Exhibit 2.3
ASSET PURCHASE AGREEMENT
Agreement made as of April 8, 1999 by and between DURO Communications,
Inc., a Delaware corporation ("Buyer"), Global Information Exchange Corporation,
a North Carolina corporation ("Seller"), and ▇▇▇▇▇ ▇▇▇▇▇▇, as management
shareholder of the Seller (the "Management Shareholder").
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell, transfer and assign to Buyer, and Buyer desires to purchase from Seller,
all of the properties, rights and assets used or useful in connection with the
Internet service business of Seller (the "Business").
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Upon the terms and subject to the conditions set forth
in this Agreement, and the performance by the parties hereto of their respective
obligations hereunder, Seller agrees to sell, assign, transfer and deliver to
Buyer, and Buyer agrees to purchase from Seller, all of Seller's right, title
and interest in and to all of the properties, assets and business of the
Business of every kind and description, tangible and intangible, real, personal
or mixed, and wherever located, but excluding the Excluded Assets (as defined in
Section 1.2 below), including, without limitation, the following:
(a) Equipment. All free standing kiosks, servers, routers, modems,
computers, electronic devices, test equipment and all other fixed assets,
equipment, furniture, fixtures, leasehold improvements, parts, accessories,
inventory, office materials, software, supplies and other tangible personal
property of every kind and description owned by Seller and used or held for use
in connection with the Business, all as set forth on Schedule 1.1(a) attached
hereto (collectively, "Equipment");
(b) Contracts. All of the rights of Seller under and interest of
Seller in and to all contracts relating to the Business (other than the Excluded
Contracts (as defined below)), including, without limitation, original contracts
for the provision of Internet connectivity, dedicated service, web-hosting,
web-domain, dial-up services, web-development and Internet commerce, all of
Seller's insurance contracts, all leases with respect to real property and all
co-location agreements, a true, correct and complete list of which contracts is
attached hereto as Schedule 1.1(b) (collectively, the "Contracts");
(c) Intellectual Property. All of Seller's Intellectual Property (as
defined in Section 2.20), as set forth on Schedule 1.1(c) attached hereto;
(d) Licenses and Authorizations. All rights associated with the
licenses, permits, easements, registrations, domains and authorizations issued
or granted to Seller by any governmental authority with respect to the operation
of the Business, including, without
limitation, any license to operate as a Competitive Local Exchange Carrier (a
"CLEC") owned by Seller or its wholly-owned subsidiary, GIETEL, Inc. ("the
Subsidiary"), those licenses and authorizations listed on Schedule 1.1(d)
attached hereto, and all applications therefor, together with any renewals,
extensions, or modifications thereof and additions thereto;
(e) Current Assets; Accounts Receivable. All current assets of
Seller (the "Current Assets"), excluding cash on hand and in checking and
savings accounts and bank card accounts, but including all security deposits and
accounts receivable of Seller incurred in the ordinary course of business and
such accounts receivable as are included on Seller's balance sheet, as
determined in accordance with reasonable and commercially acceptable accounting
principles, consistently applied, that reflect in all material respects the
actual financial condition and results of operations of Seller, consistently
applied; a complete list of such accounts receivable is attached hereto as
Schedule 1.1(e) ("Accounts Receivable");
(f) Subsidiary Stock. All of the outstanding capital stock of
Subsidiary owned beneficially and of record by Seller;
(g) Goodwill. All of the goodwill of Seller in, and the going
concern value of, the Business, and all of the business and customer lists,
proprietary information, and trade secrets related to the Business; and
(h) Records. All of Seller's customer logs, location files and
records, employee records (except where delivery of such records would be a
violation of state or federal law), and other business files and records, in
each case relating to the Business.
The assets, properties and business of Seller being sold to and purchased
by Buyer under this Section 1.1 are referred to herein collectively as the
"Assets."
1.2 Excluded Assets. There shall be excluded from the Assets and retained
by Seller, to the extent in existence on the First Closing Date or the Second
Closing Date (each as defined below), the following assets (the "Excluded
Assets"):
(a) Other Assets. All other assets of Seller which are not used or
held for use in connection with the Business or otherwise necessary to the
operation of the Business now or after the First Closing Date and which are set
forth on Schedule 1.2(a) attached hereto;
(b) Excluded Contracts. All of Seller's right, title and interest
in, to and under the contracts as set forth on Schedule 1.2(b) attached hereto
(the "Excluded Contracts");
(c) Insurance. All of Seller's insurance contracts and all insurance
proceeds of settlement and insurance claims made by Seller on or before the
Second Closing Date as set forth on Schedule 1.2(c) attached hereto;
2
(d) Tax Items. All claims, rights and interest in and to any refunds
for federal, state or local Taxes (as defined below) for periods prior to the
Second Closing Date as set forth on Schedule 1.2(d) attached hereto;
(e) Corporate Records. All of Seller's corporate and other
organizational records;
(f) Cash. All cash on hand and in checking and savings accounts and
bank card accounts; and
(g) Corporate Names. The names "Global Information Exchange" and
"GIEX", as well as other Intellectual Property identified in Schedule 2.20, may
be used by Seller until the Second Closing.
1.3 Assumed Liabilities; Excluded Liabilities; Employees.
(a) Assumed Liabilities.
(i) Buyer shall, on and as of the First Closing Date, accept
and assume, and shall become and be fully liable and responsible for, and
other than as expressly set forth herein Seller shall have no further
liability or responsibility for or with respect to, (A) liabilities and
obligations arising out of events occurring on and after the First Closing
Date related to Buyer's ownership of the Assets and Buyer's operation of
the Business after the First Closing Date, excluding those liabilities and
obligations related to Subsidiary; (B) those current liabilities and
accrued expenses of Seller as of the First Closing Date consisting of (1)
accounts payable arising in the ordinary course of business (the "Assumed
Current Liabilities") and (2) unearned revenues; (C) all obligations and
liabilities, excluding those related to Subsidiary, which are to be
performed after the First Closing Date arising under the Contracts,
including, without limitation, Seller's obligations to subscribers under
such Contracts for (1) subscriber deposits held by Seller as of the First
Closing Date in the amount for which Buyer receives a credit pursuant to
Section 1.6(a) below, (2) up to $48,000 of subscriber advance payments
held by Seller as of the First Closing Date for services to be rendered in
connection with the Business in the amount for which Buyer receives a
credit pursuant to Section 1.6(a) below, and (3) the delivery of Internet
connectivity service to subscribers, whether pursuant to a Contract or
otherwise, after the First Closing Date; (D) fifty percent (50%) of the
investment banking fees owed by the Seller to PricewaterhouseCoopers
Securities LLC on account of the transactions contemplated herein up to a
maximum amount of one hundred thousand dollars ($100,000); and (E) the
superPOP liability identified in Schedule 1.3(a)(i) ((A), (B), (C), (D)
and (E) together, the "Assumed Liabilities").
(ii) Buyer shall, on and as of the Second Closing Date, accept
and assume, and shall become and be fully liable and responsible for, and
other than as
3
expressly set forth herein Seller shall have no further liability or
responsibility for or with respect to, (A) liabilities and obligations
arising out of events occurring on and after the Second Closing Date
related to Buyer's ownership of the Subsidiary Stock and Buyer's operation
of the Subsidiary after the Second Closing Date; and (B) up to fifty
thousand dollars ($50,000) of liabilities incurred by Seller prior to the
Second Closing Date in connection with the Subsidiary's Competitive Local
Exchange Carrier business (the "CLEC Liabilities"), which liabilities are
itemized on Schedule 1.3(a)(ii) hereto; and (c) Seller's actual costs up
to an aggregate limit of $20,000 (the "License Costs Maximum") incurred in
connection with obtaining approval of the Public Utilities Commission of
the State of North Carolina to the transfer of the license to operate as a
CLEC to Buyer (the "CLEC License Transfer").
(iii) The assumption of the Assumed Liabilities and the CLEC
Liabilities by Buyer hereunder shall not enlarge any rights of third
parties under contracts or arrangements with Buyer or Seller or any of
their respective affiliates or subsidiaries. No parties other than Buyer
and Seller shall have any rights under this Agreement.
(b) Excluded Liabilities. It is expressly understood that, except
for the Assumed Liabilities and CLEC Liabilities, Buyer shall not assume, pay or
be liable for any liability or obligation of Seller of any kind or nature at any
time existing or asserted, whether, known, unknown, fixed, contingent or
otherwise, not specifically assumed herein by Buyer, including, without
limitation, any liability or obligation relating to, resulting from or arising
out of (i) the Excluded Assets, including, without limitation, the Excluded
Contracts, (ii) employee benefit programs of the Business, including, without
limitation, any obligation to provide any amounts due to the employees under any
pension, profit sharing or similar plan, any bonus or other compensation plan,
or related to vacation or other similar employee benefits, or arising as a
result of the transactions contemplated hereby (except for up to one week
vacation and fifteen days sick leave per employee, previously accrued), (iii)
any liabilities prior to the Second Closing Date in connection with the
Subsidiary's CLEC business exceeding in the aggregate fifty thousand dollars
($50,000) (the "Excluded CLEC Liabilities"), (iv) any liabilities arising in
connection with the CLEC License Transfer in excess of the License Costs
Maximum, or (v) any fact existing or event occurring prior to the First Closing
Date or, with respect to the Subsidiary, prior to the Second Closing Date, or
relating to the operation of the Business prior to the First Closing Date or,
with respect to the Subsidiary, the Second Closing Date. The liabilities which
are not assumed by Buyer under this Agreement are hereinafter sometimes referred
to as the "Excluded Liabilities."
(c) Employees, Wages and Benefits.
4
(i) Seller shall terminate all of its employees effective as
of the First Closing Date and Buyer shall not assume or have any
obligations or liabilities with respect to such employees or such
terminations except as provided in Section 7.3, including, without
limitation, any severance obligation. Seller acknowledges and
agrees that Buyer has the right to interview and discuss employment
continuation, compensation and other terms and any related issues with
such employees prior to and after the First Closing.
(ii) Buyer specifically agrees, on the First Closing Date, to
employ all of Seller's employees identified on a list provided by Seller
to Buyer at the First Closing, a copy of which is attached hereto as
Schedule 1.3(c)(ii). Buyer agrees to provide up to one week vacation and
fifteen days sick leave to each employee previously accrued and shall
maintain current seniority levels of such employees.
(iii) Seller shall pay all wages, salaries, commissions, and
the cost of all fringe benefits provided to its employees shown on
Schedule 1.3(c)(ii) which shall have become due for work performed as of
and through the day preceding the First Closing Date, and Seller shall
collect and pay all Taxes in respect of such wages, salaries, commissions
and benefits.
(iv) At the first Closing, Buyer hereby agrees to participate
in the employee benefit plans and programs identified on Schedule
1.3(c)(iv); notwithstanding the foregoing and except as otherwise
expressly provided herein, Buyer shall not otherwise acquire any rights or
interests of Seller in, or assume or have any obligations or liabilities
of Seller under, any benefit plans maintained by, or for the benefit of
any employees of Seller prior to the First Closing Date, including,
without limitation, obligations for severance or vacation accrued but not
taken as of the First Closing Date, nor shall Buyer be restricted in its
ability to terminate or amend the terms of such plans and programs.
1.4 The Closings. The transactions contemplated by this Agreement in
connection with the purchase and sale of the Business, but excluding the
purchase of the stock of Subsidiary, shall take place at a closing (the "First
Closing") to be held at 10:00 a.m., local time, at the offices of ▇▇▇▇▇▇▇,
Procter & ▇▇▇▇ LLP, on the date of this Agreement or at such other time and
place as shall be mutually agreed upon in writing by Buyer and Seller (the
"First Closing Date"). The transactions contemplated by this Agreement in
connection with the purchase of the stock of Subsidiary shall take place at a
closing (the "Second Closing") to be held at 10:00 a.m., local time, at the
offices of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, on the earliest date following
satisfaction of the conditions set forth in Section 6.1A or such other time and
place as shall be mutually agreed upon in writing by Buyer and Seller (the
"Second Closing Date"). Either or both closings may be performed by facsimile,
with originals to follow as soon as commercially reasonable.
5
1.5 First Closing Purchase Price. In consideration of the sale by Seller
to Buyer of the Assets, and subject to the assumption by Buyer of the Assumed
Liabilities and satisfaction of the conditions contained herein, Buyer shall pay
at the First Closing an amount (as adjusted in accordance with Section 1.6
below, the "First Closing Purchase Price") equal to $7,150,000 as follows:
(a) Buyer shall deliver the sum of $6,800,000 minus the sum of the
Debt Repayment amount as set forth in Schedule 1.5(a) (the "Debt Repayment
Amount") and the Estimated Adjustment (as such term is hereinafter defined) to
Seller by bank cashier's check or bank wire transfer pursuant to payment
instructions delivered by Seller to Buyer at the First Closing; and
(b) Buyer shall deposit the sum of $350,000 (the "Escrow Deposit")
with Boston Safe Deposit and Trust Company as Escrow Agent under the Escrow
Agreement in the form attached hereto as Exhibit A (the "Escrow Agreement"). The
Escrow Deposit shall be held, administered and distributed in accordance with
the terms of the Escrow Agreement, and shall be Buyer's remedy for any
indemnification claims made pursuant to Section 10 hereof.
(c) Buyer shall deliver the Debt Repayment Amount to Branch Banking
& Trust by bank wire transfer pursuant to payment instructions delivered by
Seller to Buyer at the First Closing.
1.5A Second Closing Purchase Price. In consideration of the sale by Seller
to Buyer of the Subsidiary Stock, and subject to the assumption by Buyer of the
CLEC Liabilities and satisfaction of the conditions contained herein, Buyer
shall pay at the Second Closing an amount (as adjusted in accordance with
Section 1.6A below, the "Second Closing Purchase Price") equal to $100,000 minus
assumed CLEC liabilities in excess of the Estimated Excluded CLEC Liabilities
Amount (as defined in Section 1.6A below).
1.6 Adjustments to First Closing Purchase Price.
(a) The First Closing Purchase Price shall be reduced
dollar-for-dollar by the amount of Seller's Net Working Capital (as defined
herein) if such amount is negative, or increased dollar for dollar by the amount
of Seller's Net Working Capital if such amount is positive. "Net Working
Capital" means an amount equal to Current Assets minus Assumed Current
Liabilities as of the First Closing Date.
(b) The First Closing Purchase Price shall be decreased, on a
dollar-for- dollar basis, by the Revenues Adjustment Amount in the event Actual
Revenues for the month ending March 31, 1999 are less than $360,000 ("Target
Revenues"). For purposes hereof, the term "Revenues Adjustment Amount" shall
equal the product obtained by multiplying (i) $1,750 by (ii) the quotient
obtained by dividing (X) the Annualized Actual Revenues Deficiency, by (Y) one
thousand dollars ($1,000). For purposes hereof, "Actual Revenues" shall mean
gross monthly revenues, without adjustment for deferred revenues, of Seller as
of March 31, 1999; provided, however, that "Actual Revenues" shall exclude (x)
revenue
6
attributable to any customer of the Company who has not paid for more
than two months of service as of March 31, 1999 and (y) revenue attributable to
any period other than the current month's service. For purposes hereof, the term
"Annualized Actual Revenues Deficiency" shall equal the product of (i) the
difference between (A) the Target Revenues and (B) Actual Revenues, multiplied
by (ii) twelve (12).
(c) Buyer and Seller shall prepare a statement to be attached hereto
as Schedule 1.6(c) (the "Estimated Adjustment Statement") which sets forth (i)
the estimated amount of the Net Working Capital as of the First Closing Date
(the "Estimated Net Working Capital") and (ii) the estimated Revenues Adjustment
Amount (the "Estimated Revenues Adjustment"). The sum of the Estimated Net
Working Capital and the Estimated Revenues Adjustment shall be hereinafter
referred to as the "Estimated Adjustment." The First Closing Purchase Price
payable at the First Closing shall be decreased on a dollar-for-dollar basis to
the extent of the Estimated Adjustment, if such number is a positive number, set
forth on such Estimated Adjustment Statement. If the Estimated Adjustment is a
negative number, the First Closing Purchase Price payable at the First Closing
shall be increased on a dollar-for-dollar basis to the extent of the absolute
value of the Estimated Adjustment set forth on such Estimated Adjustment
Statement.
(d) (i) No later than sixty (60) days following the First Closing,
Buyer shall prepare and deliver to Seller a statement (the "Final
Adjustment Statement") setting forth the actual Net Working Capital.
Subject to subsection (ii) below, within ten (10) days following the
delivery of such Final Adjustment Statement to Seller, Buyer or Seller, as
the case may be, shall pay to the other party, by wire transfer of
immediately available funds, the difference between the Estimated Net
Working Capital, as shown on the Estimated Adjustment Statement, and the
actual Net Working Capital, as shown on the Final Adjustment Statement.
(ii) In the event Seller objects to the Final Adjustment
Statement, Seller shall notify Buyer in writing of such objection within
the ten (10) day period following the delivery thereof, stating in such
written objection the reasons therefor and setting forth the Seller's
calculation of Seller's actual Net Working Capital at the First Closing.
Upon receipt by Buyer of such written objection, the parties shall attempt
to resolve the disagreement concerning the Final Adjustment Statement
through negotiation. Notwithstanding any other dispute resolution
procedure provided for in this Agreement, if Buyer and Seller cannot
resolve such disagreement concerning the Final Adjustment Statement within
thirty (30) days following the end of the foregoing 10-day period, the
parties shall submit the matter for resolution to a nationally recognized
firm of independent certified public accountants not affiliated with
either party, with the costs thereof to be shared equally by the parties.
Such accounting firm shall deliver a statement setting forth its own
calculation of the final adjustment to the parties within thirty (30) days
of the submission of the matter to such firm. Any payment shown to be due
by a party on the statement of such accounting firm shall be paid to the
other party promptly but in no event later than five (5) days following
the delivery of such statement by such according firm to the parties.
7
1.6A Adjustment to Second Closing Purchase Price.
(a) The Second Closing Purchase Price shall be reduced
dollar-for-dollar by the amount of CLEC Liabilities in excess of $50,000.
(b) Buyer and Seller shall prepare a statement (the "Estimated
Second Closing Adjustment Schedule"), to be attached to the Second Closing
Certificate (defined in Section 6.1A below) which sets forth the estimated
amount of the Excluded CLEC Liabilities (the "Estimated Excluded CLEC
Liabilities Amount").
(c) (i) No later than ninety (90) days following the Second Closing,
Buyer shall prepare and deliver to Seller a statement (the "Final Excluded
CLEC Liabilities Statement") setting forth the actual amount of the
Excluded CLEC Liabilities. Subject to subsection (ii) below, within ten
(10) days following the delivery of such Final Excluded CLEC Liabilities
Statement to Seller, Buyer or Seller, as the case may be, shall pay to the
other party, by wire transfer of immediately available funds, the
difference between the Estimated Excluded CLEC Liabilities, as shown on
the Estimated Second Closing Adjustment Schedule, and the actual Excluded
CLEC Liabilities, as shown on the Final Excluded CLEC Liabilities
Statement.
(b) In the event Seller objects to the Final Excluded CLEC
Liabilities Statement, Seller shall notify Buyer in writing of such
objection within the ten (10) day period following the delivery thereof,
stating in such written objection the reasons therefor and setting forth
the Seller's calculation of Seller's actual Excluded CLEC Liabilities at
the Second Closing. Upon receipt by Buyer of such written objection, the
parties shall attempt to resolve the disagreement concerning the Final
Excluded CLEC Liabilities Statement through negotiation. Notwithstanding
any other dispute resolution procedure provided for in this Agreement, if
Buyer and Seller cannot resolve such disagreement concerning the Final
Excluded CLEC Liabilities Statement within thirty (30) days following the
end of the foregoing 10-day period, the parties shall submit the matter
for resolution to a nationally recognized firm of independent certified
public accountants not affiliated with either party, with the costs
thereof to be shared equally by the parties. Such accounting firm shall
deliver a statement setting forth its own calculation of the final
adjustment to the parties within thirty (30) days of the submission of the
matter to such firm. Any payment shown to be due by a party on the
statement of such accounting firm shall be paid to the other party
promptly but in no event later than five (5) days following the delivery
of such statement by such according firm to the parties.
1.7 Purchase Price Allocation. At the First Closing, Buyer and Seller
shall agree on the allocation of the combined First Closing Purchase Price and
Second Closing Purchase Price (the "Purchase Price") as set forth on Schedule
1.7 attached hereto. Such allocation shall be binding upon Buyer and Seller for
all purposes (including financial accounting
8
purposes, financial and regulatory reporting purposes and tax purposes). Buyer
and Seller each further agrees to file its Federal income tax returns and its
other tax returns reflecting such allocation, Form 8594 and any other reports
required by Section 1060 of the Code.
1.8 Records and Contracts. To the extent not previously provided to Buyer,
at the First Closing, Seller shall deliver to Buyer all of the Contracts, with
such assignments thereof and consents to assignments as are necessary to assure
Buyer of the full benefit of the same except as disclosed in Schedule 1.8.
Seller shall also deliver to Buyer at the First Closing all of Seller's files
and records constituting Assets.
1.9 Sales and Transfer Taxes. All sales, transfer, use, recordation,
documentary, stamp, excise taxes, personal property taxes, fees and duties
(including any real estate transfer taxes) under applicable law incurred in
connection with this Agreement or the transactions contemplated thereby will be
borne and paid by Seller, and Seller shall promptly reimburse Buyer for the
payment of any such tax, fee or duty which Buyer is required to make under
applicable law.
1.10 Transfer of Subject Assets. At the First Closing, Seller shall
deliver or cause to be delivered to Buyer good and sufficient instruments of
transfer transferring to Buyer title to all of the Assets, together with all
required consents. Such instruments of transfer (a) shall contain appropriate
warranties and covenants which are usual and customary for transferring the type
of property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance reasonably satisfactory to Buyer
and its counsel, (c) shall effectively vest in Buyer good and marketable title
to all of the Assets free and clear of all Liens (as defined in Section 2.8),
and (d) where applicable, shall be accompanied by evidence of the discharge of
all Liens against the Assets. At the Second Closing, Seller shall deliver to
Buyer one or more stock certificates, together with stock powers executed in
blank with a signature guarantee, representing Seller's ownership of the Stock
of the Subsidiary.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND
MANAGEMENT SHAREHOLDER.
In order to induce Buyer to enter into this Agreement, Seller and the
Management Shareholder, jointly and severally, hereby represent and warrant to
Buyer as follows:
9
2.1 Organization; Subsidiaries.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of North Carolina. Seller has all
requisite power and authority to conduct its business as it is now conducted or
proposed to be conducted and to own, lease and operate its properties and
assets. The copies of Seller's certificate of incorporation and bylaws each as
amended to date, heretofore delivered to Buyer's counsel are complete and
correct. Seller is not in violation of any term of the certificate of
incorporation and bylaws Seller is duly qualified to do business in the state of
its incorporation, and is not required to be licensed or qualified to conduct
its business or own its property in any other jurisdiction.
(b) Subsidiary is the only subsidiary of Seller. Schedule 2.1(b)
sets forth (i) the Subsidiary's name and jurisdiction of incorporation, (ii) the
number of authorized shares of each class of its capital stock and (iii) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each such holder.
Seller holds of record and owns beneficially all of the outstanding shares of
capital stock of Subsidiary, free and clear of any liens, restrictions or
encumbrances. There are no outstanding warrants, options or other rights to
purchase or acquire any of the shares of capital stock of Subsidiary, or any
outstanding securities convertible into such shares or outstanding warrants,
options or other rights to acquire any such convertible securities. Seller does
not own any securities issued by any other business organization or governmental
authority, except U.S. Government securities, bank certificates of deposit and
money market accounts acquired as short-term investments in the ordinary course
of its business and does not own or have any direct or indirect interest in or
control over any corporation, partnership, joint venture or entity of any kind,
other than Subsidiary.
(c) Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the State of North Carolina. Subsidiary has
all requisite power and authority to conduct its business as it is now conducted
or proposed to be conducted and to own, lease and operate its properties and
assets. The copies of Subsidiary's certificate of incorporation and bylaws each
as amended to date, heretofore delivered to Buyer's counsel are complete and
correct. Subsidiary is not in violation of any term of the certificate of
incorporation and bylaws Subsidiary is duly qualified to do business in the
state of its incorporation, and is not required to be licensed or qualified to
conduct its business or own its property in any other jurisdiction.
2.2 Required Action. All actions and proceedings necessary to be taken by
or on the part of Seller in connection with the transactions contemplated by
this Agreement have been duly and validly taken, and this Agreement and each
other agreement, document and instrument to be executed and delivered by or on
behalf of Seller pursuant to, or as contemplated by, this Agreement
(collectively, the "Seller Documents") has been duly and validly authorized,
executed and delivered by Seller and no other action on the part of Seller or
its officers, directors or shareholders is required in connection therewith.
Each of Seller and
10
the Management Shareholder have full right, authority, power and capacity to
execute and deliver this Agreement and each other Seller Document and to carry
out the transactions contemplated hereby and thereby. This Agreement and each
other Seller Document constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of each of Seller and the
Management Shareholder enforceable in accordance with its respective terms.
2.3 No Conflicts.
(a) The execution, delivery and performance by Seller of this
Agreement and each other Seller Document does not and will not (i) violate any
provision of the certificate of incorporation and bylaws of Seller or
Subsidiary, in each case as amended to date, (ii) constitute a violation of, or
conflict with or result in any breach of, acceleration of any obligation under,
right of termination under, or default under, any agreement or instrument to
which Seller or Subsidiary is a party or by which Seller, Subsidiary or the
Assets are bound, (iii) violate any judgment, decree, order, statute, rule or
regulation applicable to Seller, Subsidiary or the Assets, (iv) require Seller
or Subsidiary to obtain any approval, consent or waiver of, or to make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made or (v) result in the creation or imposition of any Lien on any
of the Assets.
(b) The execution, delivery and performance by the Management
Shareholder of this Agreement and each other Seller Document does not and will
not (i) constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which the Management Shareholder is a
party or by which the Management Shareholder is bound, (ii) violate any
judgment, decree, order, statute, rule or regulation applicable to the
Management Shareholder, (iii) require the Management Shareholder to obtain any
approval, consent or waiver of, or to make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made, or (iv) result
in the creation or imposition of any Lien on any of the Assets.
2.4 Taxes.
(a) Seller and Subsidiary have paid or caused to be paid all
federal, state, local, foreign and other taxes, including, without limitation,
income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales
taxes, use taxes, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding taxes,
stamp taxes, transfer taxes, windfall profit taxes, environmental taxes and
property taxes, whether or not measured in whole or in part by net income, and
all deficiencies, or other additions to tax, interest, fines and penalties owed
by it (collectively, "Taxes"), required to be paid by it through the date hereof
whether disputed or not.
11
(b) Seller and Subsidiary have in accordance with applicable law
filed all federal, state, local and foreign tax returns required to be filed by
them through the date hereof, and all such returns correctly and accurately set
forth the amount of any Taxes relating to the applicable period. A list of all
federal, state, local and foreign income tax returns filed with respect to
Seller and Subsidiary for taxable periods ended on or after December 31, 1993,
is set forth in Schedule 2.4 attached hereto. Seller has delivered to Buyer
correct and complete copies of all federal, state, local and foreign income tax
returns listed on said schedule, and of all examination reports and statements
of deficiencies assessed against or agreed to by Seller or Subsidiary with
respect to said returns.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of Seller or the Management
Shareholder, threatening to assert against Seller or Subsidiary any deficiency
or claim for additional Taxes. To the knowledge of Seller and the Management
Shareholder, no claim has ever been made by an authority in a jurisdiction where
either Seller or Subsidiary do not file reports and returns that Seller or
Subsidiary are or may be subject to taxation by that jurisdiction. There are no
security interests on any of the Assets of Seller or Subsidiary that arose in
connection with any failure (or alleged failure) to pay any Taxes. Neither
Seller nor Subsidiary have ever entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code of 1986, as amended (the "Code")
(d) There has not been any audit of any tax return filed by Seller
or Subsidiary, no audit of any tax return of Seller or Subsidiary is in
progress, and neither Seller nor Subsidiary have been notified by any tax
authority that any such audit is contemplated or pending. No extension of time
with respect to any date on which a tax return was or is to be filed by Seller
or subsidiary is in force, and no waiver or agreement by Seller or Subsidiary is
in force for the extension of time for the assessment or payment of any Taxes.
(e) Neither Seller nor Subsidiary have ever been (and have never had
any liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Neither Seller nor
Subsidiary have ever filed, or have ever been required to file, a consolidated,
combined or unitary tax return with any other entity except as disclosed in
Schedule 2.4. Seller does not own and has never owned a direct or indirect
interest in any trust, partnership, corporation or other entity other than
Subsidiary and therefore Buyer is not acquiring from Seller an interest in any
entity other than Subsidiary. Seller is not a party to any tax sharing
agreement.
(f) Neither Seller nor Subsidiary are "foreign persons" within the
meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2.
(g) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
12
2.5 Compliance with Laws. Each of Seller's and Subsidiary's operations of
the Business and the Assets are in compliance in all material respects with all
applicable statutes, ordinances, orders, rules and regulations promulgated by
any federal, state, municipal or other governmental authority (including the
Federal Communications Commission), and neither Seller nor Subsidiary have
received notice of a violation or alleged violation of any such statute,
ordinance, order, rule or regulation.
2.6 Insurance. The physical properties and tangible Assets are insured to
the extent disclosed in Schedule 2.6 attached hereto, and all insurance policies
and arrangements of Seller and Subsidiary in effect as of the date hereof are
disclosed in said Schedule. Said insurance policies and arrangements are in full
force and effect, all premiums with respect thereto are currently paid, and
Seller and Subsidiary are in compliance in all material respects with the terms
thereof. Said insurance is adequate and customary for the business engaged in by
Seller and Subsidiary and is sufficient for compliance by Seller and Subsidiary
with all requirements of law and all agreements and leases to which Seller or
Subsidiary are parties.
2.7 Contracts. The Contracts constitute all leases, contracts and
arrangements, whether oral or written, under which either Seller or Subsidiary
are bound or to which Seller or Subsidiary are parties which relate to the
Business or Assets. Schedule 1.1(b) attached hereto contains a true, correct and
complete list of all Contracts. With respect to each oral agreement or
understanding involving the Business, Seller has provided a written summary of
the material terms of each such agreement or understanding on Schedule 1.1(b).
Each Contract is valid, in full force and effect and binding upon Seller or
Subsidiary and the other parties thereto in accordance with its terms. Neither
Seller, Subsidiary nor, to the knowledge of Seller and the Management
Shareholder, any other party is in default under or in arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Contract, nor does any condition exist
that with notice or lapse of time or both would constitute such a default, and
no waiver or indulgence has been granted by any party under any Contract.
Neither Seller nor Subsidiary has received notice of, and the Seller and
Management Shareholder have no knowledge of, any fact which would result in a
termination, repudiation or breach of any Contract. Seller has provided Buyer
with true and complete copies of all of such Contracts, other than with respect
to the oral agreements or understandings described on Schedule 1.1(b).
2.8 Title. As of each closing, Seller has good and marketable title to all
of the Assets free and clear of all mortgages, pledges, security interests,
charges, liens, restrictions and encumbrances of any kind (collectively,
"Liens") whatsoever. Upon the sale, assignment, transfer and delivery of the
Assets to Buyer hereunder and under the Seller Documents, there will be vested
in Buyer good, marketable and indefeasible title to the Assets, free and clear
of all Liens. The Assets include all of the assets and properties (i) held for
use by Seller or Subsidiary to conduct the Business as presently conducted and
(ii) necessary or useful for Buyer to operate the Business in the same manner as
such business is currently operated by Seller or Subsidiary. All of the tangible
Assets are in good repair, have been well maintained and are in good operating
condition, do not require any material modifications or repairs, and
13
comply in all material respects with applicable laws, ordinances and
regulations, ordinary wear and tear excepted. Seller has delivered complete and
true copies of all real property leases (the "Leases") set forth on Schedule
1.1(b). Seller or Subsidiary hold good, clear, marketable, valid and enforceable
leasehold interest in the real property subject to the Leases (the "Leased Real
Property"), subject only to the right of reversion of the landlord or lessor
under the Leases, free and clear of all other prior or subordinate interests,
including, without limitation, mortgages, deeds of trust, ground leases, leases,
subleases, assessments, tenancies, claims, covenants, conditions, restrictions,
easements, judgments or other encumbrances or matters affecting title, and free
of encroachments onto or off of the leased real property. There are no material
defects in the physical condition of any improvements constituting a part of the
Leased Real Property, including, without limitation, structural elements,
mechanical systems, roofs or parking and loading areas, and all of such
improvements are in good operating condition and repair, have been well
maintained. All water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned operation of
the Leased Real Property have been installed and connected pursuant to valid
permits, and are sufficient to service the Leased Real Property. Seller does not
hold or own a fee interest in any real property.
2.9 No Litigation. Neither Seller nor Subsidiary are now involved in nor,
to the knowledge of Seller and the Management Shareholder, are Seller or
Subsidiary threatened to be involved in any litigation or legal or other
proceedings related to or affecting the Business or any Asset (including any
Intellectual Property) or which would prevent or hinder the consummation of the
transactions contemplated by this Agreement. Neither Seller nor Subsidiary have
been operating the Business under, and the Business is not subject to, any
order, injunction or decree of any court of federal, state, municipal or other
governmental department, commission, board, agency or instrumentality.
2.10 Employees; Labor Matters. Seller employs approximately 34 full-time
employees and 42 part-time employees and Subsidiary employs zero full-time
employees and zero part-time employees, and each of Seller and Subsidiary
generally enjoys good employer-employee relationships. Seller shall provide to
Buyer a list of the employees of Seller and Subsidiary in connection with the
Business at the First Closing, including the name, date of hire and wages of
such employees. Neither Seller nor Subsidiary are delinquent in payments to any
of their employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it to the date hereof or amounts
required to be reimbursed to such employees. Upon termination of the employment
of any of said employees, none of Seller, Subsidiary or Buyer will by reason of
the transactions contemplated hereby or anything done prior to the First Closing
or, with respect to the Subsidiary, the Second Closing, be liable to any of said
employees for so-called "severance pay" or any other payments, except as
otherwise set forth herein or as set forth in Schedule 2.10 attached hereto.
Neither Seller nor Subsidiary have any policy, practice, plan or program of
paying severance pay or any form of severance compensation in connection with
the termination of employment, except as set forth in Schedule 2.10. Each of
Seller and Subsidiary is in compliance in all material respects with all
applicable laws and regulations
14
respecting labor, employment, fair employment practices, work place safety and
health, terms and conditions of employment, and wages and hours. There are no
charges of employment discrimination or unfair labor practices, nor are there
any strikes, slowdowns, stoppages of work, or any other concerted interference
with normal operations existing, pending or, to the knowledge of Seller and the
Management Shareholder, threatened against or involving Seller or Subsidiary. No
question concerning representation exists respecting any group of employees of
Seller or Subsidiary. No collective bargaining agreement is in effect or is
currently being or is about to be negotiated by Seller or Subsidiary. Neither
Seller nor Subsidiary have received any information to indicate that any of
their employment policies or practices are currently being audited or
investigated by any federal, state or local government agency. Seller and
Subsidiary are, and at all times since November 6, 1986 have been, in compliance
with the requirements of the Immigration Reform Control Act of 1986.
2.11 Financial Statements. Attached hereto as Schedule 2.11 are copies of
the consolidated balance sheets of Seller and Subsidiary as at December 31, 1998
(the "Base Balance Sheet") and the consolidated statements of income and expense
of Seller and Subsidiary for the twelve (12) months ended December 31, 1998
(collectively the "Financial Statements"). The Financial Statements have been
prepared in accordance with reasonable and commercially acceptable accounting
principles, consistently applied, that reflect in all material respects the
actual financial condition and results of operations of Seller during the
periods covered thereby (except for the absence of footnotes with respect to
unaudited financials), are complete and correct and present fairly and
accurately the financial condition of the Business at the dates of said
statements and the results of operations of the Business for the periods covered
thereby. As of the date of the Base Balance Sheet (the "Base Balance Sheet
Date"), neither Seller nor Subsidiary had any liabilities or obligations of any
kind with respect to the Business, whether accrued, contingent or otherwise,
that are not disclosed and adequately reserved against on the Base Balance
Sheet. As of the date hereof and at the First Closing, neither Seller nor
Subsidiary had and will have no liabilities or obligations of any kind with
respect to the Business, whether accrued, contingent or otherwise, that are not
disclosed and adequately reserved against on the Base Balance Sheet.
2.12 Business Since the Base Balance Sheet Date. Since the Base Balance
Sheet Date:
(a) there has been no material adverse change in the Business or in
the Assets, operations or financial condition of the Business;
(b) the Business has, in all material respects, been conducted in
the ordinary course of business and in substantially the same manner as it was
conducted before the date of the Base Balance Sheet Date;
(c) there has not been any material obligation or liability
(contingent or other) incurred by Seller or Subsidiary with respect to the
Business, whether or not incurred in the ordinary course of business;
15
(d) there has not been any purchase, sale or other disposition, or
any agreement or other arrangement, oral or written, for the purchase, sale or
other disposition, of any material properties or assets of the Business, whether
or not in the ordinary course of business;
(e) there has not been any mortgage, encumbrance or lien placed on
any of the Assets, nor any payment or discharge of a material lien or liability
of Seller or Subsidiary which was not reflected on the Base Balance Sheet;
(f) there has not been any damage, destruction or loss, whether or
not covered by insurance, adversely affecting the Business or Assets;
(g) there has not been any change in Seller's or Subsidiary's
pricing, marketing, customer service, billing, operational or promotional
activities in any material way from that which Seller and Subsidiary were
providing these activities directly prior to the Base Balance Sheet Date; and
(h) there has not been any agreement or understanding, whether in
writing or otherwise, for Seller or Subsidiary to take any of the actions
specified above.
2.13 Licenses. As of the date of this Agreement, Seller or Subsidiary are
the holders of all licenses, permits and authorizations with respect to the
Business (the "Authorizations"). The Authorizations constitute all of the
licenses, permits and authorizations required for operation of the Business as
now operated. All of the Authorizations are in full force and effect and no
licenses, permits or authorizations of any governmental department or agency are
required for the operation of the Business which have not been duly obtained. As
of the date hereof, there is not pending or, to the knowledge of Seller and the
Management Shareