Exhibit 2.11
ASSET PURCHASE AGREEMENT
Agreement made as of September 22, 1999 by and between DURO
Communications, Inc., a Delaware corporation ("Buyer"), Gibralter Data Services,
Inc. a North Carolina corporation ("GDS") and Gibralter Publishing, Inc., a
North Carolina corporation and the sole shareholder of GDS ("GPI") (GDS and GPI
are hereinafter sometimes collectively referred to as the "Seller" or the
"Sellers").
WHEREAS, subject to the terms and conditions hereof, each Seller desires
to sell, transfer and assign to Buyer, and Buyer desires to purchase from each
Seller, all of the properties, rights and assets used or useful in connection
with such Seller's Internet connectivity service business (the "Business"), as
more fully described herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Upon the terms and subject to the conditions set forth
in this Agreement, and the performance by the parties hereto of their respective
obligations hereunder, each Seller agrees to sell, assign, transfer and deliver
to Buyer, and Buyer agrees to purchase from such Seller, all of such Seller's
right, title and interest in and to all of the following properties, assets and
business of the Business of every kind and description, tangible and intangible,
real, personal or mixed, and wherever located, but excluding the Excluded Assets
(as defined in Section 1.2 below):
(a) Equipment. The servers, routers, modems, computers, electronic
devices, test equipment and all other fixed assets, equipment, parts and
accessories owned by each Seller and used or held for use in connection with the
Business and which are set forth on Schedule 1.1(a) attached hereto
(collectively, "Equipment");
(b) Contracts. All of the rights of each Seller under, and interest
of such Seller in and to, all contracts relating to the Business (other than the
Excluded Contracts (as defined in Section 1.2(b) below)), including, without
limitation, original contracts for the provision of Internet connectivity,
dedicated service, web-hosting, web-domain, dial-up services, web-development
and Internet commerce, all leases with respect to real property and all
co-location agreements, a true, correct and complete list of which contracts is
attached hereto as Schedule 1.1(b) (collectively, the "Contracts");
(c) Intellectual Property. Each Seller's Intellectual Property (as
defined in Section 2.20) relating to the Business, as set forth on Schedule
1.1(c) attached hereto;
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(d) Licenses and Authorizations. Except as set forth on Schedule
1.1(d), all rights associated with the licenses, licensing agreements, permits,
easements, registrations, domains, IP addresses and authorizations issued or
granted to each Seller by any governmental authority with respect to the
operation of the Business, including, without limitation, those licenses and
authorizations listed on Schedule 1.1(d) attached hereto, and all applications
therefor, together with any renewals, extensions, or modifications thereof and
additions thereto;
(e) Current Assets; Accounts Receivable. All current assets of each
Seller relating to the Business (the "Current Assets"), including cash,
inventory, expenses prepaid by such Seller, security deposits made by such
Seller, advance payments paid by such Seller and all accounts receivable of such
Seller incurred in the ordinary course of business and included on such Seller's
balance sheet as of the Closing Date, as determined in accordance with generally
accepted accounting principles ("GAAP"), consistently applied; a complete list
of such accounts receivable is attached hereto as Schedule 1.1(e) ("Accounts
Receivable");
(f) Goodwill. All of the goodwill of each Seller in, and the going
concern value of, the Business, and all of the business and customer lists,
proprietary information, and trade secrets related to the Business; and
(g) Records. All of each Seller's customer logs, location files and
records and other business files and records, in each case relating to the
Business, but not including any such logs, files and records to the extent they
relate to the Excluded Assets and not to the Business.
The assets, properties and business of each Seller being sold to and
purchased by Buyer under this Section 1.1 are referred to herein collectively as
the "Assets."
1.2 Excluded Assets. There shall be excluded from the Assets and retained
by each Seller, to the extent in existence on the Closing Date, the following
assets (the "Excluded Assets"):
(a) Other Assets. All other assets of such Seller which are not used
or held for use in connection with the Business or otherwise necessary to the
operation of the Business now or after the Closing Date;
(b) Excluded Contracts. All of such Seller's right, title and
interest in, to and under the Contracts listed on Schedule 1.2(b) attached
hereto (the "Excluded Contracts");
(c) Insurance. All of such Seller's insurance contracts and all
insurance proceeds of settlement and insurance claims made by such Seller on or
before the Closing Date
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as set forth on Schedule 1.2(c) attached hereto;
(d) Tax Items. All of such Seller's claims, rights and interest in
and to any refunds for federal, state or local Taxes (as defined in Section
2.4(a) below);
(e) Corporate Records. All of such Seller's corporate and other
organizational records; and
(f) Bank Accounts. All of such Seller's bank accounts;
(g) Employees. All of such Seller's rights, claims and interests
with respect to its employees; and
(h) Trademarks and Tradenames. All of such Seller's rights, title
and interest in any tradenames or trademarks with respect to the name
"Gibralter" except as set forth on Schedule 1.1(c) hereto and in the License
Agreement.
1.3 Assumed Liabilities; Excluded Liabilities; Employees.
(a) Assumed Liabilities. Buyer shall, on and as of the Closing Date,
accept and assume, and shall become and be fully liable and responsible for, and
other than as expressly set forth herein neither Seller shall have any further
liability or responsibility for or with respect to, (i) liabilities and
obligations arising out of events occurring on and after the Closing Date
related to Buyer's ownership of the Assets and Buyer's operation of the Business
after the Closing Date; (ii) accounts payable, accrued expenses, all deferred
revenues and any other current liability of such Seller as of the Closing Date
(except the current portion of any bank debt or line of credit to be paid
pursuant to Section 1.5) relating to the Business and included on such Seller's
balance sheet, or incurred in the ordinary course since the date of such balance
sheet, as determined in accordance with GAAP consistently applied (the "Assumed
Current Liabilities"); and (iii) all obligations and liabilities of such Seller
relating to the Business which are to be performed after the Closing Date
arising under the Contracts, including, without limitation, such Seller's
obligations arising under the Sprint telecommunications contracts as set forth
on Schedule 1.1(b) as items 1(a) and 1(b) and such Seller's obligations to
Subscribers (as defined in Section 2.16) under such Contracts for (A) Subscriber
deposits held by such Seller as of the Closing Date in the amount for which
Buyer receives a credit pursuant to Section 1.6(a) below, (B) Subscriber advance
payments held by such Seller as of the Closing Date for services to be rendered
in connection with the Business in the amount for which Buyer receives a credit
pursuant to Section 1.6(a) below, and (C) the delivery of Internet connectivity
service to Subscribers (whether pursuant to a Contract or otherwise) after the
Closing Date ((i), (ii) and (iii) together, the "Assumed Liabilities"). The
assumption of the Assumed Liabilities by Buyer hereunder shall not enlarge any
rights of third parties under contracts or arrangements with Buyer or either
Seller or any of their respective
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affiliates or subsidiaries. No parties other than Buyer and each Seller shall
have any rights under this Agreement.
(b) Excluded Liabilities. It is expressly understood that, except
for the Assumed Liabilities, Buyer shall not assume, pay or be liable for any
liability or obligation of either Seller of any kind or nature at any time
existing or asserted, whether, known, unknown, fixed, contingent or otherwise,
not specifically assumed herein by Buyer, including, without limitation, any
liability or obligation relating to, resulting from or arising out of (i) the
Excluded Assets, including, without limitation, the Excluded Contracts, (ii) the
employees of the Business, including, without limitation, any obligation to
provide any amounts due to the employees under any pension, profit sharing or
similar plan, any bonus or other compensation plan, or related to vacation or
other similar employee benefits, or arising as a result of the transactions
contemplated hereby or (iii) any fact existing or event occurring prior to the
Closing Date or relating to the operation of the Business prior to the Closing
Date. The liabilities which are not assumed by Buyer under this Agreement are
hereinafter sometimes referred to as the "Excluded Liabilities."
1.4 The Closing. The transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at 10:00 a.m., local time, at
the offices of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, on the date on which all of the
conditions to closing set forth in Sections 6 and 7 of this Agreement have been
satisfied or waived, or at such other time and place as shall be mutually agreed
upon in writing by Buyer and Sellers, but in no event later than October 1, 1999
(the "Closing Date").
1.5 Purchase Price. In consideration of the sale by Sellers to Buyer of
the Assets, and subject to the assumption by Buyer of the Assumed Liabilities
and satisfaction of the conditions contained herein, Buyer shall pay at the
Closing an amount (as adjusted in accordance with Section 1.6 below, the
"Purchase Price") equal to $4,106,000 as follows:
(a) Buyer shall deliver to Sellers by bank cashier's check or bank
wire transfer pursuant to the instructions attached hereto as Schedule 1.5(b)
$3,701,000 plus or minus, as applicable, the Estimated Adjustment (as defined in
Section 1.6(c) below); and
(b) Buyer shall deposit the sum of $405,000 (the "Escrow Deposit")
with Boston Safe Deposit and Trust Company as Escrow Agent under the Escrow
Agreement in the form attached hereto as Exhibit A (the "Escrow Agreement"). The
Escrow Deposit shall be held, administered and distributed in accordance with
the terms of the Escrow Agreement, and shall be a remedy of Buyer for any
indemnification claims made pursuant to Section 10 hereof.
1.6 Adjustments to Purchase Price.
(a) Net Working Capital. The Purchase Price shall be decreased, on a
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dollar-for-dollar basis, by the amount of Sellers' Net Working Capital (as
defined herein) if such amount is negative, or increased dollar for dollar by
the amount of Sellers' Net Working Capital if such amount is positive. "Net
Working Capital" means an amount equal to Current Assets minus Assumed Current
Liabilities as of the Closing Date.
(b) Revenues Adjustment Amount. The Purchase Price shall be
decreased, on a dollar-for-dollar basis, by (i) the Revenues Adjustment Amount
(as defined herein) in the event Recurring Revenues (as defined herein) for the
31 calendar days prior to the Closing are less than $157,000 (annualized at
$1,884,000) (the "Target Revenues"). For purposes hereof, the term "Revenues
Adjustment Amount" shall equal the product obtained by multiplying (i) $2,000 by
(ii) the quotient obtained by dividing (X) the Annualized Recurring Revenues
Deficiency (as defined herein), by (Y) one thousand dollars ($1,000). For
purposes hereof, "Recurring Revenues" shall mean revenues of Sellers from
Subscribers (determined on an accrual basis), calculated by multiplying the
number of Subscribers as of the Closing Date by the average monthly rate in
effect as of the Closing Date for such Subscribers, by type, excluding one-time
set-up fees and other ancillary charges. For purposes hereof, the term
"Annualized Recurring Revenues Deficiency" shall equal the product of the
difference between (A) the Target Revenues and (B) Recurring Revenues (or
Average Recurring Revenues (as defined herein), as the case may be) multiplied
by twelve (12). Notwithstanding anything to the contrary in this Section 1.6(b),
(1) in the event that Recurring Revenues for the 31 calendar days prior to the
Closing are less than $155,000, Recurring Revenues shall mean revenues of
Sellers from Subscribers (determined on an accrual basis), calculated by
multiplying the average number of Subscribers for during the 90-calendar day
period immediately preceding the Closing by the average monthly rate in effect
for such Subscribers during such period, by type, excluding one-time set-up fees
and other ancillary charges (as calculated, the "Average Recurring Revenues"),
and (2) in the event that Average Recurring Revenues are equal to or greater
than $157,000, the Revenues Adjustment Amount shall be deemed to be zero ($0).
(c) Estimated Adjustment Statement. To facilitate the determination
of the Purchase Price payable at the Closing pursuant to Sections 1.6(a) and
1.6(b) above, prior to the Closing, Buyer and Sellers shall prepare a statement
to be attached hereto as Schedule 1.6(c) (the "Estimated Adjustment Statement")
which sets forth (x) the estimated amount of the Net Working Capital as of the
Closing Date (the "Estimated Net Working Capital") and (y) the estimated
Revenues Adjustment Amount (the "Estimated Revenues Adjustment Amount"). The
Purchase Price payable at the Closing Date shall be decreased on a
dollar-for-dollar basis by the amount of the Estimated Revenues Adjustment
Amount. The Purchase Price payable at Closing shall be further reduced on a
dollar-for-dollar basis by the amount of the Estimated Net Working Capital if
such number is negative. The Purchase Price payable at Closing shall be
increased on a dollar-for-dollar basis by the amount of the Estimated Net
Working Capital if such number is positive. The net adjustment to the Purchase
Price calculated under this subsection (c) shall be referred to as the
"Estimated Adjustment."
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(d) Final Adjustment Statement.
(i) No later than sixty (60) days following the Closing Date,
Buyer shall prepare and deliver to Seller a statement (the "Final
Adjustment Statement") setting forth the actual Net Working Capital and
the actual Revenues Adjustment Amount, together with a copy of Buyer's
work papers showing in reasonable detail the calculation of the actual Net
Working Capital and the actual Revenues Adjustment Amount on the Final
Adjustment Statement. Subject to Section 1.6(d)(ii) below, within ten (10)
days following the delivery of such Final Adjustment Statement to Sellers,
Buyer or Sellers, as the case may be, shall pay to the other party, by
wire transfer of immediately available funds, the difference between the
Estimated Net Working Capital and the Estimated Revenues Adjustment
Amount, as shown on the Estimated Adjustment Statement, and the actual Net
Working Capital and the actual Revenues Adjustment Amount, as shown on the
Final Adjustment Statement.
(ii) In the event Sellers object to the Final Adjustment
Statement and/or the calculation by Buyer of the actual Net Working
Capital or the actual Revenues Adjustment Amount, Sellers shall notify
Buyer in writing of such objection within the ten (10) day period
following the delivery thereof, stating in such written objection the
reasons therefor and setting forth the Sellers' calculation of Sellers'
actual Net Working Capital and the actual Revenues Adjustment Amount at
the Closing Date. Upon receipt by Buyer of such written objection, the
parties shall attempt to resolve the disagreement concerning the Final
Adjustment Statement through negotiation. Notwithstanding any other
dispute resolution procedure provided for in this Agreement, if Buyer and
Sellers cannot resolve such disagreement concerning the Final Adjustment
Statement within thirty (30) days following the end of the foregoing
10-day period, the parties shall submit the matter for resolution to a
nationally recognized firm of independent certified public accountants not
affiliated with either party and mutually selected by the parties (the
"Dispute Accountant"), with the costs thereof to be shared equally by the
parties. In the event that the parties cannot agree on the Dispute
Accountant, a nominee of each party shall agree on a third nominee, which
nominee shall finally serve as the Dispute Account. Such Dispute
Accountant shall deliver a statement setting forth its own calculation of
the Final Adjustment Statement to the parties within thirty (30) days of
the submission of the matter to such firm. Any payment shown to be due by
a party on the statement prepared by such Dispute Accountant shall be paid
to the other party promptly but in no event later than five (5) days
following the delivery of such statement by such accounting firm to the
parties.
1.7 Purchase Price Allocation. At or prior to the Closing, or as soon as
possible thereafter, and in any event no later than sixty (60) days following
the Closing, Sellers shall determine the allocation of the Purchase Price,
subject to Buyer's prior approval. Such allocation shall be binding upon Buyer
and Sellers for all purposes (including financial
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accounting purposes, financial and regulatory reporting purposes and tax
purposes). Buyer and Sellers each further agree to file their respective Federal
income tax returns and their respective other tax returns reflecting such
allocation, Form 8594 and any other reports required by Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code").
1.8 Records and Contracts. To the extent not previously provided to Buyer,
at the Closing, each Seller shall deliver to Buyer all of the Contracts, with
such assignments thereof and consents to assignments as are necessary to assure
Buyer of the full benefit of the same. Each Seller shall also deliver to Buyer
at the Closing or as soon as reasonably possible all of such Seller's files and
records constituting Assets.
1.9 Sales and Transfer Taxes. All sales, transfer, use, recordation,
documentary, stamp, excise taxes, fees and duties under applicable law incurred
in connection with the sale, transfer and assignment of the Assets to the Buyer
will be borne and paid by Sellers, and Sellers shall promptly reimburse Buyer
for the payment of any such tax, fee or duty which Buyer is required to make
under applicable law.
1.10 Transfer of Assets. At the Closing, each Seller shall deliver or
cause to be delivered to Buyer a ▇▇▇▇ of sale and an assignment transferring to
Buyer title to all of the Assets and assigning to Buyer all of the Contracts,
together with all required consents. Such assignment and ▇▇▇▇ of sale (a) shall
be in form and substance reasonably satisfactory to Buyer and its counsel, (b)
shall effectively vest in Buyer good and marketable title to all of the Assets
free and clear of all Liens (as defined in Section 2.8 below), and (c) where
applicable, shall be accompanied by evidence of the discharge of all Liens
against the Assets. At the Closing, Buyer shall deliver to the Seller the
Assignment and Assumption Agreement in the form attached hereto as Exhibit C
(the "Assignment and Assumption Agreement").
1.11 Post-Closing Audits. Sellers hereby agree to provide such assistance
as Buyer reasonably requests to enable Buyer and its accountant to complete an
audit of the pre-Closing financial statement of Buyer, including, without
limitation, providing access to books and records and executing management
representation letters.
1.12 Closing Date Balance Sheet. No later than thirty (30) days following
the Closing, each Seller shall provide to Buyer a balance sheet dated as of the
Closing Date, which sets forth Buyer's accounts receivable, accounts payable,
and deferred or unearned revenue with respect to the Business, in each case as
determined in accordance with GAAP and consistent with such Seller's prior
practices.
1.13 Prorations and Adjustments. At the Closing, all real and personal
property taxes, assessments, rents and utilities shall be prorated between Buyer
and Seller, as appropriate, as of the Closing Date so as to allocate
responsibility for such items applicable to
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any period prior to the Closing to Seller and responsibility for such items
applicable to any period on or after the Closing to Buyer.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER.
In order to induce Buyer to enter into this Agreement, each Seller,
jointly and severally, hereby represents and warrants to Buyer as follows:
2.1 Organization; Subsidiaries.
(a) GPI is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Carolina. GPI has all
requisite power and authority to conduct its business as it is now conducted or
proposed to be conducted and to own, lease and operate its properties and
assets. The copies of GPI's Certificate of Incorporation and By-Laws, each as
amended to date, heretofore delivered to Buyer's counsel are complete and
correct. GPI is not in violation of any term of the Certificate of Incorporation
and By-Laws. GPI is duly qualified to do business in the state of its
incorporation, and is not required to be licensed or qualified to conduct its
business or own its property in any other jurisdiction, except where the failure
to be so licensed or qualified would not have a material adverse effect on the
operation of the Business or the value of the Assets.
(b) GDS is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Carolina. GDS has all
requisite power and authority to conduct its business as it is now conducted or
proposed to be conducted and to own, lease and operate its properties and
assets. The copies of GDS's Certificate of Incorporation and By-Laws each as
amended to date, heretofore delivered to Buyer's counsel are complete and
correct. GDS is not in violation of any term of the Certificate of Incorporation
and By-Laws. GDS is duly qualified to do business in the state of its
incorporation, and is not required to be licensed or qualified to conduct its
business or own its property in any other jurisdiction, except where the failure
to be so licensed or qualified would not have a material adverse effect on the
operation of the Business or the value of the Assets.
(c) Except as set forth on Schedule 2.1(c) hereto, neither Seller
has any subsidiaries or owns any securities issued by any other business
organization or governmental authority, except U.S. Government securities, bank
certificates of deposit and money market accounts acquired as short-term
investments in the ordinary course of its business. Other than GPI's 100%
ownership interest in GDS, neither Seller owns or has any direct or indirect
interest in or control over any corporation, partnership, joint venture or
entity of any kind.
2.2 Required Action. All actions and proceedings necessary to be taken by
or on the part of each Seller in connection with the transactions contemplated
by this Agreement
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have been duly and validly taken or will have been duly and validly taken prior
to Closing, and this Agreement and each other agreement, document and instrument
to be executed and delivered by or on behalf of each Seller pursuant to, or as
contemplated by, this Agreement (collectively, the "Seller Documents") has been
or shall be duly and validly authorized, executed and delivered by each such
Seller and no other action on the part of either Seller or their officers,
directors or shareholders shall be required in connection therewith. Each Seller
has full right, authority, power and capacity to execute and deliver this
Agreement and each other Seller Document and to carry out the transactions
contemplated hereby and thereby. This Agreement and each other Seller Document
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of each Seller enforceable in accordance with its
respective terms, subject to the effect upon enforceability of applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
right of creditors generally and the exercise of judicial discretion in
accordance with general principles of equity.
2.3 No Conflicts. Except as set forth on Schedule 2.3, the execution,
delivery and performance by each Seller of this Agreement and each other Seller
Document does not and will not (i) violate any provision of the Certificate of
Incorporation and By-Laws of such Seller, in each case as amended to date, (ii)
constitute a material violation of, or conflict with or result in any material
breach of, acceleration of any obligation under, right of termination under, or
default under, any agreement or instrument to which such Seller is a party or by
which such Seller or the Assets are bound, (iii) violate any judgment, decree,
order, statute, rule or regulation applicable to such Seller or the Assets,
except where such violation would not have a material adverse effect on the
operation of the Business or the value of the Assets, (iv) require such Seller
to obtain any approval, consent or waiver of, or to make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or made,
except for any such consent or waiver which if not obtained would not have a
material adverse effect on the Business or the value of the Assets, or (v)
result in the creation or imposition of any Lien (as defined in Section 2.8
below) on any of the Assets.
2.4 Taxes.
(a) To Sellers' knowledge, each Seller has paid or caused to be paid
or made adequate provision for all federal, state, local, foreign and other
taxes, including, without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, value-added taxes, gross
receipts taxes, franchise taxes, capital stock taxes, employment and
payroll-related taxes, withholding taxes, stamp taxes, transfer taxes, windfall
profit taxes, environmental taxes and property taxes, whether or not measured in
whole or in part by net income, and all deficiencies, or other additions to tax,
interest, fines and penalties owed by it (collectively, "Taxes"), required to be
paid by it through the date hereof with respect to the Business, whether
disputed or not.
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(b) Each Seller has in accordance with applicable law filed all
federal, state, local and foreign tax returns required to be filed by it through
the date hereof, and to Sellers' knowledge, all such returns correctly and
accurately set forth the amount of any Taxes relating to the applicable period.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of either Seller threatening to
assert against such Seller any deficiency or claim for additional Taxes. No
claim has ever been made by an authority in a jurisdiction where such Seller
does not file reports and returns that Seller is or may be subject to taxation
by that jurisdiction. There are no security interests on any of the Assets of
either Seller that arose in connection with any failure (or alleged failure) to
pay any Taxes. Neither Seller has ever entered into a closing agreement pursuant
to Section 7121 of the Code.
(d) Neither Seller is a "foreign person" within the meaning of
Section 1445 of the Code and Treasury Regulations Section 1.1445-2.
(e) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.5 Compliance with Laws. Each Seller's operation of the Business and the
Assets is in compliance in all material respects with all applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other governmental authority (including the Federal Communications
Commission), and neither Seller has received notice of a violation or alleged
violation of any such statute, ordinance, order, rule or regulation.
2.6 Insurance. The Assets are insured to the extent disclosed on Schedule
2.6 attached hereto, and all such insurance policies and arrangements of each
Seller in effect as of the date hereof and relating to the Assets are disclosed
on said Schedule. Said insurance policies and arrangements are in full force and
effect, all premiums with respect thereto are currently paid, and each Seller is
in compliance in all material respects with the terms thereof.
2.7 Contracts. The Contracts, together with the Excluded Contracts,
constitute all material leases, material contracts and material arrangements,
whether oral or written, under which either Seller is bound or to which either
Seller is a party and which relate to the Business or Assets. Schedule 1.1(b)
attached hereto contains a true, correct and complete list of all Contracts.
With respect to each oral agreement or understanding involving the Business or
with respect to any electronic agreement with a Subscriber which was
acknowledged by such Subscriber automatically, each Seller has provided a
written summary of the material terms of each such agreement or understanding on
Schedule 1.1(b). Each Contract is valid, in full force and effect and binding
upon such Seller and to Seller's knowledge the other parties
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thereto in accordance with its terms. Except as set forth on Schedule 2.7
attached hereto, neither Seller nor, to the knowledge of either Seller, any
other party is in material default under or in material arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Contract, nor does any condition exist
that with notice or lapse of time or both would constitute such a material
default, and no waiver or indulgence has been granted by any party under any
Contract. Neither Seller has received notice of, and neither Seller has any
knowledge of, any fact which would result in a termination, repudiation or
breach of any Contract except as set forth on Schedule 2.7 attached hereto. Each
Seller has provided Buyer with true and complete copies of all of such
Contracts, other than with respect to the oral agreements or understandings
described on Schedule 1.1(b) or with respect to agreements with Subscribers
which were acknowledged by such subscribers electronically.
2.8 Title. Each Seller has good and marketable title to all of the Assets
owned by such Seller free and clear of all mortgages, pledges, security
interests, charges, liens, restrictions and encumbrances of any kind
(collectively, "Liens") except for any such liens, set forth on Schedule 2.8
attached hereto, which will be released on or prior to the Closing Date. Upon
the sale, assignment, transfer and delivery of the Assets to Buyer hereunder and
under the Seller Documents, there will be vested in Buyer good and marketable
title to the Assets, free and clear of all Liens. The Assets include all of the
assets and properties (i) held for use by Sellers to conduct the Business as
presently conducted and (ii) necessary or useful for Buyer to operate the
Business in the same manner as such business is currently operated by Sellers,
except in each case for (a) the portmasters set forth on Schedule 2.8 which are
not part of the Assets and (b) the use of Seller's leasehold interests set forth
on Schedule 2.8 for the operation of the Business. All of the tangible Assets
are in good repair, have been well maintained and are in good operating
condition, ordinary wear and tear excepted, do not require any material
modifications or repairs, and comply in all material respects with applicable
laws, ordinances and regulations.
2.9 No Litigation. Neither Seller is now involved in nor, to the knowledge
of either Seller, is either Seller threatened to be involved in any litigation
or legal or other proceedings related to or affecting the Business or any Asset
(including any Intellectual Property) or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement. Neither Seller
has been operating the Business under, and the Business is not subject to, any
order, injunction or decree of any court of federal, state, municipal or other
governmental department, commission, board, agency or instrumentality.
2.10 Employees; Labor Matters. GDS has never had any employees. A list of
employees of GPI who are instrumental to the conduct and operation of the
Business (collectively, the "Key Employees") is set forth on Schedule 2.10. GPI
enjoys generally good relations with the Key Employees. GPI will use
commercially reasonable efforts to provide the services of the Key Employees, or
if the Key Employees are no longer employed by GPI,
11
other persons of comparable expertise and experience, to assist in the Buyer's
operation of the Business, subject to the terms of the Transition Services
Agreement.
2.11 Financial Statements. Attached hereto as Schedule 2.11 are copies of
the balance sheet of each Seller relating to the Business as of June 30, 1999
(collectively, the "Base Balance Sheets") and the statements of income and
expense of each Seller for the twelve (12) months ended June 30, 1999
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and present fairly and accurately
the financial condition of the Business at the dates of said statements and the
results of operations of the Business for the periods covered thereby. As of the
date of the Base Balance Sheets (the "Base Balance Sheet Date"), neither Seller
had any material liabilities or obligations of any kind with respect to the
Business, whether accrued, contingent or otherwise, that are not disclosed and
adequately reserved against on the Base Balance Sheets. As of the date hereof
and at the Closing, neither Seller had and neither Seller will have any material
liabilities or obligations of any kind with respect to the Business, whether
accrued, contingent or otherwise, that are not disclosed and adequately reserved
against on the Base Balance Sheets.
2.12 Business Since the Base Balance Sheet Date. Except as set forth on
Schedule 2.12 attached hereto, since the Base Balance Sheet Date:
(a) there has been no material adverse change in the Business or in
the Assets, operations or financial condition of the Business;
(b) the Business has, in all material respects, been conducted in
the ordinary course of business and in substantially the same manner as it was
conducted before the date of the Base Balance Sheet Date;
(c) there has not been any material obligation or liability
(contingent or other) incurred by either Seller with respect to the Business,
whether or not incurred in the ordinary course of business;
(d) there has not been any purchase, sale or other disposition, or
any agreement or other arrangement, oral or written, for the purchase, sale or
other disposition, of any material properties or assets of the Business, whether
or not in the ordinary course of business, except as contemplated by this
Agreement;
(e) there has not been any mortgage, encumbrance or lien placed on
any of the Assets, nor any payment or discharge of a material lien or liability
of either Seller which was not reflected on the Base Balance Sheets;
12
(f) there has not been any damage, destruction or loss, whether or
not covered by insurance, materially adversely affecting the Business or Assets;
(g) there has not been any change in either Seller's pricing,
marketing, customer service, billing, operational or promotional activities in
any material way from that which such Seller was providing these activities
directly prior to the Base Balance Sheet Date; and
(h) there has not been any agreement or understanding, whether in
writing or otherwise, for either Seller to take any of the actions specified
above.
2.13 Licenses. As of the date of this Agreement, Sellers are the holders
of all licenses, permits and authorizations with respect to the Business (the
"Authorizations"). The Authorizations constitute all of the licenses, permits
and authorizations required for operation of the Business as now operated,
except for such Authorizations the failure to obtain which would not have a
material adverse effect on the Business or value of the Assets. All of the
Authorizations are in full force and effect and no licenses, permits or
authorizations of any governmental department or agency are required for the
operation of the Business which have not been duly obtained, except for such
Authorizations the failure to obtain which would not have a material adverse
effect on the Business or value of the Assets. As of the date hereof, there is
not pending or, to the knowledge of Sellers, threatened any action by or before
any governmental agency to revoke, cancel, rescind or modify any of the
Authorizations, and there is not now issued, outstanding, pending or, to the
knowledge of either Seller, threatened any order to show cause, notice of
violation, notice of apparent liability, or notice of forfeiture or complaint
against either Seller with respect to the Business.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by either Seller in connection with the execution and delivery of this
Agreement and the Seller Documents and the consummation of the transactions
contemplated hereby and thereby. All of the approvals, consents and
authorizations set forth on Schedule 2.14 shall be obtained by Sellers at or
prior to the Closing; provided, that in the event Sellers have not obtained all
of the approvals, consents and authorizations set forth on Schedule 2.14 at or
prior to the Closing, Seller shall so indicate on Schedule 2.14 the consents not
obtained, and shall use its best efforts to obtain such consents by not later
than 60 days after the Closing.
2.15 Customers and Suppliers. To the knowledge of Sellers, each Seller's
relations with its customers and suppliers relating to the Business, including
its Subscribers (as defined in Section 2.16 below), are good and there are not
pending or, to each such Seller's knowledge, threatened claims or controversies
with any customer, supplier or Subscriber that would have a material adverse
effect on the Assets or the Business.
13
2.16 Subscribers. Schedule 2.16(a) attached hereto sets forth, as of the
date hereof, all subscribers of the Business as listed by class, type and
billing plan. For purposes of this Agreement, the term "Subscriber" shall mean
any active subscriber as of the Closing Date to Internet services offered by
either Seller in the Business who has subscribed to a service for at least two
months and has paid at least two bills (except in the case of active subscribers
who began receiving Internet services in the 31 days prior to the Closing Date
as set forth on Schedule 2.16(a), who shall have subscribed to a service for at
least two months and have paid at least two bills as of the thirtieth (30th)
calendar day after the Closing Date), including, without limitation, any person
or corporation who receives dial-up Internet access through the Business (a
"Dial-up Subscriber"), any person who receives dedicated Internet access from
either Seller offering higher data transmission rates than available from
dial-up access (a "Dedicated Subscriber"), and any person with a web page or
domain name on either Seller's servers and to whom either Seller provide
Internet access (a "Web-hosting/Domain-hosting Subscriber"); provided, however,
that "Subscriber" shall not include any person who is (i) more than thirty (30)
days delinquent in payment of such person's ▇▇▇▇ for such services provided by
the Business and (ii) any person receiving complimentary Internet services. Set
forth on Schedule 2.16(b) attached hereto is a listing of all such accounts
which receive complimentary Internet services or Internet services at a
promotional discounted rate. Set forth on Schedule 2.16(c) attached hereto is
each Seller's policy and practice with respect to the disconnection of
Subscribers, with which such Seller has, except as set forth on Schedule on
Schedule 2.16(c), at all times since its inception, complied in all material
respects.
2.17 Brokers. Neither Seller has retained any broker or finder or other
person who would have any valid claim against any of the parties to this
Agreement for a commission or brokerage fee in connection with this Agreement or
the transactions contemplated hereby.
2.18 Collectibility of Accounts Receivable. Except as set forth on
Schedule 2.18 attached hereto, all of the Accounts Receivable of each Seller are
or will be as of the Closing Date bona fide, valid and enforceable claims,
subject to no set off or counterclaim and are collectible in accordance with
their terms subject to applicable bad debt reserves. With respect to the
Business, neither Seller has any accounts or loans receivable from any person,
firm or corporation which is affiliated with such Seller or from any director,
officer or employee of such Seller, or from any of their respective spouses or
family members.
2.19 [Intentionally deleted.]
2.20 Intellectual Property.
(a) All of the Intellectual Property of Sellers relating to the
Business is set forth on Schedule 2.20 attached hereto. For purposes hereof, the
term "Intellectual Property" shall mean: (i) all patents, patent applications,
patent rights, and inventions and discoveries and invention disclosures (whether
or not patented) (collectively, "Patents"); (ii) each Seller's
14
rights to the names "Gibralter", trade names, trade dress, logos, packaging
design, slogans, any and all Internet domain names used or useful in the
business of Sellers, registered and unregistered trademarks and service marks
and applications (collectively, "Marks"); (iii) all copyrights in both published
and unpublished works, including, without limitation, all compilations,
databases and computer programs, and all copyright registrations and
applications, and all derivatives, translations, adaptations and combinations of
the above (collectively, "Copyrights"), (iv) all know-how, trade secrets,
confidential or proprietary information, customer lists, IP addresses, research
in progress, algorithms, data, designs, processes, formulae, drawings,
schematics, blueprints, flow charts, models, prototypes, techniques, Beta
testing procedures and Beta testing results (collectively, "Trade Secrets"); (v)
the web-site known as ▇▇▇▇▇▇▇▇▇.▇▇▇ (including the domain name
"▇▇▇.▇▇▇▇▇▇▇▇▇.▇▇▇"; and any other similar domain name); (vi) all goodwill,
franchises, licenses, permits, consents, approvals, technical information,
telephone numbers, and claims of infringement against third parties (the
"Rights"); and (vii) all contracts relating to the Intellectual Property to
which either Seller is a party or is bound, including, without limitation, all
nondisclosure and/or confidentiality agreements entered into by persons in
connection with disclosures by either Seller (collectively,"Assigned
Contracts"); provided, however, that items (i) through (vii) of this Section
2.20(a) shall include only items that are used or useful in connection with the
Business.
(b) Except as described on Schedule 2.20, each Seller has exclusive
ownership of, and has good, valid and marketable title to, all of the
Intellectual Property used by it, free and clear of any Liens, and has the right
to use all of the Intellectual Property used by it without payment to any third
party. Except as described on Schedule 2.20, each Seller's rights in all of such
Intellectual Property are freely transferable. There are no claims or demands
pending or, to the knowledge of either Seller, threatened of any other person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or, to the knowledge of either Seller, threatened
against either Seller and/or its officers, employees and consultants which
challenge the validity and enforceability of such Seller's rights in respect of
the Intellectual Property. The Intellectual Property represents all of the
assets of Sellers of such class or type necessary for the operation of Seller's
Business as currently conducted.
Except as set forth on Schedule 2.20, all former and current employees,
consultants and contractors of each Seller have executed written instruments
with such Seller that assign to such Seller all rights to any inventions,
improvements, discoveries, or information relating to the business of such
Seller. To the best knowledge of each Seller after inquiry, no employee,
consultant or contractor of such Seller has entered into any agreement that
restricts or limits in any way the scope or type of work in which the employee,
consultant or contractor may be engaged or requires the employee, consultant or
contractor to transfer, assign, or disclose information concerning his work to
anyone other than such Seller.
15
(c) Neither Seller owns any Patents.
(d) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Sellers' Marks used in the Business.
(e) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's Copyrights used in the Business. Except
as set forth on Schedule 2.20, all of the Copyrights have been registered with
the United States Copyright Office and are currently in compliance with formal
legal requirements, are valid and enforceable, and are not subject to any fees
or taxes or actions falling due within ninety (90) days after the Closing Date.
In each case where a Copyright is held by Seller by assignment, the assignment
has been duly recorded with the U.S. Copyright Office and all other
jurisdictions of registration. All copies of works encompassed by the Copyrights
have been marked with the proper copyright notice.
(f) To the knowledge of Sellers, there has not been any breach by
any party of any confidentiality or non-disclosure agreement by any officer,
director, employee, consultant or contract of any Seller with respect to the
Business. The Trade Secrets have not been disclosed by either Seller to any
person or entity other than employees or contractors of such Seller who had a
need to know and use the Trade Secrets in the course of their employment or
contract performance. Each Seller has the right to use, free and clear of claims
of third parties, all Trade Secrets used by it. To the knowledge of each Seller,
there is not any assertion that the use by either Seller of any Trade Secret
violates the rights of any third party.
(g) Except as set forth on Schedule 2.20, Sellers have the exclusive
right to use, license, distribute, transfer and bring infringement actions with
respect to the Intellectual Property. Except as set forth on Schedule 2.20,
neither Seller (i) has licensed or granted to anyone rights of any nature to use
any of its Intellectual Property and (ii) is obligated to and does pay royalties
or other fees to anyone for its ownership, use, license or transfer of any of
its Intellectual Property.
(h) All licenses or other agreements under which either Seller is
granted rights by others in Intellectual Property are listed on Schedule 2.20.
All such licenses or other agreements are in full force and effect, to the
knowledge of each Seller there is no material default by any party thereto, and
except as set forth on Schedule 2.20, all of the rights of each Seller
thereunder are freely assignable. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer,
and neither Seller has any reason to believe that the licensors under the
licenses and other agreements under which each Seller is granted rights and has
granted rights to others do not have and did not have all requisite power and
authority to grant the rights purported to be conferred thereby.
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(i) All licenses or other agreements under which either Seller has
granted rights to others in Intellectual Property are listed on Schedule 2.20.
All such licenses or other agreements are in full force and effect, and to the
knowledge of each Seller there is no material default by any party thereto. True
and complete copies of all such licenses or other agreements, and any amendments
thereto, have been provided to Buyer.
(j) Each Seller has reviewed the areas within its operations with
respect to the Business which could be adversely affected by, and has developed
a plan or program to address on a timely basis, the "Year 2000 Problem" (i.e.,
the risk that applications used by such Seller or its suppliers and/or providers
in connection with the operation of the Business may be unable to recognize and
properly perform date-sensitive functions involving certain dates prior to and
any date after December 31, 1999). Each of the Sellers reasonably believes that,
to the extent Sellers can reasonably anticipate and prepare for the "Year 2000
Problem," the "Year 2000 Problem" will not have any material adverse effect on
the operations of Seller with respect to the Business.
2.21 Absence of Restrictions. Neither Seller has entered into any other
agreement or arrangement with any other party with respect to the sale, transfer
or any other disposition or encumbrance of the Business or the Assets, in whole
or in part.
2.22 Transactions with Interested Persons. Except as set forth on Schedule
2.22 hereto, neither Seller, nor any shareholder, officer, supervisory employee
or director of either Seller or, to the knowledge of either Seller, any of their
respective spouses or family members owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of
Seller, or any organization which has a material contract or arrangement with
either Seller.
2.23 [Intentionally deleted.]
2.24 Environmental Matters.
(a) Except as set forth in Schedule 2.24, with respect to Seller's
operation of the Business on or from ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ (the "Premises"), (i) neither Seller has generated, transported, used,
stored, treated, disposed of, or managed any Hazardous Waste (as defined in
Section 2.24(c) below) at any time; (ii) to the knowledge of each Seller, no
Hazardous Material (as defined in Section 2.24(c) below) has ever been or is
threatened to be spilled, released, or disposed of at any site associated with a
structure presently or formerly owned, operated, leased, or used by such Seller,
or has ever been located in the soil or groundwater at any such site; (iii) to
the knowledge of such Seller, no Hazardous Material has ever been transported
from any site associated with a structure presently or formerly owned, operated,
leased, or used by such Seller for treatment, storage, or disposal at any other
place; (iv) to Seller's knowledge, neither Seller presently owns,
17
operates, leases, or uses, or has ever previously owned, operated, leased, or
used any site associated with a structure on which underground storage tanks are
or were located; and (v) no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by either Seller in connection with the presence of any
Hazardous Material.
(b) Except as set forth on Schedule 2.24, with respect to Seller's
operation of the Business on or from the Premises, (i) neither Seller has any
liability under, nor has it ever violated, any Environmental Law (as defined in
Section 2.24(c) below); (ii) neither Seller, nor, to such Seller's knowledge,
any property associated with a structure owned, operated, leased, or used by
such Seller, nor facilities or operations thereon is presently not in compliance
with all applicable Environmental Laws; (iii) neither Seller has entered into or
been subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither Seller has any knowledge or reason to know
that any of the items enumerated in clause (iii) of this subsection will be
forthcoming.
(c) For purposes of this Agreement, (i) "Hazardous Material" shall
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the environment or to human health or
safety (other than ordinary cleaning supplies), as defined or regulated under
any Environmental Law; (ii) "Hazardous Waste" shall mean and include any
hazardous waste as defined or regulated under any Environmental Law; and (iii)
"Environmental Law" shall mean any environmental or health and safety-related
law, regulation, rule, ordinance, or By-law at the foreign, federal, state, or
local level, whether existing as of the date hereof, previously enforced, or
subsequently enacted, the violation of which could have a material adverse
effect on the Business or the value of the Assets.
2.25 Disclosure. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
each Seller to Buyer pursuant to this Agreement do not contain any untrue
statement of a material fact, and, when taken together, do not omit to state a
material fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to either
Seller which relate to Sellers' operation of the Business and which presently or
may, in Seller's reasonable business judgment, in the future have a material
adverse affect on the Business, properties, Assets, operations or (financial or
other) condition of either Seller with respect to the Business which has not
been specifically disclosed herein or in a Schedule furnished herewith, other
than general economic or market conditions or developments affecting the
Internet services industry generally.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
As a material inducement to Sellers entering into this Agreement, Buyer
hereby represents and warrants to Sellers as follows:
3.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Buyer has all
requisite power and authority to conduct its business as it is now conducted and
to own, lease and operate its properties and assets. Buyer is qualified to do
business as a foreign corporation in the State of North Carolina.
3.2 Required Action: Authority. All actions and proceedings necessary to
be taken by or on the part of Buyer in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement and each other agreement, document and instrument to be executed and
delivered by or on behalf of Buyer pursuant to, or as contemplated by, this
Agreement (collectively, the "Buyer Documents") has been duly and validly
authorized, executed and delivered by Buyer. Buyer has full right, authority,
power and capacity to execute and deliver this Agreement and each other Buyer
Document and to carry out the transactions contemplated hereby and thereby. This
Agreement and each other Buyer Document constitutes, or when executed and
delivered will constitute, the legal, valid and binding obligations of Buyer
enforceable in accordance with its respective terms.
3.3 No Conflicts. The execution, delivery and performance by Buyer of this
Agreement and each other Buyer Document does not and will not (a) violate any
provision of the Certificate of Incorporation or By-Laws of Buyer, as amended to
date, (b) constitute a violation of, or conflict with or result in any breach
of, acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which Buyer is a party or by which it is
bound, (c) violate any judgment, decree, order, statute, rule or regulation
applicable to Buyer, (d) require Buyer to obtain any approval, consent or waiver
of, or to make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made. The officers who execute this Agreement and
the other Buyer Documents contemplated hereby on behalf of Buyer have and shall
have all requisite power to do so in the name of and on behalf of Buyer.
3.4 Brokers. Except for fees payable to Rampart Associates, LLC, for which
Buyer is solely responsible, Buyer has not retained any broker or finder or
other person who would have any valid claim against any of the parties to this
Agreement for a commission or brokerage fee in connection with this Agreement or
the transactions contemplated hereby.
19
3.5 Litigation. Buyer is not now involved in or, to Buyer's knowledge,
threatened to be involved in any litigation or legal or other proceedings which
would prevent or hinder the consummation of the transaction contemplated by this
Agreement.
3.6 Approvals; Consents. No approval, consent, authorization or exemption
from or filing with any person or entity not a party to this Agreement is
required to be obtained or made by Buyer in connection with the execution and
delivery of this Agreement and the Buyer Documents and the consummation of the
transactions contemplated hereby and thereby.
3.7 Disclosure. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
Buyer to Sellers pursuant to this agreement do not contain any untrue statement
of a material fact, and, when taken together, do not omit to state a material
fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made.
SECTION 4. COVENANTS OF SELLER.
Each Seller covenants and agrees that:
4.1 Access to Premises and Records. From the date hereof until
consummation of the transactions contemplated hereby at the Closing, Seller
shall give Buyer and its representatives, at reasonable times and with
reasonable prior notice, free access to the properties, books and records of the
Business and to the Assets and will furnish to Buyer and its representatives
such information regarding the Business and the Assets as Buyer or its
representatives may from time to time reasonably request in order that Buyer may
have full opportunity to make a diligent investigation consistent with this
Agreement. In addition to, and not in limitation of the foregoing, Seller shall
provide Buyer with access to and copies of the records of all: (a) Accounts
Receivable, (b) Subscriber ▇▇▇▇▇▇▇▇, (c) pre-paid accounts, (d) accounts for
which no remuneration is received by Seller and (e) general reports with respect
to each category of service provided by the Business.
4.2 Continuity and Maintenance of Operations of the Business. Except as to
actions of which Buyer has been advised and to which Buyer has consented to in
writing, and except as specifically permitted or required by this Agreement,
from the date of this Agreement until the Closing, Seller shall:
(a) Operate the Business in the ordinary course consistent with past
practices, use its commercially reasonable efforts to keep available the
services of the employees who are involved in the operation of the Business, and
use commercially reasonable
20
efforts to preserve any beneficial business relationships with Subscribers,
customers, suppliers and others having business dealings with Seller relating to
the Business;
(b) Use and operate the Assets in a manner consistent with past
practice and maintain the Assets in good operating condition, ordinary wear and
tear excepted;
(c) Maintain adequate inventories of spare Equipment consistent with
past practices;
(d) Maintain insurance upon the Assets in such amounts and types as
in effect on the date of this Agreement as set forth in Schedule 2.6 attached
hereto;
(e) Keep all of its business books, records and files in the
ordinary course of business in accordance with past practices, and provide Buyer
with access thereto upon its reasonable request;
(f) Continue to implement and enforce its procedures for
disconnection and discontinuance of service to Subscribers whose accounts are
delinquent in accordance with those in effect on the date of this Agreement;
(g) Perform and comply in all material respects with the terms of
the Contracts and keep such Contracts in full force and effect; and
(h) Use its reasonable best efforts to preserve the goodwill of the
Business.
4.3 Negative Covenants. From the date of this Agreement until the Closing,
Seller shall not, without the prior written consent of Buyer:
(a) Sell, transfer, lease, assign or otherwise dispose of, or agree
to sell, transfer, lease, assign or otherwise dispose of, any Assets outside the
ordinary course of business;
(b) Enter into any contract or commitment for the acquisition of
goods or services relating to the Business (other than in the ordinary course of
business) or which otherwise obligates Seller to perform in full or in part
beyond the Closing Date with respect to the Business;
(c) Renegotiate, modify, amend or terminate any Contract;
(d) Create, assume, or permit to exist, or agree to incur, assume or
acquire, any Lien, claim or liability on the Assets;
21
(e) Make any modifications or changes to the existing rate schedules
or product offerings in effect with respect to the Business;
(f) Offer or employ any sales discounts, free services or other
extraordinary marketing practices or extraordinary promotions with respect to
the Business outside the ordinary course of business and not consistent with
Seller's past practices; or
(g) Take any actions or permit its employees and agents to take any
actions which would materially interfere with or preclude the transactions
contemplated by this Agreement.
4.4 Consents. Seller will use its reasonable best efforts to obtain, as
soon as practicable and at its expense, the consent of all third parties under
the Contracts for which the prior approval of such third party is required
pursuant to the terms of the Contract; provided, however, that "reasonable best
effort" for this purpose shall not require Seller to undertake extraordinary or
unreasonable measures to obtain such approvals and consents, including, without
limitation, the initiation or prosecution of legal proceedings or the payment of
fees in excess of customary filing and processing fees.
4.5 Notification of Certain Matters. Prior to Closing, Seller shall
promptly notify Buyer of (i) any fact, event, circumstances or action of which
Seller becomes aware, the existence or occurrence of which would cause any of
Seller's representations or warranties under this Agreement, or the disclosures
in any schedules or exhibits attached hereto, not to be true in any material
respect and (ii) any failure on its part to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement. Seller shall promptly notify Buyer in
writing of the assertion, commencement or threat of any claim, litigation,
proceeding or investigation in which Seller is a party or in which the Assets or
Business may be affected and which could reasonably be expected to be material
or which relates to the transactions contemplated hereby.
4.6 Adverse Change. Prior to Closing, Seller shall promptly notify Buyer
in writing of any materially adverse developments affecting the Assets or the
Business which become known to Seller, including, without limitation, (i) any
damage, destruction or loss (whether or not covered by insurance) materially and
adversely affecting any of the Assets or the Business, (ii) any material notice
of violation, forfeiture or complaint under any material Contract, or (iii)
anything which, if not corrected prior to the Closing Date, would prevent Seller
from fulfilling any condition to Closing described in Section 6 hereof.
4.7 No Solicitation. Prior to the Closing, Seller shall not, and Seller
shall cause its officers, employees, stockholders, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by Seller) and all other employees who perform services with respect to
the operation of the Business not to, initiate, solicit or
22
encourage, directly or indirectly, any inquiries or the making of any proposal
with respect to the Assets or the Business, or engage in any negotiations
concerning, or provide to any other person any information or data relating to,
the Business, the Assets or Seller for the purpose of, or have any discussions
with, any person relating to, or otherwise cooperate in any way with or assist
or participate in, facilitate or encourage, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any effort
or attempt by any other person to seek or effect a transaction, or enter into a
transaction with any person or persons, other than Buyer, concerning the
possible sale of the Assets or Business, or the capital stock of Seller. Seller
shall promptly inform Buyer of any such inquiries or proposals and provide all
pertinent documentation related thereto.
4.8 Confidentiality. Seller agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Buyer with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Buyer's industry or which becomes generally known in Buyer's industry without
breach by Seller of its confidentiality obligations hereunder, or which has been
disclosed to Seller by third parties which have a right to do so, shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transactions contemplated by this Agreement are not consummated, Seller
will return, and cause its respective officers, directors, agents and
representatives to return, to Buyer (or certify that they have destroyed) all
copies of such data and information made available to Seller (and its officers,
directors, agents and representatives) in connection with the transaction.
4.9 Use of Trade Names. After the Closing Date, and subject to the terms
of the License Agreement, neither Seller, nor any person controlling, controlled
by or under common control with Seller will for any reason, directly or
indirectly, for itself or any other person, (a) use the names "Gibralter",
"Gibralter Data Services", "▇▇▇▇▇▇▇▇▇.▇▇▇" or any other Internet domain name
used or useful in the business of Seller, or any other or (b) use or disclose
any trade secrets, confidential information, know-how, proprietary information
or other intellectual property of Seller transferred pursuant to this Agreement.
4.10 Delivery of Vehicle. Sellers covenant to deliver to Buyer on or
before October 10, 1999 (a) one 1998 Jeep Wrangler, vehicle identification
number ▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇ (the "Jeep") and (b) good and marketable title to such
Jeep, free and clear of all mortgages, pledges, security interests, charges,
liens, restrictions and encumbrances of any kind.
4.11 Collection of Assets. Subsequent to the Closing, Buyer shall have the
right and authority to collect all receivables and other items transferred and
assigned to Buyer by Seller hereunder as part of the Assets and to endorse with
the name of Seller any checks received on account of such receivables or other
items, and Seller agrees that it will promptly transfer or deliver to Buyer from
time to time, any cash or other property that such Seller may receive
23
with respect to any claims, contracts, licenses, leases, commitments, sales
orders, purchase orders, receivables of any character or any other items
included in the Assets.
4.12 Payment of Obligations. Seller shall pay all of the Excluded
Liabilities in the ordinary course of business as they become due, subject to
the right to contest any such Excluded Liability with any third party.
4.13 Further Assurances. Seller, from time to time after the Closing at
the request of Buyer and without further consideration, shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Assets free and clear of all Liens (as defined in
Section 2.8).
4.14 Payment of Obligations. Seller shall pay all of the Excluded
Liabilities in the ordinary course of business as they become due (subject to
the right of Seller to contest any such Excluded Liability in good faith).
4.15 Business Access Agreement. GPI shall negotiate in good faith with
Buyer the terms of a Business Access Agreement, or similar agreement, for the
purchase of Internet services from Buyer, the terms of which shall include, but
shall not be limited to, consideration of $5000 per month and a term of 24
months beginning as of the Closing Date.
SECTION 5. COVENANTS OF BUYER.
Buyer covenants and agrees that:
5.1 Confidentiality. Buyer agrees that, from the date hereof, Buyer and
its representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Seller with
respect to its business or financial condition except in connection with the
Business. Information generally known in Sellers' industry or which becomes
generally known in Seller's industry without breach by Buyer of its
confidentiality obligation hereunder, or which has been disclosed to Buyer by
third parties which have a right to do so shall not be deemed confidential or
proprietary information for purposes of this Agreement. If the transactions
contemplated by this Agreement are not consummated, Buyer will return, and cause
its respective officers, directors, agents and representatives to return, to
Seller (or certify that they have destroyed) all copies of such data and
information made available to Buyer (and its officers, directors, agents and
representatives) in connection with the transaction.
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5.2 Assumed Liabilities. From and after the Closing Date, Buyer shall pay
and/or perform the Assumed Liabilities in the ordinary course as they become
due, subject to the right to contest any such Assumed Liability with any third
party.
5.3 Notification of Certain Matters. Prior to Closing, Buyer shall
promptly notify Sellers of (i) any fact, event, circumstances or action of which
Buyer becomes aware, the existence or occurrence of which would cause any of
Buyer's representations or warranties under this Agreement, or the disclosures
in any schedules or exhibits attached hereto, not to be true in any material
respect and (ii) any failure on its part to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement. Buyer shall promptly notify Sellers in
writing of the assertion, commencement or threat of any claim, litigation,
proceeding or investigation in which Buyer is a party or in which the Assets or
Business may be affected and which could reasonably be expected to be material
or which relates to the transactions contemplated hereby.
5.4 Business Access Agreement. Buyer shall negotiate in good faith with
GPI the terms of a Business Access Agreement, or similar agreement, for the
purchase of Internet services from Buyer, the terms of which shall include, but
shall not be limited to, consideration of $5000 per month and a term of 24
months, beginning as of the Closing Date.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER.
Buyer's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, unless otherwise waived by Buyer in writing:
6.1 Performance of Agreements and Deliveries. Each Seller shall have
performed in all material respects all of its covenants, agreements and
obligations under this Agreement which are to be performed or complied with by
such Seller prior to or upon the Closing Date and shall have delivered all
documents and items required to be delivered at or prior to the Closing,
including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
such Seller to the effect that the conditions set forth in Sections 6.1, 6.2 and
6.9 have been satisfied;
(b) A certificate, dated the Closing Date, from such Seller's
Secretary as to the Certificate of Incorporation, By-Laws, authority and the
incumbency of all officers executing the Seller Documents on behalf of such
Seller;
(c) A certified copy of such Seller's Certificate of Incorporation
from the Secretary of State of the State of North Carolina;
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(d) With respect to GDS, an Amendment to the Certificate of
Incorporation and any other required documentation, which effect a change of
Seller's name, which name change shall take effect not more than five (5) days
following the date of Closing;
(e) A Certificate of Existence from the Secretary of State of the
State of North Carolina; and
(f) Such other certificates and instruments reasonably requested by
Buyer.
6.2 Asset Transfer. Each Seller shall have delivered to Buyer the
following instruments of transfer and assignment in accordance with the
provisions hereof, transferring to Buyer all of such Seller's right, title and
interest in and to the Assets, free and clear of all Liens:
(a) A ▇▇▇▇ of Sale in the form attached hereto as Exhibit B;
(b) An Assignment and Assumption Agreement;
(c) An Assignment of Copyright and Trademarks in the form attached
hereto as Exhibit D;
(d) An Assignment of Internet Domain Name in the form attached
hereto as Exhibit E;
(e) a Transition Services Agreement in the form attached hereto as
Exhibit H (the "Transition Services Agreement");
(f) a License Agreement for tradenames and Marks in the form
attached hereto as Exhibit I (the "License Agreement"); and
(g) Such other instruments of transfer reasonably requested by
Buyer.
6.3 Assignment of Contracts and Authorizations; Approvals. All Contracts
shall have been duly and validly assigned to Buyer by each Seller, and all
consents and approvals required in connection with the consummation of the
transactions contemplated hereby under any Contract or Authorization or
otherwise required to be obtained by such Seller shall have been obtained in
form and substance reasonably satisfactory to Buyer and without conditions
materially and adversely affecting Buyer and which do not require Buyer to pay
money to any party to any such Contract or Authorization in excess of amounts
required to be so paid pursuant to the terms and conditions thereof.
26
6.4 Escrow Agreement. Each Seller shall have executed and delivered to
Buyer the Escrow Agreement.
6.5 Non-competition Agreement. Each Seller and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have
executed and delivered to Buyer a Non-competition Agreement in substantially the
form attached hereto as Exhibit F (the "Non-competition Agreement").
6.6 Release of Liens. Each Seller shall have obtained and delivered to
Buyer at or prior to the Closing instruments (including payoff letters, bills of
sale and UCC-3 termination statements) releasing any and all Liens on the
Assets.
6.7 Opinion of Seller's Counsel. Buyer shall have received the opinion or
opinions of ▇▇▇▇▇ ▇▇▇▇▇ Mulliss & ▇▇▇▇▇, L.L.P., special North Carolina counsel
for Sellers, dated the Closing Date, substantially in the form of Exhibit G
attached hereto.
6.8 Board of Directors Approval. Buyer shall have received at or prior to
the Closing the approval of its Board of Directors for this transaction and all
related documents.
6.9 Accuracy of Representations and Warranties. The representations and
warranties of each Seller contained in this Agreement shall be true and correct
in all material respects at the Closing Date with the same effect as though made
at such time and the representations and warranties of such Seller contained in
this Agreement which are qualified by materiality shall be true and correct in
all respects as of the Closing Date with the same effect as though made at such
time.
6.10 No Material Adverse Effect. None of the schedules, documents or other
information to be furnished by either Seller to Buyer pursuant to this
Agreement, shall disclose any fact, circumstance or matter, or any change in or
development in connection with any matter disclosed in the original schedules or
documents previously delivered by such Seller to Buyer, which has, or could
reasonably be expected to have, a material adverse effect on the Assets or on
the Business; and there shall have been no other changes or developments
affecting either the Assets or the Business since the Base Balance Sheet Date
which have, or could reasonably be expected to have, a material adverse effect
on the Assets or Business.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER.
The obligation of each Seller to consummate the transactions contemplated
by this Agreement is subject to the satisfaction, on or prior to the Closing
Date, of the following conditions, unless waived by such Seller in writing:
27
7.1 Performance of Agreement and Deliveries. Buyer shall have performed in
all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Buyer prior to or
upon the Closing Date and shall have delivered all documents and items required
to be delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
Buyer to the effect that the conditions set forth in Section 7.1 have been
satisfied;
(b) A certificate, dated the Closing Date, from Buyer's Secretary as
to the Certificate of Incorporation, By-Laws, authority and the incumbency of
all officers executing the Buyer Documents on behalf of Buyer;
(c) A certified copy of Buyer's Certificate of Incorporation from
the Secretary of State of the State of Delaware; and
(d) A Certificate of Good Standing from the Secretary of State of
the State of Delaware.
7.2 Escrow Agreement. Buyer shall have executed and delivered to Sellers
the Escrow Agreement.
7.3 Other Agreements, etc. Buyer shall have executed and delivered to
Sellers the following:
(a) the Assignment and Assumption Agreement;
(b) the Transition Services Agreement; and
(c) the License Agreement.
7.4 Board of Directors and Stockholder Approval. Sellers shall have
received at or prior to the Closing the approval of its Board of Directors and
stockholders for this transaction and all related documents.
7.5 Accuracy of Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at the Closing Date with the same effect as though made at
such time and the representations and warranties of Buyer contained in this
Agreement which are qualified by materiality shall be true and correct in all
respects as of the Closing Date with the same effect as though made at such
time.
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7.6 Consents; Approvals. Buyer shall have obtained all consents and
approvals required to be obtained by Buyer in connection with the consummation
of the transactions contemplated hereby.
SECTION 8. TERMINATION.
8.1 Events of Termination. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing:
(a) By the mutual written consent of Buyer and each Seller.
(b) Subject to Section 8.4 below, by either Seller, if it is not in
breach or default hereunder:
(i) if any representation or warranty of Buyer made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Buyer's receipt of a notice from Sellers that
such breach exists or has occurred;
(ii) if Buyer shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Buyer's receipt
of a notice from Sellers that such default exists or has occurred;
(iii) if the conditions to either Seller's obligations to
consummate the Closing as set forth in Section 7 cannot reasonably
be satisfied or performed on or before October 31, 1999 (unless such
failure of satisfaction, non-compliance or non-performance is the
result, directly or indirectly, of any action or failure to act on
the part of such Seller); or
(iv) if the Closing has not occurred prior to September 27,
1999.
(c) Subject to Section 8.4 below, by Buyer, if it is not in breach
or default hereunder:
(i) if any representation or warranty of either Seller made
herein is untrue in any material respect and such breach is not
cured within thirty (30) days of such Seller's receipt of a notice
from Buyer that such breach exists or has occurred;
(ii) if either Seller shall have defaulted in any material
respect in the performance of any material obligation under this
Agreement and such breach is
29
not cured within thirty (30) days of such Seller's receipt of a
notice from Buyer that such default exists or has occurred; or
(iii) if the conditions to Buyer's obligations to consummate
the Closing as set forth in Section 6 cannot reasonably be satisfied
or performed on or before October 31, 1999 (unless such failure of
satisfaction, non-compliance or non-performance is the result
directly or indirectly of any action or failure to act on the part
of Buyer); or
(iv) if the Closing has not occurred prior to September 27,
1999.
8.2 Manner of Exercise. In the event of the termination of this Agreement
by either Buyer or a Seller pursuant to Section 8.1 notice thereof shall
forthwith be given to the other party in accordance with the provisions set
forth in Section 11 hereto and this Agreement shall terminate and the
transactions contemplated hereunder shall be abandoned without further action by
Buyer or such Seller.
8.3 Effect of Termination; Liabilities. In the event of the termination of
this Agreement pursuant to Section 8.1 or Section 8.4 and prior to the Closing,
all covenants, agreements and other obligations of the parties hereunder (other
than pursuant to Sections 4.8 and 5.1 hereof) shall terminate, and neither
Sellers nor Buyer shall have any further liability hereunder, including for
losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, costs and expenses
(including attorneys' fees) of any kind whatsoever; except upon termination of
this Agreement pursuant to Sections 8.1(c)(i) and 8.1(c)(ii), Buyer shall be
entitled to any remedy which it may have, whether at law or in equity, and
except upon termination of this Agreement pursuant to Sections 8.1(b)(i) and
8.1(b)(ii), Sellers shall be entitled to any remedy which they have, whether at
law or in equity.
8.4 Waiver; Extension of Time for Performance. Either Seller may extend
the time for the performance of any of the obligations or other acts of Buyer
hereunder, waive any inaccuracies in the representations and warranties of Buyer
contained herein or in any document delivered pursuant hereto, or waive
compliance by Buyer with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by such Seller. Buyer may extend the time for the performance of
any of the obligations or other acts of either Seller or the Principals
hereunder, waive any inaccuracies in the representations and warranties of
either Seller or the Principals contained herein or in any document delivered
pursuant hereto, or waive compliance by either Seller or the Principals with any
of the agreements or conditions contained herein. Any such extension or waiver
shall be valid if set forth in an instrument in writing signed by Buyer.
30
SECTION 9. SURVIVAL.
9.1 Survival of Warranties. Subject to Section 10.5 hereof, each of the
representations, warranties, agreements, covenants and obligations herein or in
any schedule, exhibit, certificate or financial statement delivered by any party
to the other party incident to the transactions contemplated hereby are
material, shall be deemed to have been relied upon by the other party and shall
survive the Closing regardless of any investigation and shall not merge in the
performance of any obligation by either party hereto.
SECTION 10. INDEMNIFICATION.
10.1 Indemnification by Sellers. Each Seller hereby agrees, jointly and
severally, to indemnify and hold harmless Buyer, its affiliates and its and
their respective directors, officers, stockholders, partners, members,
employees, and agents (individually, a "Buyer Indemnified Party" and
collectively, "Buyer Indemnified Parties"), against and in respect of all
losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys and
consultants) of any kind or nature whatsoever (collectively, "Losses"), but net
of the proceeds from any insurance policies or other third party reimbursement
for such Losses, to the extent actually sustained, suffered or incurred by or
made against any Buyer Indemnified Party, to the extent based upon, arising out
of or in connection with: (i) any breach of any representation or warranty made
by either Seller in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement; (ii) any
breach of any covenant or agreement made by either Seller in this Agreement or
in any schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered pursuant to this Agreement; (iii) any claim made by any
person or entity which relates to the operation of the Assets or the Business
which arises in connection with or on the basis of events, acts, omissions,
conditions or any other state of facts occurring on or existing before the
Closing Date; and (iv) any claim which arises in connection with any liability
or obligation of Seller other than the Assumed Liabilities. In no event shall
Losses with respect to the indemnification obligations of the Sellers include
any damages for lost profits, consequential damages, punitive damages or any
special damages.
10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
each Seller and its officers, directors, managers, members, employees and agents
(individually, a "Seller Indemnified Party" and collectively, "Seller
Indemnified Parties") at all times against and in respect of all Losses, to the
extent actually sustained, suffered or incurred by or made against any Seller
Indemnified Party, to the extent based upon, arising out of or in connection
with: (i) any breach of any representation or warranty made by Buyer in this
Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered pursuant to this Agreement; (ii) any breach of any covenant
or agreement made by Buyer in this Agreement or
31
in any schedule, exhibit, certificate, agreement or other instrument delivered
pursuant to this Agreement; (iii) any claim made against a Seller which relates
to, results from or arises out of Buyer's operation of the Assets or the
Business from and after the Closing Date; and (iv) the Assumed Liabilities. In
no event shall Losses with respect to the indemnification obligations of the
Buyer include any damages for lost profits, consequential damages, punitive
damages or any special damages.
10.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified party
of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted.
(b) Third Party Claims. With respect to third party claims, if
within twenty (20) days after receiving the notice described in clause (a) above
the indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense and (ii) agrees that such claim will be promptly paid in full if
required, then (x) counsel for the defense shall be selected by the indemnifying
party (subject to the consent of the indemnified party which consent shall not
be unreasonably withheld); (y) the indemnified party shall not be required to
make any payment with respect to such claim, liability or expense as long as the
indemnifying party is conducting a good faith and diligent defense at its own
expense; provided, however, that the assumption of defense of any such matters
by the indemnifying party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification; and (z) the
indemnified party shall have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, that the
indemnifying party shall control and direct such defense. The indemnifying party
shall have the right, with the consent of the indemnified party, which consent
shall not be unreasonably withheld, to settle all indemnifiable matters related
to claims by third parties which are susceptible to being settled provided the
indemnifying parties' obligation to indemnify the indemnified party therefor
will be fully satisfied. The indemnifying party shall keep the indemnified party
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement
32
discussions. The indemnified party shall cooperate fully in the defense by the
indemnifying party. Notwithstanding anything herein stated, if the named parties
to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be a conflict of interest or otherwise inappropriate under applicable standards
of professional conduct, the expense of separate counsel for the indemnified
party shall be paid by the indemnifying party. If no such notice of intent to
dispute and defend is given by the indemnifying party, or if such diligent good
faith defense is not being or ceases to be conducted, the indemnified party
shall, at the expense of the indemnifying party, undertake the defense of (with
counsel selected by the indemnified party), and shall have the right, with the
consent of the indemnifying party, which consent shall not be unreasonably
withheld, to compromise or settle (exercising reasonable business judgment),
such claim, liability or expense. If such claim, liability or expense is one
that by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party claims,
if within twenty (20) days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice. If the
indemnifying party provides written notice to the indemnified party within such
20-day period that it contests such indemnity, the parties shall attempt in good
faith to reach an agreement with regard thereto within thirty (30) days of
delivery of the indemnifying party's notice. If the parties cannot reach
agreement within such 30-day period, the matter may be submitted by either party
for binding arbitration in accordance with the provisions of Section 12.11
hereof.
10.4 Claims Against Escrow Deposit. In the event that any Buyer
Indemnified Party sustains or incurs Losses, taxes, fines or penalties for which
it is entitled to indemnification from either Seller under this Agreement, in
addition to all other rights or remedies that Buyer may have (including the
right to collect directly from such Seller), such Buyer Indemnified Party shall
be entitled to receive in cash from the Escrow Deposit an amount equal to the
Losses, taxes or fines actually sustained or incurred by such Buyer Indemnified
Party. In order to receive payment from the Escrow Deposit such Buyer
Indemnified Party shall first deliver to such Seller a written claim for Losses
arising under or by virtue of this Agreement specifying the nature of the claim
and the type and amount of Losses, taxes or fines actually sustained or incurred
by such Buyer Indemnified Party. Within thirty (30) calendar days of receiving a
claim against the Escrow Deposit from or on behalf of any Buyer Indemnified
Party, such Seller shall provide a written response to such Buyer Indemnified
Party with a copy to the Escrow Agent, which either accepts or rejects all or
any portion of such Buyer Indemnified Party's claim, the amount accepted by such
Seller shall be paid to such Buyer Indemnified Party from the Escrow Deposit by
the Escrow Agent within ten (10) calendar days
33
of the Escrow Agent's receipt of Seller's acceptance of such Buyer Indemnified
Party's claim. If such Seller rejects any portion of such Buyer Indemnified
Party's claim, such Seller's written response shall specify the specific
reason(s) for the rejection and the amount, if any, of such Buyer Indemnified
Party's claim which is accepted. The amount of any claim rejected by such Seller
shall be retained in escrow and distributed by the Escrow Agent only as directed
by a written settlement agreement signed by both such Seller and such Buyer
Indemnified Party or in accordance with an award rendered by an arbitrator(s) in
accordance with Section 12.11 of this Agreement.
10.5 Limitations of Indemnity Obligations of Sellers and the Buyer. The
indemnity obligations of the Sellers and the Buyer under this Agreement shall be
subject to the following limitations:
(a) The indemnity obligations of the Sellers shall expire on the six
(6) month anniversary of the Closing Date; provided, however, that such
obligations with respect to (i) the representations and warranties contained in
Sections 2.1, 2.2, 2.3 and 2.24 and the obligations contained in Section 4.14
shall continue in effect for the full period of any applicable statute of
limitations, and (ii) the representations and warranties regarding taxes, which
are contained in Section 2.4, shall remain in effect until all claims for taxes
due by or on account of the Seller for any period up to and including the
Closing Date have been settled and any statute of limitations period with
respect to such taxes has expired; and provided further that the indemnity
obligations of the Seller for claims timely asserted by a Buyer Indemnified
Party in the manner provided in this Agreement shall continue until such claims
are fully resolved and discharged.
(b) The aggregate indemnity obligations of the Sellers for any
Losses shall not in any event exceed Four Million Fifty Thousand Dollars
($4,050,000).
(c) The aggregate indemnity obligations of the Buyer for any Losses
shall not in any event exceed Four Million Fifty Thousand Dollars ($4,050,000),
except to the extent that such losses arise from or result from Buyer's
operation of the Business from and after the Closing Date or in connection with
the Assumed Liabilities.
(d) The Buyer Indemnified Parties and the Seller Indemnified
Parties, as applicable, shall be entitled to indemnification with respect to any
breach of representation or warranty made by the Buyer or Sellers, as the case
may be in (i) this Agreement or (ii) in any Schedule, Exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement only if the
aggregate and collective damages incurred or suffered by them exceed Twenty-Five
Thousand Dollars ($25,000), in which event they shall be entitled to
indemnification for the full amount of such damages.
34
10.6 Remedy for Breaches. The indemnification provided in this Section 10
shall be the exclusive remedy of the Buyer or the Seller, as the case may be,
for any breach of a representation or warranty made by such party under (a) this
Agreement or (b) any exhibit, schedule, certificate, agreement or other
instrument, delivered pursuant to this Agreement, and shall be in lieu of any
statutory, other contractual, equitable or common law remedy any party may have
for such breach other than any non-monetary remedy pursuant to Section 12.10
except for recision or similar remedies.
SECTION 11. NOTICES.
All notices and other communications required to be given hereunder, or
which may be given pursuant or relative to the provisions hereof, shall be in
writing and shall be deemed to have been given when delivered in hand or mailed,
postage prepaid, by first class United States mail, certified return receipt
requested as follows:
If to Seller: Gibralter Data Services, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
With a copy to: Venable Attorney at Law
Venable, Baetjer, ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, LLP
Suite 1000
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to Buyer: DURO Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
With a copy to: ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
SECTION 12. MISCELLANEOUS.
12.1 Assignability; Binding Effect. This Agreement shall not be assignable
by Buyer or either Seller except with the written consent of the other, except
that Buyer may assign its
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rights hereunder either (a) to any affiliate of Buyer or its owners, (b) as a
result of any merger, reorganization or other consolidation, or (c) in
connection with the granting of a security interest to its senior lender. This
Agreement shall be binding upon and shall inure to the benefit of, the parties
hereto and their respective successors and assigns.
12.2 Headings. The subject headings used in this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
12.3 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer and each Seller or, in
the case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, or any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
12.4 Bulk Sales Law. Buyer hereby waives compliance by Sellers of any
applicable bulk sales law and Seller agree, to make full and timely payment when
due of all amounts owed by it to its creditors. Seller agrees to indemnify and
hold Buyer harmless from, and reimburse Buyer for, any loss, cost, expense,
liability or damage (including reasonable counsel fees and disbursements and
expenses) which Buyer may suffer or incur by virtue of the non-compliance by
such Seller with such laws.
12.5 Entire Agreement. This Agreement, together with the schedules and
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes and cancels any and all
prior or contemporaneous arrangements, understandings and agreements between
them relating to the subject matter hereof.
12.6 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, then the
remaining provisions of this Agreement (and the remaining portion of any
provision held to be void or unenforceable in part only) shall continue in full
force and effect.
12.7 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed and construed by and enforced in accordance with the
laws of the State of North Carolina, without regard to conflict of laws
principles.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same instrument.
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12.9 Expenses. Each party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accountants undertaken
pursuant to this Agreement, whether or not the transactions contemplated hereby
are consummated.
12.10 Remedies. It is specifically understood and agreed that certain
breaches of this Agreement will result in irreparable injury to the parties
hereto, that the remedies available to the parties at law alone will be an
inadequate remedy for such breach, and that, in addition to any other legal or
equitable remedies which the parties may have, a party may enforce its rights by
an action for specific performance and the parties expressly waive the defense
that a remedy in damages will be adequate.
12.11 Dispute Resolution. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity hereof shall be finally settled
solely and exclusively by arbitration conducted expeditiously in accordance with
the CPR Institute for Dispute Resolution Rules for Nonadministered Arbitration
of Business Disputes (the "CPR Rules"). The CPR Institute for Dispute Resolution
shall appoint a neutral advisor from its National CPR Panel. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. ss.1-16, and
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. The place of arbitration shall be Charlotte, North
Carolina.
Such proceedings shall be administered by the neutral advisor in
accordance with the CPR Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(a) Mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
(b) No other discovery;
(c) Hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place in one or two days at a maximum; and
(d) Decision to be rendered not later than ten (10) days following
such hearings.
Notwithstanding anything to the contrary contained herein, the provisions
of this Section 12.11 shall not apply with regard to any equitable remedies to
which any party may be entitled hereunder.
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Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of any United States District Court of competent
jurisdiction located in the State of North Carolina for the purpose of enforcing
the award or decision in any such proceeding, (b) hereby waives, and agrees not
to assert in any civil action to enforce the award, any claim that it is not
subject personally to the jurisdiction of the above-named court, that its
property is exempt or immune from attachment or execution, that the civil action
is brought in an inconvenient forum, that the venue of the civil action is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court, and (c) hereby waives and agrees not to seek any review by
any court of any other jurisdiction which may be called upon to grant an
enforcement of the judgment of any such court. Each of the parties hereto hereby
consents to service of process by registered mail at the address to which
notices are to be given. Each of the parties hereto agrees that its submission
to jurisdiction and its consent to service of process by mail is made for the
express benefit of the other parties hereto. Final judgment against any party
hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction; provided,
however, that any party may at its option bring suit, or institute other
judicial proceedings, in any state or federal court of the United States or of
any country or place where the other parties or their assets, may be found.
Notwithstanding the foregoing, the parties may enforce their rights under
this Agreement in accordance with Section 12.10.
12.12 Third Party Rights. This Agreement is for the benefit of the parties
hereto and is not entered into for the benefit of, and shall not be construed to
confer any benefit upon, any other party or entity.
SECTION 13. DEFINITIONS.
"Accounts Receivable" shall have the meaning set forth in Section 1.1(e).
"Annualized Recurring Revenues Deficiency" shall have the meaning set
forth in Section 1.6(b).
"Assets" shall have the meaning set forth in Section 1.1.
"Assigned Contracts" shall have the meaning set forth in Section 2.20(a).
"Assignment and Assumption Agreement" shall have the meaning set forth in
Section 1.10.
"Assumed Current Liabilities" shall have the meaning set forth in Section
1.3(a).
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"Assumed Liabilities" shall have the meaning set forth in Section 1.3(a).
"Atel Payment" shall have the meaning set forth in Section 1.5(a).
"Authorizations" shall have the meaning set forth in Section 2.13.
"Base Balance Sheets" shall have the meaning set forth in Section 2.11.
"Base Balance Sheet Date" shall have the meaning set forth in Section
2.11.
"Business" shall have the meaning set forth in the preamble hereto.
"Buyer" shall have the meaning set forth in the preamble hereto.
"Buyer Documents" shall have the meaning set forth in Section 3.2
"Buyer Indemnified Parties" shall have the meaning set forth in Section
10.1(a).
"Buyer Indemnified Party"shall have the meaning set forth in Section
10.1(a).
"Closing" shall have the meaning set forth in Section 1.4.
"Closing Date" shall have the meaning set forth in Section 1.4.
"Code" shall have the meaning set forth in Section 1.7.
"Contracts" shall have the meaning set forth in Section 1.1(b).
"Copyrights" shall have the meaning set forth in Section 2.20(a).
"CPR Rules" shall have the meaning set forth in Section 12.11.
"Current Assets" shall have the meaning set forth in Section 1.1(e).
"Dedicated Subscriber" shall have the meaning set forth in Section 2.16.
"Dial-up Subscriber" shall have the meaning set forth in Section 2.16.
"Dispute Accountant" shall have the meaning set forth in Section 1.16(d)
"Employee Program" shall have the meaning set forth in Section 2.23(c)(i).
39
"Environmental Law" shall have the meaning set forth in Section 2.24(c).
"Equipment" shall have the meaning as set forth in Section 1.1(a).
"ERISA" shall have the meaning set forth in Section 2.23(a).
"Escrow Agreement" shall have the meaning set forth in Section 1.5(c).
"Escrow Deposit" shall have the meaning set forth in Section 1.5(c).
"Estimated Adjustment" shall have the meaning set forth in Section 1.6(c).
"Estimated Adjustment Statement" shall have the meaning set forth in
Section 1.6(c).
"Estimated Net Working Capital" shall have the meaning set forth in
Section 1.6(c).
"Estimated Revenues Adjustment Amount" shall have the meaning set forth in
Section 1.6(c).
"Excluded Assets" shall have the meaning set forth in Section 2.16.
"Excluded Contracts" shall have the meaning set forth in Section 1.2(b).
"Excluded Liabilities" shall have the meaning set forth in Section 1.3(b).
"Final Adjustment Statement" shall have the meaning set forth in Section
1.6(d)(i).
"Financial Statements" shall have the meaning set forth in Section 2.11.
"GAAP" shall have the meaning set forth in Section 1.1(e).
"GDS" shall have the meaning set forth in the preamble hereto.
"GPI" shall have the meaning set forth in the preamble hereto.
"Hazardous Material" shall have the meaning set forth in Section 2.24(c).
"Hazardous Waste" shall have the meaning set forth in Section 2.24(c).
"Intellectual Property" shall have the meaning set forth in Section
2.20(a).
"IRS" shall have the meaning set forth in Section 2.23(a).
40
"Jeep" shall have the meaning set forth in Section 4.10.
"License Agreement" shall have the meaning set forth in Section 6.2(f).
"Liens" shall have the meaning set forth in Section 2.8.
"Marks" shall have the meaning set forth in Section 2.20(a).
"Net Working Capital" shall have the meaning set forth in Section 1.6(a).
"Non-competition Agreement" shall have the meaning set forth in Section
6.5.
"Patents" shall have the meaning set forth in Section 2.20(a).
"Purchase Price" shall have the meaning set forth in Section 1.5.
"Recurring Revenues" shall have the meaning set forth in Section 1.6(b).
"Revenues Adjustment Amount" shall have the meaning set forth in Section
1.6(b).
"Rights" shall have the meaning set forth in Section 2.20(a).
"Seller" shall have the meaning set forth in the preamble hereto.
"Seller Documents" shall have the meaning set forth in Section 2.2.
"Seller Indemnified Parties"shall have the meaning set forth in Section
10.2.
"Seller Indemnified Party" shall have the meaning set forth in Section
10.2.
"Subscriber" shall have the meaning set forth in Section 2.16.
"Target Revenues" shall have the meaning set forth in Section 1.6(b).
"Taxes" shall have the meaning set forth in Section 2.4(a).
"Trade Secrets" shall have the meaning set forth in Section 2.20(a).
"Transition Services Agreement" shall have the meaning set forth in
Section 6.2(e).
"Web-hosting/Domain-hosting Subscriber" shall have the meaning set forth
in Section 2.16.
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IN WITNESS WHEREOF, Sellers and Buyer have caused this Asset Purchase
Agreement to be executed as of the date first above written.
SELLER:
GIBRALTER DATA SERVICES, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
GIBRALTER PUBLISHING, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
BUYER:
DURO COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
LIST OF EXHIBITS AND SCHEDULES
SCHEDULES
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of ▇▇▇▇ of Sale
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Form of Assignment of Patents and Trademarks
Exhibit E - Form of Assignment of Internet Domain Name
Exhibit F - Form of Non-Competition Agreement
Exhibit G - Form of Opinion of Seller's Counsel
Exhibit H - Transition Services Agreement
Exhibit I - Form of License Agreement
Schedule 1.1(a) Equipment
Schedule 1.1(b) Contracts
Schedule 1.1(c) Intellectual Property
Schedule 1.1(d) Licenses and Authorizations
Schedule 1.1(e) Accounts Receivable
Schedule 1.2(b) Excluded Contracts
Schedule 1.2(c) Insurance
Schedule 1.5(b) Wire Instructions
Schedule 1.6(c) Estimated Adjustment Statement
Schedule 1.6(e) Additional Equipment
Schedule 1.7 Allocation of Purchase Price
Schedule 2.1(c) Subsidiaries
Schedule 2.3 Conflicts
Schedule 2.6 Insurance
Schedule 2.7 Contracts
Schedule 2.8 Portmasters Not Part of the Assets
Schedule 2.10 Key Employees
Schedule 2.11 Financial Statements
Schedule 2.12 Business since the Base Balance Sheet Date
Schedule 2.14 Approvals; Consents
Schedule 2.16(a) Subscribers
Schedule 2.16(b) Complimentary Accounts
Schedule 2.16(c) Disconnection Policy
Schedule 2.18 Uncollectible Accounts Receivable
Schedule 2.20 Intellectual Property
Schedule 2.22 Transactions with Interested Persons
Schedule 2.24 Environmental Matters