U.S. REPUBLIC COMMUNICATIONS, INC.
VARTEC TELECOM, INC.,
VARTEC TELECOM HOLDING COMPANY,
PRODIGY COMMUNICATIONS CORPORATION,
and
THE OTHER STOCKHOLDERS NAMED HEREIN
ASSET PURCHASE AGREEMENT
Dated as of September 7, 1999
TABLE OF CONTENTS
Page
ARTICLE I - THE ACQUISITION 2
SECTION 1.1 Delivery of the Assets. 2
SECTION 1.2 Further Assurances 3
SECTION 1.3 Effective Time 4
SECTION 1.4 Certain Actions at the Closing 4
SECTION 1.5 Assumption of Liabilities; Etc. 5
SECTION 1.6 Escrow 5
SECTION 1.7 Post-Closing Adjustments 5
SECTION 1.8 Transaction Taxes 9
ARTICLE II - REPRESENTATIONS AND WARRANTIESOF THE COMPANY, THE PARENT
AND THE STOCKHOLDERS 9
SECTION 2.1 Corporate Existence and Power, etc. 9
SECTION 2.2 Authorization; Binding Agreement 10
SECTION 2.3 Capitalization 10
SECTION 2.4 Ownership of the Assets 10
SECTION 2.5 Governmental Authorization; Consents 11
SECTION 2.6 Non-Contravention 11
SECTION 2.7 Subsidiaries 12
SECTION 2.8 Financial Statements 12
SECTION 2.9 Absence of Certain Changes 12
SECTION 2.10 Properties 14
SECTION 2.11 No Undisclosed Liabilities 14
SECTION 2.12 Litigation 14
SECTION 2.13 Certain Business Activities 14
SECTION 2.14 Taxes 14
SECTION 2.15 Employee Benefits. 15
SECTION 2.16 Contracts and Leases 15
SECTION 2.17 Permits 18
SECTION 2.18 Insurance 18
SECTION 2.19 Compliance with Laws 18
SECTION 2.20 Finders' Fees 18
SECTION 2.21 Intellectual Property; Year 2000. 19
SECTION 2.22 Transactions with Affiliates 21
SECTION 2.23 Environmental Laws 22
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SECTION 2.24 Product and Service Warranty 22
SECTION 2.25 Acquired Assets Complete 22
SECTION 2.26 Inventory 22
SECTION 2.27 Fixed Assets 22
SECTION 2.28 Accounts Receivable 22
SECTION 2.29 Customers 22
SECTION 2.30 Suppliers 23
SECTION 2.31 Books and Records 23
SECTION 2.32 Disclosure 23
ARTICLE III - REPRESENTATIONS AND WARRANTIESOF THE BUYER 23
SECTION 3.1 Corporate Existence and Power 23
SECTION 3.2 Authorization; Binding Agreement 23
SECTION 3.3 Capitalization 24
SECTION 3.4 Governmental Authorizations; Consents 24
SECTION 3.5 Non-Contravention 24
SECTION 3.6 Reports and Financial Statements 24
SECTION 3.7 Finders' Fees 25
SECTION 3.8 Financing Arrangements 25
SECTION 3.9 Continuity of Business Enterprise 25
SECTION 3.10 Disclosure 25
ARTICLE IV - COVENANTS OF THE COMPANY, THE PARENT AND THE
STOCKHOLDERS 25
SECTION 4.1 Conduct of Business 26
SECTION 4.2 Delivery of Interim Financial Statements 27
SECTION 4.3 Notices and Consents 28
SECTION 4.4 Access to Information 28
SECTION 4.5 Confidentiality 28
SECTION 4.6 No Solicitation 29
SECTION 4.7 Stockholder Approval 29
SECTION 4.8 Obligations of the Company and the Parent 29
ARTICLE V - COVENANTS OF THE COMPANY, THE PARENT, THE STOCKHOLDERS
AND THE BUYER 29
SECTION 5.1 Reasonable Best Efforts 29
SECTION 5.2 HRS Act Compliance 30
SECTION 5.3 Certain Filings, etc. 30
SECTION 5.4 Press Releases and Announcements 30
SECTION 5.5 Notices of Certain Actions 30
SECTION 5.6 Notice of Breaches; Updates 31
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ARTICLE VI - CONDITIONS TO THE CLOSING 31
SECTION 6.1 Conditions to the Obligations of the Company,
the Parent and the Stockholders 31
SECTION 6.2 Conditions to the Obligations of the Buyer 33
ARTICLE VII - SURVIVAL AND INDEMNIFICATION 36
SECTION 7.1 Indemnification by the Company, the Parent
and the Stockholders 36
SECTION 7.2 Indemnification by the Buyer 37
SECTION 7.3 Claims for Indemnification 37
SECTION 7.4 Defense by the Indemnifying Party 38
SECTION 7.5 Survival 39
SECTION 7.6 Treatment of Indemnification Payments 40
SECTION 7.7 No Subrogation 40
SECTION 7.8 Offset Rights; Escrow Non-exclusive 40
SECTION 7.9 Certain Limitations. 40
ARTICLE VIII - TERMINATION 41
SECTION 8.1 Termination 41
SECTION 8.2 Effect of Termination 42
ARTICLE IX - POST-CLOSING COVENANTS 42
SECTION 9.1 Proprietary Information 42
SECTION 9.2 Solicitation and Hiring 42
SECTION 9.3 Non-Competition; Referral of Customers 43
SECTION 9.4 Cooperation in Litigation 43
SECTION 9.5 Nasdaq 44
SECTION 9.6 Use of Name 44
SECTION 9.7 Tax-Free Status of Acquisition 44
SECTION 9.8 Employees 44
ARTICLE X - MISCELLANEOUS 45
SECTION 10.1 Notices 45
SECTION 10.2 Amendments; Waivers 46
SECTION 10.3 Expenses 47
SECTION 10.4 Successors 47
SECTION 10.5 Specific Performance 47
SECTION 10.6 Entire Agreement 47
SECTION 10.7 Severability 47
SECTION 10.8 Governing Law; Jurisdiction and Service of Process 48
SECTION 10.9 Waiver of Jury Trial 48
SECTION 10.10 Payments 48
SECTION 10.11 Counterparts 48
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SECTION 10.12 No Third Party Beneficiaries 48
SECTION 10.13 Headings 49
SECTION 10.14 Incorporation of Exhibits and Schedules 49
SECTION 10.15 Facsimile Signature 49
Exhibits:
Exhibit A Form of Escrow Agreement
Exhibit B Instrument of Assumption of Liabilities
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Transitional Services Agreement
Exhibit E Form of Investment Representation Letter
Exhibit F ▇▇▇▇ of Sale
Schedules:
Schedule 1.1(a)(iii) Assigned Bank Accounts
Schedule 1.1(a)(iv) Assigned Contract Rights
Schedule 1.1(b)(iii) Certain Non-Excluded Intercompany Payables/Receivables
Schedule 1.1(b)(iv) Certain Excluded Assets
Schedule 1.1(b)(v) Certain Excluded Assets of Parent
Schedule 1.5 Certain Assumed Liabilities
Schedule 2.1 - 2.32 Company, Parent and Stockholder Disclosure Schedules
Schedule 4.1(j) Certain Real Estate Leases
Schedule 9.3 Exceptions to Non-Competition Agreement
[NOTE: The exhibits and schedules to this agreement have been omitted from
the agreement as filed with the Securities and Exchange Commission by Prodigy.
Prodigy hereby agrees to furnish supplementally a copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request.]
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INDEX OF DEFINED TERMS
Defined Terms Page
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1998 Financial Statements 12
Accounts Receivable 2
Acquisition 1
Adjusted Purchase Price 8
Affiliate 2
Agreement 1
Assets 2
Assumed Liabilities 5
Business 1
Buyer 1
Buyer Reports 24
Buyer Common Stock 4
Closing 2
Closing Amount 4
Closing Date 4
Closing Statement of Acquired Assets and Assumed Liabilities 6
Code 1
Common Stock 10
Company 1
Contract Rights 2
Damages 36
Dispute Notice 8
Earn-Out Consideration 6
Effective Time 4
Enforceability Exceptions 10
Escrow Agent 4
Escrow Agreement 4
Escrow Fund 5
Excluded Assets 3
Financial Statements 11
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Fixed Assets 3
FTC Settlement 5
FTC Settlement Adjustment 9
GAAP 6
Governmental Entity 11
Holding Company 1
HSR Act 11
Indemnified Party 37
Indemnifying Party 37
Instrument of Assumption 5
Intellectual Property 20
Interim Financial Statements 12
Inventory 2
Last Sale Price 4
Lien 10
Material Adverse Effect 10
Net Adjusted Book Value 6
Net Asset Adjustment 6
Neutral Accountants 8
Ordinary Course of Business 12
Parent 1
Permit 18
Person 11
Proprietary Information 42
Purchase Price 8
Refund Payments 5
Shares 10
Stockholder 1
Taxes 14
Terminating Customers 9
Transfer Taxes 9
Transferred Employees 9
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Updated Financial Statements 27
Year 2000 Compliant 20
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
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as of September 7, 1999 by and among U.S. REPUBLIC COMMUNICATIONS, INC., a Texas
corporation (the "Company"), VARTEC TELECOM, INC., a Texas corporation (the
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"Parent"), VARTEC TELECOM HOLDING COMPANY, a Delaware corporation and a wholly-
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owned subsidiary of the Parent (the "Holding Company"), PRODIGY COMMUNICATIONS
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CORPORATION, a Delaware corporation (the "Buyer"), and T. ▇▇▇▇ ▇▇▇▇ and ▇▇▇ ▇.
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▇▇▇▇▇▇▇, who, along with the Holding Company constitute the sole stockholders of
the Company. The Holding Company, T. ▇▇▇▇ ▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇▇▇▇ are sometimes
referred to herein individually as a "Stockholder" and collectively as the
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"Stockholders."
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W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire that the Company sell to the Buyer, and
the Buyer purchase from the Company, all of the assets and certain of the
liabilities of the Company's web hosting business (the "Business"), subject to
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the terms of this Agreement (the "Acquisition"); and
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WHEREAS, the parties intend that, for Federal income tax purposes, the
Acquisition will qualify as a tax-free reorganization under Section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
----
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with, and to establish various
conditions precedent to, the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
ARTICLE I
THE ACQUISITION
SECTION 1.1 Delivery of the Assets.
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(a) Subject to and upon the terms and conditions of this Agreement, at
the closing of the transactions contemplated by this Agreement (the "Closing"),
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the Company shall sell, transfer, convey, assign and deliver to the Buyer, and
the Buyer shall purchase from the Company, the following properties, assets and
other claims, rights and interests of the Business (collectively, the "Assets"):
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(i) all inventories of raw materials, work in process, finished goods,
office supplies, maintenance supplies, packaging materials, spare parts and
similar items of the Company relating to the Business (collectively, the
"Inventory") which exist on the Closing Date (as defined below);
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(ii) all accounts, accounts receivable, deferred subscription
revenue, notes and notes receivable existing on the Closing Date which are
payable to the Company relating to the Business, including any security held by
the Company for the payment thereof, but excluding any account, account
receivable, note or note receivable payable by any affiliate (as such term is
defined in the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder) of the Company ("Affiliate") to the Company (the
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accounts, accounts receivable, notes and notes receivable, including any related
security therein, to be transferred to the Buyer pursuant hereto are
collectively referred to herein as the "Accounts Receivable");
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(iii) all prepaid expenses, deposits, bank accounts listed on
Schedule 1.1(a)(iii) hereto and other similar assets of the Company relating to
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the Business existing on the Closing Date, including the cash relating to
deferred subscription liability on the Company's books at the Closing, but
excluding the remaining cash of the Business;
(iv) all rights of the Company relating to the Business under the
contracts, agreements, leases, licenses and other instruments set forth on
Schedule 1.1(a)(iv) hereto (collectively, the "Contract Rights");
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(v) all books, records and accounts, customer accounts,
correspondence, production records, technical, accounting, manufacturing and
procedural manuals, customer lists (including in electronic format), employment
records, studies, reports or summaries relating to any environmental conditions
or consequences of any operation relating to the Business, present or former, as
well as all studies, reports or summaries relating to any environmental aspect
or the general condition of the assets of the Business, and any confidential
information which has been reduced to writing relating to or arising out of the
Business;
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(vi) all rights of the Company under express or implied
warranties from the suppliers of the Company relating to the Business;
(vii) the motor vehicles and other rolling stock owned by the
Company relating to the Business on the Closing Date;
(viii) all of the machinery, equipment, tools, production reels and
spools, tooling, dies, production fixtures, maintenance machinery and equipment,
furniture, leasehold improvements and construction in progress owned by the
Company relating to the Business on the Closing Date whether or not reflected as
capital assets in the accounting records of the Company (collectively, the
"Fixed Assets");
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(ix) all of the Company's right, title and interest in and to all
Intellectual Property (as defined in Section 2.21 below) relating to the
Business;
(x) the customer base of the Business;
(xi) the websites listed on Schedule 2.21 (other than
▇▇▇▇▇▇▇▇▇▇.▇▇▇ and ▇▇▇▇▇▇▇▇▇▇.▇▇▇, each of which shall contain a prominent
"hotlink" to ▇▇▇▇▇▇▇▇.▇▇▇ for six (6) months following the Closing Date); and
(xii) except as specifically provided in Section 1.1(b) hereof,
all other assets, properties, claims, rights and interests of the Company
relating to the Business which exist on the Closing Date, of every kind and
nature and description, whether tangible or intangible, real, personal or mixed,
including without limitation all assets of the Business reflected on the Closing
Statement of Acquired Assets and Assumed Liabilities (as defined below).
