any more favorable or less
restrictive terms), then Company will promptly notify each Holder of Warrants
and each Holder of Warrant Shares, and such registration rights (or the more
favorable or less restrictive terms thereof) will be deemed automatically to be
incorporated into this Agreement (without the necessity of any other action by
the parties hereto) as additional registration rights that each Holder is
entitled to exercise.
d. Sales Through Underwriters and Dealers. Company shall effect the
registration or qualification of the Warrant Shares, and the notification to or
approval of any governmental authority under any federal or state law, and the
listing with any securities exchange on which the Common Stock is listed, in
each instance as may be reasonably necessary to permit the sale of Warrant
Shares through underwriters, and, in the case of a demand registration
hereunder, also through dealers, on an exchange, directly to purchasers or in
any other manner.
e. Certain Additional Agreements in Connection with Registrations.
In connection with any Public Offering, Company (1) shall enter into, execute
and deliver all agreements and other instruments and documents (including
opinions of counsel, comfort letters and underwriting agreements) that are
customary and appropriate with such public offerings, and (2) shall cooperate
with any underwriters to facilitate sales of the Warrant Shares to the same
extent as if such Warrant Shares were being offered directly by Company, and (3)
shall furnish each Holder such numbers of copies of registration statements and
prospectuses (and amendments and supplements thereto) as such Holder may
reasonably request, and (4) shall take all such other actions as are necessary
or advisable to facilitate the registration and sale of such Warrant Shares. In
connection with any Public Offering as to which any Holder is requesting
registration of Warrant Shares, each such Holder (i) shall provide Company with
such information regarding itself, himself or herself as may be reasonably
required by Company, and (ii) shall reasonably cooperate with Company in the
preparation of the registration statement, and (iii) shall enter into, execute
and deliver all agreements and other instruments and documents that are
customary and appropriate for selling equityholders to execute in connection
with a secondary public offering.
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f. Indemnification by Company. In connection with any offering of
Warrant Shares pursuant to the provisions of this Section, Company hereby
indemnifies and holds harmless each Holder of Warrants and each Holder of
Warrant Shares (and the directors, officers and controlling Persons of each such
Holder), each other Person (if any) who acts on behalf of or at the request of
any such Holder, each underwriter, and each other Person who participates in the
offering of Warrant Shares (collectively, for purposes of this Clause, the
"Indemnified Parties") against any losses, claims, damages or liabilities, joint
or several, to which such Indemnified Party may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon either of the following:
(i) any untrue statement or alleged untrue statement of any
material fact contained (on the effective date thereof) in any
registration statement (or any amendment thereto) under which such
Warrant Shares were registered under the Securities Act, or the
omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, or
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, or
(iii) any violation by Company of any federal or state law,
rule or regulation applicable to Company in connection with any
registration statement or prospectus (or any amendment or supplement
thereto).
Company shall also reimburse each such Indemnified Party for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such loss, claim, damage, liability or action. Notwithstanding the
foregoing, Company shall not be liable to an Indemnified Party in any such case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary prospectus,
prospectus, or amendment or supplement in reliance upon and in conformity with
written information furnished to Company through an instrument duly executed by
such Indemnified Party specifically stating that it is expressly for use
therein. Such indemnity shall remain in full force and effect and shall survive
the transfer of such Warrants or Warrant Shares by any such Holder.
g. Indemnification by Holders. Each Holder whose Warrant Shares are
sold under any registration statement pursuant to this Section (by inclusion of
such Warrant Shares thereunder) shall indemnify and hold harmless Company (the
officers, directors and controlling Persons thereof), each other Holder of
Warrants and each other Holder of Warrant Shares (and the directors, officers
and controlling Persons of each such Holder), each other Person (if any) who
acts on behalf of or at the request of Company or such other Holder, each
underwriter, and each other Person who participates in the offering of Warrant
Shares (collectively, for purposes of this Clause,
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the "Indemnified Parties") against any losses, claims, damages or liabilities,
joint or several, to which such Indemnified Party may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon either of the following:
(i) any untrue statement or alleged untrue statement of any
material fact contained (on the effective date thereof) in any
registration statement (or any amendment thereto) under which such
Warrant Shares were registered under the Securities Act at the
request of such Holder, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
but only to the extent (with respect to either of the foregoing Clauses) that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary prospectus,
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to Company through an instrument duly executed by
such Holder specifically stating that it is expressly for use therein. Each such
Holder shall also reimburse each such Indemnified Party for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such loss, claim, damage, liability or action. Notwithstanding the
foregoing, no such Holder shall be liable to any Indemnified Party in any such
instance to the extent (a) such loss, claim, damage or liability relates to any
untrue statement or omission, or any alleged untrue statement or omission, made
in a preliminary prospectus but eliminated or remedied in a final prospectus,
and (b) a copy of the final prospectus was not delivered to the Person asserting
the claim at or prior to the time required by the Securities Act in an instance
for which delivery thereof would have constituted a defense to the claim
asserted by such Person and the failure to so deliver such prospectus was not
the result of the negligence of such Holder.
h. Certain Notices and Other Rights Relating to Indemnification. A
party from whom indemnity may be sought pursuant to the provisions of this
Section shall not be liable for such indemnity with respect to any claim as to
which indemnity is sought unless the party seeking such indemnity shall have
notified such indemnifying party in writing of the nature of such claim promptly
after such indemnified party becomes aware of the assertion thereof.
Notwithstanding the foregoing, the failure to so notify such indemnifying party
shall not relieve such party from any liability which it may have to such
indemnified party otherwise than on account of the provisions of this Section or
if the failure to give such notice promptly shall not have been prejudicial to
such indemnifying party. No indemnifying party shall be liable for any
compromise or settlement of any such action effected without its consent. No
indemnifying party (in the defense of any such claim or suit), without the
consent of each indemnified party, shall consent to any compromise or settlement
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that does not include as an unconditional term thereof the giving by the
claimant to such indemnified party of a complete release from all liability in
respect of such claim or suit.
i. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section for any reason is held to be unenforceable although applicable in
accordance with its terms, Company and the Holders, as amongst themselves, shall
contribute to the losses, claims, damages, liabilities and expenses described
herein in such proportions so that the portion thereof for which any Holder
shall be responsible shall be limited to the portion determined by a court or
the parties to any settlement to be directly attributable to an untrue statement
of a material fact or an omission to state a material fact in a registration
statement, preliminary prospectus, prospectus or amendment or supplement thereto
in specific reliance upon and in conformity with written information furnished
to Company through an instrument duly executed by such Holder specifically
stating that it is expressly for use therein, and Company shall be responsible
for the balance. Notwithstanding the foregoing, the liability of each Holder
shall be limited to the net proceeds received by such Holder from the sale of
the Warrant Shares sold by it thereunder. Company and the Holders agree that it
would not be just and equitable if their respective obligations to contribute
were to be determined by pro rata allocation, by reference to the proceeds
realized by them or in any manner which does not take into account the equitable
considerations set forth in this Clause.
4.5. Rights Upon Equity Dispositions, Equity Redemptions and Non-Surviving
Transactions.
a. Offer to Purchase. In connection with any Equity Disposition, any
Equity Redemption or any Non-Surviving Transaction, Company or the acquiror in
any such transaction shall also offer to purchase on the terms set forth below
all of the Warrant Shares and all of the Warrants. If an Equity Disposition or
an Equity Redemption is of less than all of the Capital Stock then outstanding,
then the number of Warrants and Warrant Shares subject to purchase under this
Section shall be reduced proportionately (to the nearest whole number), and such
reduced number will be allocated pro rata among all Holders desiring to tender
Warrant Shares or Warrants in connection with such transaction.
b. Notice of Proposed Transaction. Company shall give written notice
to each Holder of Warrants and each Holder of Warrant Shares (at each such
Holder's last known address as it appears on Company's books and records)
promptly after an agreement in principle is reached with respect to any Equity
Disposition, any Equity Redemption or any Non-Surviving Transaction (but, in any
event, at least 30 calendar days prior to the closing of any such transaction).
c. Purchase Price. If a Holder accepts the offer under this Section,
then (as a condition to consummation of such Equity Disposition, Equity
Redemption or Non-Surviving Transaction) either Company or such acquiror shall
purchase (either before or concurrently with the consummation of such
transaction) all Warrants and Warrant Shares tendered by a Holder thereof at an
aggregate price equal to the product of (1) the aggregate consideration received
by all sellers and transferors in connection with such transaction or series of
related transactions (including the consideration to be received by the holders
of Warrants and Warrant Shares pursuant to this provision) and (2) a fraction
the numerator of which is the number of Warrants and Warrant Shares
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tendered for purchase in connection with such transaction or series of related
transactions and the denominator of which is the sum of the number of shares of
Common Stock outstanding immediately prior to such transaction or series of
related transactions plus the number of Warrants then outstanding (which product
shall be net of the applicable Exercise Price then in effect with respect to
Warrants tendered but not with respect to Warrant Shares tendered).
d. Payment of Purchase Price. Company (either before or concurrently
with the consummation of such transactions) shall distribute to the respective
Holders of Warrants and Warrant Shares (or to such other Person as such Holder
may direct Company in writing) the applicable purchase price for each tendered
Warrant Share and Warrant. Such payment, except as otherwise provided in this
Clause, shall be in immediately available funds (i.e., in cash, by certified or
cashier's check, or by wire transfer) or by any other means acceptable to such
Holder. In addition, Company shall also deliver to each such Holder (as and to
the extent applicable) a return or re-issuance of Warrants and Warrant Shares
not purchased in connection with any such transaction. To the extent that any
consideration for such transaction is payable by such acquiror in cash, in
publicly traded and readily marketable securities (with reasonable liquidity and
no restrictions on transfer) or evidence of indebtedness from an obligor who (in
the commercially reasonable opinion of Holders) is highly creditworthy, then the
purchase price payable to Holders may be in the same form of consideration;
otherwise, the purchase price (or the remaining balance thereof) payable to
Holders shall be in immediately available funds. Notwithstanding the foregoing,
in connection with any such Equity Disposition, Equity Redemption or
Non-Surviving Transaction, each Holder may elect (at its option) to receive the
purchase price payable under this Section pro rata in kind in the same form of
consideration as is to be received by Company or such selling equityholder.
e. Intentionally Blank.
4.6. Repurchase Offers.
a. Offer to Repurchase. Within 30 calendar days following the
occurrence of any Repurchase Condition, Company and each Borrower (jointly and
severally) shall make a written offer (each, a "Repurchase Offer") to repurchase
at the Repurchase Price up to all of the Warrant Shares and Warrants owned by
each Holder. Each such Repurchase Offer (among other things) shall indicate the
date of occurrence of the relevant Repurchase Condition and shall provide a
calculation of the Current Market Price per Warrant Share (together with a copy
of documentation supporting such calculation). Each such Repurchase Offer shall
be delivered by Company to each such Holder entitled thereto by first-class mail
to the last known address of such Holder on the books and records of Company.
b. "Repurchase Condition". A "Repurchase Condition" will be deemed
to occur (1) at any time after January 1, 2005 upon a written request from
Holders of at least 50% of the outstanding Warrants and Warrant Shares, and (2)
upon any full repayment of the indebtedness under the Loan Documents, and (3)
upon the occurrence of any Event of Default under and as defined in the Credit
Agreement, and (4) upon the execution of any definitive agreement by Company or
holders of Capital Stock to engage in an Equity Disposition or a Non-Surviving
Transaction (or any amendment thereto), and (5) upon any attempt by any Holder
to exercise the Warrants in accordance with the terms hereof at a time when
Company is legally, regulatorily or
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otherwise not authorized or permitted to issue the corresponding Warrant Shares,
provided, however, that Company shall be permitted a reasonable period of time
(not to exceed 30 calendar days) to prepare any state blue sky filings,
information statements, Nasdaq listing applications or other necessary
securities documents to procure the necessary private placement exemptions from
registration and Nasdaq approvals in connection with any such exercise without a
"Repurchase Condition" being deemed to have occurred.
c. "Repurchase Price". The "Repurchase Price" for each Warrant and
Warrant Share in connection with any such Repurchase Offer will be the Current
Market Price per Warrant Share, less with respect to Warrants (but not Warrant
Shares) the applicable Exercise Price then in effect.
d. Acceptance of Repurchase Offer. At any time within 30 calendar
days after a Holder receives a Repurchase Offer (together with a final written
valuation report), each such Holder may accept such Repurchase Offer by agreeing
to tender for repurchase by Company all or any portion of such Holder's Warrant
Shares and Warrants.
e. Payment of Purchase Price. Within 30 calendar days of receiving
any such agreement to tender Warrant Shares or Warrants, Company and each
Borrower (jointly and severally) shall distribute to each such Holder (or to
such other Person as such Holder may direct Company in writing) the applicable
Repurchase Price for each such tendered Warrant Share and Warrant in cash, by
certified or cashier's check, by wire transfer or by any other means acceptable
to such Holder (concurrently with which distribution, such Holder shall deliver
to Company the Warrant Certificates and/or Warrant Shares). In addition, Company
shall also deliver to each such Holder (as and to the extent applicable) a
return or re-issuance of Warrants and Warrant Shares not tendered for
repurchase. Notwithstanding the foregoing, with respect to the Repurchase
Condition occurring concurrently with any full repayment of the indebtedness
under the Loan Documents under Clause "b(2)" above, unless the Holders otherwise
consent, Company and each Borrower (jointly and severally) shall establish a
cash escrow of the Repurchase Price with a "well capitalized" depository
institution concurrently with any such full repayment of the indebtedness under
the Loan Documents (but such cash escrow shall be returned to Company if the
Holders elect not to accept such Repurchase Offer within the time period set
forth in Section 4.6.d).
4.7. Cumulative Rights. The rights of Holders upon the occurrence of
events set forth in this Article 4 are cumulative. If more than one such event
occurs simultaneously (or the time period for exercising any such rights
overlaps), then each Holder can elect which rights (if any) to exercise and any
prior inclusion or surrender of Warrants or Warrant Shares with respect to a
transaction that has not yet closed may be rescinded by such Holder during such
overlapping period in order to exercise rights arising under any concurrently
occurring event.
4.8. Exercise of Rights Conditioned Upon Closing of Transaction Involved.
The rights of Holders to have Warrants or Warrant Shares included and sold in
any Public Offering or purchased in any Equity Disposition or Non-Surviving
Transaction pursuant to this Article 4 are conditioned upon the consummation of
the proposed transaction. Neither Company nor any equityholder involved in any
such proposed transaction shall have any obligation to Holders to
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consummate any such proposed transaction once an agreement in principle or
decision to proceed with respect thereto is reached, except as expressly
provided in this Article 4.
4.9. Payment of Taxes and Expenses. Company will pay all expenses
(including reasonable costs and expenses of Holders and one legal counsel
thereto, but excluding underwriter's and/or broker's discounts and commissions),
taxes (other than income taxes) and other reasonable fees and charges
attributable to the issuance, registration, qualification, notification,
approval, listing, transfer pursuant to Section 4.5, and/or repurchase of the
Warrants, the Warrant Certificates and the Warrant Shares.
4.10. Reservation and Issuance of Warrant Shares. Company at all times
shall reserve (and keep free from preemptive rights or similar rights of
equityholders of Company) among its authorized but unissued shares of Capital
Stock the full number of Warrant Shares deliverable upon exercise of all of the
Warrants. Company covenants that all Warrant Shares (when and if issued upon
exercise of the Warrants in accordance with the terms hereof including receipt
of the Exercise Price) will be duly authorized, validly issued, fully paid and
nonassessable (and will be free from all taxes, liens, charges and security
interests with respect to the issuance thereof). Before taking any action that
could cause an adjustment pursuant to Article 5, Company will take any corporate
action that (in the opinion of its counsel) may be necessary or appropriate in
order that Company may validly and legally issue fully paid and nonassessable
Warrant Shares at the applicable Exercise Price as so adjusted.
4.11. Corrective Adjustments. Company hereby acknowledges that Purchaser
has relied upon, among other things, the representation and warranty set forth
in Section 3.6 regarding the outstanding Capital Stock of Company and the rights
to acquire Capital Stock of Company as of the date of this Agreement. If it is
later determined that the representation and warranty set forth in Section 3.6
is untrue or inaccurate such that the outstanding Capital Stock or rights to
acquire Capital Stock are greater that the amount disclosed therein, then
Company shall notify each Holder in writing within 10 Business Days of
discovering such inaccuracy and shall promptly prepare, execute and deliver to
the Holders such additional documents and certificates as are necessary to
equitably adjust the Exercise Price and/or Warrants and Warrant Shares
deliverable upon exercise of all Warrants for the benefit of Holders. Such
adjustment shall include the issuance of additional Warrants and/or the
reduction in Exercise Price of the Warrants, as approved in writing by Holders
of a majority of the Warrants. In addition, if the assumption regarding the
number of shares of Common Stock issued in connection with the Telecon
Acquisition and the Additional Acquisitions (as set forth in Section 3.6.c) is
incorrect (after the Telecon Acquisition and all such Additional Acquisitions
have been completed), then Company shall, within 30 calendar days after the
completion of the last such Additional Acquisition, provide Holders with a
current capitalization chart. Holders shall then determine the appropriate
adjustment to the number of issued Warrants and/or the Exercise Price of the
Warrants, and Company shall promptly prepare, execute and deliver to the Holders
such additional documents and certificates as are necessary to equitably adjust
the Exercise Price and/or the Warrants.
4.12. Listing of Shares. If Company lists any shares of Common Stock on
any national securities exchange, inter-dealer quotation system or other market,
then Company (at its expense) will use its best efforts to cause the Warrant
Shares to be approved for listing, subject to notice of
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issuance, and will provide prompt notice to each such exchange, system or other
market of the issuance thereof from time to time.
4.13. Lists of Holders. Company (from time to time upon the request of any
Holder) will provide such Holder with a list of the registered Holders and their
respective addresses.
4.14. Statement of Warrant Interest. Company (from time to time upon the
request of any Holder) will provide such Holder with a statement of such
Holder's interest in Company containing the following information (as
applicable): (a) the number of Warrants then owned of record by such Holder, and
(b) the number of Warrant Shares purchasable upon the exercise of each Warrant
then owned of record by such Holder, and (c) the Exercise Price of each Warrant
then owned of record by such Holder, and (d) the number of Warrant Shares then
owned of record by such Holder, and (e) a chart describing (in reasonable
detail) the then current capitalization of Company.
4.15. Right of Inspection. At any time and from time to time during normal
business hours (and upon reasonable prior written notice) Company will permit an
agent or representative of any Holder (at such Holder's cost and expense) (i) to
visit, and (ii) to examine and make copies of and abstracts from the books and
records of Company and its Subsidiaries, and (iii) to discuss the affairs,
finances, and accounts of Company and its Subsidiaries with any of their
respective officers, directors and independent accountants, subject in all cases
to the confidentiality requirements of Section 6.1(d).
4.16. Attendance and Participation Rights. So long as the Warrants and
Warrant Shares of Holders (together will all other Capital Stock owned by any
Holder) collectively represent 1% or more of the Common Stock (on a fully
diluted basis), then a representative of Holders shall be entitled (if at any
time hereafter Holders so elect) to attend each of the meetings of Company's
Board of Directors (including, each committee thereof). Notwithstanding the
foregoing, at the request of Company, representatives of Holders may be required
temporarily to leave any such meeting of the Board of Directors if such action
is necessary to preserve Company's attorney-client privilege with respect to
such meetings or the information disseminated therein. In addition, at all times
while any Holder owns Warrant Shares (together with all other shares of Capital
Stock owned by such Holder) representing 5% or more of the issued and
outstanding Common Stock, such Holder (at its option) shall be entitled to
designate a pro rata percent of the positions on the Board of Directors (and
each committee thereof) of Company (rounded upwards to the next whole number).
The Company will cause any directors designated by a Holder to be included among
the nominees who are recommended for election as directors by management of the
Company, at each meeting of the Company's stockholders at which directors of the
Company are proposed to be elected.
4.17. Compliance with Approval Requirements. If any Warrants or Warrant
Shares require registration or approval of the FCC, any State PUC or any other
governmental authority (or the taking of any other action under the laws of the
United States of America or any political subdivision thereof) before such
securities may be validly issued, then Company will use best efforts to secure
and maintain such registration or approval or will take such other action as and
when necessary.
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ARTICLE 5. ANTI-DILUTION PROVISIONS
5.1. Adjustments to Warrant Shares Purchasable and Exercise Price.
a. Equity Dividends, Restructurings and Reclassifications. If
Company at any time (1) declares or pays a dividend on its outstanding Capital
Stock in shares of Common Stock or other securities of Company, or (2)
subdivides its outstanding shares of Common Stock, or (3) combines its
outstanding shares of Common Stock into a smaller number of shares, or (4)
issues by reclassification of the Common Stock other securities of Company
(including any such reclassification in connection with a merger, consolidation
or other business combination in which Company is the surviving entity), then
the number and kind of Warrant Shares purchasable upon exercise of each Warrant
and the applicable Exercise Price therefor shall be adjusted so that each Holder
of a Warrant upon exercise of such Warrant shall be entitled to receive (for the
same aggregate Exercise Price) the aggregate number and kind of Warrant Shares
or other securities of Company that such Holder would have owned or would have
been entitled to receive after the occurrence of any such event had such Warrant
been exercised immediately prior to the occurrence of such event (or, if
earlier, any record date with respect thereto). Any adjustment required by this
Clause (a) shall become effective on the date of such event retroactive to the
record date with respect thereto (if any), and (b) shall be made successively
whenever any such event occurs.
b. Issuances Below Target Market Price. If Company issues or sells
any shares of Capital Stock (or rights, options, warrants or convertible or
exchangeable securities containing a right to subscribe for or purchase shares
of Common Stock) other than the Excludible Shares for no consideration or at a
price per share less than the Target Market Price per share of Common Stock in
effect immediately prior to such sale or issuance, then the number of Warrant
Shares owned and Warrant Shares thereafter purchasable upon the exercise of each
Warrant shall be automatically increased to account for the economic effects of
such transaction (and the applicable Exercise Price for such Warrants shall be
proportionately decreased) using a standard weighted average formula approach to
compute such adjustment. If Company (i) issues or sells shares for consideration
that includes any property other than cash or (ii) issues or sells shares
together with other securities as a part of a unit at a price per unit, then the
"price per share" and the amount of consideration received by Company for
purposes of this Clause (unless Company and Holders otherwise mutually agree)
will be determined by an Independent Appraiser. In addition, if Company and
Holders are unable to agree on the amount or form of any such adjustment, then
Company will retain an Independent Appraiser acceptable to Holders (which
acceptance may not be unreasonably withheld) that will determine the amount and
form of such adjustment. Any adjustment required by this Clause (1) shall become
effective on the date of issuance retroactive to the record date for determining
equityholders entitled to receive such issuance, and (2) shall be made
successively whenever any such event occurs.
c. Dividend and Distribution Dilution. If any dividend, distribution
or payment (whether as cash or other assets of Company) is made after the date
hereof with respect to any Capital Stock or other equity securities of Company,
other than dividends appropriately covered under Clause "a" above, then Company
(concurrently with the payment thereof) shall make a corresponding proportionate
distribution or payment to each Holder of Warrants and/or Warrant
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Shares equal to such Holder's percentage ownership of Company's outstanding
Capital Stock (but, for such purposes, treating all Warrants as though they had
then been exercised). Notwithstanding the foregoing, Company shall not be
obligated to make any such distribution or payment to a Holder (and no Holder
shall be entitled to receive such distribution or payment) to the extent that
such Holder otherwise receives actual payment of the corresponding dividend or
distribution as a holder of Warrant Shares in such class of equity security.
d. Catchall Anti-Dilution Protection. If Company otherwise issues
any securities or instruments or engages in any transaction an effect of which
is to dilute the economic value or voting rights of any Holder's Warrants or
Warrant Shares (including the issuance of any securities or instruments with
enhanced voting rights, preemptive rights, dividend preferences or liquidation
preferences) in a manner contrary to the intent of this Section 5.1, then
Company will implement an equitable adjustment to such Holder's interest in
Company (in a manner reasonably acceptable to such Holder) in order to account
for the effects of such transaction. Any adjustment required by this Clause
shall be made successively whenever any such event occurs. If Company and
Holders are unable to agree on the amount or form of any such equitable
adjustment, then Company will retain an Independent Appraiser acceptable to
Holders (which acceptance may not be unreasonably withheld) that will determine
the amount and form of such equitable adjustment.
e. Preemptive Rights. If Company issues or sells any shares of
Capital Stock (or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Capital
Stock), other than (i) in a Public Offering, or (ii) in connection with
acquisitions of Internet service providers or other telecommunications
companies, or (iii) in connection with the Excludible Shares, then each Holder
of Warrants and/or Warrant Shares shall be entitled at any time during the term
of this Warrant Agreement to acquire (at the price paid by such acquiror of
Capital Stock and on terms and conditions otherwise at least as favorable as was
offered to such acquiror) an amount of additional shares of Capital Stock that
would entitle such Holder to have the same aggregate percentage of Capital Stock
(on a fully diluted basis) as such Holder had or was entitled to have
immediately prior to such transaction.
f. Rights Applicable to Shares Other than Common Stock. If at any
time (as a result of an adjustment made pursuant to this Section 5.1) a Holder
becomes entitled to receive any shares of Company other than shares of Common
Stock, then thereafter the number of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in this Section 5.1, and the provisions
of Article 4 with respect to the Warrant Shares shall apply on like terms to
such other shares.
g. Holders Entitled to Equivalent Rights. Except for the
underwriters' warrants and the advisors' warrants existing as of the date
hereof, if Company has otherwise granted or hereafter grants to any Person any
other or additional anti-dilution protection or preemptive rights with respect
to any securities of Company (or similar protections or rights with any more
favorable or less restrictive terms), then Company will promptly notify each
Holder of Warrants and each Holder of Warrant Shares, and such protections and
rights (or the more favorable or less restrictive terms thereof) will be deemed
automatically to be incorporated into this Agreement (without the
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necessity of any other action by the parties hereto) as additional protections
and rights that each Holder is entitled to exercise.
h. Expiration of Rights Previously Subject to Adjustment. Upon the
expiration of any rights, options or warrants that resulted in adjustments
pursuant to this Section 5.1 that were not exercised, then the Exercise Price
and the number of Warrant Shares purchasable shall be readjusted and thereafter
shall be such as it would have been had it been originally adjusted (or had the
original adjustment not been required, as applicable) as if (A) the only shares
of Common Stock purchasable upon exercise of such rights, options or warrants
were the shares of Common Stock (if any) actually issued or sold upon the
exercise of such rights, options or warrants and (B) such shares of Common Stock
so issued or sold (if any) were issuable for the consideration actually received
by Company for the issuance, sale or grant of all such rights, options or
warrants whether or not exercised; provided that no such readjustment may have
the effect of increasing the Exercise Price or decreasing the number of Warrant
Shares purchasable upon the exercise of a Warrant by an amount in excess of the
amount of the adjustment initially made in respect to the issuance, sale or
grant of such rights, options or warrants.
5.2. Notice of Adjustment. Upon any adjustment required under this Article
5, Company (at its expense) shall mail (within 10 Business Days after such
adjustment) by first-class mail, postage prepaid, to each Holder of Warrants and
each Holder of Warrant Shares a notice of such adjustment. Such notice shall
include the following (each in reasonable detail): (i) the number of Warrant
Shares purchasable upon the exercise of each Warrant and the Exercise Price of
such Warrant after such adjustment, and (ii) a brief statement of the facts
requiring such adjustment, and (iii) the computation by which such adjustment
was made.
5.3. Preservation of Purchase Rights upon Certain Transactions. In
connection with any merger, consolidation, reorganization or combination of
Company with or into another Person (whether or not Company is the surviving
entity), or any sale, transfer or lease to another Person of all or
substantially all the property of Company, then Company (or such successor or
purchasing Person) shall execute an agreement in favor of each Holder of
Warrants giving such Holder the right thereafter upon payment of the applicable
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of securities, cash and property
that such Holder would have owned or would have been entitled to receive after
the happening of such merger, consolidation, combination, sale, transfer or
lease had such Warrant been exercised immediately prior to such action. Such
agreement shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article 5. The
provisions of this Section shall similarly apply to successive mergers,
consolidations, combinations, sales, transfers or leases.
ARTICLE 6. COMPANY'S COVENANTS
6.1. Information.
a. Information Provided by Company to Other Persons. Whether or not
Company is subject to the reporting requirements of Sections 13 or 15(d) of the
Exchange Act, Company will provide each Holder with a copy of all information
(including financial information)
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and other communications that are sent by or on behalf of Company (i) to any
class of Company's equityholders, or (ii) to the members of Company's Board of
Directors (if and to the extent subsequently requested by Holders), or (iii) to
the Commission, subject to the confidentiality requirements set forth in Section
6.1.d. Company shall provide such information and communications to Holders
concurrently with providing it to such third parties.
b. Specific Additional Information. Company will also provide each
Holder written notice of (and describing in reasonable detail) the occurrence of
any of the following events:
1. Company offers or issues to any Person any shares of
Capital Stock or securities convertible into or exchangeable for Capital
Stock or any right to subscribe for or purchase any thereof (other than in
connection with the issuance of Excludible Shares or the issuance of
options exercisable for Excludible Shares); or
2. A dissolution, liquidation or winding up of Company; or
3. An agreement in principle is reached and/or a letter of
intent is executed with respect to any Equity Disposition or Non-Surviving
Transaction; or
4. Company declares or makes (directly or indirectly) any
payment, dividend or distribution (in cash or otherwise) with respect to,
or incurs any liability for the purchase, acquisition, redemption or
retirement of, any Capital Stock or as a dividend, return of capital or
other payment or distribution of any kind to any equityholder.
Each such notice shall be mailed by Company to each Holder (at such Holder's
last known address on the books and records of Company) at least 20 Business
Days prior to the applicable record date of such transaction.
c. Additional Requested Information. In addition to the information
and disclosures otherwise required under this Agreement, Company will also
provide to each Holder any information reasonably requested from time to time by
such Holder relating to the operations, business plans and/or ownership of
Company, subject to the confidentiality requirements set forth in Section 6.1.d.
d. Disclosure of Information by Holders. Each Holder will employ
reasonable procedures to treat as confidential all written, non-public
information delivered to such Holder pursuant to this Agreement concerning the
performance, operations, assets, structure and business plans of Company that is
conspicuously designated by Company as confidential information. While other or
different confidentiality procedures may be employed by each Holder, the actual
procedures employed by such Holder for this purpose will be conclusively deemed
to be reasonable if they are at least as protective of such information as the
procedures generally employed by such Holder to safeguard the confidentiality of
such Holder's own information that such Holder generally considers to be
confidential. Notwithstanding the foregoing, each Holder may disclose any
information concerning Company in such Holder's possession from time to time (a)
to permitted participants, transferees, assignees, pledgees and investors
(including prospective participants, transferees, assignees, pledgees and
investors), but subject to a reasonable confidentiality agreement regarding any
non-public confidential information thereby disclosed, and (b) in response to
credit inquiries
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consistent with general banking practices, and (c) to any federal or state
regulator of such Holder, and (d) to such Holder's Affiliates, employees, legal
counsel, appraisers, accountants, and agents, and (e) to any Person pursuant to
compulsory judicial process, and (f) to any judicial or arbitration forum in
connection with enforcing this Agreement or defending any action based upon this
Agreement or the relationship between such Holder and Company, and (g) to any
other Person with respect to the public or non-confidential portions of any such
information. Moreover, each Holder (without any compensation, remuneration or
notice to Company) may also include operational, performance and structural
information and data relating to Company in compilations, reports and data bases
assembled by such Holder (or its Affiliates) and used to conduct, support,
assist in and validate portfolio, industry and credit research and analysis for
itself and/or other Persons; provided, however, that such Holder may not thereby
disclose to other Persons any information relating to Company in a manner that
is attributable to Company unless (1) such disclosure is permitted under the
standards outlined above in this Section or (2) Company otherwise separately
consents thereto (which consent may not be unreasonably withheld).
Notwithstanding the foregoing, each Holder agrees to comply with applicable
federal securities laws and regulations regarding dissemination, use and/or
disclosure of non-public information
6.2. Books and Records. Company and each of its Subsidiaries shall keep
and maintain satisfactory and adequate books and records of account in
accordance with generally accepted accounting principles.
6.3. No Amendments to Organic Documents. Without the prior written consent
of Holders representing a majority of Warrant Shares and Warrants (which consent
may not be unreasonably withheld), Company shall not permit any amendments to or
reincorporation of its Organic Documents that could reasonably be expected to
have or cause an adverse effect on the rights and interest of Holders. Without
limiting the generality of the foregoing, without the prior written consent of
Holders representing a majority of Warrant Shares and Warrants (which consent
may not be unreasonably withheld), Company shall not establish any class of
Capital Stock or issue any shares of Capital Stock that have rights, dividends
or preferences senior to or more advantageous than the rights, dividends and
preferences of the Warrant Shares.
6.4. Existence and Good Standing. Company and each of its Subsidiaries
shall preserve and maintain its existence in good standing as a organization
under the laws of its jurisdiction of organization.
6.5. Transactions with Related Parties. Without the prior written consent
of Holders representing a majority of Warrant Shares and Warrants (which consent
may not be unreasonably withheld), Company will not (and will not permit any
Subsidiary to) engage in any transaction (including employment and compensation
arrangements) with any Affiliate or other related party other than for value
received and under reasonable and customary terms and conditions that are
consistent with Company's historical practices and at least as favorable to
Company as would be achieved in an arm's length transaction.
6.6. Conduct of Business. Without the prior written consent of Holders
representing a majority of Warrant Shares and Warrants (which consent may not be
unreasonably withheld), Company (a) will continue to engage in (and only in)
businesses of the same general type as now
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conducted by it, and (b) will comply, and will cause each Subsidiary to comply,
in all material respects with all applicable material laws, regulations, and
orders.
ARTICLE 7. DEFINITIONS
7.1. Definitions. As used herein, the following terms have the following
respective meanings:
7.1.1. "Additional Acquisitions" has the meaning set forth in the
Credit Agreement.
7.1.2. "Affiliate" of any Person means any other Person that
directly or indirectly controls, is controlled by or is under direct or indirect
common control with such Person. A Person shall be deemed to "control" another
Person if such first Person directly or indirectly possesses the power to direct
(or to cause the direction of or to materially influence) the management and
policies of the second Person, whether through the ownership of voting
securities, by contract or otherwise. Without limiting the generality of the
foregoing, each of the following Persons will be deemed to be an Affiliate of a
Person: (a) each Person who owns or controls 5% or more of any class or series
of any equity interest of such Person, and (b) each member, manager, partner,
director and/or senior executive officer of such Person or any Affiliate
thereof, and (c) any family member or other relative of such Person or any
Affiliate thereof, and (d) any trust of which any Person or Affiliate thereof is
either a trustee or beneficiary. Notwithstanding the foregoing, No Holder shall
be deemed to be an Affiliate of Company or any Affiliate thereof.
7.1.3. "Agreement" means this Warrant Agreement, as amended,
modified and supplemented from time to time.
7.1.4. "Appraised Valuation" means, as of any relevant date, the
fair market value of a Warrant Share, a share of Common Stock or other security
or equity interest (as applicable) as determined by an Independent Appraiser.
Such Independent Appraiser will be selected by Holders of a majority of the
Warrants and Warrant Shares and approved by Company (which approval may not be
unreasonably withheld, delayed or conditioned). Such Independent Appraiser shall
use one or more valuation methods that the Independent Appraiser (in its best
professional judgment) determines to be most appropriate under the
circumstances; provided, that such valuation methods shall not give effect to
(1) any discount for any lack of liquidity of the Warrants, Warrant Shares
and/or such other security, or (2) the minority status of any holder of
Warrants, Warrant Shares or other security, or (3) the fact that Company may
have no class of equity securities registered under the Securities Act. Such
Independent Appraiser, as promptly as is reasonably possible, will prepare and
deliver to Company and to each Holder of a Warrant or Warrant Share a written
valuation report indicating (a) the methods of valuation considered or used, and
(b) the value of a Warrant Share or other security, and (c) the nature and scope
of the examination or investigation upon which the determination of value was
made. Unless the valuation report is revised by the Independent Appraiser within
5 Business Days after delivery thereof or unless Company and Holders otherwise
mutually agree, then the valuation report shall be deemed final at the end of
such 5-Business-Day period. Company shall pay the fees and expenses associated
with the Independent Appraiser.
7.1.5. "Block A Exercise Price" has the meaning set forth in Section
1.2.
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7.1.6. "Block A Warrant" means the irrevocable and unconditional
right (subject to the terms hereof) to acquire a fully paid and nonassessable
Warrant Share at a purchase price per share equal to the Block A Exercise Price
(and any other right or warrant issued upon any exchange or transfer of any such
Warrant or any adjustment relating thereto).
7.1.7. "Block B Exercise Price" has the meaning set forth in Section
1.2.
7.1.8. "Block B Warrant" means the irrevocable and unconditional
right (subject to the terms hereof) to acquire a fully paid and nonassessable
Warrant Share at a purchase price per share equal to the Block B Exercise Price
(and any other right or warrant issued upon any exchange or transfer of any such
Warrant or any adjustment relating thereto).
7.1.9. "Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in Arlington, Virginia are authorized by law
to close.
7.1.10. "Capital Stock" means the Common Stock, and all other
classes of common stock (whether voting or non-voting), and all other forms of
capital stock or securities of Company (preferred or otherwise).
7.1.11. "Commission" means the Securities and Exchange Commission or
any entity or agency that succeeds to any or all of its functions under the
Securities Act or the Exchange Act.
7.1.12. "Common Stock" means the voting common stock of Company
(which has a par value of $0.01 per share).
7.1.13. "Company" means BiznessOnline.com, Inc., a Delaware
corporation, and its successors and permitted assigns.
7.1.14. "Credit Agreement" means the Credit Facility Agreement dated
as of March ___15, 2000 by and among Company (and certain of its Affiliates) and
Lender (and certain other lenders), as the same may be amended, modified or
otherwise supplemented from time to time (including any renewals, refinancings
or extensions thereof or increases in the credit extended thereunder).
7.1.15. "Current Market Price" means, with respect to any share of
Common Stock or any other security of Company at the date herein specified, the
following:
(i) if Company does not then have such securities registered
under the Exchange Act, then the Current Market Price per share of such security
will be the greater of the applicable Exercise Price per Warrant Share then in
effect or the Appraised Valuation per share of such security, or alternatively
(ii) if Company does then have such securities registered
under the Exchange Act, then the Current Market Price per share of such security
will be the greater of the Appraised Valuation per share of such security or the
average of the daily market prices of such security for 20 consecutive Business
Days during the period commencing 30 Business Days before such date (or, if
Company has had a class of such securities registered under the Exchange Act for
less than 30
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consecutive Business Days before such date, then the average of the daily market
prices for all of the Business Days before such date for which daily market
prices are available). The market price for each such Business Day shall be as
follows: (A) for a security listed or admitted to trading on any securities
exchange, then the closing price (regular way) on such day (or if no sale takes
place on such day, then the average of the closing bid and asked prices on such
day), and (B) for a security not then listed or admitted to trading on any
securities exchange, then the last reported sale price on such day (or if no
sale takes place on such day, then the average of the closing bid and asked
prices on such day, as reported by a reputable quotation source designated by
Company), and (C) for a security not then listed or admitted to trading on any
securities exchange and as to which no such reported sale price or bid and asked
prices are available, then the average of the reported high bid and low asked
prices on such day, as reported by a reputable quotation service, or a newspaper
of general circulation in Manhattan Borough (New York, NY) customarily published
on each business day, designated by Company (or if there is no bid and asked
prices on such day, then the average of the high bid and low asked prices, as so
reported, on the most recent day (not more than 30 calendar days prior to the
date in question) for which prices have been so reported), and (D) if there are
no bid and asked prices reported during the 30 calendar days prior to the date
in question, then the Current Market Price per share of the security shall be
determined as if Company did not have a class of such securities registered
under the Exchange Act.
7.1.16. "Equity Disposition" means the sale, issuance, transfer or
other Equity Disposition of Capital Stock (or securities convertible into, or
exchangeable for, Capital Stock or rights to acquire Capital Stock or such
securities) to one or more Persons through any transaction or series of related
transactions (other than as a result of a Public Offering or other than as a
result of a series of acquisitions of unrelated internet service providers or
telecommunications companies) if, after such sale, issuance, transfer or Equity
Disposition, (a) more than 50% of the Capital Stock or voting power of Company
is sold, issued or transferred or (b) the Initial Shareholders sell, issue or
transfer more than 50% of the Capital Stock and voting rights owned by such
Initial Shareholders as of the date hereof. For purposes of this definition, any
transfer of Capital Stock (or securities convertible into, or exchangeable for,
Capital Stock or rights to acquire Capital Stock or such securities) by a
shareholder to any member of his or her immediately family or to any trust
created by such shareholder for estate planning purposes shall not constitute an
"Equity Disposition".
7.1.17. "Equity Redemption" means any purchase, repurchase,
acquisition, redemption or retirement of any issued and outstanding shares of
Capital Stock (or any rights, options or convertible securities therefor) from
any holder by Company or any Affiliate thereof, except for repurchases to fund
employee stock purchase/401(k) or similar plans which plans in the aggregate do
not exceed 5% of the outstanding Capital Stock.
7.1.18. "Event of Dilution" means any of the events described in
Section 5.1 as to which anti-dilution rights are granted pursuant to Article 5.
7.1.19. "Exchange Act" means the Securities and Exchange Act of
1934, as amended, or any similar Federal statute, as implemented by the
Commission or any court of competent jurisdiction.
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7.1.20. "Excludible Shares" means (1) the shares issued upon
exercise of the advisors' warrants and (2) the pool of options convertible into
shares of Common Stock that Company may issue from time to time as incentive
compensation for its employees and directors, provided that (a) such options are
granted at a price that is equal to or greater than the Current Market Price on
the date of such grant, and (b) such issuances are reasonable in amount and
otherwise in accordance with normal and customary business practices within
Company's industry and (c) the aggregate amount of such shares issued at not
times exceeds 15.0% of the issued and outstanding equity of Company from time to
time (on a fully diluted basis). Such issuances may be pursuant to option plans
either (i) that have been established as of the effective date hereof or (ii)
that are established after the effective date hereof with notice to Holders.
7.1.21. "Exercise Period" has the meaning set forth in Section 4.2.
7.1.22. "Exercise Price" means either the Block A Exercise Price or
the Block B Exercise Price, as applicable.
7.1.23. "FCC" means the Federal Communications Commission or any
other entity or agency that succeeds to its responsibilities and powers.
7.1.24. "Holder" means any owner or holder of any Warrant (and
corresponding Warrant Certificate) or any Warrant Share, and (with respect to
each) any successor, assignee, transferee, trustee, estate, heir, executor,
administrator, or personal representative thereof.
7.1.25. "Holder-Affiliated Transferee" means any Affiliate of a
Holder, and/or any current or former director, officer, employee, business unit
or division, or successor-in-interest of such Holder, and/or (with respect to
Purchaser) any pledgee of Purchaser's interest under the Credit Agreement.
7.1.26. "Independent Appraiser" means a Person who (a) is with a
nationally recognized investment banking or appraisal firm, and (b) is qualified
in the valuation of businesses, transactions and securities of the general type
being analyzed, and (c) does not have a material direct or material indirect
financial interest in Company or any Holder.
7.1.27. "Initial Shareholders" means, Mark Munro, Susan Munro and
Keith London, who collectively beneficially own 3,084,242 shares of Common Stock
of Company as of the effective date of this Agreement.
7.1.28. "Lender" means MCG Finance Corporation, a Delaware
corporation, and its successors, assigns, pledgees and transferees.
7.1.29. "Non-Surviving Transaction" means either (a) any merger,
consolidation or other business combination by Company with one or more Persons
in which the other Person effectively is the survivor or (b) any sale, transfer,
lease or license of all or any material portion of the assets (or the economic
benefits thereof) of Company to one or more other Persons through any
transaction or series of related transactions.
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7.1.30. "Organic Document" means, relative to any entity, its
certificate and articles of incorporation, organization or formation, its
by-laws or operating agreements, and all equityholder agreements, voting
agreements and similar arrangements applicable to any of its authorized shares
of capital stock, its partnership interests or its equity interests, and any
other arrangements relating to the control or management of any such entity
(whether existing as a corporation, a partnership, an LLC or otherwise).
7.1.31. "Person" means an individual, an association, a partnership,
a corporation, a trust or an unincorporated organization or any other entity or
organization.
7.1.32. "Public Offering" means any issuance or other sale of any
Capital Stock (or securities convertible into, or exchangeable for, Capital
Stock or rights to acquire Capital Stock or such securities) of Company pursuant
to a registration statement filed with the Commission under the Securities Act.
7.1.33. "Purchaser" means Lender, and its successors, assigns,
pledgees and transferees with respect to the Warrants, corresponding Warrant
Certificates and/or Warrant Shares.
7.1.34. "Registration Rights" means the rights of the Holders of the
Warrant Certificates to have the Warrant Shares registered for sale under an
effective registration statement under the Securities Act.
7.1.35. "Repurchase Condition" has the meaning set forth in Section
4.6.
7.1.36. "Repurchase Offer" has the meaning set forth in Section 4.6.
7.1.37. "Repurchase Price" has the meaning set forth in Section 4.6.
7.1.38. "Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, as implemented by the Commission or any
court of competent jurisdiction.
7.1.39. "State Communications Acts" means the laws of any state in
which Company does business that govern the provision of communications services
offered or performed by Company within such state and are applicable to Company,
as amended from time to time, and as implemented by the rules, regulations, and
orders of the applicable State PUC or any court of competent jurisdiction.
7.1.40. "State PUC" means the public utility commission or other
regulatory agency of any state in which Company does business that is vested
with jurisdiction over Company and over State Communications Acts or the
provision of communication services within such state.
7.1.41. "Subsidiary" of any Person means (a) any other Person as to
which the first Person directly or indirectly owns or controls 50% or more of
the equity, voting rights or enterprise value thereof or (b) any other Person
the accounts of which would be consolidated with those of the first Person in
its consolidated or combined financial statements according to generally
accepted accounting principles.
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7.1.42. "Surviving Public Combination" means any merger,
consolidation or other business combination by Company with one or more Persons
in which Company is the survivor (or a purchase of assets by Company from one or
more other Persons) if Company is thereafter required to file reports with
respect to any of its Capital Stock with the Commission pursuant to the Exchange
Act.
7.1.43. "Target Market Price" means, at the time of any
determination, (a) with respect to the Block A Warrants, (i) a price per share
of Capital Stock (or with respect to options, warrants or convertible
securities, such price inclusive of any exercise or conversion payments) of
$7.00 per share for the first $15.0 million in equity issued by Company after
the Closing Date and (ii) a price per share of Capital Stock (or with respect to
options, warrants or convertible securities, such price inclusive of any
exercise or conversion payments) of $10.00 per share for all additional equity
issuances and (b) with respect to the Block B Warrants, a price per share of
Capital Stock (or with respect to options, warrants or convertible securities,
such price inclusive of any exercise or conversion payments) equal to the lesser
of the Current Market Price or $12.00 per share, as each such price may be
adjusted from time to time in connection with any subdivisions, combinations or
reclassifications of any Capital Stock.
7.1.44. "Telecon Acquisition" has the meaning set forth in the
Credit Agreement.
7.1.45. "Warrant Certificate" means a certificate (substantially in
the form of Exhibit C) evidencing one or more Warrants.
7.1.46. "Warrant" means the irrevocable and unconditional right
(subject to the terms hereof) to acquire a fully paid and nonassessable Warrant
Share at a purchase price per share equal to an applicable Exercise Price (and
any other right or warrant issued upon any exchange or transfer of any such
Warrant or any adjustment relating thereto).
7.1.47. "Warrant Share" means a share of Common Stock issuable upon
exercise of a Warrant (until such share is registered by Company and sold by the
Holder thereof to a third party in a public transaction). For purposes of
Section 4.4 and Section 4.5 only, the term "Warrant Share" shall include all
shares of Common Stock issued or issuable to any Holder in connection with any
Loan Document.
7.2. General Construction and Interpretation.
7.2.1. Plural; Gender. Unless otherwise expressly stated or the
context clearly indicates a different intention, then (as may be appropriate in
the particular context) (a) a singular number or noun used herein includes the
plural, and a plural number or noun includes the singular, and (b) the use of
the masculine, feminine or neuter gender pronouns herein includes each and all
genders.
7.2.2. Section, Schedule and Exhibit References. Unless otherwise
expressly stated or the context clearly indicates a different intention, then
all references to sections, paragraphs, clauses, schedules and exhibits herein
are to be interpreted as references to sections, paragraphs, clauses, schedules
and exhibits of and to this Agreement. In addition, the words "herein",
"hereof",
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"hereunder", "hereto" and other words of similar import herein refer to this
Agreement as a whole, and not to any particular section, paragraph or clause in
this Agreement.
7.2.3. Titles and Headings. Unless otherwise expressly stated or the
context clearly indicates a different intention, then the various titles and
headings herein are inserted for convenience only and do not affect the meaning
or interpretation of any provision hereof.
7.2.4. "Including" and "Among Other" References. Unless otherwise
expressly stated or the context clearly indicates a different intention, then
all references herein to phrases containing or lists preceded by the words
"include", "includes", "including", "among other", "among other things" or other
words or phrases of similar import are to be interpreted to mean such "without
limitation" (whether or not such additional phrase is actually added). In other
words, such words and phrases connote an illustrative example or list rather
than an exclusive example or list.
7.2.5. Time of Day References. Unless otherwise expressly stated or
the context clearly indicates a different intention, then all time of day
references in and restrictions imposed hereunder are to be calculated using
Eastern Time.
7.2.6. Successors and Assigns. Unless otherwise expressly stated or
the context clearly indicates a different intention, then all references to any
Person (including any Official Body) herein are to be interpreted as including
(as applicable) such Person's successors, assigns, estate, heirs, executors,
administrators and personal representatives.
7.2.7. Modifications to Documents. Unless otherwise expressly stated
or the context clearly indicates a different intention, then all references
herein to any other agreement or instrument are to be interpreted as including
all extensions, renewals, amendments, supplements, substitutions, replacements
and waivers thereto and thereof from time to time.
7.2.8. References to Laws and Regulations. Unless otherwise
expressly stated or the context clearly indicates a different intention, then
all references to any law, regulation, rule, order or policy herein are to be
interpreted as references to such law, regulation, rule or policy (a) as
implemented and interpreted from time to time by Official Bodies with
appropriate jurisdiction therefor, and (b) as amended, modified, supplemented,
replaced and repealed from time to time.
7.2.9. Financial and Accounting Terms. Unless otherwise expressly
stated or the context clearly indicates a different intention, then financial
and accounting terms used in the foregoing definitions or elsewhere herein shall
be defined and determined in accordance with Generally Accepted Accounting
Principles (GAAP).
ARTICLE 8. MISCELLANEOUS
8.1. Compliance with FCC and State PUC Requirements. Company and Purchaser
each hereby acknowledge its intent that this Agreement, the Warrants, the
Warrant Certificates and the Warrant Shares (as well as the exercise of rights
hereunder) each comply with all of the laws, regulations and orders of and/or
administered by the FCC or any State PUC relating to Purchaser's ownership,
exercise and/or other realization of rights in connection herewith. If at any
time the
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terms and conditions of any such ownership, exercise or other ability to realize
upon rights violates, is in conflict with or requires any consent under any such
legal requirements, then Company and Purchaser (or any subsequent Holder) will
cooperate and negotiate in good faith to amend the underlying documents (or the
relevant rights therein) and/or to file and prosecute (or to cause others to
file and prosecute) applications for any such consent in order to enable Company
and Purchaser (or such subsequent Holder) to be in compliance in all material
respects with such legal requirements.
8.2. Compliance with Purchaser's Regulatory Requirements. Company and
Purchaser each hereby acknowledge its intent that this Agreement, the Warrants,
the Warrant Certificates and the Warrant Shares (as well as the exercise of
rights hereunder) each comply with all of the statutory and regulatory
requirements applicable to Purchaser (or any subsequent Holder) relating to its
ownership, exercise and/or other realization of rights in connection herewith.
If at any time the terms and conditions of any such ownership, exercise or other
ability to realize upon rights violates or is in conflict with any such
regulatory requirements applicable to Purchaser (or such subsequent Holder),
then Company and Purchaser (or such subsequent Holder) will cooperate and
negotiate in good faith to amend the underlying documents (or the relevant
rights therein) in order to enable Purchaser (or such subsequent Holder) to be
in compliance in all material respects with such statutory and regulatory
requirements.
8.3. Binding Effect and Governing Law. This Agreement (and the Warrants,
the Warrant Certificates and other documents in connection herewith) are binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns (to the extent authorized). This Agreement (and the
Warrants, the Warrant Certificates and other documents in connection herewith)
are governed as to their validity, interpretation, construction and effect by
the laws of the Commonwealth of Virginia (without giving effect to the conflicts
of law rules of Virginia) or, to the extent that the particular issue in
controversy involves Company's legal power or authorization in connection
herewith, matters of internal governance, or matters of corporate law, then
resolution of such issue shall be governed by the corporate laws of the State of
Delaware.
8.4. Survival. All agreements, representations, warranties and covenants
of Company contained herein or in any documentation required hereunder will
survive the execution and delivery of this Agreement and will continue in full
force and effect so long as this Agreement otherwise remains effective.
8.5. No Waiver; Delay. To be effective, any waiver by Purchaser must be
expressed in a writing executed by Purchaser. If Purchaser waives any power,
right or remedy arising hereunder or under any applicable law, then such waiver
will not be deemed to be a waiver upon the later occurrence or recurrence of any
events giving rise to the earlier waiver. No failure or delay by Purchaser to
insist upon the strict performance of any term, condition, covenant or agreement
hereunder, or to exercise any right, power or remedy hereunder, will constitute
a waiver of compliance with any such term, condition, covenant or agreement, or
preclude Purchaser from exercising any such right, power, or remedy at any later
time or times. The remedies provided herein are cumulative and not exclusive of
each other and the remedies provided by law.
-29-
<PAGE>
8.6. Modification. Except as otherwise expressly provided in this
Agreement, no modification or amendment hereof will be effective unless made in
a writing signed by appropriate officers of the parties hereto.
8.7. Notices. Unless otherwise provided in this Agreement, any notice,
request, consent, waiver or other communication required or permitted under or
in connection with this Agreement will be deemed satisfactorily given if it is
in writing and is delivered either personally to the addressee thereof, or by
prepaid registered or certified U.S. mail (return receipt requested), or by a
nationally recognized commercial courier service with next-day delivery charges
prepaid, or by telegraph, or by facsimile (voice confirmed), or by any other
reasonable means of personal delivery to the party entitled thereto at its
respective address set forth below:
If to Company [Party Entitled to Notice]
or its Affiliates: c/o BiznessOnline.com, Inc.
1720 Route 34
P.O. Box 1347
Wall, New Jersey 07719
Attention: Mark E. Munro, President
Facsimile: (732) 280-6409
With a copy to the following listed counsel or
such other counsel as may be designated by Company
from time to time (and which notice shall not
constitute notice to Company and failure to give
such notice shall not affect the effectiveness of
notice to Company):
Duffy & Sweeney, Ltd.
300 Turks Head Building
Providence, RI 02903
Attention: Michael F. Sweeney, Esquire
Facsimile: (401) 455-0701
If to Purchaser: MCG Finance Corporation
1100 Wilson Boulevard, Suite 800
Arlington, VA 22209
Attention: Investment Administration
Telephone: (703) 247-7500
Facsimile: (703) 247-7505
Any party to this Agreement may change its address or facsimile number for
notice purposes by giving notice thereof to the other in accordance with this
Section, provided that such change shall not be effective until 2 calendar days
after notice of such change. All such notices and other communications will be
deemed given and effective (a) if by mail, then upon actual receipt or 5
calendar days after mailing as provided above (whichever is earlier), or (b) if
by facsimile, then upon successful transmittal to such party's designated
number, or (c) if by telegraph, then upon actual receipt or 2 Business Days
after delivery to the telegraph company (whichever is earlier), or (d) if by
nationally recognized commercial courier service, then upon actual receipt or 2
Business Days after
-30-
<PAGE>
delivery to the courier service (whichever is earlier), or (e) if otherwise
delivered, then upon actual receipt.
8.8. Prior Agreements Superseded. This Agreement completely and fully
supersedes all oral agreements and all other and prior written agreements by and
between Company and Purchaser concerning the terms and conditions of this
Agreement.
8.9. Severability. If fulfillment of any provision of or any transaction
related to this Agreement or the Credit Agreement, the time performance of such
provision or transaction is due shall involve transcending the limit of validity
prescribed by law, then ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity. If any clause or provision of this
Agreement operates or would prospectively operate to invalidate this Agreement
in whole or in part, then such clause or provision only shall be void, as though
not contained herein, and the remainder of this Agreement shall remain operative
and in full force and effect.
8.10. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document. Each such counterpart will be deemed to be an original
but all counterparts together will constitute one and the same instrument.
8.11. Limitation of Liability. Notwithstanding any other provision of this
Agreement (unless expressly provided otherwise), neither Company nor any Holder
(nor any director, officer, employee, representative, legal counsel or agent of
Company or any Holder) shall have any liability to any other Person that is a
party to or beneficiary of this Agreement (or to any equityholder of Company)
with respect to (and each Person that is a party to this Agreement hereby
waives, releases and agrees not to sue upon any claim for) any special,
indirect, consequential, punitive or non-foreseeable damages suffered by such
Person in connection with or in any way related to the transactions contemplated
or the relationship established by this Agreement, or any act, omission or event
occurring in connection herewith.
8.12. Forum Selection; Consent to Jurisdiction. Any litigation in
connection with or in any way related to this Agreement, or any course of
conduct, course of dealing, statements (whether verbal or written), actions or
inactions of any Holder or Company will be brought and maintained exclusively in
the courts of the Commonwealth of Virginia or in the United States District
Court for the Eastern District of Virginia; provided, however, that any suit
seeking enforcement against Company may also be brought (at such Holder's
option) in the courts of any other jurisdiction where any property of Company
may be found or where any Holder may otherwise obtain personal jurisdiction over
Company. Company hereby expressly and irrevocably submits to the jurisdiction of
the courts of the Commonwealth of Virginia and of the United States District
Court for the Eastern District of Virginia for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by any final
and non-appealable judgment rendered thereby in connection with such litigation.
Company further irrevocably consents to the service of process by registered or
certified mail, postage prepaid, or by personal service within or outside the
Commonwealth of Virginia. Company hereby expressly and irrevocably waives, to
the fullest extent permitted by law, any objection which it may have or
hereafter may have to the laying of venue of any such litigation brought in any
-31-
<PAGE>
such court referred to above and any claim that any such litigation has been
brought in an inconvenient forum. To the extent that Company has or hereafter
may acquire any immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself or its
property, then Company hereby irrevocably waives such immunity in respect of its
obligations under this Agreement.
8.13. Waiver of Jury Trial. Each Holder and Company each hereby knowingly,
voluntarily and intentionally waives any rights it may have to a trial by jury
in respect of any litigation (whether as claim, counter-claim, affirmative
defense or otherwise) in connection with or in any way related to this
Agreement, or any course of conduct, course of dealing, statements (whether
verbal or written), actions or inactions of any Holder or Company.
[BALANCE OF PAGE INTENTIONALLY BLANK]
-32-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Warrant Agreement to be
duly executed, as an instrument under seal (whether or not any such seals are
physically attached hereto) as of the date and year first above written.
ATTEST: BIZNESSONLINE.COM, INC. (Company)
By: By: /s/ Mark E. Munro
-------------------------------- --------------------------------
Name: Name: MARK E. MUNRO
-------------------------- ------------------------------
Title: Secretary Title: President
[CORPORATE SEAL] Address: __________________________
__________________________
__________________________
Facsimile: (_____) ____-______
WITNESS: MCG FINANCE CORPORATION
(Purchaser)
By: /s/ Steven F. Tunney
- - ----------------------------------- ---------------------------------
Steven F. Tunney, COO and CFO
Address: 1100 Wilson Boulevard
Suite 800
Arlington, Virginia 22209
Facsimile: (703) 247-7505
<PAGE>
EXHIBIT A -- Articles of Incorporation
<PAGE>
EXHIBIT B -- Authorizing Resolutions
<PAGE>
EXHIBIT C -- Form of Warrant Certificate
<PAGE>
EXHIBIT D -- Restrictive Legends
FORM OF RESTRICTIVE LEGENDS FOR WARRANT CERTIFICATES
-----------------------------
"The Warrants evidenced by this certificate have not been registered under the
Securities Act of 1933 or the securities laws of any state. Such Warrants may
not be sold, transferred, pledged or hypothecated in the absence of an effective
registration statement for such Warrants under the Securities Act of 1933 and
applicable state securities laws or an opinion of counsel satisfactory to
BIZNESSONLINE.COM, INC. prior to the proposed transaction that such registration
is not required."
FORM OF RESTRICTIVE LEGEND FOR WARRANT SHARES
-----------------------------
"The shares evidenced by this certificate have been issued upon the exercise of
warrants issued pursuant to a Warrant Agreement dated as of March 16, 2000 (the
"Warrant Agreement") and have not been registered under the Securities Act of
1933 or the securities laws of any state. Such shares may not be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement for such shares under the Securities Act of 1933 and applicable state
securities laws or an opinion of counsel satisfactory to BIZNESSONLINE.COM, INC.
prior to the proposed transaction that such registration is not required."
<PAGE>
Exhibit 10.32
ESCROW AND ACCOUNT COLLATERAL AGREEMENT
THIS ESCROW AND ACCOUNT COLLATERAL AGREEMENT (as may be amended from time
to time, this "Agreement" or "Escrow Agreement") is made and effective as of
March 16, 2000, by and among RIGGS BANK, N.A. (including successors and
permitted assignees thereof, "Escrow Agent"), and BIZNESSONLINE.COM, INC.
("BiznessOnline") and each of its direct and indirect Subsidiaries (including
successors and permitted assignees thereof, each, a "Borrower"; collectively,
the "Borrowers"), and MCG FINANCE CORPORATION, in its capacity as Administrative
Agent for Lenders under the Credit Agreement defined below (including
successors, assignees, transferees, and pledgees thereof, "Lender Agent").
Unless otherwise defined herein, capitalized terms used herein have the meaning
ascribed thereto in the Credit Agreement defined below.
R E C I T A L S:
WHEREAS, Borrowers, Lenders and Lender Agent have entered into (or
substantially contemporaneously herewith are entering into) a Credit Facility
Agreement (as amended from time to time, the "Credit Agreement") and various
other Loan Documents as defined therein pursuant to which Lenders are extending
credit to Borrowers on a senior secured basis; and
WHEREAS, a portion of the Advances under the Credit Agreement will be used
by Borrowers to acquire various assets and assume various liabilities pursuant
to a certain Asset Purchase Agreement dated as of December 5, 1999 (including
all exhibits and schedules thereto and as amended from time to time (but only
with the consent of Lender Agent), the "Purchase Agreement"), by and among
BiznessOnline, BOL Acquisition Co., III, Inc., Telecon Communications
Corporation, a New York corporation ("Telecon"), and the shareholders of Telecon
(the "Acquisition"); and
WHEREAS, Borrowers, Lenders and Lender Agent have determined that it is
advisable to fund a portion of the Advances under the Credit Agreement into a
pledged escrow account prior to the effectiveness, consummation and closing
under the Purchase Agreement (the "Acquisition Closing"); and
NOW, THEREFORE, for other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties hereby agree as
follows:
1. Account Identification; Borrower Authority. This Agreement applies to
the accounts identified below that have been established at Escrow Agent on
behalf of Borrowers, and to each other account hereafter established at Escrow
Agent on behalf of Borrowers during the effectiveness of this Agreement
(collectively, the "Accounts" or "Escrow Accounts"):
Description of Accounts Account Numbers
----------------------- ---------------
MCG/BIZNESSONLINE.COM ESCROW 0227 8701
<PAGE>
Escrow Agent hereby agrees to deliver written notice to Lender Agent of the
establishment of any additional accounts by any Borrower. Each Borrower hereby
requests and instructs the Escrow Agent to open and establish the Accounts in
the name of Borrowers but with a designation that such Accounts are collateral
for and pledged to Lender Agent. Each Borrower (and each officer executing this
Agreement on behalf of a Borrower) hereby represents and warrants to Escrow
Agent and Lender Agent that such Borrower (and each such officer) has all
appropriate power and authority to execute, deliver and perform under this
Agreement (including the power and authority to make and give all requests,
instructions, appointments, consents and notifications given hereunder).
2. Transfer and Pledge of Accounts and Covered Property. Each Borrower
hereby grants a security interest in, collaterally assigns, transfers, pledges
and sets over unto Lender Agent all of such Borrower's right, title and interest
in and to the Accounts and all funds, items, instruments, investments,
securities and other things of value, and all proceeds thereof (collectively,
the "Covered Property"), at any time paid, deposited, credited or held in or in
transit to any Account. Lender Agent (subject to the terms of this Agreement)
hereafter shall have and be entitled to exercise sole and exclusive dominion and
control of the Accounts and all of the Covered Property, and each Borrower
(subject to the terms of this Agreement) hereby relinquishes all rights of
withdrawal or access to the Accounts and the Covered Property. Each Borrower
hereby agrees and covenants that it will not similarly grant, assign, transfer
or pledge to any other Person any interest in the Accounts or the Covered
Property. Escrow Agent hereby represents and warrants to Lender Agent that no
other notices of assignment with respect to any Account or any Covered Property
has been received by Escrow Agent.
3. Appointment and Acceptance of Agency. Each Borrower and Lender Agent
each hereby appoints, designates and constitutes Escrow Agent as the "Escrow
Agent" with respect to the Accounts and the Covered Property with full power and
authority to take such actions, to exercise such powers and to perform such
other duties as are expressly delegated and assigned to Escrow Agent by the
terms of this Agreement. Escrow Agent hereby accepts such appointment and agrees
to act as such Escrow Agent upon the express terms and conditions (but subject
to the limitations and qualifications) set forth in this Agreement.
4. Disbursement of Funds from Accounts.
a. Except as provided in this Section, Escrow Agent shall not permit
any withdrawal or disbursement of funds or other property from the Accounts
without the prior written consent of and instruction from Lender Agent.
b. Upon (i) receipt by Lender Agent of an escrow advance request
from Borrowers (such request, an "Escrow Advance Request", which shall contain
the information described below) and (ii) a determination by Lender Agent that
the Escrow Advance Request is accurate and complete and (iii) delivery to Lender
Agent of satisfactory evidence of final approval by the New York Public Service
Commission of the Acquisition and (iv) delivery to Lender Agent of satisfactory
evidence that none of the Borrowers has commenced or is then subject to a
proceeding under Title 11 of the United States Code or under any other law
related to bankruptcy, insolvency, liquidation, dissolution or reorganization,
readjustment or release of debtors, (v) a determination by
2
<PAGE>
Lender Agent that there does not then exist under the Loan Documents a payment
Default or payment Event of Default, then Lender Agent shall instruct Escrow
Agent to release and remit the Covered Property as directed by such instruction
from Borrowers. The Escrow Advance Request (1) shall certify to Lender Agent
that the Purchase Agreement is then effective and that all conditions to the
Acquisition Closing under the Purchase Agreement (other than the payment of the
purchase price thereunder) have been satisfied, and (2) shall certify to Lender
Agent that the Covered Property consisting of cash and immediately available
funds in the Accounts exceed the purchase price due under the Purchase
Agreement, and (3) shall instruct Lender Agent as to the amounts and wiring
information for the Covered Property being released from the Accounts, and (4)
shall authorize Lender Agent to instruct Escrow Agent to sell and liquidate all
investments in the Accounts and to transfer such funds in accordance with such
instructions received from Borrowers.
c. Notwithstanding any other provision of this Agreement, upon
receipt of a written request, instruction and authorization from Borrowers at
any time prior to the Acquisition Closing, then Lender Agent shall instruct
Escrow Agent (i) to sell and liquidate all investments in the Accounts and (ii)
to transfer all such funds in the Accounts to Lender Agent to be applied to the
outstanding balance under the Loan Documents in accordance with the terms
thereof. Further notwithstanding any other provision of this Agreement, (1) at
any time during the occurrence of a payment Default or payment Event of Default
under the Loan Documents and/or (2) at any time after April 30, 2000 (as such
date may be extended from time to time in the sole and absolute discretion of
Lender Agent, the "Escrow Advance Deadline") and/or (3) at any time after the
Lender Agent has received notice from the Escrow Agent that Escrow Agent is
terminating this Agreement under Section 12 hereof, then Lender Agent may (and
each Borrower hereby consents and authorizes Lender Agent to) instruct Escrow
Agent (y) to sell and liquidate all investments in the Accounts and (z) to
transfer all such funds in the Accounts to Lender Agent to be applied to the
outstanding balance under the Loan Documents in accordance with the terms
thereof.
5. Investment of Funds Pending Disbursement.
a. Each Borrower hereby instructs Escrow Agent to invest and
re-invest all of the funds in the Accounts in the "Riggs U.S. Treasury Fund" (a
money market account maintained in the Trust Department of Escrow Agent). Lender
Agent hereby consents to such investment and re-investment of the funds in the
Accounts. The investment election under this Clause may be changed only by
written instruction delivered to Escrow Agent by Borrowers with the prior
consent of Lender Agent (which consent shall not be unreasonably withheld while
no Default is occurring).
b. Each Borrower and Lender Agent each hereby agrees and consents
that Riggs & Co. and/or other affiliates of Escrow Agent from time to time (i)
may provide investment advisory and other services to the "Riggs U.S. Treasury
Fund" and (ii) may receive fees and other remuneration for such services in
accordance with applicable law.
c. All interest and other income earned on investments in the
Accounts shall be for the benefit of BiznessOnline.com, Inc., whose Federal Tax
Identification Number is as follows: 06-1519132.
3
<PAGE>
6. Waiver of Set-off Rights by Escrow Agent. Escrow Agent hereby waives
(with respect to all existing and future claims that it may have against any
Borrower) all rights of set-off and banker's liens that Escrow Agent may now or
hereafter have against the Accounts and the Covered Property that come into the
possession of Escrow Agent in connection with the Accounts.
7. Information Regarding Accounts and Investments. Escrow Agent shall
provide Lender Agent and Borrowers with such information with respect to the
Accounts and Covered Property as Lender Agent or Borrowers from time to time may
reasonably request.
8. Lender Agent Rights upon Default. Subject to the provisions of Section
4 above, in addition to the rights and remedies expressly granted in this
Agreement, upon and during the occurrence of a Default or an Event of Default
under the Loan Documents, Lender Agent shall also have all other legal and
equitable rights and remedies granted by or available under the other Loan
Documents and/or applicable law (including the "self help" and other rights of a
secured party under the UCC), all of which rights and remedies shall be
cumulative in nature.
9. Notices. All notices, requests or other communications given to any
Borrower, Lender Agent or Escrow Agent shall be given in writing (including by
facsimile transmission or similar writing), at the address specified below:
Lender Agent: MCG Finance Corporation
1100 Wilson Boulevard, Suite 800
Arlington, VA 22209
Attn: Loan Administration
Facsimile: 703-247-7505
Telephone: 703-247-7500
Escrow Agent: Riggs Bank, N.A. / Riggs & Co.
808 17th Street, NW, 10th Floor
Washington, DC 20006
Attn: Earl Ziegler or Al Behar
Facsimile: 202-835-4303
Telephone: 202-835-6746
Borrowers: BiznessOnline.com, Inc.
1720 Route 34
P.O. Box 1347
Wall, New Jersey 07719
Attn: President
Facsimile: 732-280-6409
Telephone: 732-280-6408
4
<PAGE>
with a copy to: Duffy & Sweeney Ltd.
300 Turks Head Boulevard
Providence, Rhode Island 02903
Attn: Michael Sweeney, Esquire
Telephone: (401) 455-0700
Facsimile: (401) 455-0701
Any party may change its address for notices hereunder by notice to each other
party hereunder, provided that such change shall not be effective until 2
calendar days after notice of such change. All such notices and other
communications will be deemed given and effective (a) if by mail, then upon
actual receipt or 5 calendar days after mailing as provided above (whichever is
earlier), or (b) if by facsimile, then upon successful transmittal to such
party's designated number, or (c) if by telegraph, then upon actual receipt or 2
Business Days after delivery to the telegraph company (whichever is earlier), or
(d) if by nationally recognized commercial courier service, then upon actual
receipt or 2 Business Days after delivery to the courier service (whichever is
earlier), (e) or if otherwise delivered, then upon actual receipt.
10. Miscellaneous (Including, Governing Law, Modifications, and
Counterparts). This Agreement shall supersede any other agreement (to the extent
conflicting herewith) relating to the matters referred to herein (other than the
Credit Agreement and other Loan Documents), including any other account
agreement between any Borrower and Escrow Agent. This Agreement is binding upon
the parties hereto and their respective successors and assigns and shall inure
to their benefit. This Agreement may not be changed, amended, modified or waived
orally, but only by an instrument in writing signed by each of the parties
hereto. Any provision of this Agreement that may prove unenforceable under any
law or regulation shall not affect the validity of any other provision hereof.
This Agreement shall be governed by, and interpreted in accordance with, the
laws of the Commonwealth of Virginia without reference to principles of
conflicts of law, provided, however, that the provisions of this Section shall
not effect the relative rights and obligations as between Escrow Agent and any
Borrower arising or existing under any document establishing and otherwise
governing the administration of the Accounts (the "Account Agreement"), the
relationship of any Borrower and Escrow Agent, or the interpretation and
adjudication of disputes between any Borrower and Escrow Agent that may arise in
connection with the Account Agreement. This Agreement may be executed in any
number of counterparts which together shall constitute one and the same
instrument.
11. Indemnity; Limitation on Liability. Each Borrower hereby agrees to
indemnify and hold Escrow Agent and Lender Agent harmless from and against any
and all claims, losses, and liabilities (including the reasonable fees and
disbursements of its counsel and of any experts and agents) arising out of or
resulting from any of the following events: (a) any Borrower's failure to
perform or otherwise observe any of the provisions hereof, or (b) enforcement of
any of the provisions hereof by Escrow Agent or Lender Agent, or (c) any
Borrower's gross negligence, willful misconduct or fraud. Moreover, neither
Escrow Agent nor Lender Agent (nor any director, officer, employee or agent of
either thereof) shall have any liability to any Borrower or to Lender Agent
(whether sounding in tort, contract or otherwise) for any losses or costs
suffered by any such Borrower or Lender Agent that is in any way related to the
transactions under or the relationship
5
<PAGE>
established by this Agreement, or any course of conduct, course of dealing,
statement (whether verbal or written), action or inaction occurring in
connection herewith, except to the extent such losses result from its own gross
negligence, willful misconduct or fraud. Moreover, any such liability shall be
limited to actual, direct, foreseeable losses and shall not include any special,
indirect, consequential, punitive or non-foreseeable damages.
12. Term and Termination. This Agreement shall remain in full force and
effect until the earliest to occur of the following: (a) the date on which all
Covered Property has been transferred out of the Accounts in accordance with the
terms hereof and the Accounts have been terminated, or (b) the date on which
Lender Agent shall have delivered written notice to Escrow Agent that the Loan
Documents have been satisfied and terminated in accordance with their terms, or
(c) the date on which Borrowers and Lender Agent jointly instruct Escrow Agent
in writing that this Agreement is terminated, or (d) 45 calendar days after the
date on which Escrow Agent provides written notice to Lender Agent and Borrowers
that Escrow Agent intends to terminate its obligations hereunder, or (e) 10
Business Days after the date on which Escrow Agent provides written notice to
Lender Agent and Borrowers that Escrow Agent intends to terminate its
obligations hereunder as a result of a material violation by a Borrower under an
Account Agreement (provided that, prior to any such termination under this
Clause "(e)", Escrow Agent shall deliver all of the Covered Property either to
another escrow agent designated by Lender Agent or to Lender Agent to be applied
to the outstanding balance under the Loan Documents in accordance with the terms
thereof).
13. Forum Selection and Consent to Jurisdiction. Any litigation in any way
related to this Agreement, or any course of conduct, course of dealing,
statements (whether verbal or written), actions or inactions of Escrow Agent,
Lender Agent or any Borrower shall be brought and maintained exclusively in the
courts of the Commonwealth of Virginia or in the United States District Court
for the Eastern District of Virginia; provided, however, that any suit seeking
enforcement against any Borrower may also be brought (at Escrow Agent's or
Lender Agent's option) in the courts of any jurisdiction where any Account or
any Covered Property may be found or where such Borrower is otherwise subject to
personal jurisdiction. Each Borrower hereby expressly and irrevocably submits to
the jurisdiction of the courts of the Commonwealth of Virginia and of the United
States District Court for the Eastern District of Virginia for the purpose of
any such litigation as set forth above and irrevocably agrees to be bound by any
final and non-appealable judgment rendered thereby in connection with such
litigation. Each Borrower further irrevocably consents to the service of process
by registered or certified mail, postage prepaid, or by personal service within
or outside the Commonwealth of Virginia. Each Borrower hereby expressly and
irrevocably waives (to the fullest extent permitted by law) any objection that
such Borrower may have or hereafter may have to the laying of venue of any such
litigation brought in any such court referred to above and any claim that any
such litigation has been brought in an inconvenient forum.
14. Jury Trial Waiver. Each Borrower, Escrow Agent and Lender Agent each
hereby knowingly, voluntarily and intentionally waive any rights such Person may
have to a trial by jury in respect of any litigation (whether as claim,
counter-claim, affirmative defense or otherwise) in any way related to this
Agreement, or any course of conduct, course of dealing, statements (whether
verbal or written), actions or inactions of any such Person. Each
6
<PAGE>
Borrower acknowledges and agrees (a) that such Borrower has received full and
sufficient consideration for this provision (and each other provision of this
Agreement), and (b) that such Borrower has been advised by (or has had ample
opportunity to consult with) legal counsel in connection herewith, and (c) that
this provision is a material inducement for Escrow Agent and Lender Agent
performing under this Agreement.
[Balance of Page Intentionally Blank...Signatures on Following Page]
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by duly authorized representatives as of the day and year first above
written.
MCG FINANCE CORPORATION
(Lender Agent)
/s/ Steven Tunney
-----------------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
RIGGS BANK, N.A. (Escrow Agent)
/s/ O. Clinton Jones, III
-----------------------------------
Name: O. Clinton Jones, III
Title: Vice President
ATTEST: BIZNESSONLINE.COM, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: ALBANYNET, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: WEBWAY INTERNET, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ASCENT NETWORKING, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: CYBERZONE, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: CARAVELA SOFTWARE, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: NECANET, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: PRIME COMMUNICATION
SYSTEMS, INCORPORATED
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: INFOBOARD, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: BORG INTERNET SERVICES, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: ULSTERNET, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. II, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
ATTEST: BOL ACQUISITION CO. III, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
ATTEST: BOL ACQUISITION CO. VIII, INC.
By: By: /s/ Mark E. Munro
------------------------------ --------------------------------
Name: Daniel J. Sullivan Name: Mark E. Munro
Title: Vice President Title: President and Treasurer
[CORPORATE SEAL]
<PAGE>
Exhibit 10.33
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (as may be amended,
supplemented and otherwise modified from time to time, "IP Security Agreement")
is made and effective as of March 16, 2000, by BIZNESSONLINE.COM, INC.
(including any successor or permitted assignee thereof, "Grantor"), in favor of
MCG FINANCE CORPORATION, as Administrative Agent (including any successor,
participant, assignee or transferee thereof, "Administrative Agent") for itself
and the Lenders (as defined in the Credit Agreement below).
R E C I T A L S
WHEREAS, Grantor and each direct and indirect Subsidiary of Grantor
(each, a "Borrower"; collectively, the "Borrowers") desire and have applied to
Administrative Agent and the Lenders for a credit facility consisting of a term
loan pursuant to which up to $15.0 million can be borrowed from time to time;
and
WHEREAS, pursuant to that certain Credit Facility Agreement by and
among Borrowers, Lenders and Administrative Agent dated as of March 16, 2000 (as
may be amended from time to time, "Credit Agreement"), a condition precedent to
the obligation of the Administrative Agent or any Lender to execute and perform
under the Credit Agreement is that Borrowers shall have executed and delivered
that certain Master Security Agreement, Collateral Assignment and Equity Pledge
executed by Borrowers in favor of Administrative Agent for the benefit of
Administrative Agent and the Lenders dated as of March 16, 2000 (as may be
amended from time to time, "Security Agreement") encumbering all of Borrowers'
tangible and intangible personal property assets in favor of Administrative
Agent for the benefit of Administrative Agent and the Lenders; and
WHEREAS, under the terms of the Security Agreement, Grantor has
agreed to assign certain intellectual property to Administrative Agent for
purposes of securing the obligations to Administrative Agent and the Lenders
under the Credit Agreement and related Loan Documents; and
WHEREAS, Grantor has determined that it is in its best interest to
execute this IP Security Agreement inasmuch as Grantor will derive substantial
direct and indirect benefits from the funding of the Advances by Administrative
Agent pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Grantor and Administrative Agent hereby agree as follows:
1. Grant. Grantor hereby grants to Administrative Agent an absolute,
present, unconditional, continuing first priority security interest in and to
Grantor's entire right, title and interest in and to the following property and
rights (collectively, the "Collateral"):
<PAGE>
(a) The U.S., state and foreign copyrights, associated
copyright registrations and applications for copyright registration, and
copyright licenses set forth on Schedule A attached hereto (collectively, the
"Copyrights"); and
(b) The U.S., state and foreign patents and patent
applications, and patent licenses set forth on Schedule B attached hereto,
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same (collectively, the
"Patents"); and
(c) The U.S., state and foreign trademark and service mark
registrations, trademark and service mark applications, and trademark and
service mark licenses set forth on Schedule C attached hereto (including all
associated goodwill, collectively, the "Trademarks"); and
(d) Any and all claims and causes of action for past, present
or future infringement of any of the Collateral, with the right, but not the
obligation, to sue for and collect damages for infringement of the Collateral;
and
(e) Any and all licenses or rights granted under any of the
Collateral, and all license fees and royalties arising from such licenses or
rights, to the extent permitted by such licenses or rights; and
(f) Any and all amendments, renewals, extensions, reissuances
and replacements of any of the Collateral; and
(g) Any and all products and proceeds of any of the foregoing.
2. Requested Recordation. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks (and any
state, foreign or other authorities to which this IP Security Agreement is
submitted) to file and record this IP Security Agreement (and any corresponding
or separate application forms of such jurisdiction) in order to publicly reflect
Administrative Agent's interest in the Collateral.
3. Assignment. Upon the occurrence of an Event of Default (as
defined in the Security Agreement), Grantor shall execute and deliver to
Administrative Agent an absolute assignment transferring its entire right,
title, and interest in and to the Collateral to Administrative Agent.
4. Power of Attorney. Grantor hereby irrevocably grants
Administrative Agent a power of attorney, to act as Grantor's attorney-in-fact,
with full authority in the name, place and stead of Grantor, from time to time
in Administrative Agent's discretion, to take any action and to execute any
instrument which Administrative Agent may deem reasonably necessary or advisable
to accomplish the purposes of the Security Agreement or this IP Security
Agreement. This authority includes, without limitation, the following:
(a) To modify or amend (in Administrative Agent's sole
discretion and without first obtaining Grantor's approval of or signature
thereto) Schedule A, Schedule B,
2
<PAGE>
and/or Schedule C hereof, as appropriate, to include references to any
registered intellectual property (or application or license therefor) acquired
by Grantor after the execution hereof or to delete any reference to any
Collateral in which Grantor no longer has or claims any right, title or
interest; and
(b) To execute, file and pursue (in Administrative Agent's
sole discretion and without first obtaining Grantor's approval of or signature
thereto, unless otherwise prohibited by applicable law) any application, form or
other document in order to perfect, maintain, continue or otherwise protect
Administrative Agent's interest or Grantor's rights in the Collateral,
including, without limitation, executing and filing (i) any financing statement,
any continuation statement or any amendment thereto, and (ii) any document in
any proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or the relevant office of any state or foreign
jurisdiction (including, without limitation, the filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings) and to pay any fees and taxes in
connection therewith or otherwise; and
(c) To execute any assignment or other document required to
acknowledge, register or perfect Administrative Agent's interest in any part of
the Collateral without the signature of Grantor unless prohibited by applicable
law.
The foregoing power of attorney is coupled with an interest and is irrevocable.
5. Release. The security interest granted herein will terminate (and
all rights to the Collateral will revert to Grantor) upon satisfaction of the
following conditions: (a) payment and performance in full of all the obligations
secured hereby (unconditionally and indefeasibly) and (b) the termination of the
Credit Agreement (and the Facilities thereunder). Upon any such termination,
Administrative Agent (at Grantor's request and sole expense) will execute and
deliver to Grantor (without any representation, warranty or recourse of any kind
whatsoever) such documents as Grantor may reasonably request and provide to
Administrative Agent to evidence such termination.
6. Miscellaneous. This IP Security Agreement has been entered into
in conjunction with the provisions of and the security interest granted to
Administrative Agent under the Security Agreement. The rights and remedies of
Grantor and Administrative Agent with respect to the security interest granted
herein are in addition and without prejudice to those set forth in the Security
Agreement and the Credit Agreement, all terms and provisions of which are hereby
incorporated herein by reference. This IP Security Agreement may be executed in
any number of counterparts with the same effect as if all the signatures on such
counterparts appeared on one document; each such counterpart will be deemed to
be an original but all counterparts together will constitute one and the same
instrument. In the event that any provisions of this IP Security Agreement are
deemed to conflict with the Security Agreement or the Credit Agreement, the
provisions of the Security Agreement or Credit Agreement shall govern.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this IP
Security Agreement, as an instrument under seal (whether or not any such seals
are physically attached hereto), through their duly authorized officers, as of
the date first written above.
ATTEST: BIZNESSONLINE.COM, INC.
(Grantor)
By: By: /s/ Mark E. Munro
------------------------------ ---------------------------
Name: Michael F. Sweeney Name: Mark E. Munro
Title: Assistant Secretary Title: President and Treasurer
[CORPORATE SEAL]
Address: 1720 Route 34
P. O. Box 1347
Wall, NJ 07719
Telephone: (___) _________
Facsimile: (___) _________
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: By: /s/ Steven Tunney
------------------------------ -----------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
Address: 1100 Wilson Blvd.
Suite 800
Arlington, VA 22209
Telephone: (703) 247-7500
Facsimile: (703) 247-7505
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________________ :
: SS
COUNTY OF ______________________ :
Before me, the undersigned, a Notary Public, on this ____ day of
March, 2000, personally appeared Mark E. Munro and Michael F. Sweeney, to me
known personally, who, being by me duly sworn, did each separately say that he
is the President and Treasurer, and Assistant Secretary (respectively, as
appropriate) of BIZNESSONLINE.COM, INC., and that said instrument (i.e., the
Intellectual Property Security Agreement) was signed on behalf of said
Biznessonline.com, Inc. by authority of its Board of Directors, and the said
President and Treasurer, and Assistant Secretary each acknowledged said
instrument to be his free act and deed.
____________________________________________
Notary Public
My Commission Expires: _____________________
<PAGE>
ACKNOWLEDGEMENT
STATE OF _______________________ :
: SS
COUNTY OF ______________________ :
Before me, the undersigned, a Notary Public, on this _____ day of
March, 2000, personally appeared Steven Tunney, to me known personally, who,
being by me duly sworn, did say that he is the Chief Operating Officer and Chief
Financial Officer of MCG FINANCE CORPORATION, and that said instrument (i.e.,
the Intellectual Property Security Agreement) was signed on behalf of said MCG
Finance Corporation by authority of its Board of Directors (through its Credit
Committee), and the said Chief Operating Officer and Chief Financial Officer
acknowledged said instrument to be his free act and deed.
____________________________________________
Notary Public
My Commission Expires: _____________________
<PAGE>
SCHEDULE A
COPYRIGHT COLLATERAL
I. Registered Copyrights
Copyright Registration Registration
Title Number Date
--------- ------------ ------------
N/A
II. Pending Copyright Applications
Copyright Application Filing Date of Date of
Title Number Date Creation Publication
--------- ----------- ------ -------- -----------
N/A
III. Unregistered Copyrights
Date and Date of
Recordation Expected
Number of Registration
Copyright Date of Date of Original Assignment (if
Title Creation Publication Author/Owner to Grantor applicable)
----- -------- ----------- ------------ ---------- -----------
N/A
IV. Copyright Licenses
Effective Expiration Subject
Copyright Licensor Licensee Date Date Matter
- - --------- -------- -------- --------- ---------- -------
N/A
<PAGE>
SCHEDULE B
PATENT COLLATERAL
I. Patents
Patent Issue
Number Country Date Title
------ ------- ----- -----
N/A
II. Pending Patent Applications
Patent Atty. Docket Serial Filing
Title Number Country Number Date Status
----- ------ ------- ------ ---- ------
N/A
III. Patent Licenses
Effective Expiration
Patent No. Country Licensor Licensee Date Date
- - ---------- ------- -------- -------- --------- ----------
N/A
<PAGE>
SCHEDULE C
TRADEMARK COLLATERAL
I. Registered Trademarks
Trademark Registration
Description Country Number
----------- ------- ------------
N/A
II. Pending Trademark Applications
Atty.
Trademark Docket Serial Filing
Description Number Country Number Date Status
----------- ------ ------- ------ ------ ------
BIZNESSONLINE.COM USA 75/652,860 03/03/1999 Pending
BIZNESSONLINE.COM
and Design USA 75/652,861 03/03/1999 Pending
III. Trademark Licenses
Registration Effective Expiration
Number Mark Country Licensor Licensee Date Date
- - ------------ ---- ------- -------- -------- --------- ----------
N/A
<PAGE>
Exhibit 10.34
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (as may be amended,
supplemented and otherwise modified from time to time, "IP Security Agreement")
is made and effective as of March 16, 2000, by CARAVELA SOFTWARE, INC.
(including any successor or permitted assignee thereof, "Grantor"), in favor of
MCG FINANCE CORPORATION, as Administrative Agent (including any successor,
participant, assignee or transferee thereof, "Administrative Agent") for itself
and the Lenders (as defined in the Credit Agreement below).
R E C I T A L S
WHEREAS, Grantor and each direct and indirect Subsidiary of Grantor
(each, a "Borrower"; collectively, the "Borrowers") desire and have applied to
Administrative Agent and the Lenders for a credit facility consisting of a term
loan pursuant to which up to $15.0 million can be borrowed from time to time;
and
WHEREAS, pursuant to that certain Credit Facility Agreement by and
among Borrowers, Lenders and Administrative Agent dated as of March 16, 2000 (as
may be amended from time to time, "Credit Agreement"), a condition precedent to
the obligation of the Administrative Agent or any Lender to execute and perform
under the Credit Agreement is that Borrowers shall have executed and delivered
that certain Master Security Agreement, Collateral Assignment and Equity Pledge
executed by Borrowers in favor of Administrative Agent for the benefit of
Administrative Agent and the Lenders dated as of March 16, 2000 (as may be
amended from time to time, "Security Agreement") encumbering all of Borrowers'
tangible and intangible personal property assets in favor of Administrative
Agent for the benefit of Administrative Agent and the Lenders; and
WHEREAS, under the terms of the Security Agreement, Grantor has
agreed to assign certain intellectual property to Administrative Agent for
purposes of securing the obligations to Administrative Agent and the Lenders
under the Credit Agreement and related Loan Documents; and
WHEREAS, Grantor has determined that it is in its best interest to
execute this IP Security Agreement inasmuch as Grantor will derive substantial
direct and indirect benefits from the funding of the Advances by Administrative
Agent pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Grantor and Administrative Agent hereby agree as follows:
1. Grant. Grantor hereby grants to Administrative Agent an absolute,
present, unconditional, continuing first priority security interest in and to
Grantor's entire right, title and interest in and to the following property and
rights (collectively, the "Collateral"):
<PAGE>
(a) The U.S., state and foreign copyrights, associated
copyright registrations and applications for copyright registration, and
copyright licenses set forth on Schedule A attached hereto (collectively, the
"Copyrights"); and
(b) The U.S., state and foreign patents and patent
applications, and patent licenses set forth on Schedule B attached hereto,
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same (collectively, the
"Patents"); and
(c) The U.S., state and foreign trademark and service mark
registrations, trademark and service mark applications, and trademark and
service mark licenses set forth on Schedule C attached hereto (including all
associated goodwill, collectively, the "Trademarks"); and
(d) Any and all claims and causes of action for past, present
or future infringement of any of the Collateral, with the right, but not the
obligation, to sue for and collect damages for infringement of the Collateral;
and
(e) Any and all licenses or rights granted under any of the
Collateral, and all license fees and royalties arising from such licenses or
rights, to the extent permitted by such licenses or rights; and
(f) Any and all amendments, renewals, extensions, reissuances
and replacements of any of the Collateral; and
(g) Any and all products and proceeds of any of the foregoing.
2. Requested Recordation. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks (and any
state, foreign or other authorities to which this IP Security Agreement is
submitted) to file and record this IP Security Agreement (and any corresponding
or separate application forms of such jurisdiction) in order to publicly reflect
Administrative Agent's interest in the Collateral.
3. Assignment. Upon the occurrence of an Event of Default (as
defined in the Security Agreement), Grantor shall execute and deliver to
Administrative Agent an absolute assignment transferring its entire right,
title, and interest in and to the Collateral to Administrative Agent.
4. Power of Attorney. Grantor hereby irrevocably grants
Administrative Agent a power of attorney, to act as Grantor's attorney-in-fact,
with full authority in the name, place and stead of Grantor, from time to time
in Administrative Agent's discretion, to take any action and to execute any
instrument which Administrative Agent may deem reasonably necessary or advisable
to accomplish the purposes of the Security Agreement or this IP Security
Agreement. This authority includes, without limitation, the following:
(a) To modify or amend (in Administrative Agent's sole
discretion and without first obtaining Grantor's approval of or signature
thereto) Schedule A, Schedule B,
2
<PAGE>
and/or Schedule C hereof, as appropriate, to include references to any
registered intellectual property (or application or license therefor) acquired
by Grantor after the execution hereof or to delete any reference to any
Collateral in which Grantor no longer has or claims any right, title or
interest; and
(b) To execute, file and pursue (in Administrative Agent's
sole discretion and without first obtaining Grantor's approval of or signature
thereto, unless otherwise prohibited by applicable law) any application, form or
other document in order to perfect, maintain, continue or otherwise protect
Administrative Agent's interest or Grantor's rights in the Collateral,
including, without limitation, executing and filing (i) any financing statement,
any continuation statement or any amendment thereto, and (ii) any document in
any proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or the relevant office of any state or foreign
jurisdiction (including, without limitation, the filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings) and to pay any fees and taxes in
connection therewith or otherwise; and
(c) To execute any assignment or other document required to
acknowledge, register or perfect Administrative Agent's interest in any part of
the Collateral without the signature of Grantor unless prohibited by applicable
law.
The foregoing power of attorney is coupled with an interest and is irrevocable.
5. Release. The security interest granted herein will terminate (and
all rights to the Collateral will revert to Grantor) upon satisfaction of the
following conditions: (a) payment and performance in full of all the obligations
secured hereby (unconditionally and indefeasibly) and (b) the termination of the
Credit Agreement (and the Facilities thereunder). Upon any such termination,
Administrative Agent (at Grantor's request and sole expense) will execute and
deliver to Grantor (without any representation, warranty or recourse of any kind
whatsoever) such documents as Grantor may reasonably request and provide to
Administrative Agent to evidence such termination.
6. Miscellaneous. This IP Security Agreement has been entered into
in conjunction with the provisions of and the security interest granted to
Administrative Agent under the Security Agreement. The rights and remedies of
Grantor and Administrative Agent with respect to the security interest granted
herein are in addition and without prejudice to those set forth in the Security
Agreement and the Credit Agreement, all terms and provisions of which are hereby
incorporated herein by reference. This IP Security Agreement may be executed in
any number of counterparts with the same effect as if all the signatures on such
counterparts appeared on one document; each such counterpart will be deemed to
be an original but all counterparts together will constitute one and the same
instrument. In the event that any provisions of this IP Security Agreement are
deemed to conflict with the Security Agreement or the Credit Agreement, the
provisions of the Security Agreement or Credit Agreement shall govern.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this IP
Security Agreement, as an instrument under seal (whether or not any such seals
are physically attached hereto), through their duly authorized officers, as of
the date first written above.
ATTEST: CARAVELA SOFTWARE, INC.
(Grantor)
By: By: /s/ Mark E. Munro
------------------------------ ------------------------------
Name: Michael F. Sweeney Name: Mark E. Munro
Title: Assistant Secretary Title: President and Treasurer
[CORPORATE SEAL]
Address: 6 Way Road
Middlefield, CT 06455-1080
Telephone: (___) _________
Facsimile: (___) _________
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: By: /s/ Steven Tunney
------------------------------ ------------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
Address: 1100 Wilson Blvd.
Suite 800
Arlington, VA 22209
Telephone: (703) 247-7500
Facsimile: (703) 247-7505
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________________ :
: SS
COUNTY OF ______________________ :
Before me, the undersigned, a Notary Public, on this ____ day of
March, 2000, personally appeared Mark E. Munro and Michael F. Sweeney, to me
known personally, who, being by me duly sworn, did each separately say that he
is the President and Treasurer and Assistant Secretary (respectively, as
appropriate) of CARAVELA SOFTWARE, INC., and that said instrument (i.e., the
Intellectual Property Security Agreement) was signed on behalf of said Caravela
Software, Inc. by authority of its Board of Directors, and the said President
and Treasurer, and Assistant Secretary each acknowledged said instrument to be
his free act and deed.
__________________________________________
Notary Public
My Commission Expires:____________________
<PAGE>
ACKNOWLEDGEMENT
STATE OF _______________________ :
: SS
COUNTY OF ______________________ :
Before me, the undersigned, a Notary Public, on this _____ day of
March, 2000, personally appeared Steven Tunney, to me known personally, who,
being by me duly sworn, did say that he is the Chief Operating Officer and Chief
Financial Officer of MCG FINANCE CORPORATION, and that said instrument (i.e.,
the Intellectual Property Security Agreement) was signed on behalf of said MCG
Finance Corporation by authority of its Board of Directors (through its Credit
Committee), and the said Chief Operating Officer and Chief Financial Officer
knowledged said instrument to be his free act and deed.
__________________________________________
Notary Public
My Commission Expires:____________________
<PAGE>
SCHEDULE A
COPYRIGHT COLLATERAL
I. Registered Copyrights
Copyright Registration Registration
Title Number Date
--------- ------------ ------------
N/A
II. Pending Copyright Applications
Copyright Application Filing Date of Date of
Title Number Date Creation Publication
--------- ----------- ------ -------- -----------
N/A
III. Unregistered Copyrights
Date and Date of
Recordation Expected
Number of Registration
Copyright Date of Date of Original Assignment (if
Title Creation Publication Author/Owner to Grantor applicable)
- - ---------- -------- ----------- ------------ ------------ -----------
N/A
IV. Copyright Licenses
Effective Expiration Subject
Copyright Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
N/A
<PAGE>
SCHEDULE B
PATENT COLLATERAL
I. Patents
Patent Issue
Number Country Date Title
------ ------- ---- -----
N/A
II. Pending Patent Applications
Patent Atty. Docket Serial Filing
Title Number Country Number Date Status
------ ----------- ------- ------ ---- ------
N/A
III. Patent Licenses
Effective Expiration
Patent No. Country Licensor Licensee Date Date
- - ---------- ------- -------- -------- --------- ----------
N/A
<PAGE>
SCHEDULE C
TRADEMARK COLLATERAL
I. Registered Trademarks
Trademark Registration
Description Country Number
----------- ------- ------------
CONNIX USA 2,008,293
II. Pending Trademark Applications
Atty.
Trademark Docket Serial Filing
Description Number Country Number Date Status
----------- ------ ------- ------ ------ ------
N/A
III. Trademark Licenses
Registration Effective Expiration
Number Mark Country Licensor Licensee Date Date
- - ------------ ---- ------- -------- -------- --------- ----------
N/A
<PAGE>
Exhibit 10.35
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (as may be amended,
supplemented and otherwise modified from time to time, "IP Security Agreement")
is made and effective as of March 16, 2000, by GLOBAL 2000 COMMUNICATIONS, INC.
(including any successor or permitted assignee thereof, "Grantor"), in favor of
MCG FINANCE CORPORATION, as Administrative Agent (including any successor,
participant, assignee or transferee thereof, "Administrative Agent") for itself
and the Lenders (as defined in the Credit Agreement below).
R E C I T A L S
WHEREAS, Grantor and each direct and indirect Subsidiary of Grantor
(each, a "Borrower"; collectively, the "Borrowers") desire and have applied to
Administrative Agent and the Lenders for a credit facility consisting of a term
loan pursuant to which up to $15.0 million can be borrowed from time to time;
and
WHEREAS, pursuant to that certain Credit Facility Agreement by and
among Borrowers, Lenders and Administrative Agent dated as of March 16, 2000 (as
may be amended from time to time, "Credit Agreement"), a condition precedent to
the obligation of the Administrative Agent or any Lender to execute and perform
under the Credit Agreement is that Borrowers shall have executed and delivered
that certain Master Security Agreement, Collateral Assignment and Equity Pledge
executed by Borrowers in favor of Administrative Agent for the benefit of
Administrative Agent and the Lenders dated as of March 16, 2000 (as may be
amended from time to time, "Security Agreement") encumbering all of Borrowers'
tangible and intangible personal property assets in favor of Administrative
Agent for the benefit of Administrative Agent and the Lenders; and
WHEREAS, under the terms of the Security Agreement, Grantor has
agreed to assign certain intellectual property to Administrative Agent for
purposes of securing the obligations to Administrative Agent and the Lenders
under the Credit Agreement and related Loan Documents; and
WHEREAS, Grantor has determined that it is in its best interest to
execute this IP Security Agreement inasmuch as Grantor will derive substantial
direct and indirect benefits from the funding of the Advances by Administrative
Agent pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Grantor and Administrative Agent hereby agree as follows:
1. Grant. Grantor hereby grants to Administrative Agent an absolute,
present, unconditional, continuing first priority security interest in and to
Grantor's entire right, title and interest in and to the following property and
rights (collectively, the "Collateral"):
<PAGE>
(a) The U.S., state and foreign copyrights, associated
copyright registrations and applications for copyright registration, and
copyright licenses set forth on Schedule A attached hereto (collectively, the
"Copyrights"); and
(b) The U.S., state and foreign patents and patent
applications, and patent licenses set forth on Schedule B attached hereto,
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same (collectively, the
"Patents"); and
(c) The U.S., state and foreign trademark and service mark
registrations, trademark and service mark applications, and trademark and
service mark licenses set forth on Schedule C attached hereto (including all
associated goodwill, collectively, the "Trademarks"); and
(d) Any and all claims and causes of action for past, present
or future infringement of any of the Collateral, with the right, but not the
obligation, to sue for and collect damages for infringement of the Collateral;
and
(e) Any and all licenses or rights granted under any of the
Collateral, and all license fees and royalties arising from such licenses or
rights, to the extent permitted by such licenses or rights; and
(f) Any and all amendments, renewals, extensions, reissuances
and replacements of any of the Collateral; and
(g) Any and all products and proceeds of any of the foregoing.
2. Requested Recordation. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks (and any
state, foreign or other authorities to which this IP Security Agreement is
submitted) to file and record this IP Security Agreement (and any corresponding
or separate application forms of such jurisdiction) in order to publicly reflect
Administrative Agent's interest in the Collateral.
3. Assignment. Upon the occurrence of an Event of Default (as
defined in the Security Agreement), Grantor shall execute and deliver to
Administrative Agent an absolute assignment transferring its entire right,
title, and interest in and to the Collateral to Administrative Agent.
4. Power of Attorney. Grantor hereby irrevocably grants
Administrative Agent a power of attorney, to act as Grantor's attorney-in-fact,
with full authority in the name, place and stead of Grantor, from time to time
in Administrative Agent's discretion, to take any action and to execute any
instrument which Administrative Agent may deem reasonably necessary or advisable
to accomplish the purposes of the Security Agreement or this IP Security
Agreement. This authority includes, without limitation, the following:
(a) To modify or amend (in Administrative Agent's sole
discretion and without first obtaining Grantor's approval of or signature
thereto) Schedule A, Schedule B,
2
<PAGE>
and/or Schedule C hereof, as appropriate, to include references to any
registered intellectual property (or application or license therefor) acquired
by Grantor after the execution hereof or to delete any reference to any
Collateral in which Grantor no longer has or claims any right, title or
interest; and
(b) To execute, file and pursue (in Administrative Agent's
sole discretion and without first obtaining Grantor's approval of or signature
thereto, unless otherwise prohibited by applicable law) any application, form or
other document in order to perfect, maintain, continue or otherwise protect
Administrative Agent's interest or Grantor's rights in the Collateral,
including, without limitation, executing and filing (i) any financing statement,
any continuation statement or any amendment thereto, and (ii) any document in
any proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or the relevant office of any state or foreign
jurisdiction (including, without limitation, the filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings) and to pay any fees and taxes in
connection therewith or otherwise; and
(c) To execute any assignment or other document required to
acknowledge, register or perfect Administrative Agent's interest in any part of
the Collateral without the signature of Grantor unless prohibited by applicable
law.
The foregoing power of attorney is coupled with an interest and is irrevocable.
5. Release. The security interest granted herein will terminate (and
all rights to the Collateral will revert to Grantor) upon satisfaction of the
following conditions: (a) payment and performance in full of all the obligations
secured hereby (unconditionally and indefeasibly) and (b) the termination of the
Credit Agreement (and the Facilities thereunder). Upon any such termination,
Administrative Agent (at Grantor's request and sole expense) will execute and
deliver to Grantor (without any representation, warranty or recourse of any kind
whatsoever) such documents as Grantor may reasonably request and provide to
Administrative Agent to evidence such termination.
6. Miscellaneous. This IP Security Agreement has been entered into
in conjunction with the provisions of and the security interest granted to
Administrative Agent under the Security Agreement. The rights and remedies of
Grantor and Administrative Agent with respect to the security interest granted
herein are in addition and without prejudice to those set forth in the Security
Agreement and the Credit Agreement, all terms and provisions of which are hereby
incorporated herein by reference. This IP Security Agreement may be executed in
any number of counterparts with the same effect as if all the signatures on such
counterparts appeared on one document; each such counterpart will be deemed to
be an original but all counterparts together will constitute one and the same
instrument. In the event that any provisions of this IP Security Agreement are
deemed to conflict with the Security Agreement or the Credit Agreement, the
provisions of the Security Agreement or Credit Agreement shall govern.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this IP
Security Agreement, as an instrument under seal (whether or not any such seals
are physically attached hereto), through their duly authorized officers, as of
the date first written above.
ATTEST: GLOBAL 2000 COMMUNICATIONS, INC.
(Grantor)
By: By: /s/ Mark E. Munro
------------------------------- ------------------------------
Name: Michael F. Sweeney Name: Mark E. Munro
Title: Assistant Secretary Title: President and Treasurer
[CORPORATE SEAL]
Address: 1873 Western Avenue
Albany, NY 12203
Telephone: (___) _________
Facsimile: (___) _________
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: By: /s/ Steven Tunney
------------------------------- ------------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
Address: 1100 Wilson Blvd.
Suite 800
Arlington, VA 22209
Telephone: (703) 247-7500
Facsimile: (703) 247-7505
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________________ :
: SS
COUNTY OF _______________________ :
Before me, the undersigned, a Notary Public, on this ____ day of
March, 2000, personally appeared Michael F. Sweeney and Mark E. Munro, to me
known personally, who, being by me duly sworn, did each separately say that he
is the President and Treasurer, and Assistant Secretary (respectively, as
appropriate) of GLOBAL 2000 COMMUNICATIONS, INC., and that said instrument
(i.e., the Intellectual Property Security Agreement) was signed on behalf of
said Global 2000 Communications, Inc. by authority of its Board of Directors,
and the said President and Treasurer and Assistant Secretary each acknowledged
said instrument to be his free act and deed.
___________________________________________
Notary Public
My Commission Expires:_____________________
<PAGE>
ACKNOWLEDGEMENT
STATE OF _______________________ :
: SS
COUNTY OF _______________________ :
Before me, the undersigned, a Notary Public, on this _____ day of
March, 2000, personally appeared Steven Tunney, to me known personally, who,
being by me duly sworn, did say that he is the Chief Operating Officer and Chief
Financial Officer of MCG FINANCE CORPORATION, and that said instrument (i.e.,
the Intellectual Property Security Agreement) was signed on behalf of said MCG
Finance Corporation by authority of its Board of Directors (through its Credit
Committee), and the said Chief Operating Officer and Chief Financial Officer
acknowledged said instrument to be his free act and deed.
___________________________________________
Notary Public
My Commission Expires:_____________________
<PAGE>
SCHEDULE A
COPYRIGHT COLLATERAL
I. Registered Copyrights
Copyright Registration Registration
Title Number Date
--------- ------------ ------------
N/A
II. Pending Copyright Applications
Copyright Application Filing Date of Date of
Title Number Date Creation Publication
--------- ----------- ------ -------- -----------
N/A
III. Unregistered Copyrights
Date and Date of
Recordation Expected
Number of Registration
Copyright Date of Date of Original Assignment (if
Title Creation Publication Author/Owner to Grantor applicable)
- - ---------- -------- ----------- ------------ ------------ -----------
N/A
IV. Copyright Licenses
Effective Expiration Subject
Copyright Licensor Licensee Date Date Matter
- - --------- -------- -------- --------- ---------- -------
N/A
<PAGE>
SCHEDULE B
PATENT COLLATERAL
I. Patents
Patent Issue
Number Country Date Title
------ ------- ---- -----
N/A
II. Pending Patent Applications
Patent Atty. Docket Serial Filing
Title Number Country Number Date Status
------ ----------- ------- ------ ---- ------
N/A
III. Patent Licenses
Effective Expiration
Patent No. Country Licensor Licensee Date Date
- - ---------- ------- -------- -------- --------- ----------
N/A
<PAGE>
SCHEDULE C
TRADEMARK COLLATERAL
I. Registered Trademarks
Trademark Registration
Description Country Number
----------- ------- ------------
N/A
II. Pending Trademark Applications
Atty.
Trademark Docket Serial Filing
Description Number Country Number Date Status
----------- ------ ------- ------ ------ ------
GLOBAL 2000 USA 75/425,711 01/29/1998 Pending
III. Trademark Licenses
Registration Effective Expiration
Number Mark Country Licensor Licensee Date Date
- - ------------ ---- ------- -------- -------- --------- ----------
N/A
<PAGE>
Exhibit 10.36
INTELLECTUAL PROPERTY SECURITY AGREEMENT
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (as may be amended,
supplemented and otherwise modified from time to time, "IP Security Agreement")
is made and effective as of March 16, 2000, by INFOBOARD, INC. (including any
successor or permitted assignee thereof, "Grantor"), in favor of MCG FINANCE
CORPORATION, as Administrative Agent (including any successor, participant,
assignee or transferee thereof, "Administrative Agent") for itself and the
Lenders (as defined in the Credit Agreement below).
R E C I T A L S
WHEREAS, Grantor and each direct and indirect Subsidiary of Grantor
(each, a "Borrower"; collectively, the "Borrowers") desire and have applied to
Administrative Agent and the Lenders for a credit facility consisting of a term
loan pursuant to which up to $15.0 million can be borrowed from time to time;
and
WHEREAS, pursuant to that certain Credit Facility Agreement by and
among Borrowers, Lenders and Administrative Agent dated as of March 16, 2000 (as
may be amended from time to time, "Credit Agreement"), a condition precedent to
the obligation of the Administrative Agent or any Lender to execute and perform
under the Credit Agreement is that Borrowers shall have executed and delivered
that certain Master Security Agreement, Collateral Assignment and Equity Pledge
executed by Borrowers in favor of Administrative Agent for the benefit of
Administrative Agent and the Lenders dated as of March 16, 2000 (as may be
amended from time to time, "Security Agreement") encumbering all of Borrowers'
tangible and intangible personal property assets in favor of Administrative
Agent for the benefit of Administrative Agent and the Lenders; and
WHEREAS, under the terms of the Security Agreement, Grantor has
agreed to assign certain intellectual property to Administrative Agent for
purposes of securing the obligations to Administrative Agent and the Lenders
under the Credit Agreement and related Loan Documents; and
WHEREAS, Grantor has determined that it is in its best interest to
execute this IP Security Agreement inasmuch as Grantor will derive substantial
direct and indirect benefits from the funding of the Advances by Administrative
Agent pursuant to the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Grantor and Administrative Agent hereby agree as follows:
1. Grant. Grantor hereby grants to Administrative Agent an absolute,
present, unconditional, continuing first priority security interest in and to
Grantor's entire right, title and interest in and to the following property and
rights (collectively, the "Collateral"):
<PAGE>
(a) The U.S., state and foreign copyrights, associated
copyright registrations and applications for copyright registration, and
copyright licenses set forth on Schedule A attached hereto (collectively, the
"Copyrights"); and
(b) The U.S., state and foreign patents and patent
applications, and patent licenses set forth on Schedule B attached hereto,
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same (collectively, the
"Patents"); and
(c) The U.S., state and foreign trademark and service mark
registrations, trademark and service mark applications, and trademark and
service mark licenses set forth on Schedule C attached hereto (including all
associated goodwill, collectively, the "Trademarks"); and
(d) Any and all claims and causes of action for past, present
or future infringement of any of the Collateral, with the right, but not the
obligation, to sue for and collect damages for infringement of the Collateral;
and
(e) Any and all licenses or rights granted under any of the
Collateral, and all license fees and royalties arising from such licenses or
rights, to the extent permitted by such licenses or rights; and
(f) Any and all amendments, renewals, extensions, reissuances
and replacements of any of the Collateral; and
(g) Any and all products and proceeds of any of the foregoing.
2. Requested Recordation. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks (and any
state, foreign or other authorities to which this IP Security Agreement is
submitted) to file and record this IP Security Agreement (and any corresponding
or separate application forms of such jurisdiction) in order to publicly reflect
Administrative Agent's interest in the Collateral.
3. Assignment. Upon the occurrence of an Event of Default (as
defined in the Security Agreement), Grantor shall execute and deliver to
Administrative Agent an absolute assignment transferring its entire right,
title, and interest in and to the Collateral to Administrative Agent.
4. Power of Attorney. Grantor hereby irrevocably grants
Administrative Agent a power of attorney, to act as Grantor's attorney-in-fact,
with full authority in the name, place and stead of Grantor, from time to time
in Administrative Agent's discretion, to take any action and to execute any
instrument which Administrative Agent may deem reasonably necessary or advisable
to accomplish the purposes of the Security Agreement or this IP Security
Agreement. This authority includes, without limitation, the following:
(a) To modify or amend (in Administrative Agent's sole
discretion and without first obtaining Grantor's approval of or signature
thereto) Schedule A, Schedule B,
2
<PAGE>
and/or Schedule C hereof, as appropriate, to include references to any
registered intellectual property (or application or license therefor) acquired
by Grantor after the execution hereof or to delete any reference to any
Collateral in which Grantor no longer has or claims any right, title or
interest; and
(b) To execute, file and pursue (in Administrative Agent's
sole discretion and without first obtaining Grantor's approval of or signature
thereto, unless otherwise prohibited by applicable law) any application, form or
other document in order to perfect, maintain, continue or otherwise protect
Administrative Agent's interest or Grantor's rights in the Collateral,
including, without limitation, executing and filing (i) any financing statement,
any continuation statement or any amendment thereto, and (ii) any document in
any proceeding before the United States Patent and Trademark Office, the United
States Copyright Office or the relevant office of any state or foreign
jurisdiction (including, without limitation, the filing of applications for
renewal, affidavits of use, affidavits of incontestability and opposition,
interference and cancellation proceedings) and to pay any fees and taxes in
connection therewith or otherwise; and
(c) To execute any assignment or other document required to
acknowledge, register or perfect Administrative Agent's interest in any part of
the Collateral without the signature of Grantor unless prohibited by applicable
law.
The foregoing power of attorney is coupled with an interest and is irrevocable.
5. Release. The security interest granted herein will terminate (and
all rights to the Collateral will revert to Grantor) upon satisfaction of the
following conditions: (a) payment and performance in full of all the obligations
secured hereby (unconditionally and indefeasibly) and (b) the termination of the
Credit Agreement (and the Facilities thereunder). Upon any such termination,
Administrative Agent (at Grantor's request and sole expense) will execute and
deliver to Grantor (without any representation, warranty or recourse of any kind
whatsoever) such documents as Grantor may reasonably request and provide to
Administrative Agent to evidence such termination.
6. Miscellaneous. This IP Security Agreement has been entered into
in conjunction with the provisions of and the security interest granted to
Administrative Agent under the Security Agreement. The rights and remedies of
Grantor and Administrative Agent with respect to the security interest granted
herein are in addition and without prejudice to those set forth in the Security
Agreement and the Credit Agreement, all terms and provisions of which are hereby
incorporated herein by reference. This IP Security Agreement may be executed in
any number of counterparts with the same effect as if all the signatures on such
counterparts appeared on one document; each such counterpart will be deemed to
be an original but all counterparts together will constitute one and the same
instrument. In the event that any provisions of this IP Security Agreement are
deemed to conflict with the Security Agreement or the Credit Agreement, the
provisions of the Security Agreement or Credit Agreement shall govern.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this IP
Security Agreement, as an instrument under seal (whether or not any such seals
are physically attached hereto), through their duly authorized officers, as of
the date first written above.
ATTEST: INFOBOARD, INC.
(Grantor)
By: By: /s/ Mark E. Munro
--------------------------------- ----------------------------------
Name: Michael F. Sweeney Name: Mark E. Munro
Title: Assistant Secretary Title: President and Treasurer
[CORPORATE SEAL]
Address: 145 Munroe Street
Suite 200
Lynn, MA 01907
Telephone: (___) _________
Facsimile: (___) _________
WITNESS: MCG FINANCE CORPORATION
(Administrative Agent)
By: By: /s/ Steven Tunney
--------------------------------- ----------------------------------
Name: Steven Tunney
Title: Chief Operating Officer and
Chief Financial Officer
Address: 1100 Wilson Blvd.
Suite 800
Arlington, VA 22209
Telephone: (703) 247-7500
Facsimile: (703) 247-7505
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________________ :
: SS
COUNTY OF _______________________ :
Before me, the undersigned, a Notary Public, on this ____ day of
March, 2000, personally appeared Mark E. Munro and Michael F. Sweeney, to me
known personally, who, being by me duly sworn, did each separately say that he
is the President and Treasurer, and Assistant Secretary (respectively, as
appropriate) of INFOBOARD, INC., and that said instrument (i.e., the
Intellectual Property Security Agreement) was signed on behalf of said
Infoboard, Inc. by authority of its Board of Directors, and the said President
and Treasurer, and Assistant Secretary each acknowledged said instrument to be
his free act and deed.
____________________________________________
Notary Public
My Commission Expires:______________________
<PAGE>
ACKNOWLEDGMENT
STATE OF _______________________ :
: SS
COUNTY OF _______________________ :
Before me, the undersigned, a Notary Public, on this _____ day of
March, 2000, personally appeared Steven Tunney, to me known personally, who,
being by me duly sworn, did say that he is the Chief Operating Officer and Chief
Financial Officer of MCG FINANCE CORPORATION, and that said instrument (i.e.,
the Intellectual Property Security Agreement) was signed on behalf of said MCG
Finance Corporation by authority of its Board of Directors (through its Credit
Committee), and the said Chief Operating Officer and Chief Financial Officer
acknowledged said instrument to be his free act and deed.
____________________________________________
Notary Public
My Commission Expires:______________________
<PAGE>
SCHEDULE A
COPYRIGHT COLLATERAL
I. Registered Copyrights
Copyright Registration Registration
Title Number Date
--------- ------------ ------------
N/A
II. Pending Copyright Applications
Copyright Application Filing Date of Date of
Title Number Date Creation Publication
--------- ----------- ------ -------- -----------
N/A
III. Unregistered Copyrights
Date and Date of
Recordation Expected
Number of Registration
Copyright Date of Date of Original Assignment (if
Title Creation Publication Author/Owner to Grantor applicable)
--------- -------- ----------- ------------ ------------ -----------
N/A
IV. Copyright Licenses
Effective Expiration Subject
Copyright Licensor Licensee Date Date Matter
--------- -------- -------- --------- ---------- -------
N/A
<PAGE>
SCHEDULE B
PATENT COLLATERAL
I. Patents
Patent Issue
Number Country Date Title
------ ------- ---- -----
N/A
II. Pending Patent Applications
Patent Atty. Docket Serial Filing
Title Number Country Number Date Status
------ ----------- ------- ------ ---- ------
N/A
III. Patent Licenses
Effective Expiration
Patent No. Country Licensor Licensee Date Date
- - ---------- ------- -------- -------- --------- ----------
N/A
<PAGE>
SCHEDULE C
TRADEMARK COLLATERAL
I. Registered Trademarks
Trademark Registration
Description Country Number
----------- ------- ------------
INFOBOARD USA 1,838,139
II. Pending Trademark Applications
Atty.
Trademark Docket Serial Filing
Description Number Country Number Date Status
----------- ------ ------- ------ ------ ------
N/A
III. Trademark Licenses
Registration Effective Expiration
Number Mark Country Licensor Licensee Date Date
- - ------------ ---- ------- -------- -------- --------- ----------
N/A
<PAGE>
Exhibit 10.37
WALLER CAPITAL CORPORATION
FEE AGREEMENT
March 17, 2000
Mr. Mark Munro, Chief Executive Officer
Mr. Keith London, Executive Vice President
BiznessOnline.com
Gentlemen:
BiznessOnline.com (together with its parents, affiliates, subsidiaries,
officers and directors, the "Company") has requested the assistance of Waller
Capital Corporation ("Waller") with regard to the following potential
transactions (collectively the "Transactions"):
(i) Transactions whereby the capital stock or assets, or a
material portion thereof, of the Company may be directly or
indirectly acquired by another party or parties.
(ii) Transactions whereby the Company may be merged into or
consolidated with another party or parties;
(iii) Transactions whereby the Company may enter into a joint
venture or similar arrangement with another party or parties
in which a contribution of capital, an assumption or guarantee
of indebtedness, a contribution of assets or services, or any
of the foregoing, may be made by the participants;
Waller agrees to render such assistance upon the terms and conditions and in
consideration of the compensation hereinafter set forth as follows:
A. The Company hereby authorizes Waller and Waller hereby agrees
for a period of six (6) months from the date hereof (the
"Exclusivity Period") to initiate discussions on behalf of the
Company on an exclusive basis only with the parties listed in
Schedule A with respect to their potential interest in
effectuating any of the Transactions. The authority herein
granted to Waller shall terminate at the end of the
Exclusivity Period unless active negotiations are then in
progress between the
<PAGE>
Mr. Mark Munro
Mr. Keith London
March 17, 2000
Page 2
Company and one of the parties, in which event the Exclusivity
Period shall be extended until the termination of any such
negotiations. The Exclusivity Period may be extended by mutual
consent of the Company and Waller.
B. The Company will not initiate, prior to the end of the
Exclusivity Period, any discussions with any of the parties
listed in Schedule A with regard to any of the Transactions,
except through Waller. In the event the Company receives an
inquiry from a party listed on Schedule A concerning any of
the Transactions, it will promptly inform Waller of the
potential Transaction and refer to Waller the inquiry.
C. If the Company consummates, directly or indirectly, a
Transaction with a party or parties listed on Schedule A (i)
prior to the expiration of the Exclusivity Period or (ii)
within six (6) months after expiration of the Exclusivity
Period the Company shall compensate Waller with a cash payment
equal to 2.0% of the aggregate value of the transaction
consideration.
D. (1) For purposes of determining the aggregate value of the
consideration against which the Waller fee is to be
computed, there shall be included in addition to cash and
the fair market value of any securities received in
connection with a Transaction, the aggregate amount of
the indebtedness to be assumed or guaranteed directly or
indirectly by the party or parties with whom the
Transaction is consummated. Further, in the case of a
joint venture Transaction, the value of a Transaction
shall include the total fair value of capital, debt
guarantees, and assets or services and other
consideration contributed by the participants multiplied
by the percentage interest received by the Company in
such joint venture.
(2) The fee payable to Waller with respect to any
consideration paid or received in a Transaction shall be
paid at the Closing of such Transaction; provided,
however, that the portion of any fees relating to
transaction consideration which is contingent in amount
or is payable after the closing (e.g. escrow amounts,
installment payments, etc.) shall be paid when such
consideration is received by the Company or the
shareholders, as applicable.
(3) Waller shall not be liable for, nor shall its
compensation be reduced by, any obligation incurred by
the Company or any other party for an introduction or
other service in connection with a Transaction.
(4) In order that Waller may accurately compute the fee to
which it is entitled in the event of the consummation of
a Transaction, the Company shall furnish Waller with
copies of all documentation relating to any Transaction
hereunder, commencing with the inception of such
Transaction through the Closing thereof. In addition, the
Company shall furnish Waller with all such other
information (including all relevant data with respect to
contingent and/or deferred payments
<PAGE>
Mr. Mark Munro
Mr. Keith London
March 17, 2000
Page 3
or other consideration) relating to such Transaction as
Waller may from time to time request both preceding and
subsequent to the Closing of any such Transaction.
(5) In addition to any fees that may be payable to Waller
hereunder and regardless of whether any Transaction is
proposed or consummated, the Company hereby agrees, from
time to time upon request, to reimburse Waller for all
reasonable travel, entertainment, duplicating and
printing charges and other out-of-pocket expenses
incurred in direct connection with any actual or proposed
Transaction or otherwise arising out of Waller's
engagement hereunder, but excluding all salary or
overhead allocations. Waller shall submit an itemized
list of all such expenses to the Company monthly or upon
request. Notwithstanding the foregoing, any expenses
greater than $500 shall require the prior written
approval of the Company.
E. In the absence of willful misfeasance, gross negligence, or
the reckless disregard of its obligations or duties hereunder
on the part of Waller, neither Waller nor any partner,
officer, director, employee, or stockholder of Waller shall be
subject to any liability to the Company, for any act or
omission in the course of, or in connection with, the
rendering or providing of services hereunder. The Company
shall indemnify and hold Waller, its partners and their
officers, directors, employees and stockholders harmless
against any losses, claims, damages or liabilities to which
they or any of them may become subject in connection with the
services referred to herein and shall reimburse them for any
legal or other expenses (including the cost of any
investigations) reasonably incurred by them arising out of or
in connection with any action or claim in connection therewith
whether or not resulting in any liability; provided, however,
that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability results
from a breach of Waller's obligations hereunder or from
Waller's negligence or misfeasance in performing services
hereunder. The provisions of this Section E shall indefinitely
survive the termination of the authority granted to Waller
pursuant to Section A hereof.
F. No person or entity, other than the Company, shall be entitled
to make use of, or rely upon, the advice, services or
materials rendered or provided by Waller hereunder, and the
Company shall not directly or indirectly disseminate,
distribute or other wise make available any advice, services
or materials prepared by Waller without Waller's prior
consent.
G. This agreement (i) embodies the entire agreement and
understanding of the parties hereto and supersedes all prior
agreements and understandings, written or oral, relating to
the subject matter hereof, and may not be modified or amended
or any term or provision hereof waived or discharged, except
in writing signed by the party against whom such modification,
waiver or discharge is sought to be enforced; and (ii) is not
assignable without the prior written consent of the other
party; provided, however, that the provisions hereof shall
inure to the benefit of, and be binding upon, each successor
<PAGE>
Mr. Mark Munro
Mr. Keith London
March 17, 2000
Page 4
of the Company, whether by merger, consolidation, transfer of
all or substantially all assets, or otherwise; (iii) has in
all respects been duly authorized, executed, and delivered by
and on behalf of the Company and Waller; and (iv) shall be
interpreted, construed, enforced and governed by the
applicable laws of the State of New York.
Kindly acknowledge that the foregoing accurately reflects our
agreement with respect to the subject matter thereof, by
signing the enclosed copy of this letter and returning the
same to the undersigned.
Very truly yours,
WALLER CAPITAL CORPORATION
By /s/ Garrett Baker
--------------------------
Garrett Baker
Vice President
THE FOREGOING IS ACCEPTED AND
AGREED TO AS OF THIS 17th DAY
OF MARCH 2000.
BIZNESSONLINE.COM
By /s/ Mark E. Munro
---------------------------
Name: Mark E. Munro
Title: President
<PAGE>
EXHIBIT 11.1
CALCULATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
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
December 14,1999 271,903
December 15, 1999 298,727
December 29, 1999 720,000
----------
Total shares outstanding December 31, 1999 8,609,574
=========
Weighted average shares outstanding 5,765,432
=========
Net loss for the year ended December 31, 1999 ($4,055,000)
Net loss per share, primary and fully diluted ($.70)
</TABLE>
<PAGE>
EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT
AlbanyNet, Inc., a New York corporation
Ascent Networking, Inc., a New York corporation
BOL Acquisition Co. II, a New York corporation
BOL Acquisition Co. III, Inc., a New York corporation
BOL Acquisition Co. VIII, Inc., a Connecticut corporation
Borg Internet Services, Inc., a New York corporation
Caravela Software, Inc., a Connecticut corporation, d/b/a Connix
Cyberzone, Inc., a Connecticut corporation
Global 2000 Communications, Inc., a New York corporation
Infoboard, Inc., a Massachusetts corporation
NECAnet, Inc., a Connecticut corporation
Prime Communication Systems, Inc., a New York corporation
Ulsternet, Inc., a New York corporation
WebWay Internet, Inc., a New York corporation
<PAGE>
Exhibit 23.1
The Board of Directors
BiznessOnline.com, Inc.
We consent to incorporation by reference in the registration statements (No.
333-73067 and 333-73067) of BiznessOnline.com, Inc. of our report dated
February 25, 2000, relating to the consolidated balance sheets of
BiznessOnline.com, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the related statements of operations, stockholders' equity, and cash
flows for the year ended December 31, 1999 and the period from July 1, 1998
(date of inception) through December 31, 1998, which report appears in the
December 31, 1999 annual report on Form 10-K of BiznessOnline.com, Inc.
KPMG LLP
/s/ KPMG LLP
Providence, Rhode Island
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,841
<SECURITIES> 0
<RECEIVABLES> 1,756
<ALLOWANCES> 482
<INVENTORY> 0
<CURRENT-ASSETS> 9,244
<PP&E> 7,867
<DEPRECIATION> 2,140
<TOTAL-ASSETS> 47,350
<CURRENT-LIABILITIES> 6,206
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 40,964
<TOTAL-LIABILITY-AND-EQUITY> 47,350
<SALES> 6,741
<TOTAL-REVENUES> 6,741
<CGS> 0
<TOTAL-COSTS> 10,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 257
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> (3,993)
<INCOME-TAX> 62
<INCOME-CONTINUING> (4,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,055)
<EPS-BASIC> (.70)
<EPS-DILUTED> (.70)
</TABLE>
