SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 23, 1999
Consolidated Technology Group Ltd.
(Exact name of Registrant as Specified in its Charter)
New York 0-4186 13-1948169
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
160 Broadway, New York, New York 10038
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (212) 233-4500.
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Item 5. Other Events.
The Registrant and its wholly-owned subsidiary, SIS Capital Corp.
("SISC"), entered into an agreement dated as of March 23, 1999, with Arc
Networks, Inc. ("Arc") and Technology Acquisitions, Ltd. ("TAL"), pursuant to
which the Registrant, through SISC, sold all of its equity interest in Arc for
$850,000. The proceeds of the sale and the shares of Arc common stock being sold
are being held in escrow pending receipt of the consent of the New York Public
Service Commission to the sale of the shares to TAL and certain related matters.
The Registrant owns approximately 67% of the outstanding common stock of Arc,
which was a subsidiary of the Registrant.
Arc resells local and long-distance telephone service and provides data
cable installation services for computer systems to commercial customers.
As a result of the sale of the Arc stock, the operations of Arc will be
reflected as a discontinued operation at December 31, 1998, and the Registrant
and its consolidated subsidiaries will not be engaged in any active business
activities.
On March 25, 1999, the Registrant and SISC entered into an agreement
with Netsmart Technologies, Inc. ("Netsmart") and a group of purchasers,
consisting principally of Netsmart's management and directors. Pursuant to the
agreement, the purchasers are to buy from SISC, in a private sale, an aggregate
of 496,312 shares of Netsmart's common stock for an aggregate purchase price of
$1,000,000. The purchase of the shares will be made in two installments. The
agreement also gives the purchasers the right to buy up to between 296,312 and
496,312 additional shares of Netsmart's common stock from the Registrant at the
same purchase price per share. The purchasers include Mr. Edward D. Bright,
chairman of the board and a director of both the Registrant and Netsmart.
The sale of the shares pursuant to the agreement is subject to certain
closing conditions including the delivery to the Registrant of a fairness
opinion.
In addition, the Registrant agreed to transfer to Netsmart shares of
Netsmart's preferred stock (including the right to receive dividends thereon)
and warrants to purchase shares of Netsmart's common stock, for which Netsmart
will issue 100,000 shares of its common stock to the Registrant.
The Registrant, through SISC, is Netsmart's largest stockholder, owning
992,624 shares, or approximately 35.7%, of Netsmart's common stock. Upon the
sale of the 496,312 shares of Netsmart's common stock and the issuance by
Netsmart of the abovementioned 100,000 shares of its common stock to the
Registrant, the Registrant will own 596,312 shares, or approximately 20.7% of
Netsmart's common stock. To the extent that the purchasers acquire any
additional shares, the Registrant's ownership percentage in Netsmart will
decrease.
Since January 1, 1998, the Registrant's interest in Netsmart's
operations has been reflected on its financial statement under the equity
method.
Netsmart, through its wholly-owned subsidiary, Creative Socio-Medics
Corp., is a leading supplier of enterprise-wide software solutions for the
mental health and behavioral health markets.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Agreement dated as of March 23, 1999, among the Registrant,
SIS Capital Corp., Arc Networks, Inc. and Technology
Acquisition, Ltd., as amended, with the exhibits and
schedules.
99.2 Agreement dated March 25, 1999, among the Registrant, SIS
Capital Corp., Netsmart Technologies, Inc., Anthony Grisanti,
as representative of the Purchasers, and the Purchasers named
therein.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By: /S/-----------------------
Date: April 6, 1999 Seymour Richter, President
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STOCK PURCHASE AGREEMENT
By and Among
ARC NETWORKS, INC.
(the "Company")
SIS CAPITAL CORP.
("Seller")
CONSOLIDATED TECHNOLOGY GROUP LTD.
("COTG")
and
TECHNOLOGY ACQUISITIONS, LTD.
("Purchaser")
March 23, 1999
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TABLE OF CONTENTS
Page
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ARTICLE I PURCHASE AND SALE OF STOCK............................... 2
1.1 Purchase and Sale of the Shares.......................... 2
1.2 Purchase Price for Shares of Company's Stock............. 2
ARTICLE II CLOSING.................................................. 2
2.1 Date and Time of Closing................................. 2
2.2 Escrow Agreement......................................... 3
ARTICLE III REPRESENTATIONS AND WARRANTIES........................... 5
3.1 Representations and Warranties of the Company,
COTG and the Seller..................................... 5
(a) Authorization................................. 5
(b) Organization; Subsidiaries.................... 6
(c) Capitalization................................ 6
(d) Financial Statements.......................... 7
(e) Owned Real Property........................... 8
(f) Leased Real Property.......................... 8
(g) Title......................................... 8
(h) Fixed Assets; Condition of Assets............. 9
(i) Intellectual Property......................... 9
(j) Inventory..................................... 11
(k) Accounts Receivable........................... 11
(l) Accounts Payable.............................. 12
(m) Absence of Undisclosed Liabilities............ 12
(n) Absence of Certain Changes or Events.......... 13
(o) Agreements.................................... 15
(p) Non-Contravention; Consents................... 18
(q) Employee Benefit Plans........................ 20
(r) Labor Relations............................... 21
(s) Insurance..................................... 21
(t) Tax Matters................................... 22
(u) Compliance with Applicable Law................ 24
(v) Litigation.................................... 25
(w) Permits....................................... 25
(x) Restrictive Covenants......................... 26
(y) Unlawful Payments............................. 26
(z) Warranties.................................... 26
(aa) Officers, Directors, Employees and Consultants 27
(bb) Loans to or from Affiliates................... 27
(cc) Customers and Suppliers....................... 27
(dd) Books and Records............................. 28
(ee) Bank Accounts................................. 28
(ff) Agreements with Affiliates.................... 28
(gg) Customer Deposits............................. 29
(hh) Knowledge..................................... 29
(ii) Accuracy of Information Furnished............. 29
(jj) Materiality Standard.......................... 29
(kk) Effect of Post-Closing Events................. 29
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3.2 Representations and Warranties of the Purchaser.......... 30
(a) Authorization................................. 30
(b) Organization.................................. 30
(c) Non-Contravention; Consents................... 30
(d) Litigation.................................... 31
(e) Accuracy of Information Furnished............. 31
3.3 Survival of Representations and Warranties............... 32
3.4 Notice and Right to Cure................................. 32
3.5 Effect of Actual Knowledge............................... 32
3.6 Acknowledgment by Purchaser.............................. 33
ARTICLE IV COVENANTS................................................ 33
4.1 Covenants of the Seller and COTG......................... 33
(a) Confidential Information...................... 33
(b) Referrals..................................... 34
4.2 Covenants of the Company and the Purchaser............... 34
4.3 Governmental Filings and Consents........................ 36
4.4 Funding of the Company................................... 37
4.5 Books and Records........................................ 38
4.6 Publicity................................................ 38
ARTICLE V CLOSING DOCUMENTS........................................ 39
5.1 Company's Closing Documents.............................. 39
(a) Copies of Resolutions......................... 39
(b) Opinion of Counsel............................ 39
(c) Certificate of the President of the Company... 39
(d) Certificate of the Secretary of the Company... 39
(e) Good Standing Certificates.................... 39
(f) Modification of COTG Note..................... 39
(g) BSL Waiver.................................... 40
(h) Trans Global Note Modification................ 40
(i) Escrow Agreement.............................. 40
(j) Company Security Agreement.................... 40
(k) Other Documents............................... 40
5.2 Seller's Closing Documents............................... 40
(a) Copies of Resolutions......................... 40
(b) Opinion of Counsel............................ 40
(c) Certificate of the President of COTG and
the Seller................................... 41
(d) Certificate of the Secretary of COTG and
the Seller................................... 41
(e) Delivery of Stock Certificates................ 41
(f) COTG Note Modification........................ 41
(g) Escrow Agreement.............................. 41
(h) COTG Guaranty................................. 41
(i) Other Documents............................... 41
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5.3 Purchaser's Closing Documents............................ 41
(a) Copies of Resolutions......................... 41
(b) Opinion of Purchaser's Counsel................ 42
(c) Certificate of the President of the Purchaser. 42
(d) Certificate of the Secretary of the Purchaser. 42
(e) Purchase Price................................ 42
(f) Escrow Agreement.............................. 42
(g) Modification of Trans Global Note............. 42
(h) Purchaser-COTG Guaranty....................... 42
(i) Other Documents............................... 42
5.4 Escrow Delivery.......................................... 42
ARTICLE VI INDEMNIFICATION AND CLAIMS............................... 43
6.1 Indemnification by the Company, COTG and the Seller...... 43
6.2 Indemnification by the Purchaser......................... 43
6.3 COTG's and Seller's Maximum Liability.................... 44
6.4 Effect of Recovery from a Third Party.................... 44
6.5 Procedure for Claims by Third Parties.................... 44
6.6 Procedure for Other Claims............................... 45
6.7 Right of Offset.......................................... 46
6.8 Exclusive Remedy......................................... 46
ARTICLE VII MISCELLANEOUS............................................ 46
7.1 Fees and Expenses........................................ 46
7.2 Modification, Amendments and Waiver...................... 46
7.3 Assignment............................................... 47
7.4 Burden and Benefit....................................... 47
7.5 Brokers.................................................. 48
7.6 Entire Agreement......................................... 48
7.7 Disclosure Generally..................................... 48
7.8 Governing Law............................................ 48
7.9 Notices.................................................. 48
7.10 Counterparts............................................. 50
7.11 Rights Cumulative........................................ 50
7.12 Severability of Provisions............................... 50
7.13 Headings................................................. 51
7.14 Remedies................................................. 51
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LIST OF SCHEDULES AND EXHIBITS
TO
STOCK PURCHASE AGREEMENT
SCHEDULES
Schedule 3.1(b): Jurisdictions in which the Company is
Qualified to do Business
Schedule 3.1(c): Options and Warrants
Schedule 3.1(d): Financial Statements
Schedule 3.1(f): Real Property Leases
Schedule 3.1(g): Liens
Schedule 3.1(h): Equipment Leases
Schedule 3.1(i): Intellectual Property
Schedule 3.1(j): Inventory
Schedule 3.1(k): Accounts Receivable
Schedule 3.1(l): Accounts Payable
Schedule 3.1(n): Absence of Certain Changes or Events
Schedule 3.1(o): Agreements
Schedule 3.1(p): Non-Contravention; Consents
Schedule 3.1(q): Employee Benefit Plans
Schedule 3.1(s): Insurance
Schedule 3.1(t): Tax Matters
Schedule 3.1(v): Litigation
Schedule 3.1(aa): Officers, Directors, Employees and
Consultants
Schedule 3.1(bb): Loans to or from Affiliates
Schedule 3.1(cc): Customers and Suppliers
Schedule 3.1(ee): Bank Accounts
Schedule 3.1(gg): Customer Deposits
Schedules available upon request, not inluded in filing.
EXHIBITS
Exhibit 2.2(a): Escrow Agreement
Exhibit 4.2(d): Form of Guaranty of the COTG Note, the BSL
Note and the Trans Global Note
Exhibit 4.4(b)(i): Form of COTG Guaranty
Exhibit 4.4(b)(ii): Form of Company Security Agreement
Exhibit 5.1(b): Form of Opinion of Company Counsel(1)
Exhibit 5.1(f): Form of COTG Note Modification
Exhibit 5.1(g): Form of BSL Waiver
Exhibit 5.1(h): Form of Trans Global Note Modification
Exhibit 5.2(b): Form of Opinion of Seller's Counsel(1)
Exhibit 5.3(h): Form of Purchaser-COTG Guaranty
(1) Exhibits waived by counsel at closing, not part of agreement.
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this 23rd day of March, 1999, by and among Arc Networks, Inc., a
Delaware corporation (the "Company"), SIS Capital Corp., a Delaware corporation
("Seller"), Consolidated Technology Group Ltd., a New York corporation ("COTG"),
and Technology Acquisitions, Ltd., a Bermuda corporation (the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Seller is a wholly owned subsidiary of COTG and owns
approximately sixty-seven percent (67%) of the issued and outstanding shares of
capital stock of the Company, and the Seller desires to sell, assign, transfer
and convey to the Purchaser all of its right, title and interest in and to the
issued and outstanding shares of capital stock of the Company owned by the
Seller pursuant to the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, the authorized capital stock of the Company consists of
6,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), none of which are outstanding, and 15,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), of which 9,530,760 shares are issued
and outstanding on the date of this Agreement; and
WHEREAS, it is the desire of the Purchaser to purchase, obtain and
acquire from the Seller all of Seller's right, title and interest in and to the
issued and outstanding shares of capital stock of the Company owned by Seller
pursuant to the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
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ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of the Shares. Upon the terms and subject to the
conditions set forth in this Agreement, the Company and the Seller hereby agree
that, on the Closing Date (as hereinafter defined in Section 2.1), the Seller
shall sell, assign, transfer and convey to the Purchaser, and the Purchaser
hereby agrees to purchase and acquire from the Seller, all of the Seller's
right, title and interest in and to 6,392,800 shares of Common Stock,
representing all of the issued and outstanding shares of capital stock of the
Company owned by Seller (the "Shares"). The Seller hereby further agrees, upon
the terms and subject to the conditions set forth herein, to transfer and
deliver to the Purchaser at the Closing (as hereinafter defined in Section 2.1)
certificates, properly endorsed in blank or accompanied by a properly executed
stock power, representing the Shares.
1.2 Purchase Price for Shares of Company's Stock. In consideration of
and in exchange for the Seller's sale, assignment, transfer and conveyance of
the Shares to the Purchaser, the Purchaser hereby agrees to pay the Seller on
the Closing Date cash consideration in the amount of $850,000 (the "Purchase
Price").
ARTICLE II
CLOSING
2.1 Date and Time of Closing. Subject to the satisfaction of the
conditions set forth in this Agreement and compliance with the other provisions
hereof, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at 1:30 p.m. (Eastern Standard Time) on March 23,
1999 (the "Closing Date") at the offices of Esanu Katsky Korins & Siger, 605
Third Avenue, 16th Floor, New York, New York 10158, or at such other place and
time, or in such other manner, as shall be mutually agreeable to the parties
hereto. Notwithstanding the provisions of Section 2.2 below, the Closing shall
be deemed to have occurred on the date of this Agreement.
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2.2 Escrow Agreement.
(a) On the Closing Date, the parties, Trans Global Services,
Inc. ("Trans Global") and the Escrow Agent (hereinafter defined) will enter into
an escrow agreement in the form annexed hereto as Exhibit 2.2(a) (the "Escrow
Agreement"). The parties hereto acknowledge that the sole requirement for the
release of the Purchase Price to Seller and the closing documents to the parties
entitled to same from escrow under and in accordance with the terms of the
Escrow Agreement is the New York Regulatory Consent (defined below) and that
there is no other document, condition or other obligation of the Company or
Seller thereunder. For purposes hereof, (i) the "Escrow Term" shall mean the
period commencing on the date of the execution of this Agreement and ending on
the date of the release from escrow of the funds and documents held by the
Escrow Agent under the Escrow Agreement, and (ii) "New York Regulatory Consent"
shall mean the consent of the New York State Public Service Commission to the
transfer of the Shares contemplated under this Agreement.
(b) On the Closing Date:
(i) All of the documents required to be
delivered by the Company at the Closing pursuant to Section 5.1 hereof (other
than the Escrow Agreement and the Trans Global Note Modification, as hereinafter
defined) will be placed in an envelope marked "TAL" and delivered to Parker
Chapin Flattau & Klimpl, LLP (the "Escrow Agent").
(ii) All of the documents required to be
delivered by the Seller at the Closing pursuant to Section 5.2 hereof (other
than the Escrow Agreement), will be placed in an envelope marked "TAL" and
delivered to the Escrow Agent.
(iii) All of the documents required to be
delivered by the Purchaser at the Closing pursuant to Section 5.3 hereof (other
than the Escrow Agreement and the Trans Global Note Modification) will be placed
in an envelope marked "COTG" and delivered to the Escrow Agent and the Purchase
Price shall be wire transferred to a separate interest-bearing escrow account
established by the Escrow Agent under the Escrow Agreement.
(iv) The Trans Global Note Modification,
executed as provided in Sections 5.1(h) and 5.3(h) of this Agreement, will be
placed in an envelope marked "Trans Global" and delivered to the Escrow Agent.
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(v) By their execution hereof, the Company,
COTG and the Purchaser agree that in the event the New York Regulatory Consent
is not obtained within the period provided under the Escrow Agreement and the
Escrow Agreement is terminated and the documents held in escrow thereunder are
returned to the parties thereto by the Escrow Agent, the Trans Global Note
Modification will, thereupon, be automatically null and void and without any
legal force or effect.
(c) The Company and COTG hereby agree that, upon the receipt
by either of them of written advice from the Company's special regulatory
counsel (the "Special FCC Counsel") that the New York Regulatory Consent has
been obtained by the Company, each of them will so advise the Purchaser, and
COTG and the Purchaser will promptly execute and deliver the Distribution Notice
to the Escrow Agent in the form and as otherwise provided under the Escrow
Agreement.
(d) In the event that neither the Company nor COTG receives
advice from Special FCC Counsel that the New York Regulatory Consent was
obtained by the Company by September 30, 1999, the Company and COTG hereby agree
that, subject to the provisions of Section 4.4(b) hereof, they will so advise
the Purchaser, and COTG and the Purchaser will execute and deliver the
Termination Notice to the Escrow Agent in the form and as otherwise provided
under the Escrow Agreement. In such event, the Trans Global Note Modification
shall be null and void ab initio.
(e) The parties hereto acknowledge and agree that the delivery
of the documents and payment of the Purchase Price to the Escrow Agent as
provided above in this Section 2.2 shall not constitute, during the Escrow Term,
a restatement of the respective representations and warranties of the parties
set forth in this Agreement and, in the event that the Escrow Agreement is
terminated in accordance with its terms, the Closing under this Agreement shall
be deemed to have been rescinded as of such date and none of the parties shall
have any rights or obligations under this Agreement except as provided under
Sections 4.4(b) and 4.4(c).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company, COTG and the Seller.
The Company, COTG and the Seller, jointly and severally, except as otherwise
specifically provided herein, represent and warrant to the Purchaser as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized, adopted and approved by the boards of directors of the
Company, COTG and the Seller. The Company has taken all necessary corporate
action and has all the necessary corporate powers to enter into this Agreement
and to consummate the transactions contemplated hereby and this Agreement has
been duly and validly executed and delivered by the officers of the Company on
its behalf, and assuming that this Agreement is the valid and binding obligation
of the Purchaser, COTG and the Seller, is the valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
Seller and COTG have taken all necessary corporate action and have all the
necessary corporate powers to enter into this Agreement and to consummate the
transactions contemplated hereby and this Agreement has been duly and validly
executed and delivered by the officers of Seller and COTG on their behalf and,
assuming that this Agreement is the valid and binding obligation of the
Purchaser and the Company, is the valid and binding obligation of the Seller and
COTG enforceable against Seller and COTG in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
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(b) Organization; Subsidiaries. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. The Company does not own any shares of capital stock or other equity
interest in any corporation, partnership, association or other entity, except
for A.R.C. Networks, Inc., a New York corporation (the "Subsidiary"). The
Company and the Subsidiary have the corporate power and authority to own and
lease their respective properties and assets and to carry on their respective
businesses as now being conducted and each of the Company and the Subsidiary is
duly qualified to do business as a foreign corporation in each jurisdiction
where it owns or leases real property or conducts business, except where the
failure to be so qualified would not have a material adverse effect on the
business, operations, earnings, assets or financial condition of the Company and
the Subsidiary, taken as a whole. Set forth on Schedule 3.1(b) hereto is a true
and correct list of each jurisdiction in which the Company and the Subsidiary
are qualified to do business.
(c) Capitalization. The Company's authorized capital stock
consists of 6,000,000 shares of Preferred Stock, none of which are outstanding,
and 15,000,000 shares of Common Stock, of which 9,530,760 shares are issued and
outstanding, 500,000 shares are reserved for issuance upon the exercise of
outstanding warrants and 400,000 shares are reserved for issuance pursuant to
the Company's 1997 Long-Term Incentive Plan. The outstanding shares of the
Company's Common Stock have been duly authorized, validly issued and are fully
paid and non-assessable. COTG and Seller hereby represent and warrant that
Seller is the sole legal and beneficial owner of the Shares, which shares, in
the aggregate, represent at least 67% of the issued and outstanding shares of
the Company's Common Stock on the date of this Agreement. COTG and Seller hereby
represent and warrant that the Shares owned by Seller are owned free of
preemptive rights and free and clear of all adverse claims, liens, mortgages,
charges, security interests, encumbrances and other restrictions or limitations
of any kind whatsoever, other than restrictions or limitations imposed by any
applicable laws or the rules and regulations of any regulatory authority.
Schedule 3.1(c) to this Agreement sets forth a list of the holders of all
options and warrants on the date of this Agreement. The Shares were issued to
Seller in a transaction exempt from the registration requirements of the
Securities Act of 1933, as amended. As of the date hereof, there are no options,
warrants, calls, convertible securities or commitments of any kind whatsoever
relating to the Shares, and the Shares are not subject to any voting trusts,
voting agreements, stockholder agreements or other agreements or understandings
of any kind whatsoever which relate to the voting of the capital stock of the
Company.
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(d) Financial Statements. The Company has heretofore delivered
to the Purchaser the audited consolidated balance sheets of the Company and the
Subsidiary as at December 31, 1998, 1997 and 1996 (each a "Balance Sheet" and
collectively the "Balance Sheets") and the related audited consolidated
statements of operations and retained earnings and cash flows for the years then
ended, accompanied by the corresponding reports of the Company's independent
auditors (all of the foregoing, including the notes thereto, may collectively be
referred to hereinafter as the "Financial Statements"). The Purchaser
understands that (i) the audited Financial Statements contain an explanatory
paragraph as to the ability of the Company and the Subsidiary to continue as a
going concern, (ii) as of the December 31, 1998, the consolidated liabilities of
the Company and the Subsidiary exceeded their consolidated assets by more than
$5,000,000, and, as a result thereof, the Company may be deemed insolvent, (iii)
the Company's insolvent condition may have an adverse effect upon the value of
the assets reflected on the December 31, 1998 Balance Sheet and (iv) the Company
has continued to operate at a loss since December 31, 1998, as a result of which
its working capital deficiency has increased since such date. The Financial
Statements present fairly, in all material respects, the consolidated financial
condition of the Company and the Subsidiary as of the respective Balance Sheet
dates and the results of their consolidated operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles
applied on a consistent basis on a going-concern basis. A copy of the Financial
Statements are attached hereto as Schedule 3.1(d).
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(e) Owned Real Property. Neither the Company nor the
Subsidiary owns (of record or beneficially), nor do either of them have any
interest in, any real property other than the leasehold interests described in
Schedule 3.1(f) hereto.
(f) Leased Real Property. Set forth on Schedule 3.1(f) hereto
is a true, correct and complete list of all leases and subleases (the "Real
Property Leases") with respect to real property leased by the Company or the
Subsidiary as lessee and used in the conduct of their respective businesses or
otherwise (the "Leased Real Property"). Also set forth on Schedule 3.1(f) is a
schedule setting forth, with respect to each of the Real Property Leases, (i)
the monthly rental in effect as of March 1, 1999, (ii) the expiration date of
the lease, (iii) whether the consummation of the transactions contemplated by
this Agreement require the consent of the lessor, and (iv) whether the Company
or the Subsidiary has subleased or licensed the use of any material portion of
the premises leased under such Real Property Lease and, if so, the terms of the
sublease or license, if still in effect. The Company has delivered to the
Purchaser copies of each of the material Real Property Leases, which are
complete in all material respects. Neither the Company nor the Subsidiary is in
material breach under any of the Real Property Leases other than possible
delinquencies in the payment of rent and other charges due thereunder which are
set forth on the Schedules hereto.
(g) Title. The Company and the Subsidiary have good and
marketable title to their respective machinery, equipment, items of personal
property and other tangible assets used by them in their respective businesses,
other than machinery, equipment and items of personal property and other
tangible assets which are leased by the Company or the Subsidiary, as the case
may be, subject to the liens set forth on Schedule 3.1(g) to this Agreement, and
subject, further to the extent that title to any such assets may be impaired by
the insolvency of the Company or the Subsidiary.
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(h) Fixed Assets; Condition of Assets. Subject to the
qualification hereinafter set forth in this Section 3.1(h), the Real Property
Leases and the equipment leases set forth on Schedule 3.1(h) to this Agreement
are valid and enforceable in all material respects, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought, and except to the
extent that the Company's financial condition and possible delinquencies in the
payment of rent and other charges may give any such lessors a right of
termination under the Real Property Leases or such equipment leases. There is
not, under any of the foregoing agreements, any existing material default other
than possible delinquencies in payment of rent and other charges due thereunder
which are set forth on the Schedules hereto, nor is there any other event which,
with notice or lapse of time or both, would constitute a default, which could
have a material adverse effect on the business, assets, operations, earnings, or
financial condition of the Company and the Subsidiary, taken as a whole, or
materially adversely affect the Company's or the Subsidiary's use of the Leased
Real Property or the title to its assets. All material equipment owned or leased
by the Company is in reasonable operating condition and repair, subject to
normal wear and use and each is usable in a manner consistent with the current
use by the Company or the Subsidiary.
(i) Intellectual Property.
(i) Schedule 3.1(i) hereto sets forth a true,
correct and complete list (including where applicable, the date of registration
and the serial or registration number) of all registered and unregistered
trademarks, service marks and trade names (including any applications for the
same), registered and unregistered copyrights, and computer programs and
software (whether or not protected by patent, copyright or otherwise) which are
owned by, licensed by, used in or are material to the business of the Company
(the "Intellectual Property"), provided, that Intellectual Property shall not
include any computer
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<PAGE>
programs or software which are commercially available to the public or are
generally available in the telecommunications industry or any other such
programs or software that were not developed by the Company or by others
pursuant to contracts with the Company or the Subsidiary as work performed for
hire on behalf of the Company or the Subsidiary. With respect to each of the
foregoing items of Intellectual Property, Schedule 3.1(i) sets forth the
following: (A) the nature of the Company's interest, if any, therein; (B) each
agreement and all other documents evidencing the Company's interest therein
(other than, with respect to licensed Intellectual Property, warranties that are
not specifically negotiated with the owner of the Intellectual Property); (C) if
the Intellectual Property is owned by the Company or the Subsidiary and licensed
to third parties, the nature of the interest of such third party therein; and
(D) each agreement between the Company and such third party setting forth the
rights granted to the third party.
(ii) To the best of the Company's knowledge
without having made any trademark or other search, the Company's right, title or
interest in each of the registered trademarks, service marks, or trade names
(including any applications for the same), registered copyrights and computer
programs and software listed on Schedule 3.1(i) is free and clear of adverse
claims, liens, mortgages, charges, security interests and encumbrances or other
restrictions or limitations of any kind whatsoever, other than as disclosed in
this Agreement or any of the Schedules hereto; provided, however, that no
representation is made as to the Company's or the Subsidiary's ownership of the
"Arc" logo set forth on Schedule 3.1(i).
(iii) Neither the Company nor the Subsidiary
have received any written notice from any third party claiming that the Company
or the Subsidiary (A) has committed any act of unfair competition or directly,
indirectly, contributorily or by inducement, infringed upon any patent,
trademark, service mark, trade name, copyright, computer program or software, or
any other Intellectual Property, or (B) has misappropriated any of the foregoing
from any other person or entity or received from any other person or entity any
notice, charge, claim or other assertion with respect thereto.
(iv) With respect to Intellectual Property owned
by the Company or the Subsidiary, neither the Company nor the Subsidiary has
sent or otherwise communicated to any other person or entity that such person
infringes upon any Intellectual Property owned by the Company or the Subsidiary
and the Company does not have any knowledge of any such infringement or
threatened infringement.
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<PAGE>
(j) Inventory. Schedule 3.1(j) hereto sets forth a true,
correct and complete list of the Company's inventory as of December 31, 1998
(the "Inventory"). There have been no material changes in the Inventory since
such date other than ordinary business reductions due to sales and increases due
to purchases of items of Inventory received in the ordinary course of the
conduct of the Company's business consistent with its past practices. The
December 31, 1998 Balance Sheet reflects the Inventory of the Company and the
Subsidiaries in accordance with generally accepted accounting principles
consistently applied; provided, however, that the valuation of the Inventory
thereon is based on the Company's consolidated financial condition on a going
concern basis, and the Company's insolvent financial condition may have an
adverse effect upon the value or realizability of the Inventory. To the best of
the Company's knowledge, all items of Inventory which are not currently saleable
in the normal course of business have been written down to estimated sales
value, on a going concern basis. Except for items of Inventory written down as
hereinbefore provided, substantially all items of Inventory are of a quality and
quantity usable or saleable in the ordinary course of business, subject to the
qualifications set contained in this Section 3.1(j).
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<PAGE>
(k) Accounts Receivable. Schedule 3.1(k) hereto sets forth a
true, correct and complete list of the Company's accounts receivable as of
February 28, 1999 (the "Accounts Receivable"). All of the Accounts Receivable
are valid, arose out of bona fide transactions in the ordinary course of
business, and, to the best of the Company's knowledge, are the valid and binding
obligations of and are enforceable against the respective account debtors
thereunder, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect. The December 31, 1998 Balance Sheet reflects the Company's accounts
receivable in accordance with generally accepted accounting principles
consistently applied, determined on a going concern basis. Except as disclosed
on Schedule 3.1(k), neither the Company nor the Subsidiary knows of any contest
or claim or right of setoff which has been claimed in writing by any account
debtor relating to the amount or validity of any of the Accounts Receivable.
Since December 31, 1998, there has been no event that could materially increase
the ratio of uncollectable accounts receivable of the Company (the
"Uncollectable Receivables") to the Company's accounts receivable as of such
date or cause the Company's reserve for Uncollectable Receivables to be
inadequate, except that the Company has continued to sustain significant losses
from its operations and such losses, together with the Company's insolvent
position, may materially and adversely affect the ability of the Company or the
Subsidiary to collect the Accounts Receivable and/or to service their customers
and/or maintain their equipment and/or maintain their relations and arrangements
with its providers of telecommunications services and other vendors, any of
which could also have a material adverse effect upon the collectability of the
Accounts Receivables. No representation is made as to the collectability of any
of the Accounts Receivable in the event that the Company and the Subsidiary are
no longer operating as a going concern.
(l) Accounts Payable. Schedule 3.1(l) hereto sets forth a
true, correct and complete list of the Company's and the Subsidiary's accounts
payable as of February 28, 1999 (the "Accounts Payable"). Substantially all of
the Accounts Payable are more than thirty (30) days past due and are or may be
considered delinquent by the Company's creditors.
(m) Absence of Undisclosed Liabilities. Other than as set
forth in the December 31, 1998 Financial Statements, or pursuant to contracts,
agreements, and other documents disclosed to the Purchaser pursuant to this
Agreement, neither the Company nor the Subsidiary had, at such date, any
indebtedness or liability of any nature whatsoever (other than those incurred in
the ordinary course of business), whether accrued, absolute, contingent or
otherwise and whether due or become due, which is material to the assets,
business or operations of the Company and the Subsidiary, taken as a whole.
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(n) Absence of Certain Changes or Events.
(i) Except as set forth on Schedule 3.1(n) to
this Agreement or in the Financial Statements, and except as expressly set forth
in or contemplated by this Agreement, the Company has not, since December 31,
1998:
(A) issued, sold, granted or contracted to
issue, sell or grant any of shares of any class of its capital stock, notes,
bonds, other securities or any option to purchase any of the same;
(B) amended its Certificate of
Incorporation;
(C) made any capital expenditures or
commitments for the acquisition or construction of any property, plant or
equipment other than in the ordinary course of business of the Company;
(D) entered into any material transaction in
any way inconsistent with the past practices of its business or conducted its
business in any manner inconsistent with its past practices;
(E) incurred any damage, destruction or any
other loss to any of its property or assets in an aggregate amount exceeding Ten
Thousand Dollars ($10,000) whether or not covered by insurance;
(F) incurred any material liability or
obligation (absolute or contingent) or made any material expenditure other than
(x) in the ordinary course of business of the Company or (y) pursuant to
contracts and agreements described in the Schedules to this Agreement;
(G) declared, set aside or paid any
dividend or other distribution in respect of the capital stock of the Company;
(H) redeemed, repurchased or otherwise
acquired any of its capital stock or securities convertible into or exchangeable
for its capital stock or entered into any agreement with respect to any of the
foregoing;
(I) granted, conveyed, transferred, assigned
or made any sale of its Accounts Receivable or any accrual of liabilities
outside of the ordinary course of its business or pursuant to any of the
contracts or agreements described in the Schedules to this Agreement;
(J) granted, conveyed, transferred, assigned
or made any sale of any interest in the Intellectual Property outside of the
ordinary course of its business or pursuant to any of the contracts or
agreements described in the Schedules to this Agreement;
(K) purchased, disposed of or contracted to
purchase or dispose of, or granted or received an option or any other right to
purchase or sell, any of its property or assets, except in the ordinary course
of business;
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<PAGE>
(L) entered into any employment or
consulting agreement or increased the rate of compensation payable or to become
payable to the officers, employees or consultants of the Company, or increased
the amounts paid or payable to such officers, employees or consultants under any
bonus, insurance, pension or other benefit plan, or made any arrangements
therefor with or for any of said officers, employees or consultants except for
increases resulting from the application of existing formulas under existing
plans, agreements or policies relating to employee compensation; provided,
however, that the representations and warranties contained in this Section
3.1(n)(i)(L) and in Section 3.1(n)(i)(M) of this Agreement shall be the
representations only by the Company and not by COTG or the Seller; or
(M) adopted or amended any collective
bargaining, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation or other plan, agreement, trust, fund or
arrangement for the benefit of its employees, except as otherwise required or
permitted herein.
(ii) Except as set forth on Schedule 3.1(n) to
this Agreement and except as expressly set forth in or contemplated by this
Agreement, and except as any of the same may result from either the Company's
consolidated financial condition at December 31, 1998, including its working
capital deficiency or the Company's continuing consolidated losses from
operations, the Company has not, since December 31, 1998:
(A) suffered any loss of any material
portion of its property and, no customer, dealer or supplier has advised the
Company or the Subsidiary in writing that it intends to discontinue its current
relationship with the Company or the Subsidiary, the loss or discontinuance of
which, alone or in the aggregate, could have a material adverse effect on the
business, assets, operations, earnings or financial condition of the Company and
the Subsidiary taken as a whole;
(B) modified, amended or altered any
contractual arrangement with any customer, dealer or supplier, the modification,
amendment or alteration of which, alone or in the aggregate, could have a
material adverse effect on the business, assets, operations, earnings or
financial condition of the Company and the Subsidiary taken as a whole.
(C) experienced any material adverse change
in the business, assets, operations or financial condition of the
Company; or
(D) changed any accounting principle,
procedure or practice followed by the Company or changed the method of applying
such principle, procedure or practice.
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<PAGE>
(o) Agreements. Set forth on Schedule 3.1(o) hereto is a true,
correct and complete list of all contracts or agreements that are material to
the business or operations of the Company and the Subsidiary, taken as a whole,
including without limitation, those to which the Company or the Subsidiary is a
party and those by which any of their property or assets are bound. Copies of
all such agreements have heretofore been delivered or made available by the
Company to the Purchaser, and such copies are complete in all material respects.
For purposes of this Section 3.1(o), a contract or agreement shall not be
material to the business or operations of the Company and the Subsidiary if it
(w) is a contract for local and/or long-distance and/or international telephone
service entered into by the Company or the Subsidiary in the ordinary course of
business, (x) can be terminated by either party without penalty on thirty (30)
days notice, (y) does not involve more than thirty thousand dollars ($30,000),
or (z) is not in writing and signed by an officer of both parties. Other than as
set forth on Schedule 3.1(o) or as otherwise disclosed in the Financial
Statements or the other Schedules to this Agreement, there is no material
contract or agreement to which the Company or the Subsidiary is a party or which
affects the assets, liabilities or outstanding securities of the Company. Except
as otherwise set forth on the Schedules to this Agreement, the Company is not a
party to or bound by, nor are any of their properties or assets subject to, any
such material contract or agreement, including without limitation, the
following:
(i) any agreement which has not been entered into by
the Company or the Subsidiary in the ordinary course of business or which is not
consistent with the prior practice of the Company;
(ii) any agreement which involves the purchase or
sale of goods or payment by or to the Company for services rendered with a value
in excess of Ten Thousand Dollars ($10,000), exclusive of agreements relating to
legal and accounting services;
(iii) any agreement for the employment of any officer
or employee or former officer or employee (other than, with respect to any
employee, agreements which are terminable without liability upon notice of
thirty (30) days or less and do not provide for any further payments following
such termination) pursuant to which payments may be required to be made at any
time following the Closing Date in an aggregate amount exceeding Ten Thousand
Dollars ($10,000);
(iv) any stock option or stock appreciation rights
plan or arrangement;
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<PAGE>
(v) any mortgage, deed of trust or other form of
secured indebtedness for borrowed money;
(vi) any debentures, indentures, notes or installment
obligations, the unpaid balance of which exceeds Ten Thousand Dollars ($10,000)
in the aggregate, or other instruments for or relating to any unsecured
borrowing of money by the Company, the unpaid balance of which exceeds Ten
Thousand Dollars ($10,000) in the aggregate;
(vii) any guaranty of any obligation of any person or
party for borrowings or otherwise, excluding endorsements made for collection in
the ordinary course of business;
(viii) any agreement or arrangement for the sale or
lease of any of their property or assets (other than that which is included in
the Inventory) having a book value in excess of Ten Thousand Dollars ($10,000)
in the aggregate;
(ix) any agreement or agreements pursuant to which
the Company is or may be obligated to make any payments, contingent or
otherwise, in excess of Ten Thousand Dollars ($10,000) in the aggregate,
resulting from or arising out of the prior acquisition of any business, or of
all or substantially all of the assets or capital stock of any company or any
division thereof;
(x) any agreement with any labor union;
(xi) any agreement, including but not limited to
assignments, licenses, transfers of exclusive rights, "work for hire"
agreements, special commissions, employment agreements, purchase orders, sales
orders, mortgages and security agreements, to which the Company is a party and
which: (A) contains a grant or other transfer by the Company or the Subsidiary,
whether present, retroactive, prospective, or contingent, of any rights in any
Intellectual Property, whether or not such Intellectual Property was in
existence at the time such agreement was made; or (B) contains a promise made by
the Company or the Subsidiary to pay any consideration, lump sum, royalty or
other payment with respect to the acquisition, license or use of any rights in
any Intellectual Property without regard to whether such consideration, lump
sum, royalty or other payment was ever made or received;
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(xii) any dealership, franchise or distribution
agreement, territory or license agreement or other similar agreement;
(xiii) any agreement with any officer, director or
stockholder of the Company, the immediate family of any officer, director or
stockholder of the Company, or any affiliate of any of the foregoing;
(xiv) any unexpired and enforceable agreements for
the disposition of the Company, whether by grant or option, sale of stock, sale
of assets, merger or otherwise; or
(xv) any other agreement, contract, document or
instrument not entered into in the ordinary course of business which is material
to the business of the Company and the Subsidiary, taken as a whole, and not
excluded by reason of the operation of this or any other provision of this
Agreement.
Except as disclosed in or contemplated by this Agreement or as
disclosed in the Financial Statements or any of the Schedules to this Agreement,
and subject to the qualifications set forth in Sections 3.1(d), (f), (g), (h),
(j) and (k) of this Agreement, neither the Company nor the Seller is in default
under, and, to the best of their knowledge, no event has occurred which, with
notice or lapse of time or both, could result in a default under any such
contract or agreement to which the Company or the Subsidiary is a party which is
material to the business or operations of the Company and the Subsidiary, taken
as a whole.
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(p) Non-Contravention; Consents. Except as disclosed in this
Agreement, the Financial Statements or any of the Schedules to this Agreement or
in any of the contracts or agreements delivered pursuant to this Agreement,
neither the execution and delivery of this Agreement by the Company, COTG and
the Seller, nor the consummation of the transactions contemplated hereby, does
or will: (i) violate or conflict with any provision of the certificate of
incorporation or the by-laws of the Company; (ii) violate or, with the passage
of time, result in the violation of any provision of, or result in the
acceleration of or entitle any party to accelerate any obligation under, or
result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon any of the property or assets, which are
material to the business or operations of the Company and the Subsidiary taken
as a whole, pursuant to any provision of any mortgage, lien, lease, agreement,
permit, indenture, license, instrument, law, order, arbitration award, judgment
or decree to which the Company or the Subsidiary is a party or by which the
Company, the Subsidiary or any of their respective properties or assets are
bound, the effect of which violation, acceleration, creation or imposition could
result, in the aggregate, in liability of the Company or the Subsidiary in
excess of Ten Thousand Dollars ($10,000); (iii) violate or conflict with any
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other restriction of any kind whatsoever to which the Company or the Seller is
subject, or by which any of the Company's or Subsidiary's material properties or
assets may be bound, the effect of any of which violation or conflict would
result, in the aggregate, in liability of the Company in excess of Ten Thousand
Dollars ($10,000); or (iv) constitute an event permitting termination by a third
party of any agreement to which the Company or the Subsidiary is a party or is
subject, which termination could have a materially adverse effect on the
business, assets, operations, earnings or financial condition of the Company and
the Subsidiary taken as a whole, except to the extent that any of the foregoing
may result from the failure of the Company or the Subsidiary to obtain the
Regulatory Consents, as hereinafter defined. Except as set forth on Schedule
3.1(p) hereto, no consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other regulatory body
is required in connection with the execution, delivery and performance of the
terms of this Agreement and consummation of the transactions contemplated hereby
by the Company or the Subsidiary; provided, however, that, to the extent that
this Section 3.1(p) relates to consents of regulatory bodies with respect to the
Company's or the Subsidiary's telephone or telecommunications business, the
representation in this Section 3.1(p) is made only by the Company and not by
COTG or the Seller. For purposes hereof, "Regulatory Consents" shall mean those
consents listed on Schedule 3.1(p) that are consents of any Federal or state
regulatory commission, body or authority which is required for, or as a
consequence of, the transfer of the Shares to Purchaser, which consents are
identified on Schedule 3.1(p).
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(q) Employee Benefit Plans. Schedule 3.1(q) sets forth a true,
correct and complete list of all "employee benefit plans" as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (the "Benefit Plans") covering the employees of the Company
and the Subsidiary (the "Employees"). To the best knowledge of the Company and
Seller, each Benefit Plan is in compliance in all material respects with all
applicable provisions of law, including ERISA and the Internal Revenue Code of
1986, as amended (the "Code"). There are no pending or, to the knowledge of the
Company and the Seller, threatened claims against any Benefit Plan (except for
claims for benefits payable in the normal operation of the Benefit Plans) that
could give rise to any material liability to the Company. All material reports,
notices and returns required to be filed with any governmental agency or
provided to any person or entity with respect to the Benefit Plans have been
timely filed. Each Benefit Plan that is an employee pension plan (as defined in
Section 3(2) of ERISA) (a "Retirement Plan") and the related trusts have
received a determination from the Internal Revenue Service that the Plan is
qualified and exempt from Federal income tax under Sections 401(a) and 501(a),
respectively, of the Code. To the best knowledge of the Company and Seller, no
person has engaged in a "prohibited transaction" with respect to any Retirement
Plan (as that term is defined in Section 4975 of the Code and Section 406 of
ERISA), which could subject the Company to a penalty tax imposed by Section 4975
of the Code. All contributions required to be made to each Retirement Plan have
been timely made and no plan has an "accumulated funding deficiency" within the
meaning of Section 412 of the Code. No Retirement Plan subject to Title IV of
ERISA has incurred any material liability to the Pension Benefit Guaranty
Corporation ("PBGC") other than for the payment of premiums, all of which have
been paid when due. Other than as contemplated herein, no Retirement Plan
subject to Title IV of ERISA has been terminated nor has there been any
"reportable event" (as that term is defined in Section 4043 of ERISA and the
regulations thereunder) that could present a material risk of termination of a
Retirement Plan which termination could have a material adverse effect on the
Company. The Company does not contribute to any multi-employer pension or
multi-employer welfare benefit plan (within the meaning of Section 3(37) of
ERISA). Except for benefits accrued at December 31, 1998, none of the Employees
is now or will become entitled to receive any vacation time, vacation pay,
severance pay or other employee benefit with respect to services rendered on or
prior to December 31, 1998, except as reflected on the December 31, 1998 Balance
Sheet as part of the Company's consolidated accrued liabilities.
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(r) Labor Relations. There are no agreements with or pending
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of the Company and no such
petition has been pending at any time during the two years prior to the date
hereof. To the best knowledge of the Company and the Seller, there has not been
any organizing effort by any union or other group seeking to represent any
employees of the Company as its exclusive bargaining agent at any time during
the two years prior to the date hereof. There are no labor strikes, work
stoppages or other labor disputes now pending or, to the best knowledge of the
Company and the Seller, threatened against the Company, nor has there been any
such labor strike, work stoppage or other labor dispute or grievance at any time
during the two years prior to the date hereof. Neither the Company nor the
Seller have any knowledge that any executive, key employee or any group of
employees of the Company has any plans to terminate his or her employment with
the Company.
(s) Insurance. Set forth on Schedule 3.1(s) hereto is a true,
correct and complete list of all insurance policies or binders of insurance or
programs of self insurance which relate to the business of the Company, copies
of which have been previously provided or made available to the Purchaser. The
coverage under each such policy and binder is in full force and effect. The
Seller has no knowledge of nor has it or the Company received any notice of
cancellation, termination, non-renewal or disallowance of any claim thereunder
or with respect thereto. The Seller has no knowledge of any facts (other than
the Company's financial condition) or the occurrence of any events which could
form the basis of any claim against the Company relating to its business,
assets, properties or operations which could increase the insurance premiums
payable by the Company under such policy or binder in excess of normal increases
consistent with industry practices.
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(t) Tax Matters.
(i) The Company is a member of an affiliated group,
within the meaning of Section 1504 of the Code (an "Affiliated Group"), with
Seller with respect to Federal and New York State income taxes. Except as
disclosed in Schedule 3.1(t) to this Agreement, the Company has filed when due
(after giving effect to any extensions granted by the requisite legal or
regulatory authority) all returns, reports, elections, estimates, declarations,
schedules, forms and other documents ("Tax Returns") relating to taxes required
to be filed by the Code or by any applicable Federal, state, county, municipal,
local, foreign or other laws, including, without limitation, consolidated,
combined or unitary returns, for any taxable period ending prior to or on the
Closing Date (the "Pre-Closing Tax Period"). The taxable year of the Company for
Federal and state income and business tax purposes ends on December 31 of each
year. All taxes shown on any Tax Return required to be filed with respect to the
Company for any Pre-Closing Tax Period have been, or will have been, paid or
accrued prior to the Closing. The Company has heretofore delivered to the
Purchaser all Tax Returns filed (other than Seller's consolidated Federal and
New York State income tax returns) on its behalf for the fiscal years ended
December 31, 1997, December 31, 1996, December 31, 1995, December 31, 1994 and
December 31, 1993. The Company has accrued on its books all taxes for any prior
periods for which taxes will be due but are not yet payable. To the best
knowledge of the Company or the Seller, no tax liens have been filed, and no
material claims have been or are being asserted or proposed, against the Company
with respect to any taxes. Except as set forth on Schedule 3.1(t) hereto, no Tax
Returns of the Company have been audited in the past five years by any taxing
authority, no deficiencies or claims have been proposed, assessed or claimed
(including interest and penalties) against the Company which have not been paid
or accrued, and the Company has not waived or extended any statute of
limitations with respect to the assessment of any taxes, which waiver or
extension has not yet
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expired by its terms. There are no suits, actions, proceedings, claims or
investigations now pending against the Company with respect to any taxes. Except
as set forth on Schedule 3.1(t) to this Agreement, the Company does not have any
liability for any taxes of any nature whatsoever other than as shown on the
December 31, 1998 Balance Sheet (except for liabilities for taxes accruing after
the date of such Balance Sheet in the ordinary course of business). The reserve
for accrued but unpaid taxes for the period ended December 31, 1998 includes
adequate provision for all taxes which have been assessed or which will be due
and payable by the Company for all periods ended on December 31, 1998. The
Company is not liable for any taxes for the period ended December 31, 1998 for
which it has not made adequate provision on the December 31, 1998 Balance Sheet.
(ii) The Company and the Subsidiary have withheld or
collected from each payment made to each of its employees, the amount of all
taxes (including, but not limited to, Federal income taxes, state, local income
and wage taxes, payroll taxes, workers' compensation and unemployment taxes)
required to be withheld or collected therefrom for all Pre-Closing Tax Periods
and the Company and the Subsidiary have timely paid or accrued and reported the
same in respect of its employees, consultants, contractors and other payees to
the proper tax receiving offices. The representations and warranties contained
(A) in Section 3.1(t)(i), as they relate to excise and other taxes (exclusive of
income taxes) payable by the Company or the Subsidiary with respect to the
provision of telephone or other telecommunications services and (B) in this
Section 3.1(t)(ii) are being made only by the Company and not by COTG or the
Seller.
(iii) The term "taxes" or "tax" as used in this
section or referred to elsewhere in this Agreement shall mean all taxes,
charges, fees, levies, penalties, or other assessments, including without
limitation, income, capital gain, profit, gross receipts, ad valorem, excise,
property, payroll, withholding, employment, severance, social security, workers'
compensation, occupation, premium, customs duties, windfall profits, sales, use,
and franchise taxes, imposed by the United States, or any state, county, local
or foreign government or any subdivision or agency thereof, and including any
interest, penalties, or additions attributable thereto.
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(u) Compliance with Applicable Law. The Company and the
Subsidiary have been and are in compliance with all foreign, Federal, state and
local laws, statutes, ordinances, rules and regulations, except where the
failure to comply would not (i) materially adversely affect the business,
assets, operations, earnings or financial condition of the Company and the
Subsidiary taken as a whole, or (ii) subject any officer or director of the
Company or the Subsidiary to civil or criminal penalties or imprisonment. To the
best knowledge of the Company, COTG and Seller, the Company has complied in all
material respects with the rules and regulations of all governmental agencies
having authority over its business or its operations, including without
limitation, agencies concerned with intrastate and interstate commerce,
occupational safety, environmental protection and employment practices, except
where the failure to comply would not have a material adverse effect on the
business, operations, earnings, assets or financial condition of the Company and
the Subsidiary taken as a whole. Neither the Company nor COTG nor the Seller
have received any written notice of violation of any such rule or regulation
during the two years prior to the date hereof which could result in any
liability of the Company or the Subsidiary for penalties or damages or which
could subject the Company or the Subsidiary to any injunction or government
writ, order or decree, or any officer or director of the Company or the
Subsidiary to criminal prosecution. To the best knowledge of the Company, COTG
and the Seller, there are no facts, events or conditions (other than the
Company's financial condition) that could interfere with, prevent continued
compliance with or give rise to any liability under any foreign, Federal, state,
local or foreign governmental laws, statutes, ordinances or regulations
applicable to the business, assets, operations, earnings or financial condition
of the Company, except where the failure to do so would not have a material
adverse effect on the business, operations, earnings, assets or financial
condition of the Company taken as a whole. The representations and warranties
set forth in this Section 3.1(u), to the extent that they relate to the
provision of telephone or other telecommunications services or environmental
matters are representations and warranties only by the Company and not by COTG
nor the Seller. The representations and warranties contained in this Section
3.1(u) shall not relate to taxes or laws relating to taxes, which are covered
solely in Section 3.1(t) of this Agreement.
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(v) Litigation. Except as set forth on Schedule 3.1(v) hereto,
there is no action, suit, proceeding or investigation pending or, to the best
knowledge of the Company and the Seller, threatened against the Company or the
Subsidiary, seeking damages in excess of Ten Thousand Dollars ($10,000) or
seeking injunctive relief against the Company or the Subsidiary. Except as set
forth on Schedule 3.1(v) of this Agreement, neither the Company nor the
Subsidiary is in default in respect of any judgment, order, writ, injunction or
decree of any court or any Federal, state, local or other governmental agency,
authority, body, board, bureau, commission, department or instrumentality which
could have a material adverse effect on the business, assets, operations,
earnings or financial condition of the Company and the Subsidiary taken as a
whole.
(w) Permits. The Company and the Subsidiary hold all permits,
licenses, orders and approvals (collectively, "permits") of all Federal, state
or local governmental or regulatory authorities, agencies or bodies or any
foreign government required for the conduct and operation of the Company's
business as currently conducted, except where the failure to do so would not
have a material adverse effect on the business, operations, earnings, assets or
financial condition of the Company, COTG and the Subsidiary taken as a whole.
All such permits are in full force and effect, and no suspension, termination or
revocation of any of the foregoing is, to the best knowledge of the Company and
the Seller, threatened. The Company has complied with the rules and regulations
of all governmental or other regulatory agencies, authorities, bodies, boards,
bureaus, commissions, departments or instrumentalities which regulate, supervise
or are in any manner concerned with telecommunications, occupational safety,
environmental protection and employment practices relating to the Company's
business, except (i) where the failure to do so would not have a material
adverse effect on the business, operations, earnings, assets or financial
condition of the Company and the Subsidiary taken as a whole, or (ii) for the
failure to have obtained, prior to the date of this Agreement, any of the
Regulatory Consents or the New York Regulatory Consent as hereinbefore provided.
The Company has not received any notice of violation of any of such rules or
regulations during the two years prior to the date hereof which would result in
any liability of the Company for penalties or damages or which would subject the
Company to any injunction or governmental writ, order or decree. The
representations and warranties contained in this Section 3.1(w), to the extent
that they relate to permits for the provision of telephone or other
telecommunications services, are made only by the Company and not by COTG or the
Seller.
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(x) Restrictive Covenants. Neither the Company nor the
Subsidiary is a party to any agreement, contract or covenant limiting the
freedom of the Company to compete in any line of business or with any person or
other entity in any geographic region within or outside of the United States of
America except as disclosed in the Financial Statements or the agreements
described in the Schedules to this Agreement; provided, however, that the
Company and the Subsidiary are restricted from offering telephone and other
telecommunications services in states in which they do not have the required
permit.
(y) Unlawful Payments. Neither the Company, the Subsidiary,
the Seller, nor, to the best knowledge of the Company and the Seller, any
executive officer or director of the Company or the Subsidiary has made,
directly or indirectly, any bribe or kickback, illegal political contribution,
payment from corporate funds which was incorrectly recorded on the books and
records of the Company or the Subsidiary, unlawful payment from corporate funds
to governmental or municipal officials in their individual capacities for the
purpose of affecting their action or the actions of the jurisdiction which they
represent to obtain favorable treatment in securing business or licenses or to
obtain special concessions of any kind whatsoever, or illegal payment from
corporate funds to obtain or retain any business.
(z) Warranties. Except as required or implied by Federal or
state law, the Company has not made or extended any express warranty with
respect to the products or services sold, distributed or leased by the Company
or the Subsidiary to its clients or customers.
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(aa) Officers, Directors, Employees and Consultants. Set forth
on Schedule 3.1(aa) hereto is a true, correct and complete list of all of the
officers, directors, employees and consultants (other than attorneys and
accountants) of the Company or the Subsidiary as of the date hereof, including
their respective names, titles and salaries. All written employment or
consulting agreements between the Company or the Subsidiary and any of the
foregoing officers, directors, employees and consultants of the Company in
effect as of the date hereof, including summaries of the material terms of each
of such agreements, are included on Schedule 3.1(o) to this Agreement.
(bb) Loans to or from Affiliates. Set forth on Schedule
3.1(bb) hereto is a true, correct and complete list of all of the outstanding
loans extended by the Company or the Subsidiary to any current or former
officer, director, employee, consultant or stockholder of the Company or the
Subsidiary or any affiliate of any of the foregoing. Also set forth on Schedule
3.1(bb) is a true, correct and complete list of all of the outstanding loans
extended to the Company or the Subsidiary by any current or former officer,
director, employee, consultant or stockholder of the Company. Such schedule
reflects the original principal amount of each loan, the outstanding principal
balance thereunder as of the date hereof, the interest rate applicable thereto
and the maturity date thereof. Except as set forth on Schedule 3.1(bb), there
are no other loans pursuant to which the Company or the Subsidiary is owed or
owe money which involve any officer, director, employee, consultant or
stockholder of the Company.
(cc) Customers and Suppliers. Set forth on Schedule 3.1(cc)
hereto is a true, correct and complete list of the customers of the Company and
the Subsidiary and the suppliers of the Company and the Subsidiary. Since
December 31, 1998, there has not been any material adverse change in the
business relationship of the Company with any material customer or supplier
(i.e., a customer which accounted for more than five percent (5%) of the
Company's consolidated revenues for the year ended December 31, 1998 or a
supplier from which the Company and the Subsidiary, in the aggregate, purchased
products or services representing more than five percent (5%) of the Company's
and the Subsidiary's consolidated cost of revenues for such year), except as set
forth on such Schedule. Except as set forth on Schedule 3.1(cc), the Company
does not have any customer who accounts or has accounted for more than ten
percent (10%) of the Company's revenue or any supplier from whom the Company has
purchased more than ten percent (10%) of the products it sells, distributes or
leases during the fiscal year ended December 31, 1998.
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(dd) Books and Records
(i) The books of account and other financial records
of the Company are complete and correct in all material respects, subject to any
adjustments which would be necessary in the event that the Company ceased to
operate as a going concern.
(ii) The minute books of the Company, as previously
made available to the Purchaser and its counsel, contain accurate records of all
meetings of the Company's board of directors (including any committees) and its
stockholders since the date of the Company's incorporation.
(iii) The Company has provided the Purchaser with
access to all books and records referred to in clauses (i) and (ii) above.
(ee) Bank Accounts. Set forth on Schedule 3.1(ee) is a true,
correct and complete list of the names of each bank, savings and loan, or other
financial institution at which the Company or the Subsidiary maintains any
account (including any cash contribution or similar accounts) and the names of
all persons authorized to draw thereon or who have access thereto. Schedule
3.1(ee) includes a true, correct and complete list of each credit or loan
facility established and/or maintained by or on behalf of the Company and
includes the amounts available to the Company under each such facility, the
outstanding principal balance thereunder as of the date hereof, the interest
rate applicable thereto and the maturity date thereof.
(ff) Agreements with Affiliates. Except as otherwise set forth
herein or in the Schedules hereto, the Company is not a party to any written
instrument, license, lease or other agreement with any officer, director or
stockholder of the Company.
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(gg) Customer Deposits. All payments or deposits received by
the Company for the provision of services not completed as of January 31, 1999
(other than amounts reflected on the December 31, 1998 Balance Sheet as "amount
in dispute") are set forth on Schedule 3.1(gg) hereto.
(hh) Knowledge. References in this Section 3.1 to "best
knowledge of the Company and the Seller" or words of like import shall mean, the
actual knowledge of the president, chief executive officer or chief financial
officer of the Company or the Seller who was serving in such capacity during the
period from January 1, 1998 until the date of this Agreement.
(ii) Accuracy of Information Furnished. The representations
and warranties set forth in this Section 3.1, taken together with the statements
or information contained in the Financial Statements and the Exhibits and
Schedules to this Agreement and the documents and certificates delivered
pursuant to this Agreement, do not contain any untrue statement of a material
fact or, when taken together, omit to state a material fact necessary to make
the statements contained herein and therein not misleading.
(jj) Materiality Standard. All of the Company's or the
Seller's representations and warranties contained in this Section 3.1 shall be
subject to the following standard of materiality. The Company and/or the Seller
shall not be deemed to be in breach or default of any of such representations
and warranties unless the Purchaser sustains damage or loss (net of any tax
benefit) resulting from such breach in an amount in excess of Twenty-Five
Thousand Dollars ($25,000) in any one instance or Fifty Thousand Dollars
($50,000) in the aggregate.
(kk) Effect of Post-Closing Events. Neither COTG nor Seller
shall have any liability to Purchaser for any breach of any of the
representations or warranties pursuant to this Section 3.1 if such breach
results, directly or indirectly, from the operations of the Company or the
Subsidiary, or any other event which occurs, subsequent to the date of this
Agreement. The Purchaser acknowledges that neither COTG nor Seller has any
obligation to provide any funding for the Company subsequent to the Closing and
that the Purchaser will provide such funding in accordance with the provisions
of Section 4.4(a) hereof.
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3.2 Representations and Warranties of the Purchaser. The Purchaser
represents and warrants to the Seller as follows:
(a) Authorization. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized, adopted and approved by the board of directors of the
Purchaser. The Purchaser has taken all necessary action required by law and by
the Purchaser's memorandum of association and by-laws and has all the power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the President of the Purchaser, on its behalf, and assuming that
this Agreement is the valid and binding obligation of the Company and the
Seller, is the valid and binding obligation of the Purchaser, enforceable
against the Purchaser in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(b) Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of Bermuda. The
Purchaser has the power and authority to own and lease its properties and assets
and to carry on its business as it is now being conducted and is duly qualified
to do business in each jurisdiction where it owns or leases real property or
conducts business, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of the Purchaser.
(c) Non-Contravention; Consents. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, does or will: (i) violate or conflict with any provision of
the charter documents of the Purchaser; (ii) violate or conflict with any
material provision of any mortgage, lien, lease, agreement, permit, indenture,
license, instrument, law, order, arbitration award, judgment or decree to which
the Purchaser is a party or by which it or the property or assets which are
material to its business or operation are bound, the effect of any of which
violation result, in the aggregate, in liability of the Purchaser in excess of
Ten Thousand Dollars ($10,000); (iii) violate or conflict with any other
restriction to which the Purchaser is subject or by which any of the property or
assets which are material to its business or operations may be bound, the effect
of any of which violation or conflict would result, in the aggregate, in
liability of the Purchaser in excess of Ten Thousand Dollars ($10,000); or (iv)
constitute an event permitting termination of any agreement to which the
Purchaser is subject by any other party thereto, if in any such circumstance
such termination could have a materially adverse effect on the Purchaser's
ability to fulfill its obligations hereunder. No consent, authorization, order
or approval of, or filing or registration with, any governmental commission,
board or other regulatory body is required in connection with the execution,
delivery and performance of the terms of this Agreement by the Purchaser and
consummation by the Purchaser of any of the transactions contemplated hereby.
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(d) Litigation. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Purchaser, threatened
against the Purchaser, seeking damages in excess of Ten Thousand Dollars
($10,000) or seeking injunctive relief against the Purchaser. The Purchaser is
not in default in respect of any judgment, order, writ, injunction or decree of
any court or any foreign, Federal, state, local or other governmental agency,
authority, body, board, bureau, commission, department or instrumentality which
could have a material adverse effect on the business, assets, operations,
earnings or financial condition of the Purchaser.
(e) Accuracy of Information Furnished. The representations and
warranties set forth in this Section 3.2, taken together with the statements or
information contained in the Exhibits to this Agreement and the documents and
certificates delivered pursuant to this Agreement, do not contain any untrue
statement of a material fact or, when taken together, omit to state a material
fact necessary to make the statements contained herein and therein not
misleading.
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3.3 Survival of Representations and Warranties. The representations
and warranties set forth in Sections 3.1 and 3.2 hereof shall survive the
Closing until the close of business on the last day of the Warranty Survival
Period. The Warranty Survival Period shall mean the period commencing on the
Closing Date and ending on the earlier of (a) the second anniversary of the
Closing Date (or, in the case of a breach or alleged breach with respect to
representations and warranties related to the Company's Federal or state income
tax liability, sixty (60) days after the expiration of the applicable statute of
limitations) or (b) the date on which the Seller adopts a plan of liquidation
pursuant to which its assets will be distributed to its shareholders.
3.4 Notice and Right to Cure. No party shall be deemed to be in
breach or default of its representations, warranties or covenants set forth in
Sections 3 or 4 of this Agreement unless the party claiming the breach or
default shall have given notice of the alleged breach or default, which notice
shall specify in reasonable detail the basis for the claimed breach or default
(with a copy of any notice of a breach or default by the Company being given
simultaneously to COTG) and the party alleged to be in breach or default shall
have failed to cure such breach or default within thirty (30) days from any such
notice; provided, however, that if the alleged breach or default cannot be cured
within such thirty (30) day period, the party alleged to be in breach or default
shall be entitled to an additional reasonable period of time to effect such
cure, provided that such party shall have commenced its attempt to cure such
claimed breach or default within such thirty (30) day period and shall be
diligently prosecuting such cure. No notice with respect to any alleged breach
or default of this Agreement shall be valid unless such notice is given prior to
5:30 P.M. New York City time not later than thirty (30) days prior to the last
day of the Warranty Survival Period.
3.5 Effect of Actual Knowledge. Notwithstanding the conduct of any
investigation by any party of any other party prior to the Closing, or any
party's failure to so investigate, the representations, warranties and
agreements of each of the parties hereto shall be operative and effective and
shall survive the Closing Date during the Warranty Survival Period. In the event
that a party hereto becomes aware or knows prior to the Closing that a
representation or warranty made herein by another party hereto is untrue, such
party shall express such knowledge by written notice thereof to the party
rendering such representation or warranty on or prior to the Closing Date.
Notwithstanding the foregoing, with respect to any such breach by the Company or
COTG or the Seller of any representation or warranty contained in Section 3.1
hereof, the Purchaser's knowledge of such breach shall not be used as a bar to a
claim for indemnification by Purchaser against COTG or the Seller pursuant to
Section 6.1 of this Agreement.
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3.6 Acknowledgment by Purchaser. The representations and warranties
by the Company, COTG and the Seller contained in Section 3.1 of this Agreement
and in the Exhibits and Schedules hereto constitute the sole and exclusive
representations and warranties of the Company, COTG and the Seller to the
Purchaser in connection with the transactions contemplated hereby.
ARTICLE IV
COVENANTS
4.1 Covenants of the Seller and COTG.
(a) Confidential Information.
(i) The parties hereto recognize that a major
need of the Purchaser is to preserve the specialized knowledge, trade secrets,
customer lists and confidential information concerning the Company's and the
Subsidiary's business. The strength and goodwill of the Purchaser will be
derived from the confidential information with respect to the Telephone Service
(hereinafter defined) as performed by the Company and the Subsidiary. The
disclosure of material non-public information about the Company's and the
Subsidiary's products, methods, marketing practices, pricing practices, costs,
profit margins, design specifications, analytical techniques, technical
information, trade secrets and client contracts, inventory sources, customer
information, employee information and other similar items (collectively,
"confidential information") would be detrimental to the Purchaser. COTG and the
Seller have had access to, and may have obtained, confidential information. The
term "confidential information" shall not include information or material which
(A) COTG or the Seller learn from sources (other than the Company) who are not
subject to any confidential obligations; (B) is or becomes generally available
to the public or to other companies in the telecommunications industry other
than as a result of a disclosure by COTG or the Seller; (C) is developed by COTG
or the Seller independent of any confidential information; or (D) is required to
be disclosed by law, regulatory or judicial process. Therefore, COTG and the
Seller recognize that the Purchaser is relying on the covenant set forth in
Section 4.1(a)(ii) of this Agreement in entering into this Agreement. The term
"Telephone Service" shall mean providing local and long-distance telephone
services to commercial customers in the United States pursuant to tariffs filed
with Federal or state regulatory agencies, to the extent required, and designing
and providing data cable installation services for computer systems for
commercial customers in the United States.
(ii) During the period commencing on the Closing
Date and for three years thereafter (the "Confidentiality Period"), COTG and the
Seller will keep secret and retain in confidence all confidential information in
the same manner that COTG and the Seller maintain their own confidential
information, and, in that connection, will not use, disclose to others, or
publish any confidential information.
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(b) Referrals. COTG and the Seller agree that, during the
Confidentiality Period, they shall refer all written inquiries received by them
to the Purchaser with respect to Telephone Service as soon as practical after
receiving such inquiries. For those purposes, an inquiry regarding Telephone
Service shall mean a request that COTG or the Seller provide the inquiring party
with local or long-distance telephone service.
4.2 Covenants of the Company and the Purchaser. The Company and the
purchaser jointly and severally covenant and agree that, unless COTG and the
Seller shall otherwise consent in writing, as long as any principal, interest or
other obligations are due to (x) COTG with respect to the Secured Promissory
Note of the Company and the Subsidiary dated March 18, 1999 in the principal
amount of Two Million Four Hundred Thousand Dollars ($2,400,000) payable to COTG
(the "COTG Note") pursuant to a Loan Agreement between COTG, the Company and the
Subsidiary dated September 18, 1998, as amended (the "COTG Loan Agreement"), (y)
to Batei Sefer Limlacha ("BSL") with respect to the 8% Subordinated Note of the
Company and the Subsidiary dated September 18, 1998 in the principal amount of
Five Hundred Fifty Thousand Dollars ($550,000) payable to BSL (the "BSL Note"),
and (z) to Trans Global Services, Inc. ("Trans Global") with respect to the
Company's 10% Installment Promissory Note dated September 18, 1998 in the
principal amount of $1,216,673 payable to the order of Trans Global, such note
being referred to herein as the "Trans Global Note":
(a) The covenants set forth in this Section 4.2 shall apply to
the Company, the Subsidiary and any entity to which all or substantially all of
the Company's or the Subsidiary's assets are transferred (other than a sale of
inventory in the ordinary course of business), any such entity being referred to
in this Section 4.2 as a "Transferee." The Company, the Subsidiary and the
Transferee are referred to collectively as the "Company Parties," and each as a
"Company Party." Nothing in this Section 4.2 shall be construed to permit a
transfer of the Company's assets which is not otherwise permitted by this
Agreement or by the COTG Loan Agreement.
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(b) Each Company Party will comply in all respects with the
covenants and agreements of the Company and the Subsidiary set forth in Article
9 of the COTG Loan Agreement, and be subject to the provisions of Article 10 of
the COTG Loan Agreement, with the same force and effect as if such Company Party
were included in the definition of a Borrower in the COTG Loan Agreement.
(c) Each Company Party shall be subject to the Security
Agreement dated September 18, 1998 between the Company, the Subsidiary and COTG
(the "COTG Security Agreement"), with the same force and effect as if such
Company Party were included in the definition of a Debtor in the COTG Security
Agreement.
(d) The Transferee shall execute a guarantee of the COTG Note,
the BSL Note, and the Trans Global Note in the form of Exhibit 4.2(d) to this
Agreement.
(e) The Company Parties shall make all payments, when due, on
(i) the COTG Note, (ii) the BSL Note and (iii) the Trans Global Note.
(f) A breach of the provisions of this Section 4.2 shall be an
Event of Default under the COTG Loan Agreement.
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4.3 Governmental Filings and Consents.
(a) Purchaser hereby acknowledges that, prior to the date of
this Agreement, neither the Company nor the Seller has made any application for
any Regulatory Consents, including the New York Regulatory Consent. Following
the Closing, to the extent requested by the Purchaser, the Company and the
Purchaser shall cooperate with one another in filing any necessary applications,
reports or other documents with any Federal or state agencies, authorities or
other governmental bodies having jurisdiction with respect to the Company's
telephone business and in seeking any necessary regulatory approval that may be
required by virtue of the sale of the Shares to the Purchaser pursuant to this
Agreement, it being understood and agreed that, promptly following the Closing,
the Company (and the Purchaser, to the extent requested by Special FCC Counsel)
will apply for the New York Regulatory Consent. Neither COTG nor Seller shall
have any liability for any failure of the Company to comply with its obligations
under this Section 4.3(a).
(b) Notwithstanding any provision of this Agreement to the
contrary, Purchaser acknowledges that neither the Company nor the Subsidiary is
required to obtain any of the Regulatory Consents as a condition to the
execution of this Agreement or the Closing pursuant to this Agreement. The
parties hereto acknowledge that all of the documents required to be delivered by
the parties at the Closing are being held in escrow pursuant to the Escrow
Agreement pending only the receipt of the New York Regulatory Consent.
Notwithstanding any provision of this Agreement to the contrary, neither COTG
nor the Seller shall have any liability to Purchaser or any other person for any
Damages, as hereinafter defined, which Purchaser or such other person may
sustain or incur, directly or indirectly, as a result of either the execution of
this Agreement or the consummation of the sale of the Shares hereunder without
obtaining any of the Regulatory Consents.
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4.4 Funding of the Company.
(a) From and after the Closing Date, and during the Escrow
Term, Purchaser shall provide the Company with all necessary funding for its
operations, including all debt service and all payments due under all agreements
to which the Company is a party (the "Funding"). The Funding shall be provided
to the Company on commercially reasonable terms. In each instance when Purchaser
provides Funding, it will provide prior notice thereof to COTG, which notice
shall specify the purpose for which such Funding is to be utilized.
(b) In the event of, and conditioned upon, the failure of the
Company to obtain the New York Regulatory Consent pursuant to Section 2.2 of
this Agreement (other than as a result of any action by the Purchaser, the
failure of the Purchaser to take any action necessary to obtain such consent, or
the failure of the Purchaser to provide Funding for the Company during the
Escrow Term), (i) COTG will guarantee the Company's repayment to the Purchaser
of the first $50,000 of the Funding pursuant to the Guaranty in the form annexed
hereto as Exhibit 4.4(b)(i) to this Agreement (the "COTG Guaranty"), and (ii)
the Company will grant Purchaser a security interest (the "Security Interest")
in its accounts receivables to secure the repayment to Purchaser by the Company
to the extent of the next $125,000 of Funding pursuant to a Security Agreement
in the form annexed hereto as Exhibit 4.4(b)(ii) to this Agreement (the "Company
Security Agreement"). The Security Interest granted to Purchaser shall be senior
to that held by COTG to the extent of such $125,000 and, at such time as the
Purchaser shall have received an aggregate of $125,000, pursuant to the Security
Agreement or otherwise, in addition to the $50,000 guarantied by COTG, the
Company Security Agreement shall automatically terminate and the Purchaser shall
be an unsecured creditor of the Company as to any additional Funding. In the
event and to the extent that COTG pays any sum to TAL pursuant to the COTG
Guaranty, such sum shall constitute an additional advance to the Company under
the COTG Loan Agreement.
(c) Notwithstanding any provision of this Agreement to the
contrary, in the event that the New York Regulatory Consent is obtained in
accordance with the provisions of the Escrow Agreement, the Guaranty and the
Company Security Agreement will automatically terminate at that time and be of
no further force or effect. At such time, Purchaser will return the COTG
Guaranty to COTG and deliver to the Company and COTG all such UCC-3 Termination
Statements and other documents or instruments requested by COTG to terminate the
Security Interest. Neither COTG nor Seller shall have any repayment obligation
to Purchaser with respect to any Funding in excess of $175,000. Except as
expressly provided in Section 4.4(b) of this Agreement, neither COTG nor Seller
shall have any obligation to the Purchaser with respect to any Funding;
provided, however, that the absence of any such obligation on the part of COTG
or Seller shall not affect the obligations of the Purchaser under Section 4.4(a)
hereof to provide Funding for the Company's operations during the Escrow Term.
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4.5 Books and Records. At any time after the transaction contemplated
hereby is consummated pursuant to the terms of the Escrow Agreement, the Company
shall, upon Purchaser's request, deliver its, and the Subsidiary's, books and
records to Purchaser. Neither COTG nor Seller shall have any liability for the
Company's failure to comply with the provisions of this Section 4.5.
4.6 Publicity. COTG and the Purchaser will consult with each other
prior to making, releasing or otherwise disseminating any public announcements
with respect to the transactions contemplated by this Agreement. Any public
announcements permitted hereunder shall be made only at such time and in such
manner as COTG and the Purchaser shall mutually agree, except that either COTG
or the Purchaser may make such public announcements as it shall deem necessary
to comply with Federal or state laws, provided that such announcement is
simultaneously delivered to the other parties hereto.
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ARTICLE V
CLOSING DOCUMENTS
5.1 Company's Closing Documents. The Company will deliver the following
documents to the Purchaser at the Closing:
(a) Copies of Resolutions. Certified copies of resolutions
duly adopted by the board of directors of the Company authorizing the execution,
delivery and performance of this Agreement and all other necessary or proper
corporate action to enable the Company to comply with the terms of this
Agreement.
(b) Opinion of Counsel. An opinion of Parker Chapin Flattau &
Klimpl, LLP, special counsel to the Company, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 5.1(b). In issuing its
opinion, such counsel may rely on certificates of the Company and its officers
and directors.
(c) Certificate of the President of the Company. A
certificate, dated as of the Closing Date, signed by the President of the
Company, confirming that the representations and warranties made by the Company
as set forth in Section 3.1 of this Agreement are true and correct in all
material respects.
(d) Certificate of the Secretary of the Company. A certificate
signed by the Secretary of the Company with respect to the authority and
incumbency of the officers of the Company executing this Agreement and any
documents required to be executed or delivered in connection therewith.
(e) Good Standing Certificates. Good standing certificates,
dated as of the Closing Date, of the Company and the Subsidiary from the
respective states of their incorporation.
(f) Modification of COTG Note. A copy of an Agreement dated as
of March 18, 1999 signed by the Company, the Subsidiary and COTG modifying the
COTG Note, which Agreement shall be in the form annexed hereto as Exhibit
5.1(f), such Agreement being referred to herein as the "COTG Note Modification".
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(g) The BSL Waiver. An instrument of waiver dated March 17,
1999 signed by BSL, which instrument shall be in the form annexed hereto as
Exhibit 5.1(g), such instrument being referred to herein as the "BSL Waiver".
(h) Modification of Trans Global Note. An Agreement dated as
of the Closing Date, signed by the President of the Company, COTG and Trans
Global modifying the Trans Global Note (and all other documents deliverable
pursuant to the Trans Global Note Modification), which Agreement shall be in the
form annexed hereto as Exhibit 5.1(h), such Agreement (and other documents
deliverable pursuant thereto) being referred to herein as the "Trans Global Note
Modification".
(i) Escrow Agreement. The Escrow Agreement, duly executed by
the Company.
(j) Company Security Agreement. The Company Security
Agreement, duly executed by the Company, Purchaser and COTG.
(k) Other Documents. Such other documents consistent with the
provisions of this Agreement as counsel for COTG or the Purchaser may reasonably
request.
5.2 Seller's Closing Documents. The Seller will deliver the following
documents to the Purchaser at the Closing.
(a) Copies of Resolutions. Certified copies of resolutions
duly adopted by the boards of directors of COTG and the Seller authorizing the
execution, delivery and performance of this Agreement and all other necessary or
proper corporate action to enable COTG and the Seller to comply with the terms
of this Agreement.
(b) Opinion of Counsel. An opinion of Robert L. Blessey, Esq.,
special counsel to COTG and the Seller, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 5.2(b). In issuing his
opinion, such counsel may rely on certificates of COTG and the Seller and its
officers and directors.
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(c) Certificate of the President of COTG and the Seller. A
certificate, dated as of the Closing Date, and signed by the President of COTG
and the Seller, confirming that the representations and warranties made by COTG
and the Seller as set forth in Section 3.1 of this Agreement are true and
correct in all material respects.
(d) Certificate of the Secretary of COTG and the Seller. A
certificate signed by the Secretary of COTG and the Seller with respect to the
authority and incumbency of the officers of COTG and the Seller executing this
Agreement and any documents required to be executed or delivered in connection
therewith.
(e) Delivery of Stock Certificates. Certificates representing
all of the Shares, which certificates shall be properly endorsed in blank or
shall be accompanied by a properly executed stock power.
(f) COTG Note Modification. The COTG Note Modification duly
executed by COTG.
(g) Escrow Agreement. The Escrow Agreement, duly
executed by COTG and Seller.
(h) COTG Guaranty. The COTG Guaranty, duly executed by COTG.
(i) Other Documents. Such other documents consistent
with the provisions of this Agreement as counsel for the Company
or the Purchaser may reasonably request.
5.3 Purchaser's Closing Documents. The Purchaser will deliver the
following documents to COTG and the Company at the Closing:
(a) Copies of Resolutions. Certified copies of resolutions
duly adopted by the board of directors of the Purchaser authorizing the
execution, delivery and performance of this Agreement and all other necessary or
proper action to enable the Purchaser to comply with the terms of this
Agreement.
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(b) Opinion of Purchaser's Counsel. An opinion of Bermuda
counsel to the Purchaser, Conyers Dill & Pearman, dated as of the Closing Date,
substantially in the form of Exhibit 5.3(b). In issuing its opinion, such firm
may rely on certificates of Purchaser and its officers and directors.
(c) Certificate of the President of the Purchaser. A
certificate, dated as of the Closing Date, and signed by the President of the
Purchaser confirming that the representations and warranties made by the
Purchaser as set forth in Section 3.2 of this Agreement are true and correct in
all material respects.
(d) Certificate of the Secretary of the Purchaser. A
certificate signed by the Secretary of the Purchaser with respect to the
authority and incumbency of the officers of the Purchaser executing this
Agreement and any documents required to be executed or delivered in connection
therewith.
(e) Purchase Price. The Purchase Price which shall be paid to
COTG on behalf of the Seller by wire transfer to a bank account specified by
COTG.
(f) Escrow Agreement. The Escrow Agreement, duly
executed by Purchaser.
(g) Modification of Trans Global Note. The Trans Global Note
Modification (and all other documents deliverable pursuant thereto), duly
executed by the Purchaser and Gemini II, Inc.
(h) Purchaser-COTG Guaranty. The Guaranty of Purchaser, duly
executed by Purchaser, which Guaranty shall be in the form annexed hereto as
Exhibit 5.3(h).
(i) Other Documents. Such other documents consistent
with the provisions of this Agreement as counsel for the Company
or COTG may reasonably request.
5.4 Escrow Delivery. Notwithstanding the provisions of Sections 5.1,
5.2 and 5.3 above, the parties will deliver all of the documents set forth in
such Sections on the Closing Date to the Escrow Agent under the Escrow Agreement
(except for the Escrow Agreement). Such deliveries shall include the payment to
the Escrow Agent under the Escrow Agreement of the Purchase Price.
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ARTICLE VI
INDEMNIFICATION AND CLAIMS
6.1 Indemnification by the Company, COTG and the Seller. Subject to the
provisions of Sections 3.3 and 3.4 hereof, the Company, COTG and the Seller
hereby agree, jointly and severally, to indemnify and hold the Purchaser
harmless against and in respect of all damages, claims, losses and expenses
(including, without limitation, reasonable attorneys' fees and disbursements)
reasonably incurred by the Purchaser (all such amounts may hereinafter be
referred to as the "Damages") arising out of (a) any uncured misrepresentation
or breach of any material representation or warranty made by the Company, COTG
or the Seller pursuant to Section 3.1 of this Agreement or in any certificate or
other document furnished by the Company, COTG or the Seller pursuant to this
Agreement; and (b) the nonperformance or breach of any covenant, agreement or
obligation of COTG or the Seller contained in Section 4.1 of this Agreement
which has not been waived by the Purchaser. Neither COTG nor the Seller shall
have any right to seek contribution from the Company in the event that they are,
or either of them is, required to make any payments to Purchaser hereunder.
Notwithstanding the foregoing, neither COTG nor the Seller shall be liable for
any Damages sustained by the Purchaser which result from an intentional or
willful act or omission of the Company or the Subsidiary or from the failure or
refusal of the Company to make a good faith, timely effort to cure any such
breach which cannot be cured by COTG or the Seller.
6.2 Indemnification by the Purchaser. The Purchaser hereby agrees to
indemnify and hold COTG, the Seller and the Company harmless against and in
respect of all Damages arising out of (a) any uncured misrepresentation or
breach of any material representation or warranty made by the Purchaser pursuant
to Section 3.2 of this Agreement or in any certificate or other document
furnished by the Purchaser to the Company, COTG or the Seller pursuant to this
Agreement; and (b) the non-performance or breach of any covenant, agreement or
obligation of the Purchaser contained in Section 4.2 of this Agreement which has
not been waived by the Seller.
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6.3 COTG's and Seller's Maximum Liability. Notwithstanding any
provision of this Agreement to the contrary, the liability of COTG and Seller
for any Damages or any other amounts payable to Purchaser under this Article VI
shall not exceed $850,000.
6.4 Effect of Recovery from a Third Party. In any case where any party
(an "Indemnifying Party") has indemnified any other party (an "Indemnified
Party") for any Damages pursuant to this Article VI, and the Indemnified Party
recovers from any third party all or any part of the amount so indemnified, such
Indemnified Party shall promptly pay over to the Indemnifying Party the amount
so recovered.
6.5 Procedure for Claims by Third Parties. Promptly upon the receipt by
an Indemnified Party under Section 6.1 or 6.2 of this Agreement, of notice of
the commencement of any action for which indemnification is to be sought
pursuant to said Sections 6.1 or 6.2, such Indemnified Party shall promptly
notify the Indemnifying Party in writing of the commencement thereof; provided
that, the failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party from liability with respect thereto only to the extent that
the Indemnifying Party is prejudiced as a result thereof (unless such
Indemnifying Party has otherwise received actual notice of such action at least
thirty (30) days before any answer or response is required by the Indemnifying
Party in its defense of such action). If any such action is brought against any
Indemnified Party and it notifies the Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled to participate therein and, to
the extent that it may elect by written notice delivered to the Indemnified
Party promptly after receiving the aforesaid notice from such Indemnified Party,
to assume the defense thereof; provided that, if the defendants in any such
action include both the Indemnified Party and the Indemnifying Party and either
(a) the Indemnifying Party agrees, or (b) representation of both the
Indemnifying Party and the Indemnified Party by the same counsel is, in the
opinion of counsel to the Indemnifying Party, inappropriate under applicable
standards of professional
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conduct because of actual or potential conflicting interests between them, then
the Indemnified Party shall have the right to select separate counsel to assume
such legal defense and to otherwise participate in the defense of such action.
The Indemnifying Party will not be liable to such Indemnified Party under this
Article VI for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof unless (i) the
Indemnified Party shall have employed counsel in connection with the assumption
of its defense of such action in accordance with the provisions of the
immediately preceding sentence (it being understood, however, that the
Indemnifying Party shall not be liable for the expenses of more than one
separate counsel approved by all Indemnified Parties in each jurisdiction), (ii)
the Indemnifying Party shall not have employed counsel to represent the
Indemnified Party within a reasonable time after receipt of notice of the
commencement of the action, or (iii) the Indemnifying Party has authorized, in
writing, the employment of counsel for the Indemnified Party at the expense of
the Indemnifying Party. In no event shall an Indemnifying Party be liable under
this Article VI for any settlement of any claim or action against an Indemnified
Party, which settlement is effected by the Indemnified Party without the
Indemnifying Party's written consent, which consent shall not be unreasonably
withheld, conditioned or delayed.
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6.6 Procedure for Other Claims. Claims for indemnity pursuant to this
Article VI, other than those covered by Section 6.5 of this Agreement, shall be
promptly submitted by notice, in writing. Such notice shall specify in
reasonable detail the basis for such claim. In the event that the Indemnifying
Party disputes the validity of the indemnity claim, such party shall give notice
to the Indemnified Party within fifteen (15) business days after the date of
receipt of any such notice of a claim for indemnity, and if such notice is not
given prior to the expiration of such fifteen (15) business day period, the
indemnity claim shall be deemed to be accepted and the Indemnifying Party shall
promptly make the payment set forth in any such claim. If the parties are not
able to resolve any dispute with respect to any such indemnity claim within
thirty (30) days after the date of the notice disputing the validity of the
indemnity claim, or such longer period as they may agree upon, the matter shall
be submitted to binding arbitration in New York City under the rules then
obtaining of the American Arbitration Association. The decision of the
arbitrator(s) shall be final, binding and conclusive on all parties and may be
entered in any court having jurisdiction. The arbitrator(s) shall have no power
or authority to modify or amend any provisions of this Agreement. The
arbitrator(s) may, in his or their discretion, award costs and fees.
6.7 Right of Offset. In the event that an Indemnifying Party may be
required to pay monies in indemnification to any Indemnified Party pursuant to
Sections 6.1 or 6.2 of this Agreement, such Indemnified Party shall have the
right to offset any amounts which are owed to it in indemnification by the
Indemnifying Party against any amounts which are payable by such Indemnified
Party to the Indemnifying Party; provided however, that nothing set forth in
this Section 6.7 shall relieve the Indemnified Party of its obligations to make
payments (subject to reduction for any such offsets as provided herein) under
this Agreement when due.
6.8 Exclusive Remedy. No party shall have the right to assert any claim
against any other party arising out of or based upon any claim of a breach of
any representation, warranty, covenant or agreement contained in this Agreement,
except as expressly provided and otherwise pursuant to the provisions of this
Article VI; provided that this Section 6.8 shall not affect the rights of the
Purchaser, COTG and the Seller with respect to the covenants set forth in
Sections 4.1 and 4.2 hereof.
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses. COTG, the Seller, the Company and the Purchaser
shall pay all of their own costs and expenses incident to the negotiation,
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby.
7.2 Modification, Amendments and Waiver. The parties
hereto may amend, modify or otherwise waive any provision of this Agreement by
mutual consent, provided that such consent and any amendment, modification or
waiver is in writing and is signed by each of the parties hereto.
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7.3 Assignment. Neither the Company, COTG, the Seller nor the Purchaser
shall have the right to assign any of their respective rights or obligations
under this Agreement without the prior written consent of the other parties
hereto, except that the Purchaser may assign all or any portion of its
respective rights hereunder without the prior written consent of the Company or
the Seller to any affiliate (as such term is defined in the rules of the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended) of the Purchaser (including any wholly-owned subsidiary of the
Purchaser) or as collateral to any lender, bank or other financial institution
providing financing to the Purchaser in connection with the consummation of the
transactions contemplated hereby and the Company, COTG and the Seller shall
execute such documents as are necessary in order to effectuate any such
assignment; provided, however, that any such assignment by the Purchaser shall
be subject to COTG and the Seller receiving prior notice of any such assignment
and receiving from any such assignee as a condition thereof, a written
instrument, in form and substance satisfactory to Seller, pursuant to which such
assignee agrees to be bound and otherwise abide by the terms and provisions of
this Agreement.
7.4 Burden and Benefit. This Agreement shall be binding upon and, to
the extent permitted in this Agreement, shall inure to the benefit of the
parties and their respective successors and assigns. In the event of a default
by the Company, COTG or the Seller of any of their respective obligations
hereunder, the sole and exclusive recourse and remedy of the Purchaser shall be
against the Company, COTG and the Seller, as the case may be, and the Company's,
COTG's or the Seller's assets. In the event of a default by the Purchaser of any
of its obligations hereunder, the sole and exclusive recourse and remedy of
COTG, the Seller and the Company shall be against the Purchaser and its assets;
under no circumstances shall any officer, director, stockholder or affiliate of
COTG, the Purchaser be liable in law or equity for any obligations of the
Purchaser hereunder; under no circumstance shall any officer, director,
stockholder or affiliate of the Seller or the Company be liable in law or at
equity for any obligations of COTG, the Seller or the Company hereunder.
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7.5 Brokers. The Company, COTG and the Seller represent and warrant to
the Purchaser that there are no brokers or finders entitled to any brokerage or
finder's fee or other commission or fee based upon arrangements made by or on
behalf of the Company, COTG or the Seller in connection with this Agreement or
any of the transactions contemplated hereby. The Purchaser represents and
warrants to the Company, COTG and the Seller that no broker or finder is
entitled to any brokerage or finder's fee or other commission or fee based upon
arrangements made by or on behalf of the Purchaser in connection with this
Agreement or any of the transactions contemplated hereby.
7.6 Entire Agreement. This Agreement and the Exhibits, Schedules and
other documents referred to herein contain the entire agreement among the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior agreements with respect thereto, whether written or oral.
7.7 Disclosure Generally. If and to the extent any information required
to be furnished in any Schedule is contained in this Agreement or in any other
Schedule to this Agreement, such information shall be deemed to be included in
all Schedules in which the information is required to be included. The inclusion
of any information in any Schedule attached hereto shall not be deemed to be an
admission or acknowledgment by the Company, COTG or the Seller, in and of
itself, that such information is material to or outside the ordinary course of
the business of the Company.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard, however, to
such jurisdiction's principles of conflicts of laws.
7.9 Notices. All notices, consents, authorizations, requests, demands
and other communications required or permitted to be given under this Agreement
shall be in writing and delivered personally, receipt acknowledged, or mailed by
registered or certified mail, postage prepaid, return receipt requested, or
delivered by recognized overnight courier service which provides evidence of
receipt, or sent by facsimile if either receipt is confirmed or transmission is
confirmed by mail as provided in this Section 7.9, addressed to the parties
hereto as follows (or to such other addresses as any of the parties hereto shall
specify by notice given in accordance with this provision):
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If to the Company,
to it at: Arc Networks, Inc.
1770 Motor Parkway
Hauppauge, New York 11788
Attn: Peter F. Parrinello, President
Facsimile (516) 582-1240
with a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Michael J. Shef, Esq.
Facsimile: (212) 704-6288
If to COTG or Seller,
to them at: Consolidated Technology Group Ltd.
160 Broadway; Suite 901
New York, New York 10038
Attn: Mr. Seymour Richter, President
Facsimile: (212) 233-5023
and
Consolidated Technology Group Ltd.
2424 North Federal Highway
Suite 110
Boca Raton, Florida 33431
Attn: George W. Mahoney
Chief Financial Officer
Facsimile: (561) 347-5352
with a copy to: Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
Facsimile: (914) 232-0647
If to the Purchaser,
to it at: Technology Acquisitions, Ltd.
c/o Benchmark Equity Group, Inc.
700 Gemini Street
Houston, Texas 77058
Attn: Mr. Christopher H. Efird
Facsimile: (281) 488-5353
with a copy to: DeMartino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. DeMartino, Esq.
Facsimile: (202) 659-1290
Any party may, by like notice, change the address, person or facsimile
number to which notice shall be sent. Except as otherwise provided in this
Agreement, all such notices, consents, authorizations, requests, demands and
other communications shall be deemed given when personally delivered as
aforesaid, or, if mailed as aforesaid, on the fifth business day after the
mailing thereof or on the day actually received, if earlier, except for a notice
of a change of address which shall be effective only upon receipt.
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7.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
7.11 Rights Cumulative. Except as expressly provided in Sections 6.8
and 7.14 of this Agreement, all rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any right
given to any party hereunder or to insist upon strict compliance by any other
party hereto of any provision of this Agreement shall not constitute a waiver of
any party's right to demand exact compliance with any of the terms or provisions
hereof.
7.12 Severability of Provisions. The provisions of this Agreement shall
be considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
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7.13 Headings. The headings set forth in the Articles and Sections of
this Agreement and in the Exhibits and the Schedules to this Agreement are
inserted for convenience of reference only and shall not be deemed to constitute
a part hereof.
7.14 Remedies. It is acknowledged that Sections 4.1(a) and (b) are of a
unique nature and of extraordinary value and of such a character that a breach
thereof by COTG or the Seller may result in irreparable damage and injury to the
Purchaser for which the Purchaser may not have any adequate remedy at law.
Therefore, the Purchaser shall be entitled to seek a decree of specific
performance against COTG or the Seller therefor, or such other relief by way of
restraining order, injunction or otherwise as may be appropriate to ensure
compliance with this Agreement. The remedies provided by this Section 7.14 are
non-exclusive and the pursuit of such remedies shall not in any way limit any
other remedy available to the Purchaser with respect to such provisions of this
Agreement, including, without limitation, any remedy available at law or equity
with respect to any anticipatory or threatened breach of any of such provisions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered on the date and year first above written.
ATTEST: ARC NETWORKS, INC.
____________________ By:
Secretary
-------------------- --------------------
Print Name Print Name and Title
[SIGNATURES CONTINUE ON NEXT PAGE]
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ATTEST: SIS CAPITAL CORP.
____________________ By:
Secretary
-------------------- --------------------
Print Name Print Name and Title
ATTEST: CONSOLIDATED TECHNOLOGY GROUP LTD.
____________________ By:
Secretary
-------------------- --------------------
Print Name Print Name and Title
ATTEST: TECHNOLOGY ACQUISITIONS, LTD.
____________________ By:
Secretary
-------------------- --------------------
Print Name Print Name and Title
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Exhibit 2.2(a) of Stock Purchase Agreement
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of March , 1999 among Arc Networks, Inc., a
Delaware corporation ("Arc"), Consolidated Technology Group Ltd., a New York
corporation ("CTG"), SIS Capital Corp., a Delaware corporation ("SISC"),
Technology Acquisitions, Ltd., a Bermuda corporation ("TA"), (Arc, CTG, SISC and
TA individually, a "Transaction Party" and collectively, the "Transaction
Parties"), Trans Global Services, Inc., a Delaware corporation ("Trans Global"),
and Parker Chapin Flattau & Klimpl, LLP, as Escrow Agent (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Transaction Parties have executed a Stock Purchase
Agreement of even date (the "Purchase Agreement"); and
WHEREAS, all conditions to the closing of the transaction contemplated
by the Purchase Agreement have been satisfied or waived, and such transaction
has closed; and
WHEREAS, the closing under the Purchase Agreement has been completed,
subject only to the Company obtaining the New York Regulatory Consent (as
defined therein), prior to September 30, 1999; and
WHEREAS, the Transaction Parties and Trans Global have delivered to the
Escrow Agent on the date hereof the documents listed on Exhibit A hereto (the
"Documents") and the Escrow Fund, as hereinafter defined, and the Escrow Agent
has agreed to so hold the Documents and the Escrow Fund, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. (a) The Escrow Agent acknowledges receipt of the Documents,
and shall hold the Documents on and subject to the terms and conditions of this
Agreement.
(b) The Escrow Agent acknowledges receipt of $850,000,
representing the Purchase Price, as defined in the Purchase Agreement, which
funds, together with accrued interest thereon, are referred to as the AEscrow
Fund.@
(c) The Escrow Agent shall hold the Escrow Fund in a separate
interest-bearing escrow account on and subject to the terms and conditions of
this Agreement. The interest shall be payable at the time and to the person to
whom the Escrow Fund are paid. SISC represents and warrants to the Escrow Agent
that the taxpayer identification number set forth on the signature page of this
Agreement is its correct taxpayer identification number and that SISC is not
subject to backup withholding.
<PAGE>
2. The Escrow Agent shall deliver the Documents and the Escrow Fund as
follows:
(a) If the Escrow Agent shall receive a joint written notice
(the "Distribution Notice") from CTG and TA (each a "Notice Party" and together
the "Notice Parties") in the form of Exhibit B to this Agreement, the Escrow
Agent shall, within two (2) business days after its receipt of such Distribution
Notice, distribute the Documents and disburse the Escrow Fund as provided in
Section 4 of this Agreement. The Documents and the Escrow Fund are collectively
referred to as the "Escrow Property."
(b) If the Escrow Agent shall receive the Distribution Notice
from one, but not both, of the Notice Parties, the Escrow Agent shall, within
five (5) business days after the Escrow Agent=s receipt of the Distribution
Notice, send a copy of the Distribution Notice to the other Notice Party. If the
Escrow Agent does not receive any conflicting written instructions from the
other Notice Party prior to 5:30 P.M., New York City time, on the tenth (10th)
business day following the date such notice is given, the Escrow Agent shall,
not later than the second business day thereafter, deliver the Escrow Property
in accordance with Section 4 of this Agreement.
(c) If the Escrow Agent shall receive a joint written notice
(the "Termination Notice") from both of the Notice Parties in the form of
Exhibit C to this Agreement, the Escrow Agent shall, within two (2) business
days after its receipt of such Termination Notice, dispose of the Escrow
Property as provided in Section 5 of this Agreement.
(d) If the Escrow Agent shall receive the Termination Notice
from one, but not both, of the Notice Parties, the Escrow Agent shall, within
five (5) business days after the Escrow Agent=s receipt of the Termination
Notice, send a copy of the Termination Notice to the other Notice Party. If the
Escrow Agent does not receive any conflicting instructions from the other Notice
Party prior to 5:30 P.M., New York City time, on the tenth (10th) business day
following the date such notice is given, the Escrow Agent shall, not later than
the second business day thereafter, deliver the Escrow Property in accordance
with Section 5 of this Agreement.
(e) If, by September 30, 1999, the Escrow Agent shall not have
received either (x) a Distribution Notice given by both Notice Parties or by one
Notice Party and not disputed by the other Notice Party or (y) a Termination
Notice given by both Notice Parties or by one Notice Party and not disputed by
the other Notice Party, then on October 1, 1999, the Escrow Agent shall deliver
the Escrow Property in accordance with Section 5 of this Agreement.
3. If the Escrow Agent shall receive conflicting instructions from the
Notice Parties as to the delivery of the Escrow Property or in the event that
the Escrow Agent shall be uncertain as to its obligations with respect to the
Escrow Property, the Escrow Agent shall have no obligation other than to retain
possession of the Escrow Property until the Escrow Agent shall have received
joint written instructions from the Notice Parties as to the disposition of the
Escrow Property or an order from a court of competent jurisdiction final beyond
any right of review. In addition, the Escrow Agent may, on ten (10) days=
written notice to the Transaction Parties and Trans Global, deposit the Escrow
Property into court, there to abide a decision of the court.
<PAGE>
4. If the Escrow Property is to be distributed in accordance with
Sections 2(a) or 2(b) of this Agreement, the Escrow Agent shall distribute the
Documents and Escrow Fund as follows:
(a) The Documents in the envelope marked "COTG" shall be
delivered to CTG.
(b) The Documents in the envelope marked "TAL" shall be
delivered to TA.
(c) The Documents in the envelope marked "Trans Global" shall
be delivered to Trans Global.
(d) The Escrow Fund shall be transferred by wire transfer to
such account as may be designated in writing by CTG.
5. If the Escrow Property is to be distributed in accordance with the
Sections 2(c), 2(d) or 2(e) of this Agreement, the Escrow Agent shall distribute
the Documents and Escrow Fund as follows:
(a) The Documents in the envelope marked "COTG" shall be
delivered to TA.
(b) The Documents in the envelope marked "TAL" shall be
delivered to CTG.
(c) The Documents in the envelope marked "Trans Global" shall
be delivered to CTG.
(d) The Escrow Fund shall be transferred by wire transfer to
such account as may be designated in writing by TA, provided that prior to any
such transfer of the Escrow Fund, TA shall have provided the Escrow Agent with
the information required by either a IRS Form W-8 or W-9, whichever shall be
applicable.
6. All Documents to be delivered pursuant to Section 4 or 5 shall be
delivered to the counsel for the respective parties listed in Section 14 of this
Agreement, at their addresses set forth in said Section 14, by messenger against
receipt thereof if delivery is in New York City, or on a Afirst AM next day
delivery@ basis by an overnight courier service which provides evidence of
delivery if delivery is outside of New York City.
7. The Transaction Parties agree to do such further acts and execute
and deliver such agreements and documents from time to time as reasonably
requested by the Escrow Agent in connection with the administration,
maintenance, enforcement or adjudication of this Agreement in order to give the
Escrow Agent confirmation and assurance of the Escrow Agent=s rights, powers,
remedies and interests under this Agreement and applicable law and to otherwise
effectuate the purpose and intent of this Agreement, all in form and substance
reasonably acceptable to the Escrow Agent.
<PAGE>
8. If conflicting or adverse claims or demands are made or notices
served upon the Escrow Agent with respect to the escrow provided for herein, the
Escrow Agent may refuse to comply with any such claim or demand so long as such
disagreement shall continue. In doing so, the Escrow Agent shall not be or
become liable for any damages, losses, costs, or expenses to any person for its
failure to comply with such conflicting or adverse demands. The Escrow Agent may
continue to so refrain and refuse to so act unless and until such claims or
demands shall have been finally determined by a court of competent jurisdiction
which is not subject to further review or appeal, or shall have been settled by
written agreement of the parties to such controversy, in which case the Escrow
Agent shall be notified thereof in a written notice signed by such parties. The
Escrow Agent may also elect, on ten (10) days= written notice to the Transaction
Parties and Trans Global, to commence an interpleader or action for declaratory
judgment for the purpose of having the rights of the claimants adjudicated, and
may deposit with the court all Documents and Escrow Fund, in which event the
Escrow Agent shall be relieved of further duties and obligations under this
Agreement. Each of the Notice Parties shall pay one-half of all out-of-pocket
costs, expenses and reasonable attorneys= fees and expenses reasonably incurred
by the Escrow Agent in seeking any such judgment.
9. The Transaction Parties, Trans Global and the Escrow Agent hereby
consent to the personal jurisdiction of the Supreme Court of the State of New
York, County of New York, and the United States District Court for the Southern
District of New York in connection with this Agreement and the transactions
contemplated hereby. The Transaction Parties, Trans Global and the Escrow Agent
hereby waive personal service of any summons, complaint or other legal process,
and agree that the same may be delivered by any of the means permitted for
notices under Section 14 hereof, other than by telecopier, in addition to any
other method of service provided by law. Each of the Transaction Parties and
Trans Global waives trial by jury.
10. The Escrow Agent shall be entitled to rely upon any notice,
consent, certificate, document or other communication (including by facsimile)
reasonably believed by it to be genuine and to have been signed, sent or made by
the proper person, and upon opinions and advice of legal counsel (including
itself or counsel for any party hereto) and shall not be liable or responsible
for any action taken or omitted in accordance with the provisions thereof,
except for its gross negligence or wilful misconduct. The Escrow Agent is acting
under this Agreement as a stakeholder only and shall be considered an
independent contractor with respect to the Transaction Parties. No term or
provision of this Agreement shall be considered to have created any
principal-agent, trust, joint venture, partnership or other arrangement with the
Transaction Parties except as set forth in the immediately preceding sentence.
The Escrow Agent shall have no responsibility for determining or ascertaining
the completeness or accuracy of the matters stated in any notice or
communication, whether or not addressed or delivered to it. The Escrow Agent
shall have no duties or responsibilities except as expressly provided in this
Agreement and shall neither be obligated to recognize, nor have any liability or
responsibility arising under, nor duty to inquire into the terms and provisions
of, any other agreement (including, without limitation, the Purchase Agreement)
to which the Escrow Agent is not a party, even though reference thereto may be
made herein. The Transaction Parties and Trans Global acknowledge that the
Escrow Agent has acted and continues to act as legal counsel to Arc and
acknowledge and agree that the Escrow Agent may continue to do so at the same
time as acting as Escrow Agent hereunder.
<PAGE>
11. The respective parties hereto agree to indemnify, reimburse and
hold harmless the Escrow Agent and its designees, and their respective
directors, officers, partners, employees, attorneys and agents, from and against
any and all claims, liabilities, losses and expenses (including, without
limitation, the disbursements, expenses and reasonable fees of their respective
attorneys) that may be imposed upon, incurred by, or asserted against any of
them, arising out of or related to this Agreement, except as are occasioned by
any of the foregoing indemnified parties= own acts or omissions which constitute
gross negligence or willful misconduct.
12. The Escrow Agent may, at any time, resign as Escrow Agent under
this Agreement by providing written notice thereof to the Transaction Parties
and Trans Global. In such event, the Escrow Agent shall deposit the Documents
and the Escrow Fund with a successor escrow agent to be appointed by CTG and TA
and reasonably acceptable to the Arc and Trans Global within thirty (30) days
following their receipt of notice of resignation from the Escrow Agent. If CTG
and TA do not designate a successor escrow agent reasonably acceptable to Arc
and Trans Global pursuant to this Section 12 within thirty (30) days from the
date of receipt of the Escrow Agent=s notice of resignation, the Escrow Agent
may, on ten (10) days= written notice to the Transaction Parties and Trans
Global, commence an interpleader action as provided in Section 8 of this
Agreement.
13. Whenever in this Agreement reference is made to any party, such
reference shall be deemed to include the successors, assigns and legal
representatives of such party, and, without limiting the generality of the
foregoing, all representations, warranties and agreements of the Transaction
Parties hereunder shall inure to the benefit of any successor escrow agent
hereunder; provided, that no Transaction Party hereto may assign any of its
rights or obligations hereunder without the consent of all other Transaction
Parties hereto or permit the Escrow Agent to assign any of its duties or
obligations hereunder except as provided herein. The consent of the other
parties to this Agreement shall not be required with respect to an assignment of
any party=s rights or obligations under this Agreement as a result of the merger
or consolidation of such party with or into any other corporation or entity or
the sale by such party of all or substantially all of its business and assets.
14. Each notice or other communication required or permitted by this
Agreement shall be in writing signed by the party giving such notice, and
delivered personally or sent by overnight courier, mail or messenger against
receipt thereof or sent by registered or certified mail, return receipt
requested, or by facsimile transmission or similar means of communication if
receipt is confirmed or if transmission of such notice is confirmed by mail as
provided in this Section 14. Notices shall be deemed to have been received on
the date of personal delivery or telecopy or, if sent by certified or registered
mail, return receipt requested, shall be deemed to be delivered on the fifth
(5th) business day after the date of mailing, except that notice of change in
the person, address or facsimile number shall be effective on actual receipt.
Notices shall be addressed to the party for whom intended at his or its address
set forth below or to the attention of such other person or such other address
or facsimile number as a party shall have designated by notice in writing to the
other parties given in the manner provided by this Section 14:
<PAGE>
if to Arc, to:
Arc Networks, Inc.
1770 Motor Parkway
Hauppauge, New York 11788
Facsimile: (516) 582-1240
Attn: Peter F. Parrinello, President
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 704-6288
Attention: Edward R. Mandell, Esq.
<PAGE>
if to CTG or SISC, to:
Consolidated Technology Group Ltd.
160 Broadway, Suite 901
New York, New York 10038
Facsimile: (212) 233-5023
Attn: Mr. Seymour Richter, President
and
Consolidated Technology Group Ltd.
2424 North Federal Highway
Suite 110
Boca Raton, Florida 33431
Facsimile: (561) 347-5352
Attn: George W. Mahoney, Chief Financial Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, NY 10536
Facsimile: (914) 232-0647
If to TA, to:
Technology Acquisitions, Ltd.
c/o Benchmark Equity Group, Inc.
700 Gemini
Houston, TX 77058
Facsimile: (281) 488-5353
Attn: Mr. Christopher H. Efird
with a copy to:
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile: (202) 659-1290
Attn: Ralph V. De Martino, Esq.
<PAGE>
if to Trans Global to:
Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
Facsimile: (516) 724-0039
Attn: Joseph G. Sicinski, President and CEO
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10159
Facsimile: (212) 953-6899
Attn: Asher S. Levitsky P.C.
if to the Escrow Agent, to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 704-6288
Attention: Michael J. Shef, Esq.
<PAGE>
15. No amendment or supplement or waiver of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by
each of parties hereto (in the case of an amendment or supplement) or by the
waiving party (in the case of a waiver).
16. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to principles
of conflicts or choice of laws.
17. This Agreement sets forth the entire agreement of the parties
hereto with regard to the subject matter hereof and supersedes and replaces all
prior agreements, understandings and representations, oral or written, with
regard to such matters.
18. If any term or provision of this Agreement shall be held to be
illegal, invalid or unenforceable under applicable law, it shall not affect the
continued legality, validity and enforceability of each remaining term and
provision hereof, each of which shall continue in full force and effect.
19. This Agreement shall not become effective and binding upon any of
the parties hereto unless and until it is duly executed by each of the parties
set forth below.
20. Except as provided in Section 8 of this Agreement, each party shall
bear its own costs and expenses incurred in connection with this Agreement and
the matters set forth herein.
21. Each party acknowledges that it has conferred with legal counsel
and other advisors of its choice regarding its decision to execute this
Agreement and the subject matter hereof. Each party further agrees and
acknowledges that this Agreement has been negotiated to its full satisfaction
and that the terms and conditions shall not be interpreted against the party
whose legal counsel drafted such agreement or document.
22. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute but one and the same instrument. This Agreement shall become
effective when one or more counterparts have been signed by each of the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Escrow Agreement, effective as of the day and year first-above written.
ARC NETWORKS, INC.
By: ____________________________________
Name: Peter F. Parrinello
Title: President and CEO
CONSOLIDATED TECHNOLOGY GROUP LTD.
By: ____________________________________
Name: Seymour Richter
Title: President and CEO
SIS CAPITAL CORP.
Tax ID No.:
By: ____________________________________
Name: Seymour Richter
Title: President and CEO
TECHNOLOGIES ACQUISITIONS, LC
By: ____________________________________
Name:
Title:
TRANS GLOBAL SERVICES, INC.
By: ____________________________________
Name: Joseph G. Sicinski
Title: President and CEO
ESCROW AGENT:
PARKER CHAPIN FLATTAU & KLIMPL, LLP
By: _____________________________________
Name: Michael J. Shef
Title: Partner
<PAGE>
EXHIBIT A
Documents
The following documents are included in the envelopes set forth below.
All section references relate to the Purchase Agreement, and all documents are
executed as set forth in Article V of the Purchase Agreement.
1. Envelope marked "COTG":
(a) Certified resolutions of TA (Section 5.3(a)).
(b) Opinion of Conyers Dill & Pearman (Section 5.3(b)).
(c) Certificate of the President of TA (Section 5.3(c)).
(d) Certificate of the Secretary of TA (Section 5.3(d)).
2. Envelope marked "TAL":
(a) Certified resolutions of Arc (Section 5.1(a)).
(b) Opinion of Parker Chapin Flattau & Klimpl, LLP (Section 5.1(b)).
(c) Certificate of the President of Arc (Section 5.1(c)).
(d) Certificate of the Secretary of Arc (Section 5.1(d)).
(e) Good standing certificates for Arc and A.R.C. Networks, Inc.
(Section 5.1(e)).
(f) The COTG Note Modification (Sections 5.1(f) and 5.2(f)).
(g) The BSL Note Modification (Section 5.1(g)).
(h) The Company Security Agreement (Section 5.1(j)).
(i) Certified resolutions of COTG and SISC (Section 5.2(a)).
(j) Opinion of Robert L. Blessey, Esq. (Section 5.2(b)).
(k) Certificate of the President of COTG and SISC (Section 5.2(c)).
(l) Certificate of the Secretary of COTG and SISC (Section 5.2(d)).
(m) Stock certificates for the Shares, with stock power attached
(Section 5.2(e).
(n) COTG Guaranty (Section 5.2(h).
3. Envelope marked "Trans Global"
(a) The Trans Global Note Modification and any documents
deliverable pursuant thereto (Sections 5.1(h) and 5.3(g)).
<PAGE>
EXHIBIT B
Form of Distribution Notice to Escrow Agent
Michael J. Shef, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Re: Arc Networks, Inc. Escrow Account
Dear Mr. Shef:
Notice is hereby given that the New York Regulatory Consent, as
defined in that certain Stock Purchase Agreement, dated March , 1999, by and
among Arc Networks, Inc., Consolidated Technology Group Ltd., SIS Capital Corp.
and Technology Acquisitions, Ltd. has been obtained.
Very truly yours,
<PAGE>
EXHIBIT C
Form of Termination Notice to Escrow Agent
Michael J. Shef, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Re: Arc Networks, Inc. Escrow Account
Dear Mr. Shef:
Notice is hereby given that the New York Regulatory Consent, as defined
in that certain Stock Purchase Agreement (the "Purchase Agreement"), dated March
, 1999, by and among Arc Networks, Inc., Consolidated Technology Group Ltd., SIS
Capital Corp. and Technology Acquisitions, Ltd. has not been obtained as
required by the Purchase Agreement, and, as a result, the Purchase Agreement has
been terminated.
Very truly yours,
<PAGE>
Exhibit 4.2(d) of the Stock Purchase Agreement
FORM OF GUARANTY OF COTG NOTE, BSL NOTE
AND TRANS GLOBAL NOTE
Reference is made to that certain _______________ by and between
_____________________ [insert title of COTG Note, BSL Note or Trans Global Note]
(the "__________ Agreement"), the terms of which are incorporated herein by
reference thereto.
For valuable consideration, which is hereby acknowledged,
_____________________, a _____________ with offices at ______________________,
______________ (the "Guarantor"), hereby unconditionally and irrevocably
guarantees the full and prompt payment to ________ of the indebtedness and all
other sums due under the _____________ Agreement (the "Obligations"), as and
when due, as provided therein. The aforesaid Guaranty is a guaranty of both
payment and collection.
The liability of the Guarantor hereunder shall be direct and immediate
and not conditional or contingent upon the pursuance by _____________ of the
rights and remedies it may have, at law or in equity, against ___________, or
any other party, whether under the ________ Agreement, or otherwise. The
Guarantor hereby waives notice of non-payment, non-performance or proof of
notice or demand.
The obligation of the Guarantor hereunder shall not be impaired,
diminished or discharged, in whole or in part, by any extension of time granted
to ____________ by ______________, by any course of dealing between Guarantor
and _____________, by the release of any guarantor or other obligor of any
collateral, or by any other act, omission, event or circumstance which might
operate to discharge a guarantor in whole or in part or which might operate as a
defense, in whole or in part, to any obligation of a guarantor or which might
invalidate, in whole or in part, a guaranty.
Guarantor acknowledges and agrees that nothing shall discharge, satisfy
or release the obligations created under this Guaranty, except for payment in
full or satisfaction of the Obligations. The Obligations shall not be considered
fully paid
-1-
<PAGE>
unless and until all payments by ____________ or Guarantor (or any other party
who or which is now or may hereafter be liable for the Obligations) to
_____________ of the Obligations are no longer subject to any right on the part
of any person whomsoever, including, without limitation, any trustee in
bankruptcy, to set aside such payments, or to seek to recoup the amount of such
payments, or any part thereof. The foregoing shall include, by way of example
and not by limitation, all rights to recover preferences voidable under the
United States Bankruptcy Code.
In the event that _____________ commences any action or proceeding
against the Guarantor under this Guaranty or otherwise engages counsel in order
to enforce its rights under this Guaranty, the Guarantor shall be liable for all
costs and expenses incurred by ____________ in connection therewith, including,
without limitation, all of __________'s reasonable attorneys' fees and all
out-of-pocket expenses of such attorneys.
Guarantor hereby represents to ___________ that (i) the execution,
delivery and performance of this Guaranty has been duly authorized and approved
by all required corporate action of Guarantor, and (ii) this Guaranty is a valid
and binding obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State without regard to principles of conflicts of law. The
Guarantor consents to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York and the Supreme Court of
the State of New York in the County of New York in any action or proceeding
relating to or arising out of this Guaranty and waives any claim that any of
such forums is not a
-2-
<PAGE>
convenient forum. IN ANY SUCH ACTION, THE GUARANTOR HEREBY WAIVES ANY RIGHT TO
A TRIAL BY JURY.
This Guaranty cannot be amended, modified or waived except with the
written consent of _____________.
This Guaranty shall be binding upon Guarantor and its successors and
assigns and inure to the benefit of ____________ and its successors and assigns.
This Guaranty shall not be assignable by Guarantor without ___________'s written
consent.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this ____
day of __________, 1999.
GUARANTOR:
By:------------------
--------------------
Print Name and Title
-3-
<PAGE>
Exhibit 4.4(b)(i) of the Stock Purchase Agreement
FORM OF COTG GUARANTY
Reference is made to that certain Stock Purchase Agreement
among Arc Networks, Inc. ("Arc"), SIS Capital Corp., Consolidated
Technology Group Ltd. ("Guarantor"), and Technology Acquisitions,
Ltd. ("TAL") dated March 23, 1999 (the "Purchase Agreement") and
the related Escrow Agreement provided for thereunder (the "Escrow
Agreement"), the terms of which are incorporated herein by
reference thereto.
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, subject to the provisions of Section 4.4(b) of the Purchase
Agreement, the Guarantor hereby unconditionally and irrevocably guarantees the
full and prompt payment to TAL of the first $50,000 of funding provided by TAL
to Arc pursuant to such Section as, when and solely to the extent due, as
provided therein. Such guaranty is a guaranty of both payment and collection.
Notwithstanding any term or provision of this Guaranty or of the Purchase
Agreement to the contrary, (i) Guarantor's liability under this Guaranty is
limited to $50,000, (ii) in the event that the Purchase Price is released from
escrow to Guarantor pursuant to the terms of the Escrow Agreement, this Guaranty
shall automatically terminate, without any notice or action and thereafter cease
to be of any legal force or effect, and (iii) if TAL collects $50,000 in
repayment of the funding provided to Arc pursuant to Section 4.4(b) of the
Purchase Agreement to which this Guaranty relates, from whatever source, all
such amounts shall be credited to and reduce Guarantor's liability hereunder.
The liability of the Guarantor hereunder shall be direct and immediate
and not conditional or contingent upon the pursuance by TAL of the rights and
remedies it may have, at law or in equity, against Arc, or any other party,
whether under the Purchase Agreement, or otherwise. The Guarantor hereby waives
notice of non-payment by Arc of the $50,000 referred to above.
The obligation of the Guarantor hereunder shall not be impaired,
diminished or discharged, in whole or in part, by any extension of time granted
to Arc by TAL, by any course of dealing
-1-
<PAGE>
between Guarantor and Arc, by the release of any guarantor or other obligor of
any collateral, or by any other act, omission, event or circumstance which might
operate to discharge a guarantor in whole or in part or which might operate as a
defense, in whole or in part, to any obligation of a guarantor or which might
invalidate, in whole or in part, a guaranty.
In the event that TAL commences any action or proceeding against the
Guarantor under this Guaranty or otherwise engages counsel in order to enforce
its rights under this Guaranty, the Guarantor shall be liable for all costs and
expenses incurred by TAL in connection therewith, including, without limitation,
all of TAL's reasonable attorneys' fees and all out-of-pocket expenses of such
attorneys.
Guarantor hereby represents to TAL that (i) the execution, delivery and
performance of this Guaranty has been duly authorized and approved by all
required corporate action of Guarantor, and (ii) this Guaranty is a valid and
binding obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
This Guaranty shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State without regard to principles of conflicts of law. The
Guarantor consents to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York and the Supreme Court of
the State of New York in the County of New York in any action or proceeding
relating to or arising out of this Guaranty and waives any claim that any of
such forums is not a convenient forum. IN ANY SUCH ACTION, THE GUARANTOR HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY.
-2-
<PAGE>
This Guaranty cannot be amended, modified or waived except with the
written consent of TAL.
This Guaranty shall be binding upon Guarantor and its successors and
permitted assigns and shall inure to the benefit of TAL and its successors and
assigns. This Guaranty shall not be assignable by Guarantor with TAL's written
consent.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this 23rd
day of March, 1999.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:
----------------------------------
--------------------
Print Name and Title
-3-
<PAGE>
Exhibit 4.4(b)(ii) of the Stock Purchase Agreement
COMPANY SECURITY AGREEMENT
SECURITY AGREEMENT made this 23rd day of March, 1999 by and among ARC
NETWORKS, INC., a Delaware corporation ("Arc"), and A.R.C. NETWORKS, INC., a New
York corporation, both with offices at 1770 Motor Parkway, Hauppauge, New York
11788 (collectively, "Debtor"), TECHNOLOGY ACQUISITIONS, LTD., a Bermuda
corporation with offices at 700 Gemini Street, Houston, Texas 77058 ("Secured
Party")and CONSOLIDATED TECHNOLOGY GROUP LTD., a New York corporation with
offices at 160 Broadway, New York, New York 10038 ("COTG").
WHEREAS, Debtor and COTG entered into a Loan Agreement dated September
18, 1998, as amended (the "Loan Agreement") pursuant to which Debtor issued and
delivered to COTG a secured promissory note (the "Note") and entered into a
Security Agreement with COTG (the "COTG Security Agreement") to secure Debtor's
obligations to COTG, including its obligations under the Note; and
WHEREAS, on March 23, 1999, Arc, SIS Capital Corp., COTG and Secured
Party entered into a Stock Purchase Agreement (the "Stock Purchase Agreement")
and an Escrow Agreement of even date therewith relating thereto (the "Escrow
Agreement"); and
WHEREAS, in accordance with the terms of the Stock Purchase Agreement,
Secured Party has agreed to provide certain funding to Arc during the term of
the Escrow Agreement; and
WHEREAS, Arc has agreed, in accordance with the terms of the Stock
Purchase Agreement, to repay to Secured Party a portion of such funding in the
event that the Escrow Agreement is terminated under certain circumstances
specified in the Stock Purchase Agreement; and
WHEREAS, accordingly, Debtor and Secured Party have agreed to enter
into this Company Security Agreement (the "Agreement") to secure Arc's
aforementioned repayment obligations, on and subject to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto do hereby agree as follows:
1
<PAGE>
1. Incorporation by Reference; Definitions. Reference is made to the
Loan Agreement, COTG Security Agreement, Stock Purchase Agreement and Escrow
Agreement, the applicable terms and provisions of which are incorporated herein
by reference thereto. All capitalized terms which are used but not defined in
this Agreement shall have the meanings ascribed to them in the Loan Agreement,
the COTG Security Agreement, the Stock Purchase Agreement and the Escrow
Agreement.
2. Funding Obligation.
(a) In accordance with the provisions of Section 4.4 of the
Stock Purchase Agreement, Secured Party may provide certain funding to Arc
during the Escrow Term. Of such funding, if and to the extent provided to Arc by
Secured Party, COTG has guarantied the first $50,000 thereof, and Arc has agreed
to grant Secured Party a security interest in its accounts receivable to secure
the repayment of the next $125,000 thereof (the "Secured Funding") in the event
that the Escrow Agreement is terminated pursuant to a Termination Notice of
Secured Party and COTG in accordance with the provisions of Section 2.2(d) of
the Stock Purchase Agreement. For purposes hereof, the term "Obligations" shall
mean Arc's aforementioned repayment obligation. Notwithstanding any term or
provision of this Agreement or the Stock Purchase Agreement to the contrary, in
the event that the Escrow Agreement is terminated pursuant to a Distribution
Notice of Secured Party and COTG in accordance with the provisions of Section
2.2(c) of the Stock Purchase Agreement, or at such time as the Secured Funding
is repaid to Secured Party, from whatever source (including, without limitation,
the Collateral), this Agreement will automatically terminate at such time and
will thereafter be of no further legal force or effect.
(b) COTG hereby consents to the security interest granted by
Debtor to Secured Party hereunder and agrees that the grant of such security
interest shall not constitute an Event of Default under the COTG Security
Agreement. In addition, COTG hereby agrees to subordinate its security interest
in the Collateral (as defined in this Agreement) to the security interest
granted to Secured Party hereunder.
3. Security Interest in the Collateral. As security for the Obligations
of Arc under this Agreement, Secured Party shall
2
<PAGE>
have, and the Debtor does hereby grant to Secured Party, a valid security
interest in the Collateral. For purposes hereof, the term "Collateral" shall
mean all accounts and accounts receivable of Debtor arising out of the sale or
lease of goods or the rendition of services by Debtor.
4. Debtor's Representations and Warranties. To induce Secured Party to
enter into this Security Agreement, Debtor, jointly and severally, represents
and warrants to Secured Party that, except for Permitted Liens (as such term is
defined in the COTG Loan Agreement and to include the security interest granted
to COTG thereunder).
(a) All of the Collateral is lawfully owned by the Debtor,
free and clear of any prior security interest, pledge, sale, assignment,
transfer, lien, or other encumbrance and will be maintained free and clear of
any subsequent security interest, pledge, sale, assignment, transfer, lien, or
other encumbrance to or in favor of any person or entity other than Secured
Party.
(b) Debtor has the sole unrestricted and unencumbered right to
pledge, sell, assign or transfer the Collateral and to subject the Collateral to
the security interest in favor of Secured Party hereunder.
(c) Debtor will, at its expense, defend the Collateral against
all claims and demands of any kind asserted by all third parties.
(d) Each of the accounts receivable comprising the Collateral
is and will be free and clear of all material claims, disputes or set-offs and
all of the same are and will be bona fide and are and will be created
concurrently with the rendition of services or the sale of goods by Debtor.
(e) Debtor has not created or caused to be created, and will
not create or cause to be created, any financing statement covering all or any
portion of the Collateral to be on file in any public office other than as
requested by and in favor of Secured Party with respect to the Collateral and
the Permitted Liens.
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5. Covenants of the Debtor.
(a) Debtor agrees, upon the reasonable request of Secured
Party, to do such acts and things and deliver or cause to be delivered such
other documents and instruments as Secured Party may deem necessary to establish
and maintain Secured Party's security interest in the Collateral (free of all
other liens and claims except the Permitted Liens) and to defend title to the
Collateral against any third parties claiming rights therein through Debtor.
Debtor hereby authorizes Secured Party to execute and file a financing statement
or statements on its behalf in those public offices deemed advisable or
necessary by Secured Party to perfect or protect the security interest of
Secured Party herein granted and, if necessary, to sign Debtor's name thereon.
If permitted by law, Debtor agrees that a carbon, photographic, or other
reproduction of this Agreement or of a financing statement may be filed as a
financing statement hereunder.
(b) Upon Secured Party's request, Debtor will give Secured
Party written notice of each office of the Debtor at which the Collateral and
all records of the Debtor relative to the Collateral are kept. Except where such
notice is given, all such Collateral and records relating thereto are and will
be kept at the address of the Debtor set forth herein.
(c) Debtor will, at its own expense, endeavor to collect, as
and when due, all amounts due with respect to any Collateral and may grant to
any account debtor, in the ordinary course of business consistent with past
practice, any rebate, refund, or adjustment to which such account debtor may be
lawfully entitled and may accept, in connection therewith, the return of goods,
the sale or lease of which shall have given rise to the obligation of the
account debtor.
(d) Debtor will, upon Secured Party's request, provide Secured
Party with a schedule of its accounts receivables. Each such schedule shall be
in a form reasonably acceptable to Secured Party. Any such schedule of accounts
receivables shall be accompanied by, if Secured Party requests, (i) a true and
correct copy of the invoice or other consideration evidencing such Account, (ii)
evidence of shipment, or delivery of goods or performance of services relating
thereto, and (iii) if such
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request shall be made after the occurrence of an Event of Default, a duly
executed assignment of such accounts receivables from Debtor to Secured Party;
provided, however, that Debtor's failure to execute and deliver any such
schedule and/or assignment shall not affect or limit Secured Party's security
interest or other rights in and to such accounts receivables whether or not
there shall have occurred an Event of Default.
(e) Debtor shall, upon reasonable prior notice and during
normal business hours, allow Secured Party and its duly authorized agents, at
Secured Party's expense (except, after an Event of Default, at Debtor's
expense), to examine, inspect, or make abstracts from Debtor's books and records
and to verify returned and repossessed goods, if any, and to arrange for the
verification of all accounts receivables directly with the account debtors upon
request of Secured Party; and shall do, make, and deliver all such additional
and further acts, things, deeds, assurances and instruments as Secured Party may
reasonably require. If Secured Party requests Debtor to arrange for the
verification of such accounts receivables, as aforesaid, prior to an Event of
Default, such verification shall be conducted in a reasonable manner.
6. Power to Sell or Collect Collateral. Upon the occurrence of an Event
of Default, and at any time thereafter, unless such default is cured by Debtor
in accordance with the applicable provisions of this Agreement, Secured Party
shall have, in addition to all other applicable rights and remedies, the
remedies of a secured party under the Uniform Commercial Code including without
limitation, the right to take possession of the Collateral. Additionally,
Secured Party may, at any time after the occurrence of an Event of Default,
direct all account debtors of Debtor to make payment of their outstanding
accounts payable to Debtor directly to Secured Party and collect and retain all
proceeds therefrom which shall be applied by Secured Party to the Obligations.
7. Deposits. Any and all deposits, or other sums at any time credited
by or due from Secured Party to the Debtor shall at all times constitute
security for payment of the Obligations and Secured Party may apply or set off
such deposits or other sums against the Obligations at any time after an Event
of Default
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whether or not the Collateral is considered by Secured Party to
be adequate.
8. Waiver and Amendment. Except as otherwise expressly set forth in
this Agreement, Debtor hereby waives demand, notice, protest, notice of
acceptance of this Agreement, notice of liens made, credit extended, Collateral
received or delivered or any other action taken in reliance hereon, and all
other demands and notices of any kind or description. With respect to the
Collateral, Debtor hereby agrees to any extension or postponement of the time of
payment or to any indulgence, substitution, exchange, or release of Collateral,
to the addition or release of any party or person primarily or secondarily
liable, to the acceptance of partial payments of the Obligations and the
settlement, compromise, or adjustment thereof, all in such manner and at such
time or times as Secured Party may deem advisable. Secured Party shall not have
any duty as to the collection or protection of the Collateral, or any income
therefrom, nor as to the preservation of rights against third parties, nor as to
the preservation of any other rights pertaining thereto. Secured Party shall not
be deemed to have waived any of its rights with respect to the Obligations or
the Collateral unless such waiver is in writing and signed by Secured Party. No
delay or omission on the part of Secured Party in exercising any right hereunder
shall operate as a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to the exercise of any right on any
future occasion. All rights and remedies of Secured Party as to the Obligations
or the Collateral whether evidenced hereby or by any other instrument or
document shall be cumulative and may be exercised singly, successively, or
together. Secured Party may, from time to time, without notice to the Debtor (i)
retain or obtain a security interest in any property of any other person, in
addition to the Collateral, to secure the Obligations; (ii) retain or obtain the
primary or secondary liability of any party or parties in addition to the Debtor
with respect to the Obligations; (iii) extend or renew for any period of
performance (whether or not longer than the original period) or release or
compromise any liability of any party or parties primarily or secondarily liable
to Secured Party with respect to the Obligations; (iv) release its security
interest in any of the Collateral and permit any substitution or exchange for
any such property; and (v) resort to the Collateral
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for the payment of the Obligations whether or not it shall have resorted to any
other property or shall have proceeded against any party primarily or
secondarily liable for any of the Obligations. Secured Party shall not, under
any circumstances or in any event whatsoever, have any liability for any error
or omission or delay of any kind occurring in the liquidation of any Collateral,
including the settlement or collection thereof.
9. Default. For purposes of this Agreement, the failure of Arc to pay
the Obligations, when due, shall constitute an "Event of Default" hereunder. The
Obligations shall be deemed due on the first business day following the
termination of the Escrow Agreement pursuant to a Termination Notice provided in
accordance with Section 2.2(d) of the Stock Purchase Agreement.
10. Expenses, Proceeds of Collateral. The Debtor shall pay to Secured
Party, on demand, any and all expenses, including attorneys' fees, incurred or
paid by Secured Party in protecting or enforcing its rights under this
Agreement. After deducting all of such expenses, the residue of any proceeds of
the collection or sale of the Collateral shall be applied to the payment of the
Obligations, and any excess shall be returned to the Debtor. Secured Party will
provide Debtor with a written accounting of the receipt and disposition of all
of such proceeds promptly after the receipt or disposition thereof.
11. Miscellaneous.
(a) This Agreement constitutes the sole and entire agreement
between the parties hereto with respect to the subject matter hereof (except for
the applicable provisions of the Stock Purchase Agreement) and supersedes all
prior agreements, representations, warranties, statements, promises,
arrangements and understandings, whether oral or written, express or implied,
between the parties hereto with respect to the subject matter hereof and may not
be changed or modified except by an instrument in writing signed by the party to
be bound thereby. This Agreement has been subject to the mutual consultation,
negotiation and agreement of the parties hereto, each of which have been
represented by legal counsel with respect to the negotiation of the terms and
conditions hereof and, therefore, this Agreement shall not be construed for or
against either party hereto on the basis of such party having drafted this
Agreement.
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(b) All notices, consents, requests, demands and other
communications required or permitted to be given under this Agreement (the
"Notices") shall be in writing and delivered personally, receipt acknowledged,
or mailed by registered or certified mail, postage prepaid, return receipt
requested, addressed to the parties hereto as follows (or to such other address
as any of the parties hereto shall specify by notice given in accordance with
this provision):
(A) If to Debtor:
Arc Networks, Inc.
1770 Motor Parkway
Hauppauge, New York 11788
Attn: Peter Parrinello, President
with a copy to:
Michael Shef, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
(B) If to Secured Party:
Technology Acquisitions, Ltd.
c/o Benchmark Equity Group, Inc.
700 Gemini Street
Houston, Texas 77058
Attn: Mr. Christopher H. Efird
with a copy to:
DeMartino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. DeMartino, Esq.
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(C) If to COTG:
Consolidated Technology Group Ltd.
160 Broadway
New York, New York 10038
Attn: Seymour Richter
Chief Executive Officer and President
and
Consolidated Technology Group Ltd.
2424 North Federal Highway
Suite 110
Boca Raton, Florida 33431
Attn: George W. Mahoney
Chief Financial Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York 10536
All such Notices shall be deemed given when personally delivered as
aforesaid, or, if mailed as aforesaid, on the third business day after the
mailing thereof or on the day actually received, if earlier, except for a notice
of a change of address which shall be effective only upon receipt.
(c) No party hereto may assign this Agreement or its or their
respective rights, benefits or obligations hereunder without the written consent
of the other parties hereto.
(d) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their successors, and permitted assigns.
Nothing contained in this Agreement is intended to confer upon any person or
entity, other than the parties hereto, or their respective successors or
permitted assigns, any rights, benefits, obligations, remedies or liabilities
under or by reason of this Agreement.
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<PAGE>
(e) No waiver of any provision of this Agreement or of any
breach thereof shall be effective unless in writing and signed by the party to
be bound thereby. The waiver by any party hereto of a breach of any provision of
this Agreement, or of any representation, warranty, obligation or covenant in
this Agreement by another party hereto, shall not be construed as a waiver of
any subsequent breach or of any other provision, representation, warranty,
obligation or covenant of such other party, unless the instrument of waiver
expressly so provides.
(f) This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, including the
applicable provisions of the Uniform Commercial Code of the State of New York,
without regard to the choice of law provisions thereof.
(g) Debtor hereby agrees that, at any time and from time to
time after the date hereof, upon the request of Secured Party, it shall do,
execute, acknowledge and deliver, or cause to be done, executed, acknowledged
and delivered, such further acts, deeds, assignments, transfers, conveyances,
and assurances as may be reasonably required to more effectively consummate this
Agreement and the transactions contemplated hereby or to confirm or otherwise
effectuate the provisions of this Agreement. Secured Party hereby agrees that,
upon the termination of this Agreement in accordance with its terms (including
the provisions of Section 4.4(c) of the Stock Purchase Agreement), it will
execute all documents or instruments requested of it by Debtor or COTG,
including UCC-3 Termination Statements, to terminate the security interest
granted hereunder. Secured Party hereby authorizes either Arc or COTG to prepare
and file any such instruments or documents under Secured Party's name.
(h) The headings used in this Agreement have been used for
convenience of reference only and are not to be considered in construing or
interpreting this Agreement.
(i) If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision(s) shall be excluded from
this Agreement and the balance of this Agreement shall remain in full force and
effect.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized on the date first set
forth above.
WITNESS:___________________ ARC NETWORKS, INC.
By:______________________________
Peter F. Parrinello
President
WITNESS:___________________ A.R.C. NETWORKS, INC.
By:______________________________
Peter F. Parrinello
President
WITNESS:___________________ TECHNOLOGY ACQUISITIONS, LTD.
By:______________________________
---------------------------------
Print Name and Title
WITNESS:___________________ CONSOLIDATED TECHNOLOGY GROUP LTD.
By:______________________________
---------------------------------
Print Name and Title
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Exhibit 5.1(f) of the Stock Purchase Agreement
AMENDMENT NO. 2
This Amendment No. 2 to the Loan Agreement dated September 18,
1998, as amended, by and among CONSOLIDATED TECHNOLOGY GROUP LTD., a New York
corporation (hereinafter, "Lender"), and ARC NETWORKS, INC., a Delaware
corporation (hereinafter "ARC Delaware") and A.R.C. NETWORKS, INC., a New York
corporation (hereinafter "ARC N.Y.") is made as of the 18th day of March, 1999
by and among Lender, ARC Delaware, and ARC N.Y.
WHEREAS, Lender established a credit facility in favor of ARC Delaware
and ARC N.Y. pursuant to the Loan Agreement dated September 18, 1998, as amended
as of January 25, 1999, between Lender, ARC Delaware and ARC N.Y. (the "Loan
Agreement"); and
WHEREAS, ARC Delaware has requested an increase in the maximum amount
of the aforementioned credit facility from $2,250,000 to $2,400,000; and
WHEREAS, Lender, SIS Capital Corp., Lender's wholly owned subsidiary
("SISC"), ARC Delaware, and Technology Acquisitions, Ltd. ("TAL") are
negotiating and intend to enter into a Stock Purchase Agreement (the "Purchase
Agreement") and related Escrow Agreement (the "Escrow Agreement"), pursuant to
which SISC will sell all of the shares of capital stock of ARC Delaware owned by
it to TAL; and
WHEREAS, Lender has agreed to ARC Delaware's request to increase the
maximum amount of the credit facility available to ARC Delaware and ARC N.Y. by
$150,000, all of the foregoing on and subject to the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned do hereby agree as follows:
1. Incorporation by Reference.
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1.1. All capitalized terms which are used but not defined in
this Amendment shall have the meanings ascribed to them in the Loan Agreement,
the Purchase Agreement, or the Escrow Agreement, the terms of which are
incorporated herein by reference thereto.
1.2. The following terms shall have the meanings set forth
below:
(a) "Amendment" shall mean this Amendment between
Lender and Borrowers.
(b) "Amended Loan Agreement" shall mean the Loan
Agreement, as further amended by this Amendment.
(c) "Maturity Date" shall mean:
(i) with respect to $2,250,000 of the
Principal amount of the Loan, the earlier of (A) August 31, 2000, or (B) six
months from the Closing Date, if any, under the Purchase Agreement (for these
purposes, the definitive executed Purchase Agreement, if any), or (C) any
earlier date on which Borrowers repay to Lender the then outstanding aggregate
amount of the Obligations; and
(ii) with respect to $150,000 of the
Principal amount of the Loan, the earlier of (D) the date, if any, on which the
Purchase Price held in escrow under the Escrow Agreement (for these purposes,
the definitive executed Escrow Agreement, if any) is released to Lender pursuant
thereto or (E) the first to occur of the dates or events set forth in clauses
(i)(A), (i)(B), or (i)(C) above.
2. The Loan.
2.1. As of the date hereof, Borrowers have borrowed from
Lender the sum of $2,250,000 pursuant to the Loan Agreement.
2.2. The definition of the term "Maximum Loan Amount" in
Section 1.1 of the Loan Agreement is hereby amended to read as follows:
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""Maximum Loan Amount" means the amount of the Loan not
exceeding the lesser of (i) Two Million Four Hundred Thousand Dollars
($2,400,000), or (ii) the Borrowing Base."
2.3. Upon the execution of this Amendment, Lender will advance
to Borrowers the sum of One Hundred Fifty Thousand Dollars ($150,000). Upon
Borrowers' receipt of such advance, it will pay such sum to Bell Atlantic and,
simultaneously therewith, provide evidence of such payment to Lender. For
purposes of the Amended Loan Agreement, an Advance shall be deemed to be made to
Borrowers hereunder in the amount of One Hundred Fifty Thousand Dollars
($150,000) as of March 19, 1999. Simultaneously with the execution of this
Amendment, Borrowers will execute the Note in the form annexed hereto as Exhibit
A, which Note will replace and supersede the Secured Promissory Note of
Borrowers to Lender dated as of January 25, 1999.
2.4. Borrowers will, on the date hereof, deliver to Lender
certified copies of corporate resolutions of their respective Boards of
Directors authorizing the execution and delivery of this Amendment, in form and
substance reasonably satisfactory to Lender's counsel.
3. Representations, Warranties and Covenants of Borrowers.
3.1. Borrowers will, at all times until the Obligations are
fully paid, provide all documentation, information and financial reports and
summaries concerning Borrowers' operations and financial condition as and when
requested by Lender's Chief Financial Officer.
3.2. Borrowers have been represented by counsel in connection
with the execution and delivery of this Amendment.
4. No Waiver; Inconsistencies.
4.1. Nothing contained in this Amendment shall constitute a
waiver of, or otherwise be with prejudice to, all rights and remedies of Lender
under the Loan Agreement, notwithstanding any term, provision, representation or
warranty of Lender or Borrowers in this Amendment or in the Purchase Agreement
or in the Escrow Agreement.
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4.2. Except as expressly provided for in this Amendment, none
of the other terms, conditions, representations or warranties contained in the
Amended Loan Agreement shall be amended or modified, and the Loan Agreement, as
amended hereby, shall remain in full force and effect in accordance with its
terms. To the extent that there is any inconsistency between the terms of this
Amendment and the terms of the Loan Agreement, the terms of this Amendment shall
govern and be controlling.
IN WITNESS WHEREOF, Borrowers and Lender have executed this Amendment
by their duly authorized officers as of the date first above written.
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:__________________________________
-------------------------------------
Print Name and Title
ARC NETWORKS, INC.
By:__________________________________
Peter Parrinello
President
A.R.C. NETWORKS, INC.
By:__________________________________
Peter Parrinello
President
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<PAGE>
EXHIBIT A
SECURED PROMISSORY NOTE
$2,400,000
March 18, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrowers"), jointly and
severally, hereby promise to pay to the order of CONSOLIDATED TECHNOLOGY GROUP
LTD. (the "Payee"), the principal sum of TWO MILLION FOUR HUNDRED THOUSAND
($2,400,000) DOLLARS (the "Principal"), or such lesser sum as may, from time to
time, be outstanding under the terms of that certain Loan Agreement dated
September 18, 1998, as amended as of January 25, 1999 and March 18, 1999,
between Borrowers and Payee (the "Loan Agreement"), in lawful money of the
United States of America, with interest on the unpaid Principal balance, as
follows:
1. Incorporation by Reference. Reference is made to the Loan Agreement,
the terms of which are incorporated herein by reference thereto. Reference is
also made to that certain March 18, 1999 draft Stock Purchase Agreement between
COTG, ARC Delaware, SIS Capital Corp. and Technology Acquisitions, Ltd. (the
"Purchase Agreement") and the related Escrow Agreement provided for thereunder
(the "Escrow Agreement"), the terms of which are incorporated herein by
reference thereto. All capitalized terms which are used but not defined herein
shall have the meanings ascribed to them in the Loan Agreement, the Purchase
Agreement or the Escrow Agreement.
2. Payment Terms. Borrowers shall unconditionally and irrevocably pay
to the order of Payee, without set-off or deduction, the Principal and interest
of this Note at the rates, at the times and as otherwise provided in the Loan
Agreement. The Principal and interest of this Note will be due and payable on
the earlier of the Maturity Date or the Termination Date or as otherwise
provided in the Loan Agreement, except that, notwithstanding any provision in
the Loan Agreement or in this Note or in the Purchase Agreement or the Escrow
Agreement to the contrary, Borrowers shall repay to Payee One Hundred Fifty
Thousand Dollars ($150,000) of the Principal of this Note (plus all accrued
interest thereon from the date hereof to the date of payment) on the date, if
any, on which the Purchase Price held in
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escrow under the Escrow Agreement (for these purposes to mean the definitive
executed Escrow Agreement, if any) is released to Payee. All interest hereunder
which is accrued but not paid prior to the date on which such non-payment would
result in an Event of Default pursuant to Section 10.1 of the Loan Agreement
shall be treated as an Advance. In no event shall Payee be entitled to receive
interest in excess of the legally permissible rate of interest. In the event
that Payee receives payments under this Note that are deemed excessive interest
under applicable law, such excess will be applied first to the costs referred to
in Paragraph 7 hereof, then to the Principal of this Note and then to all
outstanding Obligations under the Loan Agreement. If such costs, the Principal
and all such other Obligations are paid in full, any remaining excess shall be
refunded to Borrowers.
3. Acceleration. In the event of any Event of Default under the Loan
Agreement (or other breach or default by Borrowers of this Note), Borrowers
shall be in default hereunder and the Principal and all then accrued interest
thereon shall become immediately due and payable, without demand, notice or
other action by Payee. All payments received by Payee after a default under this
Note will be applied first to the costs referred to in Paragraph 7 hereof, then
to all accrued interest hereunder and next to the Principal of this Note.
4. Place and Manner of Payment. All payments of Principal and interest
under this Note (and all other amounts payable hereunder) shall be made to Payee
on or before the due date thereof by wire transfer to such bank account of Payee
as shall be provided to Borrowers, in writing, prior to such due date or, at
Payee's request, to Payee at such other place, or to such other account, or in
such other manner, as Payee may, from time to time, designate in writing. If any
payment hereunder becomes due on a Saturday, Sunday or legal holiday, such
payment shall become due on the next business day. All payments of Principal and
interest under this Note shall be deemed made only upon receipt by Payee.
5. Prepayment. Borrowers shall have the right, at any time and from
time to time, to prepay the Principal of this Note, or any part thereof, without
penalty or premium, upon seven (7) days prior to notice to Payee. All such
prepayments shall be
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<PAGE>
applied first to all costs referred to in Paragraph 7 hereof, then to all
accrued interest hereunder, and next to the Principal of this Note. If, at any
time, the Principal of this Note exceeds the Maximum Loan Amount under the Loan
Agreement, Borrowers shall, upon notice from Payee, be required to immediately
prepay the Principal of this Note, in an amount sufficient to reduce the then
outstanding Principal to an amount not greater than the Maximum Loan Amount. Any
failure by Borrowers to make such required prepayments shall constitute a
default under this Note.
6. Security. The obligations of Borrowers under this Note are secured
by the Collateral under and as provided in the Loan Agreement and the other Loan
Documents (including the Security Documents). The terms, obligations, covenants,
conditions and provisions contained in the Loan Agreement and the other Loan
Documents with respect to the security for Borrowers' obligations under this
Note are hereby incorporated in and made a part of this Note, to the extent and
with the same effect as if fully set forth herein, and Borrowers do hereby
covenant and agree to abide by and comply with each and every such term,
obligation, covenant, condition and provision set forth in this Note, the Loan
Agreement and the other Loan Documents relating thereto.
7. Costs of Collection. In the event that Payee shall take any action
to enforce the terms of this Note, after default by Borrowers under this Note,
including, without limitation, the commencement of any legal action or
proceeding, or the enforcement of any judgment resulting therefrom, Payee shall
be entitled to recover from Borrowers, upon demand, all costs and expenses
incurred by Payee in connection therewith (including, without limitation, all of
Payee's attorneys' fees and disbursements), together with interest on any
judgment obtained, at the then prevailing legal rate of interest.
8. Remedies Cumulative. The rights and remedies of Payee provided in
this Note shall be cumulative and concurrent and exclusive of all rights and
remedies provided by law or in equity or in the Loan Agreement or the other Loan
Documents and Payee may, at its election, pursue its rights and remedies against
Borrowers hereunder or thereunder, singly, successively, or together, at the
sole discretion of Payee, and all of such rights and remedies may be exercised
separately as often as occasion
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<PAGE>
therefor shall occur. The failure of Payee to exercise any such right or remedy
shall in no event be construed as a waiver or release thereof.
9. Waiver of Presentment, Demand and Notice. Borrowers hereby waive
presentment for payment, demand, notice of demand, notice of non-payment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the terms of this Note and Borrowers hereby agree that their liability under
this Note shall be irrevocable and unconditional and shall be without regard to
the liability of any other party, including any guarantor, and shall not be
affected in any manner by any indulgence, extension of time, renewal, waiver or
modification granted or consented to by Payee. Borrowers hereby consent to any
and all extensions of time, renewals, waivers or modifications that may be
granted by Payee in writing with respect to the payment or other provisions of
this Note or with respect to any guarantor and Borrowers hereby agree that
additional Borrowers, endorsers, guarantors or sureties may become parties
hereto without notice to Borrowers and without affecting Borrowers' liability
hereunder.
10. Severability; Lawful Interest. If any provision of this Note is
held to be invalid or unenforceable by a court of competent jurisdiction, the
other provisions of this Note shall remain in full force and effect and shall be
unaffected thereby.
11. No Waiver by Payee. Payee shall not be deemed, by any act of
omission or commission, to have waived any of its rights or remedies hereunder
unless such waiver is in writing and signed by Payee, and then only to the
extent specifically set forth in any such writing. A waiver of one event shall
not be construed as continuing or constitute a bar to or waiver of any right or
remedy with respect to a subsequent event.
12. Assignment by Payee. Payee may, at any time prior to the payment in
full of this Note, upon notice to Borrowers, assign this Note or any or all of
Payee's rights and entitlements to payments hereunder, to any third party
selected by it.
13. Governing Law. This Note and the respective rights and obligations
of Borrowers and Payee hereunder shall be governed by
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<PAGE>
and construed in accordance with the laws of the State of New York with respect
to contracts made and to be fully performed therein and without regard to the
principles of conflicts of laws thereof. Any suit, action, or proceeding
instituted in connection with this Note may be commenced in a Federal or State
Court located in the City, County and State of New York and any action to
enforce any judgment obtained against Borrowers hereunder may be brought in any
court of competent jurisdiction. Borrowers waive any objection which they may
now or hereafter have to the forum of any such suit, action or proceeding,
including any objection that any such suit, action or proceeding was brought in
an inconvenient forum. Borrowers hereby irrevocably consent and submit to the
jurisdiction of the aforementioned courts in any such suit, action or proceeding
and to the manner of service of process therein as provided in the Loan
Agreement.
14. Notices. All notices or other communications required or permitted
under this Note (the "Notices") must be in writing and shall be required to be
given in the manner provided in the Loan Agreement and all such Notices shall be
deemed given as provided therein.
15. Binding Effect. This Note shall be binding upon Borrowers and their
successors and permitted assigns and shall inure to the benefit of Payee and its
successors and assigns. Borrowers shall not have the right to assign this Note,
or any of their obligations hereunder, without the written consent of Payee,
which consent shall be within Payee's sole and absolute discretion.
16. Superseding Note. This Note supersedes and replaces in all respects
that certain Secured Promissory Note of Borrowers to Payee dated as of January
25, 1999 in the maximum principal amount of $2,250,000.
17. Inconsistencies. To the extent there is any inconsistency between
the provisions of this Note and the provisions of the Loan Agreement or other
Loan Documents or the Purchase Agreement (including, for this purpose, any
definitive executed Purchase Agreement), the provisions of this Note shall
control to the extent of any such inconsistency.
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IN WITNESS WHEREOF, Borrowers, intending to be legally bound hereby,
have executed this Note under seal the day and year first above written.
WITNESS:___________________ ARC NETWORKS, INC.
By:______________________________
Peter Parrinello
President
WITNESS:___________________ A.R.C. NETWORKS, INC.
By:______________________________
Peter Parrinello
President
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Exhibit 5.1(g) of the Stock Purchase Agreement
BATEI SEFER LIMLACHA
35 Balfour Plaza
Brooklyn, New York 11225
March 17, 1999
Consolidated Technology Group Ltd.
160 Broadway
New York, NY 10038
Attn: Seymour Richter, Pres.
Dear Mr. Richter:
BATEI SEFER LIMLACHA, A New York religious organization with offices at
35 Balfour Plaza, Brooklyn, New York 11225 ("BSL"), as the beneficiary of a
certain Guarantee (the "Guarantee"), dated September 18, 1998 by CONSOLIDATED
TECHNOLOGY GROUP LTD., a New York corporation ("COTG"), pursuant to which COTG
unconditionally and irrevocably guaranteed to BSL the payment and performance by
ARC NETWORKS, INC., a Delaware corporation ("ARC") and A.R.C. Networks, Inc., a
New York corporation ("ARC-NY"), having offices at 1770 Motor Parkway, Happauge,
New York 11788, of all of ARC's and ARK-NY's payment and performance obligations
pursuant to that certain Subordinated Promissory Note of ARC and ARC-NY to BSL,
in the principal amount of Five Hundred Fifty Thousand ($550,000) Dollars, dated
September 18, 1998 and due January 2, 2001 (the "Note"), for Ten ($10) Dollars
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, DOES HEREBY WAIVE any and all rights it has or may have
to obtain payment from COTG under the Guarantee pursuant to the occurence of an
event described in Paragraph 1 (c) (ii) of the Note upon the closing of the
transactions provided for in that certain Asset Purchase Agreement dated as of
March ____, 1999, by and among ARC, SIS Capital Corp., COTG and Technology
Acquisitions, Ltd. (the "Agreement").
Waiver of BSL's right to obtain payment from COTG under the Guarantee
pursuant to Paragraph 1 (c) (ii) of the Note for the purpose of facilitating a
closing under the Agreement does not constitute a waiver of any other right of
BSL under the Guarantee or, in any future situations, a waiver of BSL's right to
obtain payment from COTG under the Guarantee or a waiver of BSL's right to
demand and obtain strict compliance with any and all provisions of the
Guarantee.
No right of BSL under the Guarantee or of any future holder of the
Guarantee shall at any time or in any way be prejudiced or impaired by the grant
of the waiver hereunder.
Very truly yours,
BATEI SEFER LIMLACHA
By:____________________
<PAGE>
Exhibit 5.1(h) of the Stock Purchase Agreement
AGREEMENT
AGREEMENT dated this 23rd day of March, 1999, by and among Trans Global
Services, Inc., a Delaware corporation ("Trans Global"), Arc Networks, Inc., a
Delaware corporation ("Arc"), Consolidated Technology Group Ltd., a New York
corporation ("Consolidated"), Technology Acquisitions Ltd., a Bermuda
corporation ("TA"), and Gemini II, Inc., a Delaware corporation ("Gemini"),
Trans Global, Arc, Consolidated, TA and Gemini being referred to collectively as
the "Parties" and each, individually, as a "Party."
W I T N E S S E T H:
WHEREAS, Trans Global is the holder of Arc's 10% installment promissory
note due August 31, 2003 in the principal amount of $1,216,673 (the "Arc Note"),
which is payable to the order of Trans Global; and
WHEREAS, the Arc Note is guaranteed by Consolidated pursuant to a
guarantee dated September 18, 1998 (the "Consolidated Guarantee"); and
WHEREAS, Trans Global and Consolidated are parties to a Subordination
Agreement dated September 18, 1998 (the "Subordination Agreement"); and
WHEREAS, pursuant to a certain stock purchase agreement dated the date
of this Agreement by and among Arc, Consolidated, SIS Capital Corp., a Delaware
corporation and wholly-owned subsidiary of Consolidated ("SISC"), and TA (the
"Purchase Agreement"), SISC is selling to TA approximately 67% of the
outstanding common stock of Arc, which represents all of the shares of the
common stock of Arc which are owned by SISC, such sale being referred to as the
"Arc Stock Sale" and
WHEREAS, following or contemporaneously with the completion of the Arc
Stock Sale, a wholly-owned subsidiary of Gemini is to merge with and into Arc,
which merger is referred to as the "Arc Merger"; and
WHEREAS, following the completion of the Arc Merger, Gemini intends to
file a registration statement with respect to a proposed public offering of its
common stock, par value $.0001 per share ("Gemini Common Stock"); and
WHEREAS, by the terms of the Arc Note, the full principal amount of the
Arc Note, together with accrued interest, becomes immediately due and payable
upon the occurrence of certain events, which include the Arc Stock Sale and the
Arc Merger; and
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WHEREAS, Arc, Consolidated, TA and Gemini have requested that Trans
Global agree that the Arc Note not become immediately due and payable upon
either the Arc Stock Sale or the Arc Merger; and
WHEREAS, Trans Global is willing to agree that neither the consummation
of the Arc Stock Sale nor the Arc Merger will result in the Arc Note becoming
immediately due and payable, on and subject to the terms of this Agreement; and
WHEREAS, each of the Parties believes that the execution of this
Agreement and the performance of its terms is in the best interest of such
Party;
WHEREFORE, the Parties do hereby agree as follows.
1. (a) Trans Global hereby waives the provision of the Arc Note that
provides that the Arc Note becomes payable in full upon the occurrence of either
the Arc Stock Sale or the Arc Merger.
(b) The waiver granted by Trans Global pursuant to Paragraph 1(a):
(i) is subject to the execution of this Agreement by Arc,
Consolidated, TA and Gemini and the performance by TA and Gemini of all of their
obligations to be performed contemporaneously with or prior to the execution of
this Agreement;
(ii) is subject to the execution by TA and Gemini of the
Purchaser Guarantee, as hereinafter defined; and
(iii) relates only to the Arc Stock Sale and the Arc Merger
and shall not be deemed to relate in any manner to any other Sale Transaction,
as defined in the Arc Note, or any other transaction set forth in Paragraph 6(b)
of this Agreement.
2. Consolidated hereby confirms that (a) the Consolidated Guarantee is
in full force and effect on the date of this Agreement, and (b) none of the
obligations of Consolidated pursuant to the Consolidated Guarantee will be
affected in any manner by the execution of this Agreement or the performance of
any of the terms of this Agreement, including, but not limited to, the waiver by
Trans Global pursuant to Paragraph 1 of this Agreement.
3. The Subordination Agreement is hereby terminated and of no force and
effect.
4. (a) Trans Global hereby agrees that it will accept shares of
Gemini's Series A Preferred Stock in exchange for the cancellation of the Arc
Note and the Consolidated Guarantee at the time Gemini receives the proceeds
from its initial public offering, as hereinafter defined, if the closing with
respect to Gemini's initial public offering shall have occurred by December 31,
1999, and, if, on the closing date of such initial public offering:
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(i) Arc shall not be in default of its obligations pursuant
to the Note, including its obligations to pay the principal and interest and to
comply with all of its other obligations pursuant to the Note and this
Agreement, and there shall have occurred no event which, with the passage of
time of the giving of notice by Trans Global or any other person, would result
in an event of default as set forth in Paragraph 4 of the Arc Note.
(ii) Gemini shall have issued the Series A Preferred Stock to
Trans Global in exchange for the cancellation of the Arc Note and the
Consolidated Guarantee, as provided in Paragraph 7 of this Agreement.
(iii) The consolidated net tangible book value of Gemini,
determined in accordance with generally accepted accounting principals, shall be
not less than six million dollars ($6,000,000).
(b) An "initial public offering" shall mean a firm commitment
underwritten initial public offering pursuant to a effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act").
The date on which the registration statement relating to Gemini's initial public
offering is declared effective by the Securities and Exchange Commission (the
"Commission") is referred to as the "IPO Date."
(c) Upon the cancellation of the Arc Note, whether pursuant to
Paragraph 4(a) of this Agreement or otherwise, the Consolidated Guarantee will
automatically terminate and be of no further force and effect, and Trans Global
shall return the Consolidated Guarantee to Consolidated.
(d) Trans Global shall give Consolidated prompt notice of any
event which results in the cancellation of the Arc Note.
5. TA and Gemini will, contemporaneously with the execution of this
Agreement:
(a) Execute their joint and several guarantee (the "Purchaser
Guarantee") of the obligation of Arc pursuant to the Arc Note in the form of
Exhibit A to this Agreement.
(b) File or cause to be filed a certificate of designation (the
"Certificate of Designation") setting forth the rights, preferences and
privileges of the holders of the Series A 10% Convertible Redeemable Preferred
Stock, par value $.0001 per share ("Series A Preferred Stock"), in the form of
Exhibit B to this Agreement.
6. The terms of the Arc Note are hereby modified as follows:
(a) Arc shall continue to make payments of principal and
interest on the Arc Note at the times set forth in the Arc Note, subject to the
further provisions of this Paragraph 6.
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<PAGE>
(b) The principal and interest on the Arc Note shall become
immediately due and payable as follows:
(i) The sale by TA or Gemini of all or substantially all of
its business and assets in one transaction or in a series of related
transactions, regardless of whether the transaction is structured as a merger,
consolidation, sale of assets, sale of stock or assets of its subsidiary, sale
and leaseback or other transaction whereby substantially all of the business and
assets of TA or Gemini is conveyed to another person or entity, except that this
Paragraph 6(b)(i) shall not apply to the Arc Merger.
(ii) The merger of TA or Gemini with another entity where TA
or Gemini is the surviving entity if, as a result of the merger, the
stockholders of TA or Gemini, as the case may be, prior to the merger (other
than persons who became stockholders in anticipation of or in connection with
the merger) own less than fifty percent (50%) of the outstanding capital stock,
either in terms of number of shares or value of shares, upon the effectiveness
of the merger.
(iii) The sale by stockholders of their capital stock in TA
or Gemini in a transaction or a series of related transactions which results in
the transfer of at least fifty percent (50%) of the outstanding capital stock;
provided, however, that following a public offering by Arc or Gemini of its
securities, sales by the public stockholders shall not be an event described in
this Paragraph 6(b)(iii) unless such transfers are made in response to a tender
offer or similar transaction.
(iv) The failure by Gemini to complete an initial public
offering by 5:30 P.M., New York City time, on December 31, 1999.
(v) Any breach by TA or Gemini of its obligations pursuant to
this Agreement if such breach is not cured within thirty (30) days after notice
of such breach is given to TA or Gemini, as the case may be, and Consolidated.
(vi) The occurrence of any event (other than the Arc Stock
Sale and the Arc Merger) which, pursuant to the terms of the Arc Note, gives the
holder of the Arc Note the right to demand that the principal of and interest on
the Arc Note become immediately due and payable.
7. At the closing of Gemini's initial public offering, Gemini shall
issue to Trans Global one share of Series A Preferred Stock for each one dollar
($1.00) of principal on the Arc Note which is outstanding on the date of such
closing and pay to Trans Global the accrued interest on the Arc Note to the date
the Series A Preferred Stock is issued, and Trans Global shall deliver the
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Arc Note to Arc for cancellation. The holders of the Series A Preferred Stock
will have the rights, preferences and privileges set forth in the Certificate of
Designation. Except for the issuance of Series A Preferred Stock pursuant to
this Agreement, Gemini shall not issue any additional shares of Series A
Preferred Stock except for transfers of the shares of Series A Preferred Stock
issued to Trans Global pursuant to this Agreement.
8. Consolidated and Arc, severally and not jointly, represent and
warrant to Trans Global that:
(a) Such Party is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation.
(b) Such Party has full power and authority to enter into this
Agreement and the Escrow Agreement, as hereinafter defined, and to carry out the
transactions provided for in this Agreement and the Escrow Agreement, and this
Agreement and the Escrow Agreement constitute the legal, valid and binding
obligations of such Party, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or similar laws from time to time in effect which affect
creditors' rights generally, and by legal and equitable limitations on the
enforceability of specific remedies, and that no representation is made as to
the enforceability of the indemnification provisions contained in Paragraph 11
of this Agreement. All necessary corporate action required to be taken by such
Party for the consummation of the transactions contemplated by this Agreement
has been duly and validly taken.
(c) No consent, approval or agreement of any person, party, court,
governmental authority or entity is required to be obtained by such Party in
connection with the execution and performance by Consolidated or Arc of this
Agreement or the Escrow Agreement.
9. (a) TA and Gemini hereby jointly and severally represent and
warrant to Trans Global that:
(i) TA and Gemini are corporations duly organized, validly
existing and in good standing under the laws of Bermuda and the State of
Delaware, respectively.
(ii) TA and Gemini have full power and authority to enter
into this Agreement, the Escrow Agreement and the Purchaser Guarantee, and to
carry out the transactions provided for in this Agreement, the Escrow Agreement
and the Purchaser Guarantee, and this Agreement, the Escrow Agreement and the
Purchaser Guarantee constitute the legal, valid and binding obligations of TA
and Gemini, enforceable in accordance with their respective
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<PAGE>
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or similar laws from time to time in effect which affect
creditors' rights generally, and by legal and equitable limitations on the
enforceability of specific remedies, and that no representation is made as to
the enforceability of the indemnification provisions contained in Paragraph 11
of this Agreement. All necessary corporate action required to be taken by TA and
Gemini for the consummation of the transactions contemplated by this Agreement
has been duly and validly taken.
(iii) No consent, approval or agreement of any person, party,
court, governmental authority or entity is required to be obtained by TA or
Gemini in connection with the execution and performance by TA or Gemini of this
Agreement, the Escrow Agreement or the Purchaser Guarantee.
(iv) The execution and filing of the Certificate of
Designation has been approved by all necessary corporate action.
(v) The Series A Preferred Stock to be issued pursuant to
this Agreement has been duly and validly authorized and, when issued pursuant to
this Agreement, will be validly issued, fully paid and non-assessable and
subject to no rights or claims of any third party. The shares of Gemini Common
Stock issuable upon conversion of the Series A Preferred Stock (the "Conversion
Shares") are duly and validly authorized and, when issued upon conversion of the
Series A Preferred Stock, will be validly issued, fully paid and non-assessable
and subject to no rights or claims of any third party.
(b) TA and Gemini jointly and severally covenant and agree that,
without the prior written consent of Consolidated, they will not take or permit
to be taken any action described in Paragraphs 6(b)(i), (ii) or (iii) of this
Agreement.
10. (a) Trans Global represents and warrants to Consolidated, Arc, TA
and Gemini that:
(i) Trans Global is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(ii) Trans Global owns the Arc Note.
(iii) Trans Global has full power and authority to
enter into this Agreement and the Escrow Agreement and to carry out the
transactions provided for in this Agreement, and this Agreement and the Escrow
Agreement constitute, the legal, valid and binding obligations of Trans Global,
enforceable in accordance with their respective terms, except as enforceability
may
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be limited by applicable bankruptcy, insolvency, moratorium, or similar laws
from time to time in effect which affect creditors' rights generally, and by
legal and equitable limitations on the enforceability of specific remedies, and
that no representation is made as to the enforceability of the indemnification
provisions contained in Paragraph 11 of this Agreement. All necessary corporate
action required to be taken by Trans Global for the consummation of the
transactions contemplated by this Agreement has been duly and validly taken.
(iv) No consent, approval or agreement of any person, party,
court, governmental authority or entity is required to be obtained by Trans
Global in connection with the execution and performance by Trans Global of this
Agreement or the Escrow Agreement.
(b) Trans Global agrees that, as long as the Consolidated
Guarantee shall remain in effect, it will not, without the written consent of
Consolidated, amend the terms of the Arc Note in a manner which would (i)
increase the interest rate, (ii) accelerate the payment schedule, (iii) reduce
the time for any notice or cure, (iv) create any other event of default or other
event which, by its terms, would result in the acceleration of the principal
amount of the Arc Note; provided, however, that this Paragraph 10(b) shall not
apply to any accelerated payment terms resulting from or following a default
under the Arc Note or an event which, with the passage of time of the giving of
notice, would result in a default under the Arc Note. In the event that Trans
Global fails to comply with its obligations pursuant to this Paragraph 10(b),
the Consolidated Guarantee shall become void, and Trans Global shall have no
rights thereunder, except to the extent of any obligations which may have
accrued under the Consolidated Guarantee prior to the date of such failure.
(c) Trans Global shall give Consolidated prompt notice of any
amendment to the Arc Note.
(d) Trans Global confirms that, as of the date of this Agreement,
Arc is not in default under the Arc Note.
11. (a) At any time during the period commencing on the IPO Date
ending on the Registration Termination Date, as hereinafter defined, Gemini
shall advise Trans Global or any Transferees, as hereinafter defined (Trans
Global and its Transferees being referred to herein collectively as the
"holders" and each as a "holder"), by written notice at least two (2) weeks
prior to the filing of any registration statement (other than a registration
statement on a Form S-8 or S-4 or any subsequent form relating to employee
benefit plans and mergers or acquisitions) under the Securities Act covering
securities of Gemini and will, upon the request of any holder, include in
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any such registration statement such information as may be required to permit a
public offering of any or all of such holder's Registrable Securities, as
hereinafter defined; provided, however, that Gemini shall not be required to
include any Registrable Securities in a registration statement relating solely
to an offering by Gemini of securities for its own account if the managing
underwriter requests in writing that Gemini exclude the Registrable Securities,
provided that all other proposed selling stockholders, if any, are treated in
the same manner as the holder. In the event that the managing underwriter shall
permit the inclusion in any such registration statement of a limited number of
securities for sale by selling stockholders, to the extent that the managing
underwriter permits any such shares to be included in the registration
statement, Gemini shall include securities to be sold by all persons (other than
officers and directors of Gemini or its affiliates) exercising piggyback or
similar registration rights, on a proportional basis, based on the number of
shares of Gemini Common Stock which each such person proposes to include in the
registration statement. If requested by the managing underwriter in writing, the
holder will agree not to sell any of the Registrable Securities included in such
registration statement without the consent of such managing underwriter during
such period, not to exceed six months, following the effective date of the
registration statement, as the managing underwriter may request (the "lock-up
period"), and Gemini shall not be required to include Registrable Securities in
such registration statement unless the holder agrees to such lock-up.
Notwithstanding the foregoing, in no event shall the holder be required to agree
to a lock-up period longer than any other selling stockholder whose shares are
included in such registration statement or any other underwritten registration
statement being filed at or about the same time as such registration statement.
Gemini shall keep such registration statement current until the earlier of the
date the Registrable Securities included in the registration statement shall
have been sold or the Registration Termination Date. It shall be a condition to
Gemini's obligation to include any holder's Registrable Securities in a
registration statement pursuant to this Paragraph 11(a) or to file a
registration statement pursuant to Paragraph 11(b) of this Agreement that the
holder provide Gemini in writing with such information as Gemini may reasonably
request concerning the holder and the holder's proposed plan of distribution and
any other information requested by the Commission, the National Association of
Securities Dealers, Inc., NASD Regulation, Inc., any stock exchange or market on
which the Gemini Common Stock is traded and any state securities commission.
Gemini shall advise the holder in writing of the extent to which a managing
underwriter will permit the inclusion of shares of Gemini Common Stock in a
registration statement and shall provide the holder with a copy of
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any requests by the managing underwriter relating to the inclusion of any
Registrable Securities in a registration statement.
(b) If the Registrable Securities shall not have been registered
pursuant to Paragraph 11(a) of this Agreement during the twelve month period
commencing on the IPO Date, then, if Trans Global or any other holder(s) who own
25% of the Series A Preferred Stock issued pursuant to this Agreement shall give
notice (the "Registration Notice") to Gemini at any time during the period
commencing twelve months after the IPO Date and ending on the Registration
Termination Date, that such holders contemplate the sale of all or any portion
of the Registrable Securities under such circumstances that a public
distribution (within the meaning of the Securities Act) of such Registrable
Securities will be involved, then Gemini shall, within forty five (45) days
after receipt of the Registration Notice, time being of the essence, file a
registration statement pursuant to the Securities Act, to the end that all
Registrable Securities may be sold publicly under the Securities Act, and Gemini
will use its best efforts to cause such registration statement to become
effective. If the Registration Notice is not signed by all holders of the
Registrable Securities, Gemini shall, within five days of its receipt of the
Registration Notice, give notice to the other holders and, if they so request,
include their Registrable Securities in the registration statement. Gemini shall
keep such registration statement current and effective until the all of the
Conversion Shares shall have been sold pursuant to the registration statement or
until the Registration Termination Date. The holders shall be entitled to only
one (1) demand registration right pursuant to this Paragraph 11(b), except that,
in the event that such registration statement is filed and is either withdrawn
or does not become effective (other than upon the written request of all of the
holders whose Registrable Securities are to be included in such registration
statement), then the holders shall not be deemed to have exercised the demand
registration right pursuant to this Paragraph 11(b).
(c) The following provisions shall also be applicable to this
Paragraph 11:
(i) As used in this Paragraph 11, the following terms shall
have the meanings set forth below:
(A) "Registration Termination Date" shall mean the date
on which Trans Global or its Transferees may sell all of the Conversion Shares
that they then own or would own on conversion of the Series A Preferred Stock
pursuant to Paragraph (k) of Rule 144 ("Rule 144") of the Commission pursuant to
the Securities Act.
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(B) "Registrable Securities" shall mean (I) the shares
of Series A Preferred Stock issued to Trans Global pursuant to this Agreement
and held by Trans Global and its Transferees and (II) the Conversion Shares
issued or issuable upon conversion of such shares of Series A Preferred Stock.
Trans Global understands that there will not be a public market in the Series A
Preferred Stock.
(C) "Transferees" shall mean (I) the persons or entities
to whom or to which Trans Global or its transferees shall have transferred any
Registrable Securities in a transaction exempt from the registration
requirements of the Securities Act, other than Rule 144 or any subsequent
similar rule.
(ii) Gemini shall bear the entire cost and expense of any
registration of securities pursuant to Paragraphs 11(a) and (b) of this
Agreement. Any holder whose Registrable Securities are included in any
registration statement pursuant to this Paragraph 11 shall, however, bear the
fees of his or its own counsel and accountants and any transfer taxes or
underwriting or brokers' discounts or commissions applicable to the Registrable
Securities sold by him or it pursuant thereto.
(iii) Following the effective date of a registration
statement which includes Registrable Securities pursuant to Paragraph 11(a) or
(b) of this Agreement, Gemini shall, upon the request of any holder, forthwith
supply the holder with such number of prospectuses meeting the requirements of
the Securities Act as shall be reasonably requested by the holder to permit the
holder to make a public distribution of all the registered Registrable
Securities from time to time offered or sold by the holder, provided that the
holder shall from time to time furnish Gemini with such appropriate information
(relating to the intentions of the holder) in connection therewith as Gemini
shall request in writing as provided in said Paragraphs 11(a) and (b). Gemini
shall also use its best efforts to qualify the registered shares for sale in
such states as the securities being sold by Gemini and other selling
stockholders, if any, are otherwise being registered or qualified and, in such
other states as the holder shall reasonably request; provided, however, that
Gemini shall not, for any such purpose, be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not, but
for the requirements of this Paragraph 11(c)(iii), be obligated to be so
qualified, to subject itself to taxation in such jurisdiction or to consent to
general service of process in any such jurisdiction.
(iv) Gemini shall prepare and file with the Commission such
amendments and supplements to such registration statement and any prospectus
used pursuant this Paragraph
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11 as may be necessary to keep such registration statement current and effective
during the period when the holder may sell Registrable Securities pursuant to
the registration statement. Gemini will notify each holder whose Registrable
Securities are subject to the registration statement at such time as, for any
reason, the prospectus relating to the sale of the Registrable Securities is no
longer current and effective, and the holder shall not sell any Registrable
Securities pursuant to such registration statement until such time as the holder
is advised by Gemini that the registration statement is current and effective.
In no event shall Gemini be required to keep any registration statement which
includes the Registrable Securities current and effective subsequent to the
Registration Termination Date.
(v) Gemini shall indemnify and hold harmless each holder, its
officers and directors, partners and members and each underwriter, within the
meaning of the Securities Act, who may purchase from or sell any Registrable
Securities for the holders and each person who controls any holder and such
underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities (collectively, "Losses") caused by
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of this Paragraph 11 or any
application or other filing under any state securities law or by any omission or
alleged omissions to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, to which the holder
or any such underwriter or control person or other indemnified party may become
subject under the Securities Act, the Securities Exchange Act of 1934, as
amended, or other Federal or state law, rule or regulation, at common law or
otherwise, except insofar as such Losses are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission which is based upon
information furnished or required to be furnished to Gemini by the holder or any
such underwriter or other indemnified party expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of the Securities Act; provided, however, that
each holder and such underwriter shall at the same time indemnify Gemini, its
officers and directors, each underwriter and each person, if any, who controls
Gemini or such underwriter within the meaning of the Securities Act and each
other person whose securities are being offered or sold pursuant to such
registration statement (the "other holders") and each person who controls the
other holders within the meaning of the Securities Act, from and against any and
all Losses caused by any untrue statement or alleged
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<PAGE>
untrue statement of a material fact contained in any registration statement or
any prospectus filed or furnished by reason of this Paragraph 11 or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
insofar as such Losses are caused by any untrue statement or alleged untrue
statement or omission based upon information furnished to Gemini in writing by
the holder or such underwriter expressly for use therein; provided, however,
that the holder's liability to Gemini and such underwriter or other indemnified
party pursuant to this Paragraph 11(c)(v) shall not exceed the gross sales price
of all Registrable Securities sold by the holder pursuant to such registration
statement.
(vi) If any action or claim shall be brought or asserted by a
person or entity entitled to indemnification pursuant to Paragraph 11(c)(v) of
this Agreement (an "indemnified party") against Gemini or any underwriter
engaged by Gemini or any person controlling Gemini or such underwriter within
the meaning of the Securities Act or against the holder or any underwriter
engaged by the holder or any person controlling the holder or such underwriter,
within the meaning of the Securities Act in respect of which indemnity may be
sought pursuant to Paragraph 11(c)(v) of this Agreement (an "indemnifying
party"), the indemnified party shall promptly notify the indemnifying party in
writing of the basis for the claim of indemnification and provide the
indemnifying party with a copy of all legal papers or other notices or
communications served on it in connection therewith, and the indemnifying party
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all legal and other
expenses in connection therewith. The failure of the indemnified party to notify
the indemnifying party as provided in this Paragraph 11(c)(vi) will not relieve
the indemnifying party of any liability for indemnification which it may have to
the indemnified party pursuant to Paragraph 11(c)(v) of this Agreement unless
the failure to so notify the indemnifying party materially prejudices the rights
of the indemnifying party. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
indemnified party unless (A) the employment thereof has been specifically
authorized by the indemnifying party in writing and the indemnifying party shall
have agreed in writing to pay such fees and expenses, or (B) the indemnifying
party has failed, either (I) with reasonable promptness, to assume the defense
and employ counsel as provided in this Paragraph 11(c)(vi), or (II) to appoint
counsel to act or otherwise respond to any claim or action prior to the date a
response is due, after giving effect to
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<PAGE>
any extensions obtained by or on behalf of the indemnifying party, or (C) the
named parties to any such action (including any impleaded parties) include both
an indemnified party and an indemnifying party, and in the judgment of the
counsel for the indemnified party, it is advisable for the indemnified party or
controlling person to be represented by separate counsel because of actual or
potential conflicting interests between them (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party or such controlling person, it being understood, however,
that the indemnifying party shall, in connection with any one such action or
separate but substantially similar or related actions arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys at any time in each jurisdiction
for all indemnified parties (whether pursuant to this Agreement or any other
agreements granting registration rights), which firm shall be designated in
writing by all the indemnified parties, except that if Trans Global is an
indemnified party, such counsel shall be designated by Trans Global). The
indemnifying party shall not be liable for any settlement of any such action
effected by an indemnified party without the written consent of the indemnifying
party (which shall not be withheld unreasonably in light of all factors of
importance to such indemnifying party and such indemnified party), but if
settled with such written consent, or if there be a final judgment or decree for
the plaintiff in any such action by a court of competent jurisdiction and the
time to appeal shall have expired or the last appeal shall have been denied, the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any Loss by reason of such settlement or judgment.
(vii) The making of any request for prospectuses hereunder
shall not impose on the holder any obligation to sell any Registrable
Securities.
(viii) Gemini's obligations pursuant to this Paragraph 11
shall be applicable to Trans Global and its Transferees.
(d) If either (i) any holders shall have exercised the demand
registration rights pursuant to Paragraph 11(b) of this Agreement and such
registration statement shall not have been declared effective within six months
after the date of the Registration Notice, or (ii) the Registrable Securities
shall have been registered pursuant to the Securities Act, but, for any reason,
the registration statement shall cease to be current and effective for a period
of more than thirty (30) days, then in either of such cases, any holder shall
have the right to require Gemini to redeem the Preferred Stock held by such
holder as set forth in the Certificate of Designation.
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<PAGE>
12. Pursuant to the Purchase Agreement, this Agreement and the
Purchaser Guarantee will be held in escrow and will be delivered to Trans Global
and an executed copy of this Agreement shall be delivered to Consolidated, Arc
and TA at such times as the documents are released from escrow pursuant to a
Distribution Notice, as defined in the Escrow Agreement, all as provided in the
escrow agreement dated the date of this Agreement among Consolidated, SISC, Arc,
TA, Trans Global and Parker Chapin Flattau & Klimpl, LLP, as escrow agent (the
"Escrow Agreement"). In the event that the Escrow Property, as defined in the
Escrow Agreement, is distributed pursuant to Paragraph 5 of the Escrow Agreement
as a result of a Termination Notice, as defined in the Escrow Agreement, or the
failure of Arc to obtain the New York Regulatory Consent, as defined in and
pursuant to the Purchase Agreement, this Agreement shall, automatically and
without any action on the part of any Party, terminate and be of no force and
effect and no party shall have any right or obligation pursuant to this
Agreement or the Purchaser Guarantee. Nothing in this Paragraph 12 shall be
construed to modify or affect in any manner the rights and obligations of Trans
Global and Arc under the Arc Note and the rights and obligations of Trans Global
and Consolidated under the Consolidated Guarantee during the period when this
Agreement is held in escrow.
13. Gemini agrees that prior to the issuance of the Series A Preferred
Stock pursuant to this Agreement, it will not modify or amend the Certificate of
Designation.
14. Contemporaneously with the execution of this Agreement, each Party
will deliver to the other Parties the certificate of the secretary of such Party
certifying as to (a) the incumbency of the officers of such Party and (b) the
adoption by the Board of Directors of resolutions approving the execution of
this Agreement and the performance of its terms.
15. (a) Except for the waiver granted in Paragraph 1 of this Agreement
and the provisions of Paragraph 6 of this Agreement, the Arc Note shall remain
in full force and effect.
(b) Nothing in this Agreement shall be construed to modify or
affect the rights of Consolidated, SISC and Trans Global pursuant to a certain
agreement dated February 25, 1999, by and among Consolidated, SISC and Trans
Global.
16. (a) This Agreement, including the Exhibits, which constitute
integral parts of this Agreement, constitutes the entire agreement of the
parties with respect to the subject matter thereof, superseding and terminating
any and all prior or contemporaneous oral and prior written agreements,
understandings or letters of intent between or among the parties with respect to
the subject matter of this Agreement. No part of this Agreement may be modified
or amended, nor
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<PAGE>
may any right be waived, except by a written instrument which expressly refers
to this Agreement, states that it is a modification or amendment of this
Agreement or a waiver under this Agreement and is signed by the parties to this
Agreement, or, in the case of waiver, by the party granting the waiver. No
course of conduct or dealing or trade usage or custom and no course of
performance shall be relied on or referred to by any party to contradict,
explain or supplement any provision of this Agreement, it being acknowledged by
the parties to this Agreement that this Agreement is intended to be, and is, the
complete and exclusive statement of the agreement with respect to its subject
matter. Any waiver shall be limited to the express terms thereof and shall not
be construed as a waiver of any other provisions or the same provisions at any
other time or under any other circumstances.
(b) If any section, term or provision of this Agreement shall to
any extent be held or determined to be invalid or unenforceable, the remaining
sections, terms and provisions shall nevertheless continue in full force and
effect.
(c) All notices or other communications required or permitted by
this Agreement shall be in writing signed by the party giving such notice, and
delivered personally against receipt thereof or sent by overnight courier, mail
or messenger against receipt thereof or sent by registered or certified mail,
return receipt requested, or by facsimile transmission or similar means of
communication if receipt is confirmed or if transmission of such notice is
confirmed by mail as provided in this Paragraph 16. Notices shall be deemed to
have been received on the date of personal delivery or telecopy or, if sent by
certified or registered mail, return receipt requested, shall be deemed to be
delivered on the fifth (5th) business day after the date of mailing, except that
notice of change in the person, address or facsimile number shall be effective
on actual receipt. Notices shall be addressed to the party for whom intended at
his or its address set forth below or to the attention of such other person or
such other address or facsimile number as a party shall have designated by
notice in writing to the other parties given in the manner provided by this
Paragraph 16(c):
if to Trans Global to:
Trans Global Services, Inc.
1393 Veterans Memorial Highway
Hauppauge, New York 11788
Facsimile: (516) 724-0039
Attn: Joseph G. Sicinski, President and CEO
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<PAGE>
with a copy to:
Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10159
Facsimile: (212) 953-6899
Attn: Asher S. Levitsky P.C.
if to Arc, to:
Arc Networks, Inc.
1770 Motor Parkway
Hauppauge, New York 11788
Facsimile: (516) 582-1240
Attn: Peter F. Parrinello, President
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 704-6288
Attention: Michael J. Shef, Esq.
if to Consolidated, to:
Consolidated Technology Group Ltd.
160 Broadway, Suite 901
New York, New York 10038
Facsimile: (212) 233-5023
Attn: Mr. Seymour Richter, President
and
Consolidated Technology Group Ltd.
2424 North Federal Highway, Suite 110
Boca Raton, Florida 33431
Facsimile: (561) 347-5352
Attn: George W. Mahoney, Chief Financial Officer
with a copy to:
Robert L. Blessey, Esq.
51 Lyon Ridge Road
Katonah, NY 10536
Facsimile: (914) 232-0647
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<PAGE>
If to TA or Gemini, to:
Technology Acquisitions, Ltd.
c/o Benchmark Equity Group, Inc.
700 Gemini Street
Houston, TX 77058
Facsimile: (281) 488-5353
Attn: Mr. Christopher H. Efird
with a copy to:
De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile: (202) 659-1290
Attn: Ralph V. De Martino, Esq.
(d) This Agreement shall be governed and construed in accordance with
the laws of the State of New York applicable to agreements executed and to be
performed wholly within such State, without regard to any principles of
conflicts of law. Each of the Parties hereby (i) irrevocably consents and agrees
that any legal or equitable action or proceeding arising under or in connection
with this Agreement shall be brought in the Federal or state courts located in
the County of New York or Suffolk in the State of New York, (ii) by execution
and delivery of this Agreement, irrevocably submits to and accepts the
jurisdiction of said courts, (iii) waives any defense that such court is not a
convenient forum, and (iv) consents to any service of process made in the manner
set forth in Paragraph 16(c) of this Agreement (other than by telecopier), in
addition to any other method of service permitted by law. In any action brought
pursuant to this Agreement based on an alleged breach of this Agreement, the
prevailing Party shall be entitled to reimbursement of all costs incurred by it
in connection therewith to the extent, if at all, awarded or allowed by the
court or other tribunal in which the action or proceeding has been commenced;
provided, however, that nothing in this Paragraph 16(d) shall be construed to
affect in any manner the provisions of Paragraphs 11(c)(v) and (vi) of this
Agreement.
(e) Each of the Parties to this Agreement shall be responsible and
liable for its own expenses incurred in connection with the preparation of this
Agreement and the consummation of the transactions contemplated by this
Agreement and related expenses, except as expressly provided in this Agreement.
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<PAGE>
(f) Each Party to this Agreement is relying on his or its own tax
advisors as to the tax consequences of this Agreement and the transactions
contemplated by this Agreement, and no party is making any representations or
warranties of any kind as to such tax consequences to any other Party.
(g) No Party shall make a public announcement concerning this Agreement
without the consent of the other Parties except to the extent that disclosure is
required under applicable laws.
(h) This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors and permitted assigns; provided,
however, that, except as expressly provided in this Agreement, no Party may
assign this Agreement or any of its rights under this Agreement without the
prior written consent of the other Parties.
(i) Each Party agrees, without cost or expense to any other Party, to
deliver or cause to be delivered such other documents and instruments and to
take such other action as may be reasonably requested by any other party to this
Agreement in order to carry out more fully the provisions of, and to consummate
the transaction contemplated by, this Agreement.
(j) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Signatures on Next Page]
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date first written above.
TRANS GLOBAL SERVICES, INC.
By:-------------------------------------
Joseph G. Sicinski, President and CEO
CONSOLIDATED TECHNOLOGY GROUP LTD.
By:---------------------------
Seymour Richter, President:
ARC NETWORKS, INC.
By:--------------------------------------
Peter F. Parrinello, President and CEO
TECHNOLOGY ACQUISITIONS LTD.
By:-----------------------------
Name:
Title:
GEMINI II, INC.
By:-----------------------------
Name:
Title:
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<PAGE>
Exhibit A
GUARANTEE
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Technology Acquisitions Ltd., a Bermuda corporation ("TA"),
and Gemini II, Inc., a Delaware corporation ("Gemini"), TA and Gemini being
collectively referred to as the "Guarantors" and each as a "Guarantor," hereby
unconditionally and irrevocably jointly and severally guarantee the payment and
performance by Arc Networks, Inc., a Delaware corporation (the "Payor"), of all
of the Payor's obligations pursuant to the Payor's 10% Installment Promissory
Note due August 31, 2003 in the principal amount of one million two hundred
sixteen thousand six hundred seventy three dollars ($1,216,673) (the "Note")
dated September 18, 1998 and payable to the order of Trans Global Services,
Inc., a Delaware corporation, and if the Payor fails to pay the Note in
accordance with its terms, the Guarantors jointly and severally agree promptly
to pay or perform the Payor's obligations under the Note.
The liability of the Guarantors shall be direct and immediate and not
conditional or contingent upon the pursuance by the holder of the Note of
whatever remedies it may have, at law or in equity, against the Payor or any
other party. The Guarantors hereby waive presentment for payment, demand,
protest and notice of protest and of nonpayment.
The obligations of the Guarantors shall not be impaired, diminished or
discharged, in whole or in part, by any extension of time granted by the holder
of the Note, by any course of dealing between the holder of the Note and the
Payor, by the unenforceability of the Note, in whole or in part, for any reason
whatsoever, by the release of any guarantor or other obligor or any collateral,
or by any other act, omission, event or circumstance which might operate to
discharge a guarantor in whole or in part or which might operate as a defense,
in whole or in part, to any obligation of a guarantor or which might invalidate,
in whole or in part, a guarantee.
The Guarantors acknowledge and agree that nothing shall discharge,
satisfy or release the obligations created under this Guarantee, except for
payment in full or satisfaction of the Payor's obligations with respect to the
Note. Such obligations shall not be considered fully paid unless and until all
payments by the Payor or any guarantor, including the Guarantors (or any other
party who or which is now or may hereafter be liable for any obligations under
the Note) to the holder of the Note are no longer subject to any right on the
part of any person whomsoever, including, without limitation, any trustee in
bankruptcy, to set aside such payments, or to seek to recoup the amount of such
payments, or any part thereof. The foregoing shall include, by way of example
and not by limitation, all rights to recover preferences voidable under the
United States Bankruptcy Code. In furtherance of the foregoing, the Guarantors
jointly and severally agree to pay on demand any amount which the holder of the
Note is required to pay under any bankruptcy, insolvency or other similar law on
account of any amount received by the holder of the Note under or with respect
to the Note or this guarantee.
In the event that the holder of this Note commences litigation against
the Guarantors or either of them or otherwise engages counsel in order to
enforce its rights under this Guarantee, the Guarantors shall be jointly and
severally liable for all reasonable costs and expenses of collection, including,
without limitation, reasonable attorneys' fees and expenses.
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<PAGE>
The Guarantors hereby represent to any holder of the Note that (i) the
execution, delivery and performance of this Guarantee has been duly authorized
and approved by all required corporate action of each Guarantor, and (ii) this
Guarantee is a valid and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect.
This Guarantee shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts made and to be
performed entirely within such State without regard to principles of conflicts
of law. Each Guarantor consents to the nonexclusive jurisdiction of the United
States District Court for the Southern or Eastern District of New York and the
Supreme Court of the State of New York in the County of New York or Suffolk in
any action relating to or arising out of this Guarantee and waives any claim
that any of such forums is not a convenient forum. IN ANY SUCH ACTION, EACH
GUARANTOR WAIVES ANY RIGHT TO A TRIAL BY JURY
This Guaranty shall be binding upon Guarantors and their respective
successors and assigns and inure to the benefit of the holder of the Note and
its successors and assigns.
IN WITNESS WHEREOF, the Guarantors have executed this Guarantee this th
day of March, 1999.
TECHNOLOGY ACQUISITIONS LTD.
By:----------------------------
Name:
Title:
GEMINI II, INC.
By:----------------------------
Name:
Title:
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<PAGE>
Exhibit B
CERTIFICATE OF DESIGNATION OF
GEMINI II, INC.
Series A 10% Convertible Redeemable Preferred Stock
Pursuant to Section 151(g) of the Delaware General Corporation Law,
Gemini II, Inc., a Delaware corporation (the "Corporation"), does hereby certify
as follows:
1. The following resolution was duly adopted by the Board of Directors
of the Corporation on March , 1999:
RESOLVED, that pursuant to Section Fourth of the Certificate
of Incorporation of this Corporation, there be created a series of the
Preferred Stock, par value $.0001 per share ("Preferred Stock"), of
this Corporation consisting of one million two hundred seventeen
thousand (1,217,000) shares, to be designated as the Series A 10%
Convertible Redeemable Preferred Stock ("Series A Preferred Stock"),
and that the holders of such shares shall have the rights, preferences
and privileges set forth in Statement of Designation set forth in
Exhibit I to this Resolution; and it was further
RESOLVED, that the officers of this Corporation be, and they
hereby are, authorized and empowered to execute and file with the
Secretary of State of the State of Delaware, a certificate of
designation setting forth the rights, preferences and privileges of the
holders of the Series A Preferred Stock.
2. Set forth as Exhibit I to this Certificate of Designation is a true
and correct copy of the rights, preferences and privileges of the holders of the
Series A Preferred Stock.
IN WITNESS WHEREOF, Gemini II, Inc. has caused this certificate to be
signed by the president and attested by its secretary this th day of March,
1999.
ATTEST:
By:-------------------
, President
-------------------
, Secretary
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<PAGE>
Exhibit I
Statement of Designation
The designation of, the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to, the Series A 10%
Convertible Preferred Stock are as follows:
1. Designation and Number of Shares. The designation of this series of
one million two hundred seventeen thousand (1,217,000) shares of preferred
stock, par value $.0001 per share ("Preferred Stock"), created by the Board of
Directors of the Corporation pursuant to the authority granted to it by the
certificate of incorporation of the Corporation is "Series A 10% Convertible
Redeemable Preferred Stock," which is hereinafter referred to as the "Series A
Preferred Stock." In the event of the conversion of shares of Series A Preferred
Stock into this Corporation's common stock, par value $.0001 per share ("Common
Stock"), pursuant to Paragraph 4 of this Statement of Designation, or in the
event that the Corporation shall redeem any shares of Series A Preferred Stock
pursuant to Paragraph 5 of this Statement of Designation or shall otherwise
acquire and cancel any shares of Series A Preferred Stock, the shares of Series
A Preferred Stock so converted, redeemed or otherwise acquired and canceled
shall have the status of authorized but unissued shares of Preferred Stock,
without designation as to series until such stock is once more designated as
part of a particular series by the Corporation's Board of Directors, and the
number of authorized shares of Series A Preferred Stock shall be reduced by the
number of shares so converted, redeemed or otherwise acquired and canceled. In
addition, if the Corporation shall not issue the maximum number of shares of
Series A Preferred Stock, the Corporation may, from time to time, by resolution
of the Board of Directors, reduce the number of shares of Series A Preferred
Stock authorized, provided, that no such reduction shall reduce the number of
authorized shares to a number which is less than the number of shares of Series
A Preferred Stock then issued or reserved for issuance. The number of shares by
which the Series A Preferred Stock is reduced shall have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, until such stock is once more designated as part of a particular series
by the Corporation's Board of Directors. The Board of Directors shall cause to
be filed with the Secretary of State of the State of Delaware such certificate
as shall be necessary to reflect any reduction in the number of shares
constituting the Series A Preferred Stock.
2. Dividend Rights.
(a) The holders of the Series A Preferred Stock shall be entitled
to receive, out of funds of this Corporation legally available therefor, cash
dividends at an annual rate of ten cents ($.10) per share. Dividends shall be
payable in annual installments on the first day of March (the "dividend payment
date") in each year, commencing March 1, 2000, to holders of record of the
Series A Preferred Stock as follows. The holders of record of Series A Preferred
Stock on the 15th day of each calendar month, commencing with the first such day
which occurs after the initial issuance of the first share of Series A Preferred
Stock, shall be entitled to a dividend of five-sixth of one cent ($.008 1/3) per
share (the "monthly dividend accrual"). On each dividend payment date, the
Corporation shall pay the monthly dividend accruals for each month through the
monthly dividend accrual for the February immediately preceding the dividend
payment date, regardless of whether the shares of Series A Preferred Stock are
outstanding on the dividend payment date.
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<PAGE>
(b) The amount of any dividends "accrued" on any share of Series A
Preferred Stock at any dividend payment date shall be deemed to be the amount of
any unpaid dividends accumulated thereon to and including such dividend payment
date, whether or not earned or declared, and the amount of dividends "accrued"
on any share of Series A Preferred Stock at any date other than a dividend
payment date shall be calculated as the amount of any unpaid dividends
accumulated thereon to and including the last preceding dividend payment date,
whether or not earned or declared, plus an amount calculated on the basis of the
monthly dividend accrual at the monthly rate of five-sixth of one cent ($.008
1/3) per share for the period after such last preceding dividend payment date to
and including the date as of which the calculation is made.
(c) Except as provided in this Statement of Designation, no
dividends shall be declared or paid or set aside for payment on any class or
series of capital stock ranking on a parity with or junior to the Series A
Preferred Stock as to dividends for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for payment thereof is set aside for such payment on the Series A
Preferred Stock for all dividend periods terminating on or prior to the dividend
payment date of such dividends on any such series or class. When dividends are
not paid in full upon the shares of Series A Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the Series A
Preferred Stock, all dividends declared upon shares of Series A Preferred Stock
and such other series of Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share on the Series A Preferred Stock shall in
all cases bear to each other the same ratio that the accrued dividends per share
on the shares of Series A Preferred Stock and such other series of Preferred
Stock bear to each other. Holders of shares of Series A Preferred Stock shall
not be entitled to dividends thereon, whether payable in cash, property or
stock, in excess of the full cumulative dividends thereon, as provided in this
Statement of Designation. No dividend on Series A Preferred Stock shall be
declared or paid or set apart for payment with respect to any dividend payment
date unless full dividends, including accumulated dividends, if any, on any
series or class of capital stock ranking, as to dividends, prior to Series A
Preferred Stock which are to have been paid on or prior to such dividend payment
date have been or contemporaneously are declared and paid or declared and a sum
sufficient for payment thereof has been set aside for all dividend periods for
such series or class terminating on or prior to such dividend payment date.
(d) As long as any shares of Series A Preferred Stock are
outstanding, no dividends (other than a dividend in any series or class of
capital stock ranking junior to Series A Preferred Stock as to both dividends
and payments in the event of voluntary or involuntary dissolution, liquidation
or winding up), shall be declared or paid or set aside for payment and no other
distribution shall be declared or made upon any such junior series or class of
capital stock, and no such junior series or class of capital stock or any series
of Preferred Stock on a parity with Series A Preferred Stock as to both
dividends and payments in the event of voluntary and involuntary dissolution,
liquidation or winding up shall be redeemed, purchased or otherwise acquired for
any consideration by the Corporation or by any subsidiary (which shall mean any
corporation or entity, the majority of voting power to elect directors of which
is held directly or indirectly by the Corporation), except by conversion into or
exchange for any such junior series or class of capital stock; unless, in each
case, the full cumulative dividends on all outstanding shares of Series A
Preferred Stock shall have been paid in full for all past dividend periods or
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<PAGE>
unless the holders of a majority of the Series A Preferred Stock then
outstanding shall consent thereto.
3. Voting Rights.
(a) Except as otherwise required by law, the holders of the Series
A Preferred Stock shall have no voting rights; provided, however, that, except
as provided in Paragraph 1 of this Statement of Designation, neither this
Statement of Designation nor the Certificate of Designation of which this
Statement of Designation is a part, may not be modified or amended without the
consent of the holders of a majority of the issued and outstanding shares of
Series A Preferred Stock. The consent of the holders of the Series A Preferred
Stock may be given at a meeting of the holders of the Series A Preferred Stock
or by a written consent of the holders of a majority of the outstanding shares
of Series A Preferred Stock.
(b) The Corporation may create other series of Preferred Stock
which may be senior or junior to or on a parity with the Series A Preferred
Stock as to dividends and/or on voluntary or involuntary dissolution,
liquidation or winding up without the consent of the holders of the Series A
Preferred Stock.
4. Conversion into Common Stock.
(a) (i) Each holder of the Series A Preferred Stock will have the
right, at any time and from time to time, commencing ninety (90) days from the
IPO Date, as hereinafter defined, or earlier with the consent of both the
Corporation and the representative of the underwriters with respect to the
Corporation's initial public offering, to convert any shares of Series A
Preferred Stock into shares of Common Stock, together with, at the election of
the holder thereof, accrued dividends to the date of conversion, at the
Conversion Rate, as hereinafter defined.
(ii) In the event that shares of Series A Preferred Stock are
redeemed by the Corporation pursuant to Paragraph 5 of this Statement of
Designation, the right of the holders of the Series A Preferred Stock to convert
such shares into Common Stock shall, subject to Paragraph 5(e) of this Statement
of Designation, terminate at 5:30 P.M. on the day before the Redemption Date, as
defined in Paragraph 5(b) of this Statement of Designation; provided, that the
Redemption Price, as defined in Paragraph 5(a) of this Statement of is made on
the Redemption Date.
(b) (i) The "Conversion Rate" shall mean the number of shares of
Common Stock issuable upon conversion of one (1) share of Series A Preferred
Stock. The Conversion Rate shall be determined by dividing one dollar ($1.00) by
the lesser of (A) the IPO Price, as hereinafter defined, or (B) the Market
Price, as hereinafter defined, subject to adjustment as provided in Paragraph
4(e) of this Statement of Designation; provided, however, that in no event shall
the Conversion Rate be less than one dollar ($1.00) divided by one-third (1/3)
of the IPO Price (as adjusted pursuant to Paragraph 4(e)(i), (ii) and (iii) of
this Statement of Designation).
(ii) The "IPO Date" shall man the date on which the first
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), relating to an
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offering by the Corporation of its securities is declared effective by the
Securities and Exchange Commission.
(iii) The "IPO Price" shall mean the price per share at which
the Corporation's Common Stock is sold to the public in its initial public
offering. In the event that the initial public offering consists of units, which
include both shares of Common Stock and warrants, each warrant shall be valued
at 15% of the initial public offering price of the units. The IPO Price shall be
subject to adjustment as provided in Paragraph 4(e) of this Statement of
Designation.
(iv) The "Market Price" shall mean the average of the closing
prices during the five (5) day period ending on the trading day prior to the
date of such conversion, as reported by the principal stock exchange or market
on which the Common Stock is listed; provided, however, that if, on any of such
days there are no reported sales of the Common Stock, the closing low bid price
shall be used for such day. If the Common Stock is listed on the Nasdaq Stock
Market and a regional stock exchange, the Nasdaq Stock Market shall be the
principal market. If, during the five (5) day period referred to in this
Paragraph 4(b)(iii) there shall be an event requiring an adjustment pursuant to
Paragraph 4(e) of this Agreement, the closing or bid price, as the case may be,
for each day prior to such event (a "Pre-Transaction Market Price") shall be
adjusted as provided in said Paragraph 4(e).
(c) Conversion of the Series A Preferred Stock shall be effected
by surrender of the certificate representing the shares of Series A Preferred
Stock being converted to the transfer agent for the Series A Preferred Stock,
or, if none shall have been appointed, to the Corporation, together with the
form of notice of election to convert as may be provided from time to time by
the Corporation.
(d) Shares of Series A Preferred Stock shall be deemed to have
been converted immediately prior to the close of business on the day of the
surrender for conversion of the certificate therefor, together with the form of
notice of election provided by the Corporation duly signed by the holder
thereof, and the person or persons entitled to receive shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock as of such time. As promptly as
practicable on or after the conversion date, the Corporation or its transfer
agent shall issue and shall deliver a certificate or certificates for the number
of shares of Common Stock issuable upon such conversion to the person or persons
entitled to receive the same.
(e) The IPO Price and any Pre-Transaction Market Price (the
"Applicable Prices" and each, an "Applicable Price") shall be subject to
adjustment as follows:
(i) In case the Corporation shall, after the IPO Date, (A)
pay a dividend or make a distribution on its shares of Common Stock in shares of
Common Stock, (B) subdivide, split or reclassify its outstanding Common Stock
into a greater number of shares, (C) effect a reverse split or otherwise combine
or reclassify its outstanding Common Stock into a smaller number of shares, or
(D) issue any shares by reclassification of its shares of Common Stock, the
Applicable Prices 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 to reflect, in accordance
with generally accepted accounting principles, such dividend, subdivision,
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combination or reclassification. Such adjustment shall be made successively
whenever any event listed in this Paragraph 4(e)(i) shall occur.
(ii) In case the Corporation shall, subsequent to the IPO
Date, issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (or having a conversion price per share) less than
the current market price of the Common Stock (as defined in Paragraph 4(e)(iv)
of this Statement of Designation) on the record date mentioned below, the
Applicable Prices shall be adjusted so that the same shall equal the price
determined by multiplying the Applicable Prices in effect immediately prior to
the date of such issuance by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on the record date mentioned below
plus the number of shares determined by multiplying the price or the conversion
price at which additional shares of Common Stock are offered by the number of
shares of Common Stock being offered by the number of shares being issued,
including shares being issued upon conversion of any convertible securities, and
dividing the result so obtained by the current market price of the Common Stock,
and of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchased (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock or securities convertible into Common Stock are not
delivered after the expiration of such rights or warrants, the Applicable Prices
shall be readjusted to the Applicable Prices which would then be in effect had
the adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
(iii) In case the Corporation shall, subsequent to the IPO
Date, distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph 4(e)(i) of this
Statement of Designation) or subscription rights or warrants (excluding those
referred to in Paragraph 4(e)(ii) of this Statement of Designation), then in
each such case the Applicable Prices in effect thereafter shall be determined by
multiplying the Applicable Prices in effect immediately prior thereto by a
fraction, of which the numerator shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Paragraph 4(e)(iv) of this Statement of Designation), less
the fair market value (as determined in good faith by the Corporation's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and of which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(iv) For the purpose of any computation under Paragraphs
4(e)(ii) and (iii) of this Statement of Designation, the current market price
per share of Common Stock at any date shall be deemed to be the average of the
daily closing prices for five (5) consecutive trading days commencing twenty
(20) trading days before such date, as reported by the principal stock
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exchange or market on which the Common Stock is listed; provided, however, that
if, on any of such days there are no reported sales of the Common Stock, the
closing low bid price shall be used for such day. If the Common Stock is not
listed or admitted to listed on any stock exchange or market, the closing low
bid prices as reported by the National Quotation Bureau, Inc. or other similar
organization if Nasdaq is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(v) No increase or decrease in the Applicable Prices shall be
required unless such adjustment would require an increase or decrease of at
least one percent (1%); provided, however, that any adjustments which, by reason
of this Paragraph 4(e)(v), are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Paragraph 4(e) shall be made to the nearest one-tenth (1/10) of a cent.
(vi) The Corporation may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Corporation) to make any computation
required by this Paragraph 4(e), and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(vii) In the event that at any time, as a result of an
adjustment made pursuant this Paragraph 4(e), the holder of shares of Series A
Preferred Stock thereafter shall become entitled to receive any shares of the
Corporation, other than Common Stock, thereafter the number of such other shares
so receivable upon conversion of shares of Series A Preferred Stock 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 Common Stock
contained in this Paragraph 4.
(viii) In addition to the adjustments provided for in this
Paragraph 4(e), the Corporation may modify the Conversion Rate in a manner which
will increase the number of shares of Common Stock issuable upon conversion of
the Series A Preferred Stock if the Corporation believes that such adjustment is
necessary or desirable in order to avoid adverse Federal income tax consequences
to the holders of the Common Stock.
(f) Whenever any adjustment is required by the provisions of
Paragraph 4(e) of this Statement of Designation, the Corporation shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjustment and the adjusted IPO Price, setting forth in reasonable
detail the facts requiring such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by any holder of
shares of Series A Preferred Stock, and the Corporation shall, forthwith after
each such adjustment, mail a copy of such certificate by first class mail to the
holder of Series A Preferred Stock at such holders' addresses set forth in the
Corporation's books and records.
(g) In case:
(i) the Corporation shall pay any dividend or make any
distribution upon Common Stock (other than a regular cash dividend payable out
of retained earnings or cash surplus); or
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(ii) the Corporation shall offer to the holders of Common
Stock for subscription or purchase by them any shares of any class or any other
rights, or
(iii) any reclassification of the capital stock of the
Corporation, consolidation or merger of the Corporation with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Corporation to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Corporation shall be
effected; then in any such case, the Corporation shall cause to be mailed by
first class mail to the record holders of Series A Preferred Stock at least ten
(10) days prior to the date specified in (A) and (B) below, as the case may be,
a notice containing a brief description of the proposed action and stating the
date on which (A) a record is to be taken for the purpose of such dividend,
distribution or rights, or (B) such reclassification, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(h) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Corporation, or in
case of any consolidation or merger of the Corporation into another corporation
(other than a merger with a subsidiary in which merger the Corporation is the
continuing corporation and which does not result in any reclassification,
capital reorganization or other change of outstanding shares of Common Stock or
the class issuable upon conversion of Series A Preferred Stock) or in case of
any sale, lease or conveyance to another corporation of the property of the
Corporation as an entirety, the Corporation shall, as a condition precedent to
such transaction, cause effective provisions to be made so that the holder of
the Series A Preferred Stock shall have the right thereafter by converting the
Series A Preferred Stock, to receive the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been received
upon conversion of the Series A Preferred Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Any such
provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Statement of Designation. The foregoing provisions of this Paragraph 4(h) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. The provisions of this Paragraph 4(h) shall not apply with
respect to any merger, consolidation, sale, conveyance or other transaction if
such transaction would be deemed a liquidation as provided in, and for the
purpose of, Paragraph 6 of this Statement of Designation.
(i) No fractional shares or script representing fractional shares
shall be issued upon the conversion of shares of Series A Preferred Stock. If,
upon conversion of any shares of Series A Preferred Stock, any holder would,
except for the provisions of this Paragraph 4(i), be entitled to receive a
fractional share of Common Stock, then the number of shares of Common Stock
issuable upon such conversion shall be rounded up to the next higher whole
number of shares.
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(j) The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock the
full number of shares of Common Stock then issuable upon the conversion of all
shares of Series A Preferred Stock then outstanding.
(k) The Common Stock issuable upon conversion of the Series A
Preferred Stock shall, when so issued, be duly and validly authorized and
issued, fully paid and non-assessable.
5. Redemption.
(a) The Corporation may redeem the Series A Preferred Stock in
whole at any time or in part from time to time upon not less than five (5) nor
more than fifteen (15) days' prior written notice at the redemption price per
share equal to one and no/100 dollars ($1.00), plus accrued dividends to the
date of redemption (the "Redemption Price"). The Corporation is not required to
provide for the redemption of any shares of Series A Preferred Stock through the
operation of a sinking fund.
(b) The date on which the Corporation is to redeem any Series
A Preferred Stock pursuant to Paragraph 5(a) of this Statement of Designation is
referred to as the "Redemption Date" with respect to the shares of Series A
Preferred Stock to be redeemed on such date. From and after the close of
business on the business day immediately preceding the Redemption Date, any
shares of Series A Preferred Stock as to which the Corporation shall have
exercised its right of redemption shall cease to have any voting, dividend or
other rights, and the holder of such shares shall only have the right to receive
payment of the Redemption Price; provided, however, that this Paragraph 5(b)
shall not apply if the Corporation shall default in the payment of the
Redemption Price.
(c) In the event that the Corporation redeems only a portion of
the Series A Preferred Stock, the Corporation shall redeem such shares in a
manner which approximates a prorata redemption of the holders of the Series A
Preferred Stock, and, in making such redemption, the Corporation may fully
redeem holders of Series A Preferred Stock whose holdings are insubstantial
relative to the number of Series A Preferred Stock being redeemed.
(d) (i) In the event that, for any period of five (5) consecutive
trading days (a "Low Price Period") commencing after the IPO Date, the average
last reported price of the Common Stock (or the low bid price for any day on
which there are no reported sales of Common Stock) is less than one-third (1/3)
of the IPO Price (as adjusted pursuant to Paragraph 4(e)(i), (ii) and (iii) of
this Statement of Designation), then either
(A) The Corporation may, within five (5) trading days
after the end of any Low Price Period, redeem all, and not less than all, of the
then outstanding shares of Series A Preferred Stock pursuant to Paragraph 5(a)
of this Statement of Designation, or
(B) Any holder of Series A Preferred Stock may, on
written notice (the "Holder Notice") to the Corporation given within five (5)
trading days after the end of any Low Price Period, require the Corporation to
redeem all of such holder's shares of Series A Preferred Stock at the Redemption
Price.
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(ii) If any holder of Series A Preferred Stock shall give the
Holder Notice pursuant to Paragraph 5(d)(i)(B) of this Statement of Designation,
the Corporation shall redeem all of such holder's shares of Series A Preferred
Stock not later than fifteen (15) days after the Holder Notice is given.
(iii) The right of the Corporation to redeem the Series A
Preferred Stock pursuant to Paragraph 5(d)(i)(A) of this Statement of
Designation shall be in addition to its right to redeem the Series A Preferred
Stock pursuant to Paragraph 5(a) of this Statement of Designation.
(iv) In the event that the Corporation redeems the Series A
Preferred Stock pursuant to this Paragraph 5(d), the right of the holders of the
Series A Preferred Stock to convert their shares of Series A Preferred Stock
shall terminate on the date the holders receive such notice of redemption. In
the event that any holder of Series A Preferred Stock shall give the Holder
Notice, such holder's right to convert the Series A Preferred Stock shall
terminate on the date the Holder Notice is given.
(v) In the event that the Corporation fails to pay the
Redemption Price with respect to any redemption pursuant to this Paragraph 5(d),
the Corporation's right to redeem the Series A Preferred Stock shall terminate;
however, the right of the holders of the Series A Preferred Stock and the
obligations of the Corporation to redeem shares of Series A Preferred Stock
following any Holder Notice shall continue as provided in this Paragraph 5(d).
Such right shall be in addition to any other right any holder may have,
including the right to enforce payment by the Corporation of the Redemption
Price.
(e) If (i) any holder of Series A Preferred Stock has demand
registration rights with respect to the shares of Series A Preferred Stock
and/or the Common Stock issued or issuable upon conversion thereof (the
"Conversion Shares") and the Corporation shall have failed to register such
shares pursuant to an effective registration statement under the Securities Act,
within six (6) months after a demand for registration has been made by the
holder or (ii) the Corporation shall have registered such shares of Series A
Preferred Stock and/or Conversion Shares pursuant to the Securities Act, but,
for any reason, the registration statement shall cease to be current and
effective for a period of more than thirty (30) days, then in either of such
cases, any holder may, on thirty (30) days written notice ("Redemption Demand
Notice") to the Corporation, require the Corporation to redeem the Series A
Preferred Stock at the Redemption Price. The Corporation shall pay the
Redemption Price with respect to such shares of Series A Preferred Stock within
fifteen (15) days after the Redemption Demand Notice is given.
(f) In the event that the Corporation fails to pay the Redemption
Price when due pursuant to this Paragraph 5, if any holder of Series A Preferred
Stock commences litigation against the Corporation or otherwise engages counsel
in order to enforce payment of the Redemption Price, the Corporation shall pay
for all reasonable costs and expenses of collection, including, without
limitation, reasonable attorneys' fees and expenses.
(g) If any dividends on Series A Preferred Stock are in arrears,
no purchase or redemption shall be made of any stock ranking junior to or on a
parity with Series A Preferred Stock as to dividends or upon liquidation (other
than a purchase or redemption made by issuance for delivery of such junior
stock); provided, however, that any monies theretofore deposited in any
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sinking fund with respect to any Preferred Stock of the Corporation in
compliance with the provisions of such sinking fund thereafter may be applied to
the purchase or redemption of such Preferred Stock in accordance with the terms
of such sinking fund regardless of whether at the time of such application full
cumulative dividends upon shares of Series A Preferred Stock outstanding to the
end of the last completed dividend period shall have been paid or declared and
set aside for payment; and provided, further, however, that the foregoing shall
not prevent the purchase of shares of Preferred Stock ranking on a parity with
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up pursuant to a purchase or exchange offer made on the same terms to
the holders of all the outstanding Preferred Stock so ranking on a parity with
Series A Preferred Stock, including the holders of the Series A Preferred Stock,
as to dividends and upon liquidation, dissolution of winding up.
6. Liquidation Rights.
(a) In the event of the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, holders of the Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation an amount per share equal to one and no/100 dollars ($1.00) per
share, plus a sum equal to all unpaid accrued dividends on the Series A
Preferred Stock before any payment or distribution upon dissolution, liquidation
or winding up shall be made on any series or class of capital stock ranking
junior to Series A Preferred Stock as to such payment or distribution, and after
all such payments or distributions have been made on any series or class of
capital stock ranking senior to the Series A Preferred Stock as to such payment
or distribution.
(b) After payment of the preference set forth in Paragraph 6(a)(i)
of this Statement of Designation, the holders of the Series A Preferred Stock
shall have no right to any further payment with respect to their shares of
Series A Preferred Stock.
(c) The sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property and assets of the Corporation shall be deemed a voluntary dissolution,
liquidation or winding up of the Corporation for purposes of this Paragraph 6.
The merger of another corporation into the Corporation, where the Corporation is
the surviving corporation shall not be deemed a voluntary dissolution,
liquidation or winding up. The merger or consolidation of the Corporation into
any other corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Paragraph 6
unless such merger or consolidation shall have been approved by the holders of a
majority of the then outstanding shares of Series A Preferred Stock.
(d) In the event the assets of the Corporation available for
distribution to the holders of shares of Series A Preferred Stock upon
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Paragraph 6(a) of this Statement of
Designation, no such distribution shall be made on account of any shares of any
other class or series of capital stock of the Corporation ranking on a parity
with the shares of Series A Preferred Stock upon such dissolution, liquidation
or winding up unless proportionate distributive amounts shall be paid on account
of the shares of Series A Preferred Stock, ratably, in proportion to the full
distributable amounts for which holders of all such parity shares are
respectively entitled upon such dissolution, liquidation or winding up.
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(e) Upon the dissolution, liquidation or winding up of the
Corporation, the holders of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders all amounts to which such holders are entitled
pursuant to Paragraph 6(a)(i) of this Statement of Designation before any
payment shall be made to the holders of any class of capital stock of the
Corporation ranking junior upon liquidation to Series A Preferred Stock.
7. Notice. Each notice or other communication pursuant to this
Statement of Designation shall be in writing signed by the party giving such
notice, and delivered personally or sent by overnight courier, mail or messenger
against receipt thereof or sent by registered or certified mail, return receipt
requested, to the Corporation at its executive offices, presently c/o Benchmark
Equity Group, Inc., 700 Gemini, Houston, TX 77058, Attention: Chief Executive
Officer, or to such other address or person as the Corporation may advise the
holders of the Series A Preferred Stock by like notice, or to any holder at his
address set forth on the Corporation's records. Notices shall be deemed to have
been received on the date of personal delivery or, if sent by certified or
registered mail, return receipt requested, shall be deemed to be delivered on
the fifth (5th) business day after the date of mailing, except that notice of
change in the person or address shall be effective on actual receipt.
8. Rank of Series. For purposes of this Statement of Designation, any
stock of any series or class of the Corporation shall be deemed to rank:
(a) prior to the shares of Series A Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be, if
the holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of Series A Preferred Stock;
(b) on a parity with shares of Series A Preferred Stock, as to
dividends or upon liquidation, dissolution or winding up, as the case may be,
whether or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if any, be different
from those of Series A Preferred Stock, if the holders of such stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in proportion to their respective dividend rates or liquidation prices, without
preference or priority, one over the other, as between the holders of such stock
and the holders of shares of Series A Preferred Stock;
(c) junior to shares of Series A Preferred Stock as to dividends
or upon liquidation, dissolution or winding up, as the case may be, if such
class shall be Common Stock or if the holders of shares of Series A Preferred
Stock shall be entitled to receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of such class or classes.
9. Transfer Agent and Registrar. The Corporation may appoint a transfer
agent and registrar for the issuance, transfer and conversion of the Series A
Preferred Stock and for the payment of dividends to the holders of the Series A
Preferred Stock.
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Exhibit 5.3(h) of the Stock Purchase Agreement
PURCHASER-COTG GUARANTY
Reference is made to (a) that certain Secured Promissory Note of Arc
Networks, Inc. and A.R.C. Networks, Inc. (the "Borrowers") to Consolidated
Technology Group Ltd. ("COTG") dated March 18, 1999 in the principal amount of
$2,400,000 (the "Note"), and (b) that certain Stock Purchase Agreement among Arc
Networks, Inc., SIS Capital Corp., COTG and Technology Acquisitions, Ltd. (the
"Guarantor") dated March 23, 1999, the terms of which are incorporated herein by
reference thereto.
For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Guarantor hereby unconditionally and irrevocably
guarantees the payment by Borrowers to COTG of $150,000 of the principal amount
of the Note, as and when due, as provided in Paragraph 2 of the Note and if
Borrowers fail to pay such amount to COTG when due under the Note in accordance
with its terms, Guarantor agrees to make such payment to COTG on such due date,
subject to the terms hereof. Notwithstanding any term or provision of this
Guaranty or of the Note to the contrary, in the event that the Purchase
Agreement is not executed, for any reason, or, if executed, the Purchase Price
is not released from escrow to COTG pursuant to the terms of the Escrow
Agreement for any reason (other than as the result of any action by Guarantor or
the failure of Guarantor to take any action necessary to obtain the New York
Regulatory Consent required thereunder), this Guaranty shall automatically
terminate, without any notice or action and thereafter cease to be of any legal
force or effect.
The liability of the Guarantor hereunder shall be direct and immediate
and not conditional or contingent upon the pursuance by COTG of the rights and
remedies it may have, at law or in equity, against the Borrowers or any other
party, whether under the Note or otherwise. The Guarantor hereby waives
presentment for payment, demand, protest and notice of protest and of
non-payment of the Note.
The obligation of the Guarantor hereunder shall not be impaired,
diminished or discharged, in whole or in part, by any
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extension of time granted to Borrowers by COTG, by any course of dealing between
COTG and the Borrowers, by the unenforceability of the Note, in whole or in
part, for any reason whatsoever, by the release of any guarantor or other
obligor of any collateral, or by any other act, omission, event or circumstance
which might operate to discharge a guarantor in whole or in part or which might
operate as a defense, in whole or in part, to any obligation of a guarantor or
which might invalidate, in whole or in part, a guaranty.
In the event that COTG commences any action or proceeding against the
Guarantor under this Guaranty or otherwise engages counsel in order to enforce
its rights under this Guaranty, the Guarantor shall be liable for all costs and
expenses incurred by COTG in connection therewith, including, without
limitation, all of COTG's reasonable attorneys' fees and all out-of-pocket
expenses of such attorneys.
Guarantor hereby represents to, and for the express benefit of, COTG
that (i) the execution, delivery and performance of this Guaranty has been duly
authorized and approved by all required corporate action of Guarantor, (ii) this
Guaranty is a valid and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect, or by legal or equitable
principles, relating to or limiting creditors' rights generally and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought, and (iii) Guarantor
has, on the date hereof, and will continue to have until this Guaranty is
terminated in accordance with the terms hereof, cash in bank of not less than
$150,000.
The Guaranty shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State without regard to principles of conflicts of law. The
Guarantor consents to the nonexclusive jurisdiction of the United States
District Court for the Southern District of New York and the Supreme Court of
the State of New York in the County of New York in any action or proceeding
relating to or arising out of this Guaranty and waives any claim that any of
such forums is not a
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convenient forum. IN ANY SUCH ACTION, THE GUARANTOR HEREBY WAIVES ANY RIGHT TO
A TRIAL BY JURY.
This Guaranty cannot be amended, modified or waived except with the
written consent of COTG.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty this 23rd
day of March, 1999.
TECHNOLOGY ACQUISITIONS LTD.
By:
----------------------------
Print Name and Title
-3-
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into
as of the 25th day of March, 1999 by and among Consolidated Technology Group
Ltd., a New York corporation ("COTG"), SIS Capital Corp., a New York corporation
("SIS"), Netsmart Technologies, Inc., a Delaware corporation ("Netsmart"), those
investors who are signatories to this Agreement (the "Signature Investors") and
Anthony Grisanti on behalf of each of the investors whose typed names appear
below his name on the signature page hereof (the "Grisanti Management Investors"
which, together with the Signature Investors, are referred to herein as the
"Management Investors").
Recitals
A. Seller owns a total of 992,624 shares of the Common Stock, par value
$.01 per share (the "Common Shares") of Netsmart, 1,210 shares of the Series D
Preferred Stock, par value $.01 per share (the "Preferred Shares") of Netsmart,
and a Series B common stock purchase warrant to purchase a total of 188,333
shares of the Common Stock of Netsmart (the "Warrants").
B. Seller, Netsmart and the Management Investors entered into a Letter
of Agreement, dated February 26, 1999, providing for the purchase by the
Management Investors from Seller of the Common Shares and the contribution to
Netsmart of the Preferred Shares and the Warrants upon the terms and conditions
set forth in this Agreement.
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual promises and covenants hereafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby mutually
agree as follows:
1. Sale of Common Shares. On and subject to the terms and conditions of
this Agreement,
(a) At the First Closing (hereinafter defined), Seller agrees to sell,
transfer and assign to the Management Investors, and the Management Investors
agree to purchase from Seller, all of the Seller's right, title and interest in
and to 248,156 of the Common Shares for a purchase price of $500,000.
(b) At the Second Closing (hereinafter defined), Seller agrees to sell,
transfer and assign to the Management Investors, and the Management Investors
agree to purchase from Seller, all of the Seller's right, title and interest in
and to 248,156 of the Common Shares for a purchase price of Five Hundred
Thousand Dollars ($500,000).
(c) At the Third Closing (hereinafter defined), Seller agrees to sell,
transfer and assign to the Management Investors, if and only if the Management
Investors elect to purchase, all of the Seller's right, title and interest in
and to as many of the 496,312 of the Common Shares then owned by Seller as the
Management Investors elect to purchase at such Closing for a purchase price of
$2.0149 per share; provided, however, Seller may, at its option which must be
exercised by giving written notice to Netsmart at least fifteen (15) days before
the Third Closing, reduce the number of Common Shares it is obligated to sell
pursuant to this Section 1(c) by up to 200,000 shares. If and to the extent that
the Management Investors (or any Substitute Purchaser, hereinafter defined) do
not
<PAGE>
elect to purchase from Seller the Common Shares referred to above in this
Section 1(c) on, but not later than, the date of the Third Closing, neither the
Management Investors nor any Substitute Purchaser shall have any further rights
or obligations with respect thereto subsequent to the date of the Third Closing.
(d) For purposes of subparagraphs (a), (b) and (c) above, the Management
Investors shall have the right, upon notice to Seller prior to the applicable
Closing, to assign to Netsmart and/or any other third party designated by the
Management Investors, including Netsmart (each a "Substitute Purchaser" and
collectively, the "Substitute Purchasers"), the right to purchase any or all of
the Common Shares that Seller is obligated to sell thereunder, provided that, as
a condition thereof, any such Substitute Purchaser executes and delivers to
Seller at the applicable Closing, an instrument in form and substance reasonably
satisfactory to Seller's counsel (the "Substitute Purchaser Assignment"), (i)
containing the name and address of such Substitute Purchaser and the number of
Common Shares being purchased by such purchaser, (ii) agreeing to be bound by
all of the applicable terms and provisions of this Agreement, and (iii)
containing the representations and warranties set forth in Section 5 of this
Agreement and any other provisions that may otherwise be required to comply with
the applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act").
(e) On or before the First Closing, Netsmart will issue and deliver to
COTG 100,000 shares of its Common Stock (the "Additional Shares") in payment of
all accrued dividends on the Preferred Shares and in consideration of Seller's
assignment to Netsmart of the Preferred Shares and the Warrants.
2. Closings. All closings hereunder (individually, a "Closing", and
collectively, the "Closings") shall take place at the offices of Berlack,
Israels & Liberman LLP, 29th floor, 120 West 45th Street, New York, New York
10036 at 10:00 A.M., New York City time, on the days specified below, unless
otherwise agreed to in writing by all the parties hereto:
(a) The first closing shall take place on April 6, 1999 (the "First
Closing");
(b) The second Closing shall take place on April 13, 1999 (the "Second
Closing");
(c) The third closing shall take place on May 24, 1999 (the "Third
Closing"), subject to the right of the Management Investors or Netsmart to
adjourn the Third Closing by up to thirty (30) days with the written consent of
Seller, which shall not be unreasonably withheld, delayed or conditioned, it
being understood and agreed that Seller shall not withhold its consent if it is
furnished with a reasonable written assurance from a reputable third party prior
to the Third Closing that the financing needed to complete the purchase to take
place at the Third Closing will be provided by such third party within such
thirty (30) day period; and
(d) Notwithstanding the foregoing, or any other provisions of this
Agreement to the contrary, the Management Investors shall have the right, upon
prior notice to Seller and subject to Seller's right under Section 1(c) hereof
to elect not to sell up to 200,000 of the Common Shares, to purchase at any of
the Closings, any greater number of Common Shares which the Management Investors
are entitled to purchase under this Agreement.
<PAGE>
3. Representations and Warranties of Seller and COTG. Seller and COTG hereby
jointly and severally make the following representations and warranties to the
Management Investors and Netsmart:
(a) SIC is the record and beneficial owner of the Common Shares, the
Preferred Shares, and the Warrants, in each case free and clear of all liens,
pledges, claims and security interests (collectively, "Liens"). The Common
Shares and the Preferred Shares constitute all of the capital stock of Netsmart
owned by Seller, COTG or any of their subsidiaries, and the Warrants constitute
all of the warrants, options and other derivative securities of Netsmart owned
by Seller, COTG or any of their subsidiaries.
(b) Seller and COTG are duly organized, validly existing and in good
standing under the laws of their states of organization. Seller and COTG have
all requisite corporate power and authority to execute and deliver this
Agreement and to perform their obligations hereunder, and Seller, and COTG have
taken all actions necessary to authorize the execution, delivery and performance
of this Agreement, and all other agreements and documents to be executed or
delivered herewith. No action is required to be taken by Seller's or COTG's
shareholders or any of them to authorize or consummate the transactions
contemplated by this Agreement.
(c) Seller has complete and unrestricted power and right to sell,
assign, convey and deliver the Common Shares as contemplated hereby. Upon
payment of the purchase price for the Common Shares as described in Section 1,
the Management Investors (or the Substitute Purchasers, as the case may be),
will receive good and valid title to the Common Shares free and clear of all
Liens. Upon the delivery of the Preferred Shares and the Warrants to Netsmart as
described in Section 8, Netsmart will receive good and valid title to the
Preferred Shares and the Warrants free and clear of all Liens.
(d) This Agreement is a valid and legally binding obligation of Seller
and COTG and is enforceable against Seller and COTG in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting creditors rights and general principles of equity.
(e) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby do not conflict with, or result in a breach
of, or constitute a default under, any agreement or instrument to which Seller
or COTG is a party or by which Seller or COTG may be bound, nor does such
action, to the best of Seller's and COTG's knowledge, violate any statute, law,
rule or regulation applicable to Seller or COTG or any order, writ, injunction
or decree of any court or governmental authority binding on Seller, or COTG.
(f) No action, suit or proceeding to which Seller or COTG is a party is
pending against Seller or COTG and, to Seller's and COTG's knowledge, neither
Seller nor COTG has received written notice of any threatened action, suit or
proceeding against Seller or COTG which seeks to enjoin or otherwise impair the
ability of Seller or COTG to consummate the transactions contemplated hereby.
(g) Seller and COTG are each "solvent", that is, the financial condition
of each of them is such that its property, at a "fair valuation", is greater
than the sum of its debts, and the sale contemplated by this Agreement will not
render Seller or COTG "insolvent" or leave Seller or COTG with "unreasonably
small capital" or with debts that will "be beyond Seller's or COTG's
<PAGE>
ability to pay as and when such debts mature", as such quoted terms are used or
defined in the Federal Bankruptcy Code (11 USC Section 101 et seq.)
(h) Neither Seller nor COTG is a party to any agreements or
understandings with any other party that will prevent Seller from selling,
transferring and assigning the Common Shares, the Preferred Shares or the
Warrants to the Management Investors pursuant to the terms of this Agreement.
4. Representations and Warranties of Netsmart. Netsmart hereby makes the
following representations and warranties to Seller and COTG:
(a) Netsmart is a duly organized and validly existing corporation in
good standing in the state of organization. It has all requisite corporate power
and authority to execute, deliver and perform this Agreement and all other
agreements requiring its execution and delivery hereunder. If and to the extent
it performs any of the obligations or exercises any of the rights that may be
assigned to it by the Management Investors in accordance with the terms of this
Agreement, it has the requisite corporate power and authority to do so.
(b) Netsmart has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and all other agreements
requiring its execution and delivery hereunder. No action is required to be
taken by Netsmart's shareholders or any of them to authorize or consummate the
transactions contemplated by this Agreement
(c) This Agreement constitutes the valid and legally binding obligation
of Netsmart and is enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights and general principles of equity.
(d) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby do not conflict with, or result in a breach
of, or constitute a default under, any agreement or instrument to which Netsmart
is a party or by which it may be bound, nor does such action, to the best of
Netsmart's knowledge, violate any statute, law, rule or regulation applicable to
it or any order, writ, injunction or decree of any court or governmental
authority binding on Netsmart.
(e) No action, suit or proceeding to which Netsmart is a party is
pending against Netsmart and, to Netsmart's knowledge, Netsmart has not received
any written notice of any threatened action, suit or proceeding against Netsmart
which seeks to enjoin or otherwise impair the ability of Netsmart to consummate
the transactions contemplated hereby.
(f) All information concerning Netsmart that is required to be disclosed
pursuant to the applicable provisions of the Securities Exchange Act of 1934, as
amended, has been publicly disclosed, and Netsmart has filed all required
reports with the Securities and Exchange Commission (the "Commission") with
respect thereto.
(g) The Additional Shares will be, when issued, validly authorized, duly
issued, fully paid and non-assessable.
<PAGE>
5. Representations and Warranties of the Management Investors. The Management
Investors, severally but not jointly, make the following representations and
warranties to Seller and COTG:
(a) Each of the Management Investors has all requisite power and
authority to execute, deliver and perform this Agreement and all other
agreements requiring their execution and delivery hereunder and each has taken
all action necessary to authorize the execution, delivery and performance of
this Agreement, and all other agreements requiring such investor's execution and
delivery hereunder. No action is required to be taken by any shareholder of any
corporate Management Investor to authorize or consummate the transactions
contemplated by this Agreement.
(b) This Agreement constitutes the valid and legally binding obligation
of each of the Management Investors and is enforceable against them severally in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights and
general principles of equity.
(c) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby do not conflict with, or result in a breach
of, or constitute a default under, any agreement or instrument to which the
Management Investors are parties or by which they may be bound, nor does such
action, to the best of each of the Management Investor's knowledge, violate any
statute, law, rule or regulation applicable to them or any order, writ,
injunction or decree of any court or governmental authority binding on any of
them.
(d) The Management Investors acknowledge that they have had full access
to all properties, financial statements, financial and other information, books,
records, contracts, and documents of or pertaining to Netsmart and the Common
Shares. The Management Investors also acknowledge that the purchase of the
Common Shares involves a high degree of risk and each such investor may sustain,
and has the financial ability to sustain, the loss of his or her entire
investment. Each of the Management Investors has engaged his or her own counsel
and accountants to the extent that each such investor has deemed advice from
such professionals to be necessary to assist such investor in evaluating the
transactions contemplated hereby.
(e) The Management Investors have had an opportunity to ask questions of
and receive answers and supporting information from Seller and the
representatives of Netsmart and Seller, and such representatives have answered
to the complete satisfaction of the Management Investors all inquiries put to
them concerning Seller and Netsmart, Netsmart's assets or any other matters
relating to the operation of Netsmart, and the transactions contemplated herein.
The Management Investors acknowledge that Seller has not made and is not making
any representations concerning Netsmart's business, prospects, earnings or
assets.
(f) Each of the Management Investors is either an "Accredited Investor"
as that term is defined under Rule 501 of Regulation D of the Securities Act or
has such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks involved in the transactions
contemplated herein.
(g) Each Management Investor will acquire the Common Shares pursuant to
this Agreement for investment and not with a view to the sale or distribution
thereof, for each investor's own account and not on behalf of others and no such
investor has granted any other person or entity any interest or participation in
or right or option to purchase any or all of the Common Shares to be acquired by
it. Furthermore, each Management Investor hereby acknowledges that the Common
<PAGE>
Shares are restricted securities within the meaning of Rule 144 of the
Commission under the Securities Act and may not be sold or otherwise transferred
other than pursuant to an effective registration statement or an exemption from
registration.
(h) No action, suit or proceeding to which the Management Investors, or
any of them, is a party, is pending against any of the Management Investors and,
to the best knowledge of the Management Investors, none of the Management
Investors has received any notice of any threatened action, suit or proceeding
against any of the Management Investors which seeks to enjoin or otherwise
impair the ability of the Management Investors to consummate the transactions
contemplated hereby.
6. Conditions to Obligations of the Management Investors. The obligations of the
Management Investors to purchase the Common Shares or any of them hereunder are
subject to the satisfaction, on or prior to each Closing, of the following
conditions or the written waiver thereof by the Management Investors:
(a) The agreements and conditions to be performed or fulfilled by Seller
and COTG shall have been duly performed and fulfilled in all material respects,
and the representations and warranties of Seller and COTG contained in this
Agreement shall be true and correct as of each such Closing in all material
respects.
(b) All of the documents required to be delivered by Seller and COTG
hereunder with respect to each such Closing shall have been delivered by Seller
and COTG to the Management Investors.
(c) All third party consents and governmental approvals required to
consummate the purchase and sale of the Common Shares, if any, shall have been
obtained.
(d) There shall not be pending against Seller or COTG any action, suit
or proceeding which challenges the sale of the Common Shares or the delivery to
Netsmart of the Preferred Shares or the Warrants by Seller.
(e) The Management Investors and Netsmart shall have received copies of
the Fairness Opinion (hereinafter defined) from an investment banker chosen and
paid for by COTG.
7. Conditions to Obligations of Seller. The obligations of Seller to sell the
Common Shares and to assign and transfer the Preferred Shares and the Warrants
to Netsmart are subject to the satisfaction, on or prior to each Closing, of the
following conditions, or the written waiver thereof by Seller:
(a) Netsmart shall have delivered to Seller, on or before the First
Closing, the Additional Shares. Notwithstanding any provision of this Agreement
to the contrary, Netsmart's obligation to deliver the Additional Shares to
Seller is dependent only upon Seller's obligation to deliver the documents
required to be delivered by it at the First Closing in exchange for the delivery
by Netsmart, the Management Investors and the Grisanti Management Investors to
Seller of the payment and the documents required to be delivered by them at the
First Closing.
<PAGE>
(b) The agreements and conditions to be performed or fulfilled by the
Management Investors or Netsmart, as the case may be, shall have been duly
performed and fulfilled in all material respects, and all of the representations
and warranties of the Management Investors and Netsmart contained in this
Agreement shall be true and correct as of each such Closing in all material
respects.
(c) All of the documents required to be delivered hereunder at each such
Closing by the Management Investors and Netsmart, as the case may be, shall have
been delivered to Seller.
(d) All third party consents and governmental approvals required to
consummate the purchase of the Common Shares, if any, shall have been obtained.
(e) There shall not be pending against Netsmart or any of the Management
Investors any action, suit or proceeding which challenges the purchase of the
Common Shares or the delivery to Netsmart of the Preferred Shares or the
Warrants.
(f) Seller shall have received the purchase price for the Common Shares
to be sold at such Closing.
(g) Seller shall have received an opinion from an investment banker
chosen and paid for by it or COTG to the effect that the terms and conditions
set forth in this Agreement for the sale of the Common Shares are fair from a
financial point of view to COTG and its stockholders (the "Fairness Opinion").
8. Documents to be Delivered at the Closings.
(a) At the First Closing:
(i) Seller shall deliver to Netsmart a stock certificate
registered in the name of Seller for 248,156 shares of Netsmart's common stock,
duly endorsed by Seller for transfer to Netsmart, the stock certificate
representing the Preferred Shares duly endorsed by Seller for transfer to
Netsmart, and the Warrants with an assignment signed for transfer to Netsmart,
in each case with Seller's endorsement or assignment guaranteed by a member of
the medallion program or if any of the foregoing is lost or missing, an
affidavit of loss and indemnity satisfactory in form and substance to Netsmart;
(ii) Seller shall deliver to Netsmart and the Management
Investors copies of the Fairness Opinion;
(iii) The Management Investors shall pay to Seller the sum of
Five Hundred Thousand Dollars ($500,000), by certified or bank check payable to
Seller, or by wire transfer of immediately available funds to a bank account
designated by Seller prior to such Closing.
(iv) Netsmart will deliver to Seller a stock certificate,
registered in the name of Seller, for 100,000 of the shares of Common Stock of
Netsmart.
(v) Seller will deliver to Netsmart and the Management Investors
an opinion of its counsel, in a form reasonably acceptable to Netsmart's
counsel, to the effect that this Agreement has been duly authorized by Seller
and COTG and is valid and binding on Seller and COTG. No opinion will be
required as to shareholder approval. Netsmart will deliver to COTG and Seller,
an
<PAGE>
opinion of its counsel, in a form reasonably acceptable to Seller's counsel, to
the effect that this Agreement has been duly authorized by Netsmart and is valid
and binding on Netsmart. No opinion will be required as to the Management
Investors.
(vi) The Grisanti Management Investors will deliver to Seller
original counterpart signature pages to this Agreement signed by each of such
investors, and if applicable, the Management Investors will deliver to Seller
the Substitute Purchaser Assignment executed by each Substitute Purchaser in
accordance with the provisions of Section 1(d) hereof.
(b) At the Second Closing:
(i) Seller shall deliver to Netsmart a stock certificate of
Netsmart registered in the name of Seller for 248,156 shares of the Common Stock
of Netsmart, duly endorsed by Seller for transfer to Netsmart, with Seller's
endorsement guaranteed by a member of the medallion program.
(ii) The Management Investors shall pay to Seller the sum of Five
Hundred Thousand Dollars ($500,000), by certified or bank check payable to
Seller, or by wire transfer of immediately available funds to a bank account
designated by Seller prior to such Closing.
(iii) If applicable, the Management Investors will deliver to
Seller the Substitute Purchaser Assignment executed by each Substitute Purchaser
in accordance with the provisions of Section 1(d) hereof.
(c) At the Third Closing:
(i) Seller shall deliver to Netsmart a stock certificate of
Netsmart registered in the name of Seller for 496,312 shares of the Common Stock
of Netsmart (or such lesser number of shares in an amount equal to 496,312 less
such number of the Common Shares, if any, which either Seller may have elected
not to sell, or the Management Investors may have elected not to purchase,
pursuant to Section 1(c) hereof), duly endorsed by Seller for transfer to
Netsmart, with Seller's endorsement guaranteed by a member of the medallion
program.
(ii) The Management Investors shall pay to Seller the sum of
$1,000,000 (or an amount equal to $1,000,000 less $2.0149 for each Common Share,
if any, which either Seller may have elected not to sell, or the Management
Investors may have elected not to purchase, pursuant to Section 1(c) hereof), by
certified or bank check payable to Seller, or by wire transfer of immediately
available funds to a bank account designated by Seller prior to such Closing.
(iii) If applicable, Netsmart will deliver to Seller its stock
certificate for such number of the Common Shares, if any, as Seller may have
elected not to sell, or the Management Investors may have elected not to
purchase, pursuant to Section 1(c) hereof.
(iv) If applicable, the Management Investors will deliver to
Seller the Substitute Purchaser Assignment executed by each Substitute Purchaser
in accordance with the provisions of Section 1(d) hereof.
<PAGE>
(d) At each of the Closings, the parties shall deliver to each other the
following which, unless otherwise indicated herein, shall be dated and effective
as of each such Closing:
(i) an officer's certificate of Seller confirming Seller's title
to the Common Shares being sold, subject to no Liens, and the truth of the
representations and warranties of Seller and COTG, and the fulfillment of the
conditions to be satisfied by Seller, as of the date of such Closing; and
(ii) an officer's Certificate of Netsmart and certificates of
each of the Management Investors confirming the truth of their respective
representations and warranties, and the fulfillment of the conditions to be
satisfied by Netsmart or the Management Investors, as the case may be, as of the
date of such Closing.
9. Conduct of Business Pending Closing.
(a) During the period commencing on the date hereof and continuing
through each of the Closings, Seller shall not cause Netsmart (except as
expressly contemplated by this Agreement) to materially and adversely change its
business, operations, financial condition or prospects or to conduct its
business other than in the ordinary course, it being understood that Seller
shall not be required to provide funding to Netsmart. For purposes hereof, any
actions of Edward Bright or Seymour Richter in their capacity as directors of
Netsmart shall not constitute Seller causing Netsmart to take any of the
foregoing actions. Notwithstanding any provision of this Agreement to the
contrary, the sole and exclusive remedy of the Management Investors or Netsmart
for any breach of this Section 9(a) shall be the termination of this Agreement
pursuant to Section 13 hereof.
(b) Subject to the terms and conditions of this Agreement, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement, consistent with the provisions of this Agreement.
10. Registration of Common Stock of Seller.
(a) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "Registration Termination Date" shall mean the date on which
Seller or its Permitted Transferee (hereinafter defined) shall be entitled to
sell all of the Seller's Shares pursuant to Rule 144(k) promulgated by the
Commission under the Securities Act.
(ii) "Seller's Shares" shall mean all of the shares of Common
Stock of Netsmart owned by Seller or its Permitted Transferee.
(iii) "Permitted Transferee" shall mean any one person or entity
who or which is an "accredited investor", as defined in the Commission's
Regulation D, to whom or to which Seller may transfer any or all of Seller's
Shares. For the purpose of this Section 10, all references to Seller shall
include, if applicable, the Permitted Transferee.
(b) Netsmart shall use its best efforts to register under the Securities
Act, all of Seller's Shares in order to enable Seller to publicly offer and sell
such shares, after they have been registered under the Securities Act. As
promptly as practical following the Second Closing or the earlier
<PAGE>
termination of this Agreement, Netsmart will prepare and file with the
Commission the appropriate form of registration statement required to effect
such registration of Seller's Shares. Netsmart will provide Seller with copies
of such registration statement and any amendments thereto and all correspondence
received by it from the Commission with respect thereto, promptly after the
filing or receipt thereof. Netsmart will use its best efforts to keep any such
registration statement current and effective until the Registration Termination
Date. Netsmart shall bear all of the costs and expenses in connection with any
such registration of securities pursuant to this Section, except that Seller
will bear all of the fees and expenses of its counsel and accountants and any
transfer taxes or underwriting discounts or commissions applicable to sales of
Seller's Shares pursuant thereto.
(c) Following the effective date of the registration statement referred
to in Section 10(b) above, Netsmart shall forthwith supply Seller with such
number of prospectuses meeting the requirements of the Securities Act as shall
be reasonably requested by Seller to permit Seller to make a public distribution
of the Seller's Shares from time to time, provided that Seller shall furnish
Netsmart, in writing, with all appropriate information reasonably requested by
Netsmart, in writing, concerning Seller, Seller's Shares, and the manner in
which Seller proposes to offer and sell such shares in connection with any such
registration statement. Netsmart will also use its best efforts to qualify
Seller's Shares for sale through securities broker-dealers, at its expense, in
five states (other than California, Florida and Texas) as Seller shall
reasonably request, in order to effect public sales of the Seller's Shares in
such states except that Netsmart shall not be required to qualify generally to
do business as a foreign corporation in any such jurisdiction where it would
not, but for the requirements of this Section 10(c), be obligated to be so
qualified, to subject itself to taxation in such jurisdiction or to consent to
general service of process in any such jurisdiction. Netsmart shall also prepare
and file with the Commission, at its expense, such amendments and supplements to
any such registration statement and prospectus that may be used pursuant to this
Section 10(b) as may be necessary to keep such registration statement current
and effective pursuant to the provisions of this Section until the Registration
Termination Date and will notify Seller at such time as, for any reason, the
prospectus relating to sales of Seller's Shares is no longer current and
effective, and the reason therefor.
(d) In addition, until the Registration Termination Date, Netsmart will
include Seller's Shares in any registration statement that it might file with
the Commission (other than a registration statement on Form S-4 or S-8 or any
subsequent form relating to employee benefit plans or mergers or acquisitions),
subject to customary underwriter exclusions and/or lock-ups with respect
thereto. Netsmart shall provide Seller with written notice at least two weeks
prior to the filing of any such registration statement and will include in any
such registration statement all such information as may be required to permit a
public sale by Seller of Seller's Shares. If the underwriter of any offering
which is the subject of any such registration statement shall permit the
inclusion in such registration statement of only a limited number of shares of
Netsmart's Common Stock by selling stockholders, to the extent that such
underwriter permits any such shares to be included in any such registration
statement, Netsmart shall include Seller's Shares and the shares to be sold by
all persons exercising "piggy-back" or similar registration rights, on a
proportional basis, based upon the number of shares of Netsmart's Common Stock
which each such person proposes to include in any such registration statement.
Netsmart shall keep any such registration statement current and effective for a
period of not less than one year from the effective date thereof (or any such
longer or shorter period as Netsmart may keep such registration statement
current and effective for other selling stockholders), or until the Seller's
Shares have been sold, whichever first occurs.
<PAGE>
(e) Netsmart shall defend, indemnify and hold harmless Seller and each
affiliate, officer, director, employee and agent of the Seller, any underwriter
or broker-dealer (as defined in the Securities Act), who may purchase from or
sell any of Seller's Shares for the Seller, and each person, if any, who
controls such Seller or such underwriter or broker-dealer (within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended), from and
against any and all losses, claims, damages, liabilities, costs and expenses
(including attorneys' fees) (the "Losses") caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement filed by Netsmart with the Commission pursuant to this Section 10, or
any prospectus included therein or any related application or other filing under
any state securities law, or by any omission or alleged omission therein of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to which Seller or any of such persons may become subject
under the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any other Federal or state law, rule or regulation, at
common law or otherwise, except insofar as such Losses are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
which is based upon information furnished or required to be furnished to
Netsmart by Seller or any of such persons or entities expressly for use in any
such registration statement.
(f) Seller and COTG shall jointly and severally defend, indemnify and
hold harmless Netsmart, its directors, each officer signing any such
registration statement, each person, if any, who controls Netsmart within the
meaning of the Securities Act or the Exchange Act, any managing underwriter or
underwriter (and each person who controls the managing underwriter or the
underwriter within the meaning of the Securities Act or the Exchange Act), and
each other person whose securities are being offered or sold pursuant to such
registration statement, from and against any and all Losses caused by any untrue
statement or alleged untrue statement of a material fact contained in any such
registration statement or any prospectus required to be filed or furnished in
connection therewith, or any related application or other filing under any state
securities law, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading to which Netsmart, or any of such persons may become
subject under the Securities Act, the Securities Exchange Act, or any other
Federal or state law, rule or regulation, at common law or otherwise, insofar as
such Losses are caused by any such untrue statement or alleged untrue statement
or omission or alleged omission which is based upon information furnished to
Netsmart by Seller, in writing, expressly for use in any such registration
statement.
(g) If any action or claim shall be brought or asserted by a person or
entity entitled to indemnification pursuant to Sections 10(e) or 10(f) above (a
"Section 10 Indemnified Party") against any person or entity who or which is
responsible to provide indemnification thereunder (a "Section 10 Indemnifying
Party"), the provisions of Sections 15(d), 15(e) and 15(f) shall apply to any
such action or claim.
(h) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to a Section 10 Indemnified
Party with respect to any Loss, then the Section 10 Indemnifying Party, in lieu
of indemnifying such Section 10 Indemnified Party thereunder, shall contribute
to the amount paid or payable by such Section 10 Indemnified Party as a result
of such Loss in such proportion as is appropriate to reflect the relative fault
of the Section 10 Indemnifying Party, on the one hand, and the Section 10
Indemnified Party, on the other hand, in connection with the matters which
resulted in such Loss, as well as any other relevant equitable considerations.
The relevant fault of the Section 10 Indemnifying Party and the Section 10
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or
<PAGE>
alleged untrue statement of a material fact or the omission, or alleged omission
to state a material fact relates to information supplied by the Section 10
Indemnifying Party or by the Section 10 Indemnified Party and the party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statements or omissions.
(i) Netsmart's registration obligations under this Section 10 shall be
binding upon it with respect to Seller's Shares, whether or not the Management
Investors or Netsmart purchase any of the Common Shares or whether or not this
Agreement is terminated pursuant to Section 13 hereof, except for any
termination pursuant to Section 13(a)(i) or (iii) hereof. In addition, the
indemnification provided for by this Section shall be a continuing right and
obligation to indemnification and shall survive the registration and sale of any
of Seller's Shares by any person entitled to indemnification hereunder and the
termination of this Agreement.
(j) The foregoing obligations are contingent upon Seller (i) providing
Netsmart with such information as Netsmart reasonably requests, in writing,
concerning Seller, the shares it owns and the manner in which it proposes to
offer and sell such shares.
11. Negotiations or Sale Prohibited.
Neither COTG, Seller, their respective majority owned subsidiaries,
companies which are majority owned by such subsidiaries, nor the directors,
officers, agents or advisors of any of them (other than Netsmart) shall, without
the written consent of the Management Investors and Netsmart (a) negotiate, or
directly or indirectly solicit, entertain, propose to enter into, or continue
any negotiations, or enter into any agreement or understanding with any party
which provides for or relates to the sale, pledge or other disposition of any of
the Common Shares or the Preferred Shares or (b) sell, pledge or otherwise
dispose of any of the Common Shares or the Preferred Shares; provided, however,
(i) if the Management Investors and Netsmart terminate this Agreement for any
reason other than a breach by Seller or Seller's failure to fulfill a condition
for which it is responsible, or (ii) if Seller terminates this Agreement due to
a breach by the Management Investors or Netsmart or their failure to fulfill a
condition for which they are responsible, Seller will no longer be bound by the
foregoing restrictions. Notwithstanding the foregoing, if this Agreement is
terminated by the Management Investors and Netsmart pursuant to clause (i)
above, the above restrictions will be binding upon COTG and Seller only for
thirty (30) days thereafter.
12. Confidentiality.
(a) Each of the parties hereto shall hold in confidence, and shall not
disclose, any non-public information about the business of the other, learned or
discovered during the course of the negotiations of the transactions
contemplated hereby, except to the extent required by applicable law, rule or
regulation. The timing and contents of any announcements, press releases, or
other public statements concerning the proposed transactions and related matters
will occur upon, and be determined by, mutual agreement and consent of the
parties, whenever possible, which agreement and consent will not be unreasonably
withheld, conditioned or delayed. Each of the parties shall cooperate with the
other parties concerning any such announcement, press release or other public
statement, and with respect to any discussions with regulatory agencies
involving this Agreement or the transactions contemplated hereby. Neither COTG,
Seller nor Netsmart shall be required to obtain any consent from each other to
file any such reports or forms as are required to be filed under applicable law.
<PAGE>
(b) Netsmart and the Management Investors agree to maintain the Fairness
Opinion in confidence and not to, directly or indirectly, disclose such opinion,
or the contents thereof, in any written or oral communication to any third
party, except to the extent it is required to be disclosed by applicable law.
13. Termination.
(a) This Agreement may be terminated at any time prior to any of the
Closings:
(i) by mutual written consent of the parties;
(ii) by any party hereto on written notice to the other parties,
if such Closing shall not have been consummated on the date specified for such
Closing in Section 2 hereof; provided, however, any such Closing may be
adjourned for good cause shown for up to five (5) business days at the option of
any party on written notice to the other parties specifying such causes, or, to
such later date as all parties may agree, in writing; provided, further, that in
the case of a termination under this clause (ii), the party terminating this
Agreement shall not then be in material default of this Agreement. For purposes
hereof, the failure or inability of the Management Investors to have the
necessary funds available to pay Seller the purchase price, when due, for the
Common Shares pursuant to Section 1 hereof, shall not constitute "good cause".
Furthermore, any termination of this Agreement pursuant to this clause (ii)
shall not constitute a waiver or release by the party terminating this Agreement
against the party who is then in breach or default of this Agreement.
(iii) by the Management Investors or Netsmart, if (A) there has
been a material misrepresentation, or a material default by Seller under this
Agreement, or (B) any of the conditions set forth in Section 6 has not been met
or waived on or before the applicable Closing, and, in such case, the
terminating party is not then in material default of its obligations hereunder;
or
(iv) by Seller, if (A) there has been a material
misrepresentation or material default by the Management Investors or Netsmart
under this Agreement, or (B) any of the conditions set forth in Section 7 has
not been met or waived on or before the applicable Closing, and, in such case,
Seller is not then in material default of its obligations hereunder.
(b) Upon the termination of this Agreement as provided in clause (i) of
subparagraph (a) hereof, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or their
respective directors, officers, employees, agents or other representatives.
(c) In the event of the termination of this Agreement as provided in
clauses (ii), (iii) or (iv) of subparagraph (a) hereof, such termination shall
be without prejudice to any rights that the terminating party or parties may
have against the breaching party or parties or any other person under the terms
of this Agreement or otherwise. Anything herein to the contrary notwithstanding,
if the Management Investors and Netsmart receive the documents specified in
Section 8 to be delivered by Seller at the First Closing or Second Closing, no
termination of this Agreement, including any termination by the Management
Investors or Netsmart, shall terminate the obligations of (i) the Management
Investors to complete the purchases of the Common Shares to be purchased by them
at the First and Second Closings, or (ii) Netsmart's registration obligations
pursuant to the provisions of Section 10 hereof.
<PAGE>
14. Survival of Representation and Warranties. The representations and
warranties of the parties hereto contained in this Agreement shall survive the
Closings and the consummation of the transactions contemplated hereby (and any
examination or investigation of any party hereto by or on behalf of any other
party hereto) until the second anniversary of the Third Closing Date.
15. Indemnification.
(a) Seller and COTG shall, jointly and severally, defend, indemnify and
hold harmless Netsmart and the Management Investors and each person who controls
Netsmart within the meaning of the Securities Act from and against any losses,
claims, liabilities, costs and expenses (collectively, "Damages") arising out of
or resulting from: (i) any inaccuracy in or breach of any material
representation or warranty made by Seller or COTG in this Agreement; or (ii) the
failure of Seller or COTG to perform or observe any material covenant or
agreement to be performed or observed by Seller pursuant to this Agreement.
(b) Netsmart shall defend, indemnify and hold harmless Seller, COTG and
their respective officers, directors, employees and agents and each person who
controls Seller or COTG within the meaning of the Securities Act from and
against any Damages arising out of or resulting from: (i) any inaccuracy in or
breach of any material representation or warranty made by Netsmart in this
Agreement; or (ii) the failure by Netsmart to perform or observe any material
covenant or agreement to be performed by it pursuant to this Agreement.
(c) The Management Investors, severally and not jointly, shall defend,
indemnify and hold harmless Seller, COTG and their respective officers,
directors, employees and agents and each person who controls Seller or COTG
within the meaning of the Securities Act from and against any Damages arising
out of or resulting from: (i) any inaccuracy in or breach of any material
representation or warranty made by the Management Investors in this Agreement;
or (ii) the failure by the Management Investors to perform or observe any
material covenant or agreement to be performed by them pursuant to this
Agreement.
(d) If any party entitled to be indemnified pursuant to this Section 15
(an "Indemnified Party") receives notice of the assertion by any third party of
any claim or of the commencement by any such third party of any proceeding (any
such claim or proceeding being referred to herein as an ("Indemnifiable Claim")
with respect to which another party hereto (an "Indemnifying Party") is or may
be obligated to provide indemnification, the Indemnified Party shall promptly
notify the Indemnifying Party in writing (the "Claim Notice") of the
Indemnifiable Claim; provided, that the failure to provide such notice shall not
relieve or otherwise affect the obligation of the Indemnifying Party to provide
indemnification hereunder, except to the extent that any Damages directly
resulted from or were caused by such failure.
(e) The Indemnifying Party shall have ten (10) days after receipt of the
Claim Notice to undertake, conduct and control, through counsel of its own
choosing, and at its expense, the settlement or defense of the Indemnifiable
Claim described therein, and the Indemnified Party shall cooperate with the
Indemnifying party in connection therewith; provided, however, the Indemnifying
Party shall permit the Indemnified Party to participate in such settlement or
defense through counsel chosen by the Indemnified Party (subject to the consent
of the Indemnifying Party, which consent shall not be unreasonably withheld,
conditioned or delayed), provided that the fees and expenses of such counsel
shall be borne by the Indemnified Party, unless (i) the employment of such
counsel has
<PAGE>
been specifically authorized by the Indemnifying Party, in writing, and the
Indemnifying Party shall have agreed in writing to pay such fees and expenses,
or (ii) the named parties to any such proceeding relating to an Indemnifiable
Claim include both the Indemnified Party and the Indemnifying Party and, in the
judgment of counsel for the Indemnifying Party, it is advisable for the
Indemnified Party to be represented by separate counsel (in which case, the
Indemnifying Party shall not have the right to assume the defense of such
proceeding on behalf of the Indemnified Party and, in such case, such legal fees
and expenses shall be borne by the Indemnifying Party), and (iii) the
Indemnifying Party shall not settle any Indemnifiable Claim without the
Indemnified Party's consent, which consent shall not be unreasonably withheld,
conditioned or delayed. So long as the Indemnifying Party is vigorously
contesting any such Indemnifiable Claim in good faith, the Indemnified Party
shall not pay or settle such claim without the Indemnifying Party's consent,
which consent shall not be unreasonably withheld, conditioned or delayed.
(f) If the Indemnifying Party does not notify the Indemnified Party
within ten (10) days after receipt of the Claim Notice that it elects to
undertake the defense of the Indemnifiable Claim described therein, the
Indemnified Party shall have the right to contest, settle or compromise the
Indemnifiable Claim in the exercise of its reasonable discretion; provided, that
the Indemnified Party shall notify the Indemnifying Party of any compromise or
settlement of any such Indemnifiable Claim.
16. Miscellaneous.
(a) Notices. All notices, requests, consents and other communications
required under this Agreement (the "Notices"), shall be given in writing and
shall be either delivered personally, receipt acknowledged, or mailed, certified
mail return receipt requested, or delivered by overnight courier service,
receipt acknowledged, to the parties hereto at the following addresses (or
facsimile number), or at such other address or facsimile number as any party
hereto designates by written notice to the other parties hereto which is given
in the manner prescribed in this Section 16(a), and shall be deemed to have been
given upon delivery, if delivered personally or by courier service or three (3)
days after mailing, if mailed, as aforesaid, or upon receipt if sent by
facsimile:
To COTG or
Seller: Consolidated Technology Group Ltd.
160 Broadway
New York, New York 10038
Attn: Seymour Richter, President
Fax No. 212-233-5023
-and-
Consolidated Technology Group Ltd.
2424 North Federal Highway, Suite 110
Boca Raton, FL 33431
Attn: George W. Mahoney, Chief Financial Officer
Fax No. 561-347-5352
<PAGE>
With copies to: Robert Blessey, Esq.
51 Lyon Ridge Road
Katonah, New York, 10536
Fax No. 1-914-232-0647
To the Management Investors: Anthony Grisanti
146 Nassau Avenue
Islip, New York 11751
Fax No. 516-968-2123
With copies to: Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Martin S. Siegel, Esq.
Fax No. 212-704-0196
To Netsmart: Netsmart Technologies, Inc.
146 Nassau Avenue
Islip, New York 11751
Attention: James L. Conway, President
Fax No. 516-968-2123
With copies to: Berlack, Israels & Liberman LLP
120 West 45th Street
New York, New York 10036
Attention: Martin S. Siegel, Esq.
Fax No. 212-704-0196
Any Notice to a Substitute Purchaser shall be provided to such
Substitute Purchaser at the address set forth in the Substitute Purchaser
Assignment of such purchaser.
(b) Interpretation. The parties have jointly participated in the
negotiation and drafting of this Agreement. In the event any ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumptions or burdens of proof
shall arise favoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. Each
defined term used in this Agreement has a comparable meaning when used in its
plural or singular form. Each gender-specific term used herein has a comparable
meaning whether used in a masculine, feminine or gender-neutral form. The term
"include" and its derivatives shall have the same construction as the phrase
"include, without limitation," and its derivatives. The Section headings
contained in this Agreement are inserted for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
(c) Governing Law. This Agreement, having been signed and to be
performed in New York, shall be construed and enforced in accordance with and
shall be interpreted by the internal laws of the State of New York.
<PAGE>
(d) Waiver. No restriction, condition, obligation or provision contained
in this Agreement shall be deemed to have been abrogated or waived by reason of
any failure to enforce the same, irrespective of the number of violations or
breaches thereof which may occur.
(e) Severability. The provisions hereof shall be deemed independent and
severable, and the invalidity or partial invalidity or enforceability of any one
provision shall not affect the validity or enforceability of any other provision
hereof.
(f) Non-assignability. None of the parties may assign this Agreement
without the consent of the other parties, except that (i) on prior written
notice to Seller, the Management Investors may assign to Netsmart or to one or
more Substitute Purchasers selected by the Management Investors their rights to
purchase the Common Shares to be purchased at the Second Closing and/or the
Third Closing hereunder, and (ii) on prior written notice to Netsmart, Seller
may sell or assign its right, title and ownership interest in and to any or all
of the shares of common stock of Netsmart owned by it (and the registration and
indemnification rights relating thereto) to a Permitted Transferee. This
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective successors and permitted assigns.
(g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be considered an original, but all of which shall constitute a
single agreement.
(h) Fees and Expenses. Each of the parties shall pay its own fees, costs
and expenses incurred in connection with the transactions contemplated by this
Agreement, except as otherwise expressly provided for in this Agreement, or in
the event any action or proceeding to enforce this Agreement is brought by any
of the parties hereto, the party prevailing in such action or proceeding shall
be entitled to reimbursement of all of its costs in connection therewith,
including its counsel fees and disbursements.
(i) Brokers. Seller and COTG represent and warrant to Netsmart and the
Management Investors that no broker or finder is entitled to any brokerage or
finder's fee or other commission or fee based upon arrangements or agreements
made by or on behalf of Seller or COTG in connection with this Agreement or any
of the transactions contemplated hereby. Netsmart and the Management Investors
represent and warrant to Seller and COTG that no broker or finder is entitled to
any brokerage or finder's fee or other commission or fee based upon arrangements
or agreements made by or on behalf of Netsmart or the Management Investors in
connection with this Agreement or any of the transactions contemplated hereby.
(j) Entire Agreement; Amendment. This Agreement and the exhibits
attached hereto, and the documents required to be delivered at the several
Closings hereunder, all of which are made a part hereof, contain the entire
agreement between the parties with respect to the transactions contemplated
herein, and supersede the Letter of Agreement dated February 26, 1999 and all
prior agreements and understandings including any letters of intent or term
sheets between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
SIS CAPITAL CORP.
By: ______________________
Name: ______________________
<PAGE>
Its: _____________________
CONSOLIDATED TECHNOLOGY GROUP LTD.
By: _____________________
Name: _____________________
Its: _____________________
NETSMART TECHNOLOGIES, INC.
By: _____________________
Name: _____________________
Its: _____________________
/S/Edward D. Bright
- -------------------------------------
Edward D. Bright, Management Investor
/S/ James L. Conway
- -------------------------------------
James L. Conway, Management Investor
/S/ Anthony Grisanti
- -------------------------------------
Anthony Grisanti, Management Investor
/S/ Anthony Grisanti
- ---------------------------
ANTHONY GRISANTI
ON BEHALF OF THE FOLLOWING MANAGEMENT
INVESTORS:
/S/ Edward Bright
- ---------------------------
EDWARD BRIGHT
/S/ John Phillips
- ---------------------------
JOHN PHILLIPS
/S/ Nancy Brill
- ---------------------------
NANCY BRILL
/S/ Gerald Koop
- ---------------------------
GERALD KOOP
/S/ James Conway
- ---------------------------
JAMES CONWAY
<PAGE>
/S/ Anthony Grisanti
- --------------------------
ANTHONY GRISANTI
/S/ Jospeh McGovern
- --------------------------
JOSEPH McGOVERN
/S/ Alan Tillinghast
- ---------------------------
ALAN TILLINGHAST
/S/ Oscar Schachter
- ----------------------------
OSCAR SCHACHTER
/S/ Lew Cordina
- ----------------------------
LEW CORDINA
/S/ James Gargiulo
- ----------------------------
JAMES GARGIULO
/S/ Nick Burford
- ----------------------------
NICK BURFORD
/S/ Mary Morse
- ----------------------------
MARY MORSE
/S/ Joseph Sicinski
- ------------------------------
JOSEPH SICINSKI
/S/ Charles Gibson
- ------------------------------
CHARLES GIBSON
/S/ John Friel
- ------------------------------
JOHN FRIEL
/S/ John Hunter
- ------------------------------
JOHN HUNTER
/S/ Rich Labell
- ------------------------------
RICH LABELL
/S/ Fred Melton
- ------------------------------
FRED MELTON
/S/ Ron Marge
- ------------------------------
RON MARGE
<PAGE>
/S/ Lorraine Semsky
- ------------------------------
LORRAINE SEMSKY
/S/ Dr. Bernard Greenblatt
- --------------------------------
DR. BERNARD GREENBLATT, TRUSTEE
BERNARD GREENBLATT LIVING TRUST
DATED 07/15/96
/S/ Gary Barber
- --------------------------------
GARY BARBER
/S/ John Langley
- --------------------------------
JOHN LANGLEY
LANGLEY PRODUCTIONS
/S/ Richard Knoll / Michele Knoll
- --------------------------------
RICHARD AND MICHELE KNOLL
/S/ Richard Knoll / Susan Smith
- --------------------------------
KNOLL-SMITH PARTNERSHIP
RICHARD KNOLL & SUSAN SMITH
/S/ Leonard Davidson
- --------------------------------
LEONARD DAVIDSON
LEONARD & BERNICE DAVIDSON FAMILY TRUST
/S/ Jeffrey Ames / Elizabeth Ames
- --------------------------------
JEFFREY & ELIZABETH AMES
/S/ Kenneth Sheiffer
- --------------------------------
KENNETH SHEIFFER