(2) Notwithstanding the provisions of paragraph (a) above, the Assets
to be transferred to the Buyer under this Agreement shall not include (i) any
assets of the Company relating solely to the Company's long distance resale
business, (ii) any employee benefit plans, (iii) all intercompany
payables/receivables, except those set forth on Schedule 1.1(b)(iii) hereto,
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(iv) any assets listed on Schedule 1.1(b)(iv) hereto and (v) the assets of the
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Parent listed on Schedule 1.1(b)(v) hereto (collectively, the "Excluded
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Assets").
SECTION 1.2 Further Assurances. At any time and from time to time after
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the Closing, at the Buyer's request and without further consideration, the
Company, the Parent and the Stockholders promptly shall execute and deliver such
instruments of sale, transfer, conveyance, assignment and confirmation, and take
such other action, as the Buyer may reasonably request to more effectively
transfer, convey and assign to the Buyer, and to confirm the Buyer's title to,
all of the Assets, to put the Buyer in actual possession and operating control
thereof, to assist the Buyer in actual possession and operating control thereof,
to assist the Buyer in exercising all rights with respect thereto and to carry
out the purpose and intent of this Agreement.
3
SECTION 1.3 Effective Time. The Closing shall take place as soon as
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practicable after all of the conditions set forth in Article VI hereof have been
satisfied or waived by the party or parties entitled to the benefit of same.
The Closing shall take place at the offices of the Buyer, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ or at such other place as the Buyer and the Company shall
mutually determine. The time when the Closing shall become effective is
referred to herein as the "Effective Time", and the date on which the Effective
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Time occurs is referred to herein as the "Closing Date."
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SECTION 1.4 Certain Actions at the Closing. At the Closing, (a) the
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Company, the Parent and the Stockholders shall deliver to the Buyer the various
materials, certificates, instruments and documents referred to in Section 6.2,
(b) the Buyer shall deliver to the Company, the Parent and the Stockholders the
various certificates, instruments and documents referred to in Section 6.1, (c)
the Buyer shall pay to the Company the Closing Amount (as defined below), (d)
the Buyer, the Parent, the Stockholders and Bank of America, N.A. (the "Escrow
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Agent") shall execute and deliver the Escrow Agreement attached hereto as
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Exhibit A (the "Escrow Agreement") and the Buyer shall deposit shares of common
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stock, $.01 par value per share, of the Buyer ("Buyer Common Stock"), with the
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Escrow Agent, in accordance with Section 1.6 below and (e) the Company will
distribute to the Stockholders and the Parent the portion of the Closing Amount
that it receives at the Closing pursuant to clause (c) of this Section 1.4 and
any amounts that it subsequently receives from the Buyer pursuant to this
Agreement in accordance with the ownership percentages of the Stockholders as
set forth in Schedule 2.3 hereto.
"Closing Amount" means: (i) $11,000,000 in cash (or such lesser amount as
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the Company may designate upon written notice delivered to the Buyer at least
three (3) business days prior to the Closing Date); and (ii) the number of
shares of Buyer Common Stock equal to (A) 1,454,545 plus (B) (x) $11,000,000
minus the amount of cash included in the immediately preceding clause (i),
divided by (y) the Last Sale Price.
"Last Sale Price" means: the last sale price of Buyer Common Stock on the
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trading day immediately preceding the Closing Date as reported on the Nasdaq
National Market.
SECTION 1.5 Assumption of Liabilities; Etc.
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(A) At the Closing, the Buyer shall execute and deliver an Instrument
of Assumption of Liabilities (the "Instrument of Assumption") substantially in
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the form attached hereto as Exhibit B, pursuant to which it shall assume and
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agree to perform, pay and discharge the following liabilities, obligations and
commitments of the Company (the "Assumed Liabilities"):
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(i) All obligations of the Company continuing after the Closing under
the Contract Rights set forth in Schedule 1.1(a)(iv) that become due and payable
after the Closing Date; and
(ii) All other liabilities and obligations of the Company
specifically set forth in Schedule 1.5 hereto.
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(B) The Buyer shall not at the Closing assume or agree to perform, pay
or discharge, and the Company shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Company
other than the Assumed Liabilities. Without limiting the generality of the
foregoing, any liabilities relating to the obligation to refund amounts to
customers of the Business ("Refund Payments") or any other fines, refunds or
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liabilities of the Company, as a result of the settlement agreement (the "FTC
---
Settlement") to be entered into between the Company and the U.S. Federal Trade
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Commission, a draft of which has been provided by the Company to the Buyer,
shall not be Assumed Liabilities.
SECTION 1.6 Escrow. At the Closing, the Buyer shall deposit with the
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Escrow Agent 727,272 shares of Buyer Common Stock, one-half of which shall be
for the purpose of securing the indemnification obligations of the Company, the
Parent and the Stockholders set forth in this Agreement and any payment to the
Buyer required pursuant to Section 1.7(a) below, and one-half of which shall be
for the purpose of securing any FTC Settlement Adjustment (as defined below)
(the "Escrow Fund"). The Escrow Fund shall be held by the Escrow Agent under
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the Escrow Agreement pursuant to the terms thereof. The Escrow Fund shall be
held as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes and in accordance with the terms of
the Escrow Agreement.
SECTION 1.7 Post-Closing Adjustments.
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(A) Net Asset Adjustment. The Purchase Price shall be subject to
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adjustment after the Closing Date as follows:
(i) Within 45 days following the Closing Date, the Buyer shall prepare
a statement of acquired assets and assumed liabilities of the Business as of the
Closing Date (the "Closing Statement of Acquired Assets and Assumed
------------------------------------------------
Liabilities") and deliver such Closing Statement of Acquired Assets and Assumed
Liabilities to the Company. The Closing Statement of Acquired Assets and
Assumed Liabilities shall be prepared in accordance with U.S. generally accepted
accounting principles consistently applied ("GAAP") and consistent with the
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method of preparation of the statement of acquired assets and assumed
liabilities required to be delivered pursuant to Sections 2.8 and 6.2 below.
(ii) The Closing Statement of Acquired Assets and Assumed
Liabilities delivered pursuant to paragraph (i) above shall be accompanied by a
statement setting forth the sum, if any, by which the aggregate net book value
of (x) the Assets, minus (y) the Assumed Liabilities, in each case as shown on
the Closing Statement of Acquired Assets and Assumed Liabilities (the "Net
---
Adjusted Book Value"), is greater than, or less than, the aggregate net book
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value (after deduction of Assumed Liabilities) shown on the statement of
acquired assets and assumed liabilities of the Business as of July 31, 1999
referred to in Section 2.8 below for the same categories of assets as are
included in Net Adjusted Book Value (the "Net Asset Adjustment").
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5
(iii) Immediately upon the expiration of the 15-day period for
giving the Dispute Notice (as defined below), if no Dispute Notice is given, or
immediately upon the resolution of disputes, if any, pursuant to Section 1.7(d)
below, the Purchase Price shall be adjusted as follows: the amount of the Net
Asset Adjustment, if positive, shall be added to the Purchase Price and paid
promptly by the Buyer to the Company, subject to Section 7.8, and if negative
shall be deducted from the Purchase Price and paid promptly by the Company to
the Buyer. In either case, payment shall be made in shares of Buyer Common
Stock, valued at $27.50 per share (as adjusted proportionately for any stock
split or similar recapitalization after the date hereof).
(B) Earn-Out Consideration.
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(i) Subject to Section 7.8, the Buyer shall pay to the Company the
Earn-Out Consideration (as defined below) in the amount and at the time
specified below. The "Earn-Out Consideration" shall be an amount determined
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based upon the achievement by the Business of the revenue and EBITDA (earnings
before interest, taxes, depreciation and amortization) targets for the period
beginning on the Closing Date and ending on December 31, 2000 set forth in a
letter agreement among the parties hereto dated the date hereof. The Earn-Out
Consideration shall be paid in shares of Buyer Common Stock, valued at $27.50
per share (as adjusted proportionately for any stock split or similar
recapitalization after the date hereof). Notwithstanding the foregoing or
anything else in this Agreement to the contrary, the maximum total amount of the
Earn-Out Consideration that the Business shall be required to pay shall be
727,272 shares (as adjusted proportionately for any stock split or similar
recapitalization after the date hereof) of Buyer Common Stock (less such number
of shares of Buyer Common Stock, if any, the Buyer is entitled to offset against
such Earn-Out Consideration pursuant to Section 7.8 hereof).
(ii) Subject to Section 7.8, the Buyer shall pay to the Company
the Earn-Out Consideration, if any, within 30 days after final determination
thereof.
(iii) In connection with the foregoing provisions of this Section
1.7(b), the Buyer hereby agrees that:
(A) in the event the Buyer (x) takes action as a result of which
revenues of a kind that constituted revenues of the Business
prior to the Closing Date would not continue to be revenues
of the Business during the period from the Closing Date
through December 31, 2000 but would instead be revenues of
one or more other businesses of the Buyer, (y) takes any
action as a result of which expenses of a kind that
constituted expenses of any other business of the Buyer prior
to the Closing Date would be expenses of the Business during
the period from the Closing Date through December
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31, 2000, or (z) without the consent of a Stockholder, causes
any change to the operation of the Business that represents a
material deviation from its business plan as previously
provided to the Buyer and materially adversely impacts the
Business's ability to meet the revenue and EBITDA targets set
forth in the letter agreement referred to in Section
1.7(b)(i) above, the Buyer and the Company shall agree in
writing as to the appropriate revisions, if any, to such
revenue and EBITDA targets, which the parties shall negotiate
in good faith; and
(B) the Buyer will deliver to the Company, by March 15, 2001, a
statement setting forth the revenues and EBITDA of the
Business for the period from the Closing Date through
December 31, 2000.
The Buyer shall, upon reasonable request, make available during normal business
hours all books and records supporting the statement delivered pursuant to
clause (B) above for review by the Company, the Parent, or their designee. Any
dispute concerning the appropriate revisions to the revenue and EBITDA targets
pursuant to clause (A) above or revenue and EBITDA amounts pursuant to clause
(B) above shall be resolved in accordance with Section 1.7(d) below. Following
the first 30-day period referred to in Section 1.7(d)(ii) below, the Buyer may
take any action referred to in clause (A) above, subject to any adjustment to
the revenue and EBITDA targets subsequently required as a result of the dispute-
resolution procedure of Section 1.7(d). In the event there is a dispute related
to the Earn-Out Consideration which prohibits the Earn-Out Consideration (or any
portion thereof) from being paid within one (1) year of the Closing Date, the
Buyer shall pay the undisputed portion of the Earn-Out Consideration within one
(1) year of the Closing Date.
Subject to clause (A) above, the Buyer may operate the Business following
the Closing in any manner that it deems appropriate in its sole and absolute
discretion.
(C) Purchase Price. For purposes of this Agreement, "Purchase Price"
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means the aggregate Closing Amount payable to the Company pursuant to Section
1.4(c) above, and "Adjusted Purchase Price" means the Purchase Price plus or
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minus any adjustment required pursuant to Section 1.7(a)(iii), plus, if
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applicable, the amount of any payment required to be made by the Buyer to the
Company pursuant to Section 1.7(b), minus, if applicable, the amount of any
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payment required to be made by the Company to the Buyer pursuant to Section
1.7(e), plus or minus any adjustment required pursuant to Section 7.6 that is
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not distributed from the Escrow Fund to the Buyer plus any amount of the Escrow
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Fund distributed to the Company.
Notwithstanding anything to the contrary contained in this Agreement,
in no event shall the Buyer be required to issue to the Company a number of
shares of Buyer Common Stock equal to or exceeding 20% of the number of
outstanding shares of Buyer Common Stock immediately prior to the Closing. In
lieu of such issuance, the Buyer shall pay to the Company cash in the amount of
$27.50 (as adjusted proportionately for any stock split or similar
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recapitalization after the date hereof) for each share that would otherwise be
issuable but for the immediately preceding sentence.
(D) Dispute Resolution.
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(i) In the event that the Company disputes the calculation of the Net
Adjusted Book Value, the Net Asset Adjustment or the Earn-Out Consideration, the
Company shall notify the Buyer in writing (the "Dispute Notice") of the amount,
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nature and basis of such dispute, within 15 calendar days after delivery of the
Closing Statement of Acquired Assets and Assumed Liabilities or the statement
relating to the Earn-Out Consideration delivered pursuant to Section
1.7(b)(iii)(B) above, as applicable.
(ii) In the event of a dispute under Section 1.7(a) or 1.7(b),
the Company and the Buyer shall first use their best efforts to resolve such
dispute among themselves. If the Company and the Buyer are unable to resolve
the dispute within 30 calendar days, the dispute shall be submitted to a "Big
Five" accounting firm selected by lot, other than PricewaterhouseCoopers LLP,
independent accountants for the Buyer, and Ernst & Young LLP, independent
accountants for the Company and the Parent, for resolution (the "Neutral
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Accountants"). The Neutral Accountants shall use their best efforts to resolve
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the dispute within 30 days after submission. The determination of the Neutral
Accountants as to the resolution of any dispute shall be binding and conclusive
upon all parties hereto, absent fraud or manifest error. All determinations
pursuant to this paragraph shall be in writing and shall be delivered to the
parties hereto. Any award pursuant to this paragraph (ii) may be entered in and
enforced by any court having jurisdiction thereover. The fees and expenses of
the Neutral Accountants in connection with the resolution of disputes pursuant
to this paragraph shall be shared equally by the Company and the Buyer.
(E) FTC Settlement Adjustment. By the date seven months following the
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date on which the Company mails the final notice to customers required pursuant
to the FTC Settlement, the Buyer shall notify the Company in writing of the
number of customers of the Business as of the date hereof that completed and
returned, by the date six months following the date on which the Company mails
such notice to customers, the card included in such notice that have elected on
such card to terminate their customer relationship ("Terminating Customers").
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Upon delivery of such notice, the Purchase Price shall be reduced by an amount
equal to $984 multiplied by the number of Terminating Customers (the "FTC
---
Settlement Adjustment"), and the amount of the FTC Settlement Adjustment shall
---------------------
be paid promptly by the Company to the Buyer through the release of shares of
Buyer Common Stock from the Escrow Fund, valued at $27.50 per share.
SECTION 1.8 Transaction Taxes. Any and all federal, state, county,
-----------------
local or foreign sales, use, value added, excise, and other taxes (other than
income taxes), including any interest, additions and penalties with respect
thereto, shall be borne by the Company. Any and all transfer, registration,
recording or similar fees and charges imposed in connection with the
consummation of the transactions provided for in this Agreement (collectively,
"Transfer Taxes") shall also be
--------------
8
borne by the Company. Income taxes shall be borne by the person required to pay
such taxes under applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY, THE PARENT AND THE STOCKHOLDERS
The Company, the Parent and the Stockholders jointly and severally
represent and warrant to the Buyer that:
SECTION 2.1 Corporate Existence and Power, etc. The Company is a
-----------------------------------
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of its jurisdiction of organization and has all
requisite corporate power and authority to own or lease its properties and to
carry on its business as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of the properties owned or leased by it or the nature of
its activities makes such qualification necessary. The Company has heretofore
delivered to the Buyer true and complete copies of the charter and by-laws of
the Company.
As used in this Agreement with respect to any corporation, (i) the
term "subsidiary" means any entity of which securities or other ownership
----------
interests having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are directly or
indirectly owned by such corporation, and (ii) the term "Material Adverse
----------------
Effect" means a material adverse effect on the business, financial condition,
properties or results of operation of such corporation and its subsidiaries,
taken as a whole.
SECTION 2.2 Authorization; Binding Agreement. Each of the Company, the
--------------------------------
Parent and the Holding Company has all requisite corporate power and authority
to execute and deliver this Agreement and the agreements and instruments
attached as exhibits hereto or otherwise contemplated hereby and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
including the Acquisition, have been duly and validly authorized by the
respective Board of Directors of the Company, the Parent and the Holding
Company, and no other corporate proceedings on the part of the Company, the
Parent or any Stockholder are necessary to authorize the execution and delivery
of this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company, the
Parent and each Stockholder and constitutes the legal, valid and binding
agreement of the Company, the Parent and each Stockholder, enforceable against
the Company, the Parent and each Stockholder in accordance with its terms,
except to the extent that enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by principles of equity regarding
the availability of remedies ("Enforceability Exceptions").
-------------------------
9
SECTION 2.3 Capitalization. The authorized capital stock of the Company
--------------
consists of 10,000,000 shares of common stock, par value $.01 per share ("Common
------
Stock"), of which 990,000 shares are issued and outstanding ("Shares"). All of
----- ------
the issued and outstanding Shares are owned of record and beneficially as
described on Schedule 2.3 hereto. The holders of options to purchase Common
Stock will receive cash payments from the Company in exchange for cancellation
of their options effective prior to or immediately upon the Closing.
SECTION 2.4 Ownership of the Assets. Schedule 2.4 hereto sets forth a
-----------------------
true, correct and complete list of all Liens (as defined below) of any kind
affecting the Assets. The Company is, and at the Closing will be, the true and
lawful owner of the Assets, and will have the right to sell and transfer to the
Buyer good, clear, record and marketable title to the Assets, free and clear of
all Liens of any kind. The delivery to the Buyer of the instruments of transfer
of ownership contemplated by this Agreement will vest good and marketable title
to the Assets in the Buyer, free and clear of all Liens. As used in this
Agreement, the term "Lien" means, with respect to any asset, any mortgage, lien,
----
pledge, charge, security interest or other encumbrance of any kind in respect of
such asset (whether arising by contract or by operation of law).
SECTION 2.5 Governmental Authorization; Consents.
------------------------------------
(a) Except as set forth on Schedule 2.5 hereto, the execution,
delivery and performance of this Agreement by the Company, the Parent and the
Stockholders and the consummation of the Acquisition require no action by or in
respect of, or filing by the Company, the Parent or any Stockholder with, any
court, arbitrational tribunal, governmental body, agency, commission, official
or other governmental or regulatory authority or agency ("Governmental Entity"),
-------------------
other than compliance with any applicable requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
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(b) Except as set forth on Schedule 2.5 hereto, no consent, approval,
waiver or other action by any Person (other than the Governmental Entities
referred to in paragraph (a) above) under any contract, agreement, indenture,
instrument of indebtedness, agreement or mortgage for borrowed money, lease,
sublease, license, sublicense, franchise, or other instrument or arrangement to
which the Company, the Parent or any Stockholder is a party or by which any of
them is bound is necessary for the execution, delivery and performance of this
Agreement by the Company, the Parent and the Stockholders. As used in this
Agreement, the term "Person" means an individual, a corporation, a partnership,
------
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
SECTION 2.6 Non-Contravention. Assuming compliance with the matters
-----------------
referred to in Section 2.5 hereof, the execution, delivery and performance of
this Agreement by the Company, the Parent and the Stockholders and the
consummation of the Acquisition do not and will not (i) conflict with or violate
any provision of the charter or bylaws of the Company, the Parent, or the
Holding Company, (ii) require on the part of the Company, the Parent or any
Stockholder any filing with, or any permit, authorization, consent or approval
of, any Governmental Entity, (iii) violate any provision of applicable law or
regulation or any judgment,
10
injunction, order, decree or award binding upon the Company, the Parent or any
Stockholder or affecting any of the Company's assets or properties or (iv)
conflict with, contravene or constitute a default under, or result in the
creation or imposition of any Lien on any asset of the Company or give rise to a
right of termination, cancellation, modification, or acceleration of any
obligation of the Company under, (x) any contract, agreement, indenture, lease,
sublease, license, sublicense, franchise or other instrument binding upon the
Company, or affecting any of its assets or properties, or (y) the certificate of
incorporation or by-laws of the Company, the Parent or the Holding Company.
SECTION 2.7 Subsidiaries. The Company has no subsidiaries.
------------
SECTION 2.8 Financial Statements. The Company has heretofore furnished
--------------------
to the Buyer (i) copies of the draft audited statement of acquired assets and
assumed liabilities of the Business as of December 31, 1998, together with the
related audited statements of operations and cash flows for such period and the
notes thereto (such financial statements as of and for the period ended December
31, 1998 being referred to herein as the "1998 Financial Statements"), (ii)
-------------------------
copies of the unaudited statement of acquired assets and assumed liabilities of
the Business as of July 31, 1999 and the related unaudited statements of
operations and cash flows for the seven-month fiscal period ended on such date
(such financial statements as of and for the seven-month fiscal period ended
July 31, 1999 being referred to herein as the "Interim Financial Statements",
----------------------------
and the financial statements referred to in clauses (i) and (ii) above being
referred to herein together as the "Financial Statements"). The Financial
--------------------
Statements have been prepared in accordance with GAAP and present fairly the
financial position, and the results of operations and cash flows for the
Business as of and for the respective dates thereof and for the periods referred
to therein (subject, in the case of the Interim Financial Statements, to normal
year-end adjustments, which are expected to be, in the aggregate, non-material,
and to the absence of certain footnotes not required in interim financial
statements in conformity with GAAP and subject, in the case of the draft 1998
Financial Statements, to any necessary adjustments as a result of the final
determination of Assets and Assumed Liabilities, which adjustments are expected
to be, in the aggregate, non-material).
SECTION 2.9 Absence of Certain Changes. Except as set forth in the
--------------------------
Financial Statements or on Schedule 2.9 hereto, or as contemplated by this
Agreement, since December 31, 1998, the Company conducted the Business in the
ordinary course consistent with past custom and practice ("Ordinary Course of
------------------
Business") and there has not been, and neither the Company, the Parent nor any
--------
Stockholder has agreed or committed that there shall be any of the following,
relating to the Business or the Assets:
(i) any events that, individually or in the aggregate, have had or
could reasonably be expected to have a Material Adverse Effect with respect to
the Business;
(ii) any incurrence, assumption or guarantee by the Company of
any indebtedness for borrowed money;
11
(iii) any creation or assumption by the Company of any Lien on any
Assets;
(iv) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the Business or Assets;
(v) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to the Assets or Business or any
relinquishment by the Company of any contract or other right, in any such case
material to the Business, other than transactions or commitments in the Ordinary
Course of Business;
(vi) any change in any method of accounting or accounting
practice by the Company, except for any such change required by reason of a
concurrent change in GAAP;
(vii) any grant of any severance or termination pay to any officer
or employee of the Company other than in the Ordinary Course of Business, any
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any officer,
director or employee of the Company or any increase in benefits payable under
any existing severance or termination pay policies or employment agreements, or
any increase in compensation, bonus or other benefits payable to officers,
directors or employees of the Company, other than such increases in the Ordinary
Course of Business;
(viii) any payment of any obligation or liability other than in the
Ordinary Course of Business;
(ix) any entering into, amendment, termination, taking or failure
to take any action that would constitute a violation of or default under, or a
waiver of any rights under, any contract or agreement listed in Schedule 2.16;
(x) any making or commitment to make capital expenditures in excess of
$10,000 individually or $100,000 in the aggregate;
(xi) any failure to take any action necessary to preserve the
validity of any Intellectual Property (as defined below);
(xii) any labor dispute, other than routine grievances, or any
activity or proceeding by a labor union or representative thereof to organize
employees of the Company, which employees are not subject to a collective
bargaining agreement, or any lockout, strike, slowdown, work stoppage or, to the
knowledge of the Company, the Parent or any Stockholder, threat thereof by or
with respect to any employees of the Company; or
(xiii) any change in the Company's relationship with any customer,
supplier or any other Person that could have a Material Adverse Effect on the
Business.
SECTION 2.10 Properties. The Company owns no real property.
----------
12
SECTION 2.11 No Undisclosed Liabilities. Except as set forth on Schedule
--------------------------
2.11, the Business has no liability or obligation (whether known or unknown,
whether accrued or unaccrued, whether due or to become due or otherwise) except
for (a) liabilities shown on the Interim Financial Statements, (b) liabilities
which have arisen since July 31, 1999 in the Ordinary Course of Business and are
similar generally in nature and amount to the liabilities which arose during the
comparable period of the immediately preceding financial period and (c)
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on the Interim Financial Statements and which in the
aggregate do not exceed $50,000.
SECTION 2.12 Litigation. Except as set forth on Schedule 2.12 hereto,
----------
there is no (a) unsatisfied judgment, order, decree or injunction or (b) action,
suit, investigation or proceeding pending, or to the knowledge of the Company,
the Parent or any Stockholder threatened, against the Company or any of its
properties or assets before or by any Governmental Entity relating to the
Business on the Assets. Adequate reserves for all of the litigation and other
matters required to be described on Schedule 2.12 have been made in the
Financial Statements.
SECTION 2.13 Certain Business Activities.
---------------------------
(a) There is no judgment, injunction, order, decree, agreement or
instrument binding upon the Company, the Parent or any Stockholder that has or
may reasonably be expected to have the effect of prohibiting any material
business practice of the Business.
(b) Except as described on Schedule 2.13(b), the Company has never
marketed, sold, offered or priced products or services of the Business jointly
with products or services that are not a part of the Business.
SECTION 2.14 Taxes. The Company has filed all federal, state and local
-----
tax returns which are required to be filed and has paid all Taxes, interest,
penalties, assessments and deficiencies reflected in or which relate to Taxes
reflected in such tax returns or which have been claimed to be due by the
Internal Revenue Service or a state or local taxing authority. Except as set
forth on Schedule 2.14 hereto, no deficiencies have been asserted or assessed as
a result of any audit by the Internal Revenue Service or any state or local
taxing authority and, to the best knowledge and belief of the Company, the
Parent and each Stockholder, no such deficiency or audit has been proposed or
threatened. For purposes of this Agreement, "Taxes" means all taxes, charges,
-----
fees, levies or other similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium, value-added, excise,
real property, personal property, sales, use, transfer, withholding, employment,
payroll and franchise taxes and charges imposed by the United States of America
or any state, local or foreign government, or any agency thereof, or other
political subdivision of the United States or any such government, and any
interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or dispute
thereof.
SECTION 2.15 Employee Benefits. Schedule 2.15 hereto sets forth a true,
-----------------
correct and complete list of (a) the employee benefits provided by the Company
to its employees, (b) the
13
Company's current payroll, including the job descriptions and salary or wage
rates of each of its employees, showing separately for each such person who
received an annual salary in excess of $75,000 the amounts paid or payable as
salary and bonus payments for the year ended December 31, 1998 and (c) any
agreement, plan or arrangement under which any person may receive payments from
the Company that may be subject to the tax imposed by Section 4999 of the Code
or included in the determination of such person's "parachute payment" under
Sections 280G of the Code. None of the employees with an annual base salary in
excess of $75,000 has indicated to the Company, the Parent or any Stockholder
that he or she intends to resign or retire as a result of the transaction
contemplated hereby, or otherwise prior to June 30, 2000. Except as set forth on
Schedule 2.15, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will trigger or otherwise
result in any obligation of the Company to pay severance or related costs under
any employment or consulting agreement. For purposes of this Section 2.15, the
term "employee" shall be construed to include sales agents and other independent
contractors who spend a majority of their working time on the Seller's business.
SECTION 2.16 Contracts and Leases.
--------------------
(a) Except as set forth on Schedule 1.1(a)(iv) hereto, the Company is
not a party to or subject to any of the following relating to the Assets or the
Business:
(i) any contract or arrangement, written or oral, with any officer,
consultant, independent contractor, agent, director, stockholder, or employee,
including any employment contract, telemarketing agreement or website design
agreement;
(ii) any lease for real property or equipment;
(iii) any contract for the purchase of software, equipment,
materials or supplies or for construction requiring aggregate payments in any
twelve-month period by or to the Company that are expected to be $50,000 or
more;
(iv) any sales, distribution or other similar agreement providing
for the sale by the Company of materials, supplies, goods, services or equipment
and requiring aggregate payments in any twelve-month period to the Company that
are expected to be $10,000 or more;
(v) any partnership, joint venture, or other similar contract,
arrangement or agreement;
(vi) any contract relating to indebtedness for borrowed money or
the deferred purchase price of property;
(vii) any written agreement concerning confidentiality, assignment
of inventions or non-competition or involving material Intellectual Property;
14
(viii) any written arrangement that prohibits the Company from
freely engaging in the Business anywhere in the world;
(ix) any written arrangement under which the consequences of a
default or termination would reasonably be expected to have a Material Adverse
Effect on the Company or the Business;
(x) any collective bargaining agreements or other contracts or
commitments to or with any labor union, representative or group of employees;
(xi) any sales representative, distributorship or other written
arrangement providing for the distribution or marketing of products;
(xii) any agreement relating to the acquisition or disposition of
assets, businesses or companies (whether by sale of assets, sale of stock,
merger or otherwise) other than in the Ordinary Course of Business;
(xiii) any independent contractor or franchise agreement or
arrangement; or
(xi) any other contract or commitment relating to the Business or
Assets.
(b) The Company has delivered to the Buyer a correct and complete copy
of each written agreement (as amended to date) listed in Schedule 2.16. With
respect to each written agreement so listed: (i) the written agreement is
legal, valid, binding and enforceable against the Company, and to the knowledge
of the Company, the Parent and each Stockholder is valid, binding and
enforceable against each other party thereto, and the written agreement is in
full force and effect; (ii) with respect to written agreements to which the
Company is a party, the written agreement will continue to be legal, valid,
binding and enforceable against the Company, and to the knowledge of the
Company, the Parent and each Stockholder is valid, binding and enforceable
against each other party thereto, and the written agreement is and will be in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing; and (iii) the Company is not,
nor, to the Company's, the Parent's or any Stockholder's knowledge is any other
party, in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit termination,
modifica tion or acceleration under the written agreement by the Company and,
to the Company's, the Parent's and any Stockholder's knowledge, by any other
party thereto, nor is there any dispute between the parties thereto. The
Company is not a party to any oral contract, agreement or other arrangement
which, if reduced to written form, would be required to be listed in Schedule
2.16 under the terms of this Section 2.16.
(c) Schedule 2.16 lists all real property leased or subleased to or by
the Company. The Company has made available to the Buyer correct and complete
copies of the
15
leases and subleases (as amended to date) listed therein. With respect to each
such lease and sublease:
(i) The lease or sublease is legal, valid, binding, enforceable
against the Company, and to the knowledge of the Company, the Parent and the
Stockholders, against each other party thereto, and is in full force and effect.
(ii) The lease or sublease will continue to be legal, valid,
binding, enforceable against the Company, and to the knowledge of the Company,
the Parent and the Stockholders, against each other party thereto, and is and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing.
(iii) Neither the Company nor, to the Company's, the Parent's or
any Stockholder's knowledge, any other party to the lease or sublease, is in
breach or default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination, modification
or acceleration thereunder by any other party thereto or, to the Company's, the
Parent's and the Stockholder's knowledge, by the Company.
(iv) There are no disputes, oral agreements or forbearance
programs to which the Company is a party in effect as to the lease or sublease.
(v) The Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold.
(vi) All facilities leased or subleased by the Company thereunder
are supplied with utilities necessary for the operation of said facilities.
(vii) Other than as disclosed in the Financial Statements, none of
such leases or subleases has been capitalized on the statement of acquired
assets and assumed liabilities contained in the Interim Financial Statements.
(4) Schedule 2.16(d) hereto consists of true and correct copies of the
forms of standard customer and marketing agreement that the Company has in
effect with respect to the Business. Each of the terms, provisions and
conditions of each such agreement is, and will remain following the closing,
legal, valid, binding and enforceable in accordance with its terms, and in full
force and effect.
SECTION 2.17 Permits. No Permits are required to operate the Business.
-------
For purposes of this Agreement "Permit" means any permit, license, franchise or
------
authorization from any Governmental Entity.
SECTION 2.18 Insurance. Schedule 2.18 sets forth a list (including the
---------
name of the insurer, the name of the policy holder, the name of each insured,
the periods of coverage and the scope of coverage) of each insurance policy
maintained by the Company or under which the Company is a named insured or
otherwise the beneficiary of such coverage with respect to the
16
Business. All of such insurance policies are in full force and effect and the
Company is not in default with respect to its obligations under any of such
insurance policies. None of the transactions contemplated by this Agreement
shall eliminate or alter the coverage provided by such policies for occurrences
prior to Closing, and the Buyer shall continue to be entitled to the benefit and
recovery under such policies for pre-Closing occurrences (subject to the
deductibles, limits and other terms and conditions of such policies).
SECTION 2.19 Compliance with Laws. The Company is conducting and has
--------------------
conducted the Business in compliance with all applicable laws (including rules
and regulations thereunder) of any Governmental Entity. Except as set forth on
Schedule 2.19 hereto, neither the Company, the Parent nor any Stockholder has
received any notice or communication from any Governmental Entity alleging non-
compliance by the Company with any applicable laws (including rules and
regulations) with respect to the Business.
SECTION 2.20 Finders' Fees. There is no investment banker, broker,
-------------
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Company, the Parent or any Stockholder which is or will be
entitled to any fee or commission from the Buyer upon consummation of the
transactions provided for in this Agreement.
SECTION 2.21 Intellectual Property; Year 2000.
--------------------------------
(a) The Company owns, or is licensed or otherwise possesses valid
rights to use, the Intellectual Property (as defined below) used in connection
with the operation of the Business. The Company has taken reasonable measures
to protect the proprietary nature of each item of Intellectual Property, and to
maintain in confidence all trade secrets and confidential information, that the
Company owns or uses in connection with the Business. Except as set forth on
Schedule 2.21 hereto, the Company has not licensed Intellectual Property with
respect to the Business to any third party, and, to the knowledge of the
Company, the Parent and each Stockholder, (i) no other person or entity (other
than licensors of software that generally is commercially available) has any
rights to any of the Intellectual Property used in the Business, and (ii) no
other person or entity is infringing, violating or misappropriating any of the
Intellectual Property of the Company with respect to the Business.
(b) The Business as now conducted and as conducted prior to the date
of this Agreement has not infringed or violated, or constituted a
misappropriation of, and does not now infringe or violate, or constitute a
misappropriation of, any Intellectual Property rights of another person or
entity. Except as set forth in Schedule 2.21, neither the Company, the Parent
nor any Stockholder has received any written complaint, claim or notice alleging
any such infringement, violation or misappropriation.
(c) Schedule 2.21 identifies each patent or copyright registration
which has been issued to, or is owned by, the Company, identifies each pending
patent application which the Company has made or which the Company owns,
identifies each software product currently licensed or distributed by the
Company (other than software that is generally commercially available) and
identifies each license or other agreement pursuant to which the Company
17
has granted any rights to any third party with respect to any Intellectual
Property of the Company relating to the Business. The Company has delivered to
the Buyer correct and complete copies of all such patents, registrations,
applications, licenses and agreements (as amended to date) and has made
available to the Buyer correct and complete copies of all other written
documentation evidencing ownership of, rights to use and any claims or disputes
relating to, each such item. Except as set forth in Schedule 2.21, with respect
to each such item of Intellectual Property relating to the Business that the
Company owns: (i) the Company possesses all right, title and interest in and to
such item; (ii) such item is not subject to any outstanding judgment, order,
decree, stipulation or injunction; and (iii) the Company has not agreed to
indemnify any person or entity for or against any infringement, misappropriation
or other conflict with respect to such item.
(d) Schedule 2.21 identifies each material item of Intellectual
Property used in the operation of the Business (other than software that is
generally commercially available) that is owned by a party other than the
Company. The Company has supplied the Buyer with correct and complete copies of
all licenses, sublicenses, or other agreements (as amended to date) pursuant to
which the Company uses such Intellectual Property, all of which are listed on
Schedule 2.21. Except as set forth in Schedule 2.21, with respect to each such
item of Intellectual Property, the Company has not agreed to indemnify any
person or entity for or against any interference, infringement, misappropriation
or other conflict with respect to such item.
(e) For purposes of this Agreement, "Intellectual Property" shall mean
---------------------
and include (i) patents, patent applications, patent disclosures and all related
continuation, continuation-in-part, divisional, reissue, re-examination, utility
model, certificate of invention and design patents, (ii) trademarks, service
marks, trade dress, logos, trade names, URLs and domain names, and corporate
names and registrations and applications for registration thereof, (iii)
copyrights and registrations and applications for registration thereof, (iv)
mask works and registrations and applications for registration thereof, (v)
computer software (including both source code and object code), data and
documentation, (vi) trade secrets and confidential business information, whether
patentable or nonpatentable and whether or not reduced to practice, know-how,
manufacturing and product processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists, databases and information, (vii) other proprietary rights
relating to any of the foregoing (including without limitation remedies against
infringements thereof and rights of protection of interest therein under the
laws of all jurisdictions) and (viii) copies and tangible embodiments thereof.
(f) The Company has conducted or will conduct prior to Closing "year
2000" audits with respect to all of the Company's internal systems used in the
Business, including, without limitation, computer hardware systems, software
applications, firmware, equipment containing embedded microchips and other
embedded systems. The Company has used, or will prior to Closing use, its
reasonable best efforts to obtain "year 2000" certifications with respect to all
third-party systems used in connection with the Business, including without
limitation systems belonging to the Company's suppliers and service providers.
The Company has furnished to the Buyer true and
18
correct copies of all "year 2000" audits, certifications, reports,
investigations and other similar documents that have been prepared or performed
by or on behalf of the Company or any third party with respect to the Business
and will provide to the Buyer copies of any such documents that it receives
prior to Closing. Nothing contained in any such documents gives the Company or
the Stockholders any reason to believe the failure of a third party to be Year
2000 compliant will have an adverse effect on the Business.
(g) All of the Company's internal systems used in the Business,
including, without limitation, computer hardware systems, software applications,
firmware, equipment containing embedded microchips and other embedded systems
are Year 2000 Compliant (as defined in Section 2.21(i) below) and will not be
adversely affected with respect to value, utility, marketability, operability or
any other aspect by virtue of the arrival of the year 2000.
(h) Neither the Company, the Parent nor any Stockholder is aware of
any failure to be Year 2000 Compliant (as defined in Section 2.21(i) below) of
any third-party system used in connection with the Business, including without
limitation any system belonging to one of the Company's suppliers, service
providers or customers.
(i) For purposes of this Agreement, "Year 2000 Compliant" means that
-------------------
the applicable system or item, in each case without human intervention, other
than original data entry:
(i) will accurately receive, record, store, provide, recognize and
process all date and time data from, during, into and between the years 1999 and
2000;
(ii) will accurately perform all date-dependent calculations and
operations (including, without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the years 1999 and 2000;
and
(iii) will not malfunction, cease to function or provide invalid or
incorrect results as a result of (x) the change from December 31, 1999 to
January 1, 2000, (y) date data, including date data which represents or
references different centuries or more than one century or (z) the occurrence of
any particular date, including without limitation January 1, 2000 and February
29, 2000.
(j) The cost to the Business of such reprogramming and testing and of
the reasonably foreseeable consequences of year 2000 to the Business will not
exceed $10,000.
(k) Except as described on Schedule 2.21(k) hereto, the Company has a
fully-paid, worldwide right to use in the Business all of the illustrations and
other artwork as currently used by the Company in the Business.
SECTION 2.22 Transactions with Affiliates. Schedule 2.22(a) hereto
----------------------------
describes any transaction entered into or otherwise in effect or previously in
effect between the Company and any Affiliate of the Company, including any
transaction involving an inter-company payable or
19
receivable and any transaction with respect to general and administrative or
other services provided to or by the Company. All of such transactions will
terminate prior to the Closing, and all amounts owed thereunder will be paid
prior to the Closing, in each case except as listed in Schedule 2.22(b) hereto.
SECTION 2.23 Environmental Laws. The Company has complied with, and its
------------------
operations as of the Closing Date are in compliance with, all applicable
environmental laws, and the Company has no liability under any environmental
law.
SECTION 2.24 Product and Service Warranty. No product or service sold,
----------------------------
licensed or otherwise provided by the Company relating to the Business is
subject to any warranty.
SECTION 2.25 Acquired Assets Complete. The Assets are, and following the
------------------------
Closing, when used by a workforce substantially similar to the workforce
currently employed by the Company, will be, adequate to conduct the Business as
presently conducted.
SECTION 2.26 Inventory. The Business has no Inventory.
---------
SECTION 2.27 Fixed Assets. Schedule 2.27 hereto sets forth a true,
------------
correct and complete list of all Fixed Assets as of the date hereof, including
a description and the book value thereof. All of the Fixed Assets are in good
operating condition and repair, normal wear and tear excepted.
SECTION 2.28 Accounts Receivable. All accounts receivable of the
-------------------
Business reflected on the statement of acquired assets and assumed liabilities
contained in the Interim Financial Statements are valid receivables subject to
no setoffs or counterclaims and are current and collectible within 90 days after
the invoice date. A complete list of all accounts receivable reflected on the
statement of acquired assets and assumed liabilities contained in the Interim
Financial Statement, showing the aging thereof, is included in Schedule 2.28.
All accounts receivable reflected in the financial or accounting records of the
Business that have arisen since July 31, 1999 are valid receivables subject to
no setoffs or counterclaims and are collectible within 90 days after the invoice
date. The reserve for doubtful accounts set forth on the statement of acquired
assets and assumed liabilities contained in the Interim Financial Statements,
and any reserves for doubtful accounts created by the Business in the Ordinary
Course of Business subsequent to July 31, 1999 are adequate and were calculated
in accordance with GAAP.
SECTION 2.29 Customers. Schedule 2.29 sets forth, with respect to the
---------
Business as of the date hereof, (i) the total number of customers, (ii) the
number of complimentary or free trial customers, (iii) the number of paying
customers, (iv) the number of paying term customers, (v) the number of customers
billed through each of the Company's billing methods, including through the
customer's local exchange carrier or by automatic monthly credit card charges,
(vi) the gross number of new customers since December 31, 1998 and (vii) the
number of customers terminating their customer relationship since December 31,
1998. To the knowledge of the Company, the Parent and the Stockholders, the
Business will experience no material increase in customer turnover, or "churn,"
for the foreseeable future.
20
SECTION 2.30 Suppliers. Other than as set forth in Schedule 2.30, the
---------
Business has no suppliers that accounted for a dollar volume of purchases by the
Company in excess of $500,000 for the fiscal year ended December 31, 1998 or
$250,000 for the six-month period ended June 30, 1999.
SECTION 2.31 Books and Records. The books and records of the Business
-----------------
accurately reflect in all material respects the assets, liabilities, business,
financial condition and results of operations of the Business and have been
maintained in accordance with good business and bookkeeping practices.
SECTION 2.32 Disclosure. The representations and warranties contained in
----------
this Article II, when taken together with the related schedules hereto, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
Article II, when taken together with the related schedules hereto, not
misleading. The Company, the Parent and the Stockholders have disclosed to the
Buyer all material information relating to the Business and the Assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer represents and warrants to the Company, the Parent and the
Stockholders that:
SECTION 3.1 Corporate Existence and Power. The Buyer is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own or
lease its properties and to carry on its business as now conducted. The Buyer
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or the nature of its activities makes such qualification necessary.
The Buyer has heretofore delivered to the Company true and complete copies of
the certificate of incorporation and by-laws of the Buyer.
SECTION 3.2 Authorization; Binding Agreement. The Buyer has all
--------------------------------
requisite power and authority to execute and deliver this Agreement and the
agreements and instruments attached as exhibits hereto or otherwise contemplated
hereby and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, including the Acquisition, have been duly and validly
authorized by the Board of Directors of the Buyer and no other corporate
proceedings on the part of the Buyer are necessary to authorize the execution
and delivery of this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Buyer and constitutes the legal, valid and binding agreement of the Buyer
enforceable against the Buyer in accordance with its terms, subject to the
Enforceability Exceptions.
21
SECTION 3.3 Capitalization. The authorized capital stock of the Buyer
--------------
consists of 150,000,000 shares of Buyer Common Stock and 10,000,000 shares of
preferred stock, $.01 par value per share. All of the shares of Buyer Common
Stock issuable under this Agreement, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
SECTION 3.4 Governmental Authorizations; Consents.
-------------------------------------
(a) The execution, delivery and performance by the Buyer of this
Agreement require no action by or in respect of, or filing by the Buyer with,
any Governmental Entity other than compliance with any applicable requirements
of the HSR Act.
(b) No consent, approval, waiver or other action by any Person (other
than the governmental authorities referred to in paragraph (a) above) under any
contract, agreement, indenture, lease or other instrument to which the Buyer is
a party or by which it is bound is necessary for the execution, delivery or
performance by the Buyer of this Agreement.
SECTION 3.5 Non-Contravention. Assuming compliance with the matters
-----------------
referred to in Section 3.4 hereof, the execution, delivery and performance of
this Agreement by the Buyer do not and will not (i) conflict with or violate any
provision of the charter or bylaws of the Buyer (ii) require on the part of the
Buyer any filing with, or any permit, authorization, consent or approval of, any
Governmental Entity, (iii) violate any provision of applicable law or regulation
or any judgment, injunction, order, decree or award binding upon the Buyer or
affecting any of its assets or properties or (iv) conflict with, contravene or
constitute a default under, or result in the creation or imposition of any Lien
on any asset of the Buyer or give rise to a right of termination, cancellation,
modification, or acceleration of any obligation of the Buyer under, (x) any
contract, agreement, indenture, lease, sublease, license, sublicense, franchise
or other instrument binding upon the Buyer or affecting any of their respective
assets or properties, or (y) the certificate of incorporation or by-laws of the
Buyer.
SECTION 3.6 Reports and Financial Statements. The Buyer has previously
--------------------------------
furnished to the Company complete and accurate copies, as amended or
supplemented, of its Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, excluding exhibits, as filed with the Securities and Exchange
Commission, and all Forms 10-Q filed with the Securities and Exchange Commission
since the date of filing of such Form 10-K, excluding exhibits (such reports and
documents and any amendments or supplements thereto are collectively referred to
herein as the "Buyer Reports"). As of their respective dates, the Buyer Reports
-------------
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited financial statements of the Buyer included in the Buyer
Reports (i) comply as to the form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Securities and Exchange Commission with respect thereto, (ii) have been prepared
in accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes
22
thereto) and (iii) fairly present the financial condition, results of operations
and cash flows of the Buyer as of the respective dates thereof and for the
periods referred to therein.
SECTION 3.7 Finders' Fees. There is no investment banker, broker,
-------------
finder or other intermediary which has been retained by or is authorized to act
on behalf of the Buyer or its Affiliates which is or will be entitled to any fee
or commission from the Company, the Parent or any of the Stockholders upon
consummation of the transactions provided for in this Agreement.
SECTION 3.8 Financing Arrangements. The Buyer's obligations to
----------------------
consummate the Acquisition are not subject to any financing condition or
financing contingency.
SECTION 3.9 Continuity of Business Enterprise. The Buyer currently
---------------------------------
intends, and at all relevant times has intended, to continue the Business or to
use a significant portion of the Company's historic assets in a business (within
the meaning of Treasury Regulation Section 1.368-1(d)).
SECTION 3.10 Disclosure. The representations and warranties contained in
----------
this Article III do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Article III not misleading.
ARTICLE IV
COVENANTS OF THE COMPANY,
THE PARENT AND THE STOCKHOLDERS
The Company, the Parent and the Stockholders covenant and agree as follows:
SECTION 4.1 Conduct of Business. Except as contemplated by this
-------------------
Agreement, during the period from the date of this Agreement until the Closing
Date, the Company shall conduct the operations of the Business only in the
Ordinary Course of Business and in compliance with all applicable laws, rules
and regulations and, to the extent consistent therewith, to use all reasonable
efforts to preserve intact the Business, keep the Assets in good working
condition (subject to normal wear and tear), keep available the services
generally of the current officers and employees of the Business and preserve
generally the relationships of the Business with customers, suppliers and others
having business dealings with the Company with respect to the Business. Without
limiting the generality of the foregoing, prior to the Closing, the Company
shall not take any of the following actions without prior written consent of the
Buyer with respect to the Business or the Assets:
(a) acquire, sell, lease, encumber or dispose of any assets or any
shares or other equity interests in or securities of any corporation,
partnership, association or other business organization or division thereof,
other than purchases and sales of assets in the Ordinary Course of Business;
23
(b) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases), other than in the Ordinary
Course of Business;
(c) assume, guaranty, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person;
(d) make any loans, advances or capital contributions to, or
investments in, any other person other than (i) short-term investments in the
Ordinary Course of Business, or (ii) travel, salary or other like advances to
officers or employees in the Ordinary Course of Business;
(e) enter into, adopt or amend any employee benefit plan or any
employment or severance agreement or arrangement or increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay any
benefit not required by the terms in effect on the date hereof of any existing
employee benefit plan or, except in the Ordinary Course of Business, hire or
establish, as applicable, any new employees, independent contractors or
consultants;
(f) change its accounting methods, principles or practices, or make
any new elections with respect to Taxes or any changes in current elections with
respect to Taxes after the date hereof;
(g) mortgage or pledge any Assets or subject any Assets to any Lien;
(h) sell, assign, transfer, license or sublicense any Intellectual
Property other than in the Ordinary Course of Business;
(i) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
contract or agreement listed in Schedule 2.16 or under the Company's charter or
bylaws;
(j) enter into any written agreements that create a liability in
excess of $10,000 individually or in the aggregate, except for purchase orders
in the Ordinary Course of Business and the execution of leases for real property
described on Schedule 4.1(j) hereto;
(k) make or commit to make any capital expenditure in excess of
$10,000 per item or total capital expenditures in excess of $50,000 in the
aggregate;
(l) institute or settle any legal proceeding;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Closing
set forth in Article VI not being satisfied;
24
(n) fail to take any action reasonably necessary to preserve the
validity of any Intellectual Property or Permit;
(o) merge or consolidate with or into any other entity; or
(p) agree in writing or otherwise to take any of the foregoing
actions.
SECTION 4.2 Delivery of Interim Financial Statements. As promptly as
----------------------------------------
possible following the last day of each fiscal month end after the date hereof
until the Closing Date, and in any event within 15 days after the end of each
such fiscal month, the Company shall deliver to the Buyer the statement of
acquired assets and assumed liabilities and statements of cash flows and results
of operations of the Business for the monthly period then ended and for the
period then ended since the statement of acquired assets and assumed liabilities
contained in the Interim Financial Statements and for the monthly period and the
period then ended in the prior fiscal year (collectively, the "Updated Financial
-----------------
Statements"). The Updated Financial Statements shall be prepared so as to
----------
present fairly the financial condition of the Business as of the date thereof
and the results of operations and cash flows of the Business for the periods
covered thereby, in each case in conformity with GAAP.
SECTION 4.3 Notices and Consents. The Company shall use best efforts to
--------------------
obtain, at its expense, all waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities, and to effect all
such registrations, filings and notices with or to third parties and
Governmental Entities, as may be necessary for the consummation of the
transactions provided for under this Agreement.
SECTION 4.4 Access to Information. The Company, the Parent and the
---------------------
Stockholders shall permit the Buyer and its representatives to have full access
(during normal business hours times, on reasonable prior written notice and in a
manner so as not to interfere unreasonably with the normal business operations
of the Company) to the premises, properties, financial, Tax and accounting
records, contracts, other records and documents, and personnel of the Company
relating to the Assets or the Business and to conduct such tests and inspections
as may be reasonable or appropriate in connection with the transactions
contemplated hereby. The Company, the Parent and the Stockholders shall also
furnish to the Buyer or its representatives such information within their
control as the Buyer may reasonably request in connection with any review,
investigation or examination of the books and records, accounts, contracts,
properties, assets, operations and facilities of the Company relating to the
Assets or the Business. In connection therewith, the Company, the Parent and
the Stockholders shall direct and authorize the Company's independent public
accountants to make available to the Buyer and to the independent public
accountants representing the Buyer all working papers pertaining to the
examination and audit by such accountants of the Company relating to the Assets
or the Business.
SECTION 4.5 Confidentiality. Each of the Company, the Parent and the
---------------
Stockholders will hold, and will use reasonable best efforts to cause its
officers, directors, employees, consultants, advisors, agents and Affiliates to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, the terms and
25
conditions set forth in this Agreement and all confidential documents and
information concerning the Buyer and its Affiliates furnished to the Company,
the Parent or any Stockholder in connection with the transactions provided for
in this Agreement, except to the extent that such information can be shown to
have been (i) previously known on a nonconfidential basis by such Person, (ii)
in the public domain (other than as rumor or speculation) through no fault of
the Company, the Parent or any Stockholder or (iii) after the Closing Date
lawfully acquired by such Person from sources other than the Buyer or any of its
Affiliates; provided that the Company, the Parent or any Stockholder may
--------
disclose such information to its Affiliates, officers, directors, employees,
consultants, advisors, lenders and agents in connection with the transactions
provided for in this Agreement so long as such Persons are informed of the
confidential nature of such information and are directed to treat such
information confidentially. The obligations of the Company, the Parent or any
Stockholder to hold such information in confidence shall be satisfied if such
Person exercises the same care with respect to such information as it would
exercise to preserve the confidentiality of its own similar information. If this
Agreement is terminated, such confidence shall be maintained and each of the
Company, the Parent and the Stockholders will, and will use reasonable best
efforts to cause its respective Affiliates, officers, directors, employees,
consultants, advisors, lenders and agents to, destroy or deliver to the Buyer,
upon request, all documents and other materials, and all copies thereof,
obtained by the Company, the Parent or any Stockholder or on their behalf from
the Buyer or its Affiliates in connection with this Agreement that are subject
to such confidence.
SECTION 4.6 No Solicitation. Each of the Company, the Parent and the
---------------
Stockholders will not, nor will it authorize any of its respective officers,
directors, employees, Affiliates, or any investment banker, financial advisor,
attorney, accountant or other representative retained by it to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any offer or proposal relating to an
acquisition of the Company or the Business (through a merger, consolidation,
acquisition of stock or assets or other like transaction) other than a
transaction relating solely to the Excluded Assets or (ii) participate in any
discussions or negotiations regarding any such offer or proposal. The Company
shall immediately notify the Buyer of, and shall disclose to the Buyer all
details of, any unsolicited inquiry relating to any acquisition of all or any
portion of the Business.
SECTION 4.7 Stockholder Approval. The Stockholders have approved, or
--------------------
hereby do approve, the Acquisition in accordance with applicable law. Neither
the Company nor any Stockholder shall take any action that has the effect of
amending, modifying or revoking such approval.
SECTION 4.8 Obligations of the Company and the Parent. The Parent and
-----------------------------------------
the Stockholders will cause the Company to perform all of the Company's
obligations under this Agreement. The Parent will cause the Holding Company to
perform all of the Holding Company's obligations under this Agreement.
26
ARTICLE V
COVENANTS OF THE COMPANY,
THE PARENT, THE STOCKHOLDERS AND THE BUYER
The Company, the Parent, each Stockholder and the Buyer agree that:
SECTION 5.1 Reasonable Best Efforts. Subject to the terms and
-----------------------
conditions of this Agreement, each such party will use reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate at the earliest practicable date the transactions provided for in
this Agreement.
SECTION 5.2 HRS Act Compliance. As soon as practicable (and in any
------------------
event within five (5) business days) following the execution and delivery of
this Agreement, the Buyer, the Parent and, if required, each Stockholder shall
file with the Federal Trade Commission and the United States Department of
Justice notifications required to be filed by them pursuant to the HSR Act in
connection with the Acquisition. Each party hereto shall use reasonable best
efforts to respond promptly to any requests for additional information made by
either of such agencies and to cause the applicable waiting period under the HSR
Act to terminate or expire at the earliest possible date.
SECTION 5.3 Certain Filings, etc. Such parties will cooperate with one
---------------------
another in determining whether any action by or in respect of, or filing with,
any Governmental Entity or any action, consent, approval or waiver from any
party to any material contract (other than any such action, filing, consent,
approval or waiver otherwise referred to in this Agreement or on any schedule
hereto) is required to be taken, made or obtained in connection with the
consummation of the transactions provided for in this Agreement and in taking
any such action, making any such filing or obtaining any such consent, approval
or waiver.
SECTION 5.4 Press Releases and Announcements. No party shall issue (and
--------------------------------
each party shall cause its Affiliates not to issue) any press release or public
disclosure relating to the subject matter of this Agreement without the prior
written approval of the Company and the Buyer; provided, however, that any party
-------- -------
may make any public disclosure it believes in good faith is required by law,
regulation or exchange or Nasdaq rule (in which case the disclosing party shall
advise the Company and the Buyer, and the Company and the Buyer shall have the
right to review such press release or announcement prior to its publication).
Without limiting the foregoing, the Company, the Parent and the Stockholders
acknowledge that the Buyer intends to issue a press release concerning the
execution hereof (the form of which press release has been reviewed by the
Company) and publicly file this Agreement and the exhibits hereto with the
Securities and Exchange Commission.
27
SECTION 5.5 Notices of Certain Actions. The Company, the Parent and the
--------------------------
Stockholders, on the one hand, and the Buyer, on the other hand, shall promptly
notify the other such party or parties of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions provided for in this Agreement;
(ii) any material notice or other communication from any
Governmental Entity in connection with the transactions provided for in this
Agreement; and
(ii) any action suit, claim, investigation or proceeding commenced or, to
its knowledge, threatened against or otherwise affecting the Company, the Parent
or any Stockholder, on the one hand, or the Buyer, on the other hand, which
relates to the consummation of the transactions provided for in this Agreement.
SECTION 5.6 Notice of Breaches; Updates.
---------------------------
(a) By the Company, the Parent or the Stockholders. The Company, the
----------------------------------------------
Parent or the Stockholders shall promptly deliver to the Buyer written notice of
any event or development that would (i) render any statement, representation or
warranty of the Company, the Parent or any Stockholder in this Agreement
(including the Schedules) inaccurate or incomplete or (ii) constitute or result
in a breach by the Company, the Parent or any Stockholder of, or a failure by
the Company, the Parent or any Stockholder to comply with, any agreement or
covenant in this Agreement applicable to it. No such disclosure shall be deemed
to avoid or cure any such misrepresentation or breach.
(b) By the Buyer. The Buyer shall promptly deliver to the Company,
------------
the Parent and the Stockholders written notice of any event or development that
would (i) render any statement, representation or warranty of the Buyer in this
Agreement inaccurate or incomplete or (ii) constitute or result in a breach by
the Buyer or a failure by the Buyer to comply with, any agreement or covenant in
this Agreement applicable to it. No such disclosure shall be deemed to avoid or
cure any such misrepresentation or breach.
ARTICLE VI
CONDITIONS TO THE CLOSING
SECTION 6.1 Conditions to the Obligations of the Company, the Parent and
------------------------------------------------------------
the Stockholders. The obligations of the Company, the Parent and the
----------------
Stockholders to effect the Acquisition are subject to the satisfaction, or
waiver by the Company and the Stockholders, of the following conditions:
(i) the Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date;
28
(ii) the representations and warranties of the Buyer contained in
this Agreement and in any certificate or other writing delivered by the Buyer
pursuant hereto shall be true and correct at and as of the Closing Date as if
made at and as of such time, except for those representations and warranties
that address matters only as of a particular date (which shall be true and
correct as of such date), and except as would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect on
the Company, the Parent or the Stockholders, provided that any determination of
such a Material Adverse Effect shall be made without regard to any qualification
in any particular representation or warranty as to materiality, amount or
Material Adverse Effect;
(iii) no action, suit or proceeding shall be pending by or before
any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would reasonably be expected to (x) prevent
consummation of any of the transactions contemplated by this Agreement or (y)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, and no such judgment, order, decree, stipulation or
injunction shall be in effect.
(iv) the Buyer shall have delivered to the Company a certificate
signed by an executive officer of the Buyer certifying as to the satisfaction of
the conditions set forth in clauses (i) through (iii) of this Section;
(v) the Buyer shall have delivered to the Company the Closing
Amount;
(vi) the Buyer shall have delivered to the Company a copy of the
registration rights agreement between the Buyer and the Company, substantially
in the form of Exhibit C hereto, signed by the Buyer;
---------
(vii) the Buyer shall have delivered to the Company a signed copy
of the Escrow Agreement and delivered to the Escrow Agent the shares of Buyer
Common Stock required pursuant thereto to be deposited with the Escrow Agreement
at the Closing;
(viii) the Buyer shall have delivered to the Company a copy of the
transitional services agreement between the Buyer and the Company, substantially
in the form of Exhibit C hereto, signed by the Buyer;
---------
(ix) all filings required to be made under the HSR Act in
connection with the transactions provided for herein shall have been made, and
all applicable waiting periods with respect thereto shall have been terminated
or expired;
(x) all certificates, instruments and other documents required to
effect the transactions contemplates hereby shall be reasonably satisfactory in
form and substance to the Company;
29
(xi) no provision of any applicable law or regulation, and no
judgment, injunction, order or decree, shall prohibit the consummation of the
Acquisition;
(xii) the Buyer shall have delivered to the Company a certificate
of the Secretary of State of the State of Delaware as to the legal existence and
good standing (including tax) of the Buyer in Delaware;
(xiii) the Buyer shall have delivered to the Company a certificate
of the Secretary of the Buyer attesting to the incumbency of the officers of the
Buyer and the authenticity and continuing validity of the charter documents; and
(xi) the Buyer shall have delivered to the Company the Instrument
of Assumption of Liabilities executed by the Buyer.
SECTION 6.2 Conditions to the Obligations of the Buyer. The obligations
------------------------------------------
of the Buyer to effect the Acquisition are subject to the satisfaction, or
waiver by the Buyer, of the following conditions:
(i) the Company, the Parent and the Stockholders shall have performed
in all material respects all of their respective obligations hereunder required
to be performed by each of them at or prior to the Closing Date;
(ii) and the Stockholders set forth in Article II shall be true and
correct at and as of the Closing Date as if made as of the Closing Date, except
for those representations and warranties that address matters only as of a
particular date (which shall be true and correct as of such date) and except as
would not, individually or in the aggregate, have or reasonably be expected to
have a Material Adverse Effect on the Company, the Business or the Assets,
provided that any determination of such a Material Adverse Effect shall be made
without regard to any qualification in any particular representation or warranty
as to materiality, amount or Material Adverse Effect;
(iii) the Company, the Parent and the Stockholders shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
required to be listed in Schedule 2.5;
(iv) no action, suit or proceeding shall be pending by or before
any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would reasonably be expected to (x) prevent
consummation of any of the transactions contemplated by this Agreement, (y)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (z) materially and adversely affect the right of the
Buyer to conduct the Business or utilize the Assets following the Closing, and
no such judgment, order, decree, stipulation or injunction shall be in effect;
30
(v) the Company, the Parent and the Stockholders shall have delivered
to the Buyer a certificate signed by the Company, the Parent and each
Stockholder certifying as to the satisfaction of the conditions set forth in
clauses (i) through (iv) of this Section;
(vi) the Company, the Parent and the Stockholders shall have
delivered to the Buyer documents reasonably requested by the Buyer to establish
the release of all Liens relating to the Assets;
(vii) all filings required to be made under the HSR Act in
connection with the transactions provided for herein shall have been made, and
all applicable waiting periods with respect thereto shall have been terminated
or expired;
(viii) all certificates, instruments and other documents required
to effect the transactions contemplates hereby shall be reasonably satisfactory
in form and substance to the Buyer;
(ix) no provision of any applicable law or regulation, and no
judgment, injunction, order or decree, shall prohibit the consummation of the
Acquisition;
(x) the Company, the Parent and the Stockholders shall have delivered
to the Buyer a true, correct and complete list and amount, as of the Closing
Date, of (a) the Accounts Receivable, including an aging thereof, (b) the
liabilities assumed pursuant to Section 1.4(a)(i) and (ii) hereof, and (c)
Schedule 2.29, none of which information shall be materially different from the
information supplied by the Company as of the date hereof;
(xi) the Company shall have assigned to the Buyer any and all
insurance policies extending warranty or products liability coverage to the
Company for products manufactured by the Company prior to the Closing Date or
for claims made on or prior to the Closing Date;
(xii) the Company shall have obtained and delivered to the Buyer
tax lien waivers from all jurisdictions in which Assets are located and which
provide such tax lien waivers;
(xiii) the Company shall have delivered to the Buyer an executed
investment representation letter in the form attached hereto as Exhibit E and a
---------
▇▇▇▇ of sale substantially in the form attached hereto as Exhibit F;
---------
(xiv) the Company, the Parent and the Stockholder shall have
delivered to the Buyer such instruments of conveyance, assignment and transfer,
in form and substance satisfactory to the Buyer, as shall be appropriate to
convey, transfer and assign to, and to vest in, the Buyer good, clear, record
and marketable title to the Assets;
(xv) the Company, the Parent and the Stockholder shall have
delivered to the Buyer all contracts, files, technical data, product literature,
general ledgers, books of account and other data and documents of the Business;
31
(xvi) the Company, the Parent and the Stockholder shall have
delivered to the Buyer a certificate of the Secretary of State of the State of
Texas as to the legal existence and good standing (including tax) of the Company
in Texas;
(xvii) the Company, the Parent and the Stockholders shall have
delivered to the Buyer certificates of the Secretary of each of the Company, the
Parent and the Holding Company attesting to the incumbency of the Company's, the
Parent's and the Holding Company's officers, respectively, the authenticity of
the resolutions authorizing the transactions contemplated by the Agreement, and
the authenticity and continuing validity of the charter documents;
(xviii) the Company, the Parent and the Stockholders shall have
delivered to the Buyer estoppel certificates from each lessor from whom the
Company leases real or personal property consenting to the assumption of such
lease by the Buyer and representing that there are no outstanding claims against
the Company under any such lease;
(xi) the FTC Settlement shall have been executed by the parties
thereto and shall be acceptable to the Buyer;
(xx) the Company, the Parent and the Stockholders shall have
delivered to the Buyer the final audited 1998 Financial Statements;
(xxi) the Company, the Parent and the Stockholders shall have
delivered to the Buyer signed agreements and other documents reasonably
satisfactory to the Buyer that grant the Business a fully-paid, worldwide right
to use in the Business all of the illustrations and other artwork as currently
used by the Company in the Business, which agreements shall be transferred and
assigned to the Buyer at the Closing; and
(xxii) the Buyer shall have received such other certificates and
instruments as it shall reasonably request in connection with the Closing
(including without limitation any trademark assignment forms to assign to the
Buyer all trademarks included in the Assets).
32
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
SECTION 7.1 Indemnification by the Company, the Parent and the
--------------------------------------------------
Stockholders. The Company, the Parent and the Stockholders shall each, jointly
------------
and severally, indemnify the Buyer in respect of, and hold the Buyer harmless
against, any and all debts, obligations and other liabilities (whether absolute,
accrued, contingent, fixed or otherwise, or whether known or unknown, or due or
to become due or otherwise), monetary damages, fines, fees, penalties, interest
obligations, deficiencies, diminutions in value of assets, losses and expenses
(including without limitation amounts paid in settlement, interest, court costs,
costs of investigators, fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation) ("Damages")
-------
incurred or suffered by the Buyer or any Affiliate thereof:
(a) resulting from, relating to or constituting or arising out of any
misrepresentation or breach of warranty of the Company, the Parent or any
Stockholder contained in this Agreement, any of the agreements contemplated
hereby or any certificate of the Company, the Parent or any Stockholder
delivered at the Closing pursuant to Section 6.2; provided that the party
--------
seeking indemnification shall be entitled to indemnification under this clause
(a) only if the Damages under this clause (a) exceed $500,000 (in which case the
party seeking indemnification shall be entitled to receive the full amount of
Damages, including such $500,000); and provided further that the maximum
-------- -------
indemnification required to be provided under this clause (a) by each
Stockholder other than the Parent shall be the percentage of the aggregate
Closing Amount plus the amount of the Escrow Fund plus any amounts payable to
the Company pursuant to Sections 1.7(a) and 1.7(b) hereto equal to the
percentage of the outstanding Common Stock owned by such Stockholder on the date
hereof as reflected on Schedule 2.3 hereto (provided that this limitation shall
not apply in the case of a claim based upon fraud or a breach of a
representation or warranty of which such Stockholder had knowledge);
(b) resulting from, relating to or constituting or arising out of
failure to perform any covenant or agreement of the Company, the Parent or any
Stockholder contained in this Agreement or the agreements attached as exhibits
hereto;
(c) resulting from any failure of the Company to have good title to
the Assets, free and clear of any Lien, contractual restriction or covenant,
option or other adverse claims;
(d) relating to the operation of the Business or the Assets prior to
the Closing Date, other than (i) the Assumed Liabilities and (ii) customer
refunds issued following the date four months following the Closing Date, other
than refunds relating to or arising from any claim by, investigation of or
consent decree with a Governmental Entity (provided that nothing in clauses (i)
or (ii) of this clause (d) shall prevent an indemnification claim under any
other clause of this Section 7.1);
(e) relating to the Excluded Assets;
33
(f) relating to any claims against, or liabilities or obligations of,
the Company or against the Assets not specifically assumed by the Buyer pursuant
this Agreement;
(g) relating to the failure of the Buyer to obtain the protections
afforded by compliance with the notification and other requirements of the bulk
sales laws in force in the jurisdictions in which such laws may be applicable to
either the Company or the transactions contemplated by this Agreement;
(h) relating to any Taxes attributable to the operation of the
Business prior to the Closing Date;
(i) consisting of, relating to, or arising from the Refund Payments or
the FTC Settlement; or
(j) relating to any matter required to be disclosed on Schedule 2.12
hereto.
SECTION 7.2 Indemnification by the Buyer. The Buyer shall indemnify the
----------------------------
Company, the Parent and the Stockholders in respect of, and hold the Company,
the Parent and the Stockholders harmless against, any and all Damages incurred
or suffered by the Company, the Parent or the Stockholders or any Affiliate
thereof:
(a) resulting from, relating to or constituting or arising out of any
misrepresentation or breach of warranty of the Buyer contained in this
Agreement, any of the agreements contemplated hereby or any certificate of the
Buyer delivered at the Closing pursuant to Section 6.1; provided that the party
--------
seeking indemnification shall be entitled to indemnification under this clause
(a) only if the Damages under this clause (a) exceed $500,000 (in which case the
party seeking indemnification shall be entitled to receive the full amount of
Damages, including such $500,000); or
(b) resulting from, relating to or constituting or arising out of
failure to perform any covenant or agreement of the Buyer contained in this
Agreement or the agreements contemplated hereby.
SECTION 7.3 Claims for Indemnification. Whenever any claim shall arise
--------------------------
for indemnification hereunder, the party seeking indemnification (the
"Indemnified Party") shall promptly notify the party from whom indemnification
------------------
is sought (the "Indemnifying Party") of the claim and, when and to the extent
------------------
known, the facts constituting the basis for such claim; provided, however, that
-------- -------
no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder except to the extent of any damage or liability caused by or arising
out of such delay. In the event of any such claim for indemnification hereunder
resulting from or in connection with any claim or legal proceedings by a third
party, the notice to the Indemnifying Party shall specify, if known, the amount
or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is seeking indemnification hereunder without
34
the prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld), unless the Indemnifying Party shall not have taken
control of the defense of such claim as provided in Section 7.4 of this
Agreement, after notification thereof pursuant to this Section 7.3, in which
case the Indemnified Party may settle or compromise such claim without the
Indemnifying Party's consent.
If an Indemnified Party is seeking to enforce any claim pursuant to the
Escrow Agreement, a copy of the claim notice and all other notices provided for
in this Article VII shall also be delivered by the party providing such notice
to the Escrow Agent; provided, however, that no delay on the part of the
-------- -------
Indemnified Party in notifying the Escrow Agent shall relieve the Indemnifying
Party from any liability or obligation hereunder except to the extent of any
damage or liability caused by or arising out of such delay.
SECTION 7.4 Defense by the Indemnifying Party.
---------------------------------
(a) Subject to Section 7.4(d), in connection with any claim for
indemnification hereunder resulting from or arising out of any claim or legal
proceeding by a third party, the Indemnifying Party at its sole cost and expense
may, upon written notice to the Indemnified Party given within 15 days after the
date of the notice of the claim from the Indemnified Party pursuant to Section
7.3, assume the defense of such claim or legal proceeding with counsel approved
by the Indemnified Party (which approval shall not be unreasonably withheld), if
(i) the Indemnifying Party acknowledges to the Indemnified Party in writing the
Indemnifying Party's obligations to indemnify the Indemnified Party with respect
to all elements of such claim, (ii) the third party seeks monetary damages only
and (iii) an adverse resolution of the third party's claim would not have a
material adverse effect on the goodwill or the reputation of the Indemnified
Party and, if the Indemnified Party is the Buyer, the business, operations or
future conduct of the Business.
(b) If the Indemnifying Party so assumes such defense, the Indemnified
Party shall be entitled to participate in (but not control) such defense, with
its counsel and at its own expense (except that the Indemnifying Party will be
responsible for the reasonable fees and expenses of the separate co-counsel to
the extent the Indemnified Party reasonably concludes that the counsel the
Indemnifying Party has selected has a conflict of interest). In addition, if
the Indemnifying Party so assumes such defense, it shall take all steps
necessary in the defense or settlement thereof; provided, however, that the
Indemnifying Party shall not consent to any settlement or to the entry of any
judgment with respect to a claim or legal proceeding which does not include a
complete release of the Indemnified Party from all liability with respect
thereto or which imposes any liability or obligation on the Indemnified Party
without the written consent of the Indemnified Party.
(c) If the Indemnifying Party does not (or is not permitted under the
terms hereof to) assume the defense of any such claim or legal proceeding, (i)
the Indemnified Party may defend against such claim or legal proceeding (with
the Indemnifying Party responsible for the reasonable fees and expenses of
counsel for the Indemnified Party) in such manner as it may deem appropriate,
including, but not limited to, settling such claim or legal proceeding on such
terms as
35
the Indemnified Party may deem appropriate, and (ii) the Indemnifying Party
shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense.
(d) If a customer or supplier asserts that the Company, the Parent or
any Stockholder is liable to such party for a monetary or other obligation which
may constitute or result in Damages for which the Buyer may be entitled to
indemnification pursuant to this Article VII and the Buyer reasonably determines
that it has a valid business reason to fulfill such obligation, then (subject to
notifying the Company, the Parent and the Stockholders in reasonable detail as
to the matter asserted by the customer or supplier) (i) the Buyer shall be
entitled to satisfy such obligation, without consent from the Company, the
Parent or the Stockholders, (ii) the Buyer may make a claim for indemnification
pursuant to this Article VII in accordance with the provisions hereof, and (iii)
the Buyer shall be reimbursed, in accordance with the provisions hereof, for any
such Damages for which it is entitled to indemnification pursuant to this
Article VII.
SECTION 7.5 Survival. All representations, warranties, covenants,
--------
agreements and obligations set forth in this Agreement, the agreements
referenced herein, the schedules hereto or any other certificate, instrument or
document furnished in connection with this Agreement or the transactions
contemplated hereby shall survive the Closing. All such covenants, agreements
and obligations shall survive the Closing without limitation. All such
representations and warranties shall expire on the date two (2) years from the
Closing Date except that:
(a) the representations and warranties of the Company, the Parent and
the Stockholders in Sections 2.3, 2.4, 2.20, 2.21, 2.22 and 2.23, and of the
Buyer in Section 3.3, shall survive without limitation;
(b) the representations and warranties of the Company, the Parent and
the Stockholders in Section 2.14 shall expire on the date sixty (60) days after
the expiration of the applicable Tax statute of limitations with respect to the
relevant taxable period(s) (including all periods of extension, whether
automatic or permissive);
(c) any claim based on fraud or a breach of a representation or
warranty of which the Indemnifying Party had actual knowledge at any time prior
to the time at which the representation or warranty was made shall survive
without limitation; and
(d) any claim asserted in writing prior to the expiration as provided
in this Section 7.5 of the representation or warranty that is the basis for such
claim shall survive until finally resolved and satisfied in full. The rights to
indemnification, reimbursement or other remedy set forth in this Agreement will
not be affected by any investigation conducted by a party with respect to, or
any knowledge acquired (or capable of being acquired) by a party about, the
accuracy or inaccuracy of, or compliance with, any representation, warranty,
covenant or obligation.
36
No claim for indemnification under this Article VII with respect to a breach of
a representation or warranty may be made after the expiration of such
representation or warranty pursuant to the foregoing provision of this Section
7.5.
SECTION 7.6 Treatment of Indemnification Payments. All indemnification
-------------------------------------
payments made under this Agreement shall be treated by all parties as an
adjustment to the Purchase Price.
SECTION 7.7 No Subrogation. The indemnification obligations shall be
--------------
without any right of subrogation.
SECTION 7.8 Offset Rights; Escrow Non-exclusive. The Buyer shall have
-----------------------------------
the right and option to offset and deduct the amount of any Damages with respect
to which it is entitled to indemnification hereunder and any payments to which
it is entitled under Section 1.7(a) or 1.7(d) hereof from (i) any Earn-Out
Consideration required to be paid pursuant to Section 1.7(b) hereof, (ii) any
payment required to be made pursuant to Section 1.7(a) above or (iii) the Escrow
Fund.
The Escrow Agreement is intended to secure the indemnification and certain
other obligations of the Company, the Parent and the Stockholders under this
Agreement. However, the rights of the Buyer under this Article VII shall not be
limited to the Escrow Fund nor shall the Escrow Agreement be the exclusive means
for the Buyer to enforce such rights.
SECTION 7.9 Certain Limitations. Each Indemnifying Party will be liable
-------------------
hereunder for actual, direct damages, and will not indemnify any Indemnified
Party for, and shall not be liable for, any consequential, special, exemplary or
punitive damages, lost profits, diminution of value of the Assets or the
Business, or other damages arising out of this Agreement or the Agreements
attached as exhibits hereto. The Indemnification Obligations of an Indemnifying
Party shall be reduced by the amount available with respect to such Damages
under any insurance policy held by the Indemnified Party. The Indemnification
Obligations shall be reduced by the amount that the same Damages have been
accounted for and paid in the Adjusted Purchase Price. This Article VII shall
be each Party's sole remedy for any claim for damages from any other Party or
their affiliates arising from this Agreement, the Agreements attached as
exhibits hereto or the transactions contemplated hereby or thereby. The
aggregate maximum indemnification required to be provided under this Article VII
by the Buyer, on the one hand, and the Company, the Parent and the Stockholders,
on the other hand, shall be $60,000,000.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
37
(i) by mutual written consent of the Company and the Buyer;
(ii) by the Company, if there has been a material breach by the
Buyer of its representations, warranties, covenants or agreements contained
herein, or by the Buyer, if there has been a material breach by the Company, the
Parent or the Stockholders of its representations, warranties, covenants or
agreements contained herein, which breach in any such case is incapable of being
cured or has not been cured within 10 days after the giving of written notice
thereof to the breaching party by the other party; or
(iii) by either the Company or the Buyer if the Effective Time has
not occurred by the close of business, Eastern time, on November 30, 1999,
provided that neither the Company nor the Buyer, as the case may be, may
--------
terminate this Agreement pursuant to this clause (iii) if a breach by the
Company, the Parent or a Stockholder or by the Buyer, as the case may be, of any
of its covenants or agreements contained herein shall have been the reason that
the Effective Time shall not have so occurred.
The party desiring to terminate this Agreement pursuant to the preceding
paragraphs shall give written notice of such termination to the other party in
accordance with Section 10.1 hereof.
SECTION 8.2 Effect of Termination. If this Agreement is terminated
---------------------
pursuant to Section 8.1 hereof, this Agreement shall become void and of no
effect with no liability on the part of any party hereto, except that (i) the
agreements contained in Sections 4.5 and 10.3 hereof shall survive the
termination hereof and (ii) the foregoing provisions of this Article VIII shall
not relieve any party from liability arising from any breach by such party of
any of its covenants or agreements contained herein which breach occurred prior
to the termination.
ARTICLE IX
POST-CLOSING COVENANTS
SECTION 9.1 Proprietary Information. From and after the Closing, the
-----------------------
Company, the Parent and the Stockholders shall hold in confidence, and shall
cause their respective Affiliates to hold in confidence, all knowledge,
information and documents of a confidential nature or not generally known to the
public with respect to the Business or the Assets (including without limitation
financial information, information with respect to Intellectual Property,
technical information or data relating to the products and services offered, in
connection with the Business and names of customers of the Business)
(collectively, "Proprietary Information") and shall not disclose or make use of,
----------------------
and shall cause its Affiliates within its control not to disclose or make use
of, Proprietary Information without the written consent of the Buyer, except to
the extent that such information can be shown to have been (i) previously known
on a nonconfidential basis by such Person, (ii) in the public domain (other than
as rumor or speculation) through no fault of the Company, the Parent or any
Stockholder or (iii) later lawfully acquired by such Person from sources other
than the Buyer or any of its Affiliates.
38
SECTION 9.2 Solicitation and Hiring. For a period of three (3) years
------------------------
after the Closing Date, the Company, the Parent and the Stockholders shall not,
and shall cause their respective Affiliates not to, either directly or
indirectly as a 1% or greater stockholder, partner, director, officer, employee
or otherwise, (a) solicit or attempt to induce (i) any employee of the Business
as of the date hereof or as of the Closing Date or (ii) any employee of the
Business hired following the Closing Date who is known by the person directing
or conducting such solicitation or attempt to induce to be an employee of the
Business, to terminate his or her employment with the Buyer (provided that
normal mass market advertising shall not be deemed a breach of this provision)
or (b) hire any "exempt" (within the meaning of the Fair Labor Standards Act) or
salaried employee of the Business.
SECTION 9.3 Non-Competition; Referral of Customers.
--------------------------------------
(a) For a period of three (3) years after the Closing Date, except as
set forth on Schedule 9.3 (including the subsidiaries and successors of the
------------
corporations listed on Schedule 9.3), the Company, the Parent and the
------------
Stockholders shall not, and shall cause their respective Affiliates not to,
either directly or indirectly as a stockholder, investor, partner, director,
officer, employee, consultant or otherwise, (i) design, develop, manufacture,
market, sell, perform or offer anywhere in the world any material, product,
component or service which is competitive with any material, product, component
or service developed (or under development), manufactured, marketed, sold or
offered by the Company at any time prior to the Closing Date relating to the
Business or (ii) engage anywhere in the world in any business competitive with
the Business as conducted at any time on or prior to the Closing Date.
(b) From and after the Closing, the Company, the Parent and the
Stockholders shall cooperate in communications with suppliers and customers in
connection with the sale of the Business resulting from the transactions
contemplated herein. Prior to and following the Closing, in the event the
Company, the Parent or any Stockholder receives a request for the web hosting
services of the Business, the Company, the Parent or a Stockholder, as the case
may be, shall promptly refer such customer or potential customer to the Buyer.
(c) The Company, the Parent and the Stockholders, for themselves and
on behalf of their respective Affiliates, agree that the duration and geographic
scope of the non-solicitation and non-competition provision set forth in Section
9.2 above and in this Section 9.3 are reasonable. In the event that any court
determines that the duration or the geographic scope, or both, are unreasonable
and that such provision is to that extent unenforceable, the parties agree that
the provision shall remain in full force and effect for the greatest time period
and in the greatest area that would not render it unenforceable. The parties
intend that this non-competition provision shall be deemed to be a series of
separate covenants, one for each and every county of each and every state or
province of each and every country.
SECTION 9.4 Cooperation in Litigation. From and after the Closing Date,
-------------------------
each party shall fully cooperate with the others in the defense or prosecution
of any litigation or proceeding already instituted or which may be instituted
hereafter against or by such other party relating to or arising out of the
conduct of the Business prior to or after the Closing Date (other
39
than litigation arising out of the transactions contemplated by this Agreement
or the agreements referred to herein). The party requesting such assistance will
pay all reasonable out-of-pocket expenses incurred by any other party in
complying with this Section 9.4 except to the extent the requesting party is
entitled to indemnification for such expenses pursuant to Article VII hereof.
SECTION 9.5 Nasdaq. Following the Closing Date, the Buyer shall use its
------
reasonable best efforts to cause the shares of Buyer Common Stock issuable
hereunder to be approved for trading on Nasdaq.
SECTION 9.6 Use of Name. The Company, the Parent and the Stockholders
-----------
agree not to use the name "▇▇▇▇▇▇▇▇.▇▇▇" or any derivation thereof after the
Closing Date in connection with any business related to or competitive with the
Business. Notwithstanding the foregoing, (i) the foregoing agreement shall not
apply to the ▇▇▇▇.▇▇▇ website, which is an Asset being purchased by the Buyer
pursuant hereto and (ii) the Buyer may use the names "U.S. Republic," "USR" and
any derivation thereof for up to six (6) months following the Closing Date in
connection with the transition of the Business from the Company to Buyer.
SECTION 9.7 Tax-Free Status of Acquisition. The Buyer (or any
------------------------------
subsidiary of the Buyer which is deemed the acquiring company for federal income
tax purposes) shall continue to conduct the Business or use a significant
portion of the Company's historic business assets in a business (within the
meaning of Treasury Regulation Section 1.368-1(d)), and shall not transfer the
Business or the assets thereof to another entity, provided, however, the Buyer
--------
may transfer the Business and/or the assets thereof (i) to a corporation which
is a member of the Buyer's "qualified group" (as such term is defined in
Treasury Regulation Section 1.368-1(d)(4)(ii)), or (ii) to a partnership, but
only if (a) the Buyer and one or more members of the Buyer's "qualified group"
have active and substantial management functions as a partner with respect to
the Business and the assets thereof (within the meaning of Treasury Regulation
Section 1.368-1(d)), or (b) the members of the Buyer's "qualified group" own, in
the aggregate, an interest in the partnership representing a significant
interest in the Business and the assets thereof (within the meaning of Treasury
Regulation Section 1.368-1(d)), and provided further, however, that nothing
----------------
contained in this Section 9.7 shall prohibit the Buyer or any subsidiary of the
Buyer from taking any action insofar as such action does not cause the
Acquisition to fail to qualify as a reorganization under Section 368(a) of the
Code.
SECTION 9.8 Employees. The Buyers shall offer to continue to employment
---------
of the employees of the Business upon the Closing. The Buyers shall continue
employment of those employees who accept such offers of continued employment
(such employees hired by the Buyer being hereinafter referred to as the
"Transferred Employees"). The Buyers offer of continued employment shall
----------------------
include the following:
(a) All of the Transferred Employees shall be offered compensation at
levels at least substantially equal to similarly situated Buyer employees;
(b) To the maximum extent permitted by applicable law, the Buyer shall
employ such Transferred Employees on an at-will basis;
40
(c) The Buyer shall have the sole discretion to determine the job
description, reporting status, organization and shift of each Transferred
Employee;
(d) The Buyer shall have total discretion to determine the work
location of the Transferred Employees (provided that the Buyer hereby represents
that the Buyer currently intends to retain the location of the Business in its
current locations); and
(e) The Transferred Employees shall be eligible to participate in the
same benefit plans as the Buyer provides to its similarly situated employees and
will, to the extent permissible by law in the applicable employee benefit plan,
give "service credit" to the Transferred Employees for their term of employment
with the Company.
Following the execution of this Agreement and prior to the Closing Date, the
Buyer may contact employees of the Business to provide them with information
about the Buyer and its operations and an explanation of the terms and
conditions of the offers of employment. If requested by the Parent, the Buyer
will confirm the termination of employment of any Transferred Employee.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered one
business day after it is sent by (i) a reputable courier service guaranteeing
delivery within one business day or (ii) fax, provided electronic confirmation
of successful transmission is received by the sending party and a confirmation
copy is sent on the same day as the fax transmission by certified mail, return
receipt requested, in each case to the intended recipient as set forth below:
if to the Company, the Parent or the Stockholders to:
VarTec Telecom, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
T. ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
41
▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
if to the Buyer to:
Prodigy Communications Corporation
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Any party may give any notice, request, demand, claim, or other
communications hereunder using any other means (including personal delivery,
expedited courier, messenger service, telex, ordinary mail, or electronic mail),
but no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by the
party for whom it is intended. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be
delivered by giving the other party notice in the manner herein set forth. In
the event the Company is liquidated or dissolved, the Company shall provide the
Buyer with advance notice thereof, and any notices to be provided to the Company
after the date of such notice of liquidation or dissolution shall instead be
provided only to VarTec Telecom, Inc. at the address set forth above.
SECTION 10.2 Amendments; Waivers.
-------------------
(a) Any provision of this Agreement may be amended or waived if, and
only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by each of the parties hereto or, in the case of a waiver, by the
party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
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SECTION 10.3 Expenses. Whether or not the transactions provided for
--------
herein are consummated, all costs and expenses incurred in connection with this
Agreement and such transactions will be paid by the party incurring such costs
and expenses.
SECTION 10.4 Successors. This Agreement may not be assigned by any party
----------
hereto without the prior written consent of the other parties, provided that the
--------
Buyer shall be permitted to assign its rights and obligations hereunder (i) in
connection with a corporate reorganization or an acquisition of all or
substantially all of the business, stock or assets of the Buyer, whether by
acquisition or otherwise, in which case all references herein to Buyer Common
Stock shall mean the common stock of the surviving entity or (ii) to any
subsidiary of the Buyer. Subject to the foregoing, the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors.
SECTION 10.5 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, the parties agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other right or remedy to which such party may be entitled
under this Agreement, at law or in equity.
SECTION 10.6 Entire Agreement. Except as otherwise provided herein, this
----------------
Agreement (including the exhibits and schedules hereto) and the Confidentiality
and Standstill Agreement dated as of August 25, 1999 among the Company, the
Holding Company and the Buyer embody the entire agreement and understanding of
the parties with respect to the transactions contemplated hereby and supersedes
all prior written or oral commitments, arrangements or understandings with
respect thereto, other than the nondisclosure agreement entered into by the
Company and the Buyer prior to the date hereof. There are no restrictions,
agreements, promises, warranties, covenants or undertakings with respect to the
transactions contemplated hereby other than those expressly set forth herein or
therein.
SECTION 10.7 Severability. This Agreement shall be construed to the end
------------
that, if any one or more of the provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality or enforceability of
the remaining provisions of this Agreement shall not be effected thereby.
SECTION 10.8 Governing Law; Jurisdiction and Service of Process. This
--------------------------------------------------
Agreement shall be governed by, and construed and enforced in accordance with,
the domestic laws of the State of Delaware without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Delaware or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware. Any suit, action or proceeding
against any party with respect to this Agreement may be brought in a court of
the United States sitting in the State of Delaware or, if jurisdiction is
lacking in such a court, in a court of record in the State of Delaware, and each
party hereto hereby irrevocably waives, to the fullest extent permitted by law,
any objection that it may have, whether now or in the future, to
43
the laying of venue in, or to the jurisdiction of, any and each of such courts
for the purpose of any such suit, action or proceeding and further waives any
claim that any such suit, action or proceeding has been brought in an
inconvenient forum, and each hereby submits to such jurisdiction.
SECTION 10.10 Waiver of Jury Trial. Each party acknowledges and agrees
--------------------
that any controversy which may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each such party understands and has considered the implications of
this waiver and (iii) each such party makes this waiver voluntarily.
SECTION 10.11 Payments. Any cash payments required hereunder shall be
--------
made by certified check or wire transfer to an account designated by the party
receiving such payment.
SECTION 10.12 Counterparts. This Agreement may be signed by the parties
------------
hereto in any number of counterparts, all of which together shall constitute one
and the same agreement.
SECTION 10.13 No Third Party Beneficiaries. This Agreement shall not
----------------------------
confer any rights or remedies upon any person other than the parties and their
respective successors and permitted assigns and, to the extent specified herein,
their respective Affiliates.
SECTION 10.14 Headings. The section headings contained in this Agreement
--------
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.15 Incorporation of Exhibits and Schedules. The exhibits and
---------------------------------------
schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
SECTION 10.16 Facsimile Signature. This Agreement may be executed by
-------------------
facsimile signature.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
U.S. REPUBLIC COMMUNICATIONS, INC.
By: /s/ T. ▇▇▇▇ ▇▇▇▇
------------------------------------
Name: T. ▇▇▇▇ ▇▇▇▇
Title: President
VARTEC TELECOM, INC.
By: /s/ A. ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.
------------------------------------
Name: A. ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.
Title: President
VARTEC TELECOM HOLDING COMPANY
By: /s/ A. ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.
------------------------------------
Name: A. ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇.
Title: President
/s/ T. ▇▇▇▇ ▇▇▇▇
-----------------------------------------
T. ▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇
PRODIGY COMMUNICATIONS CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
45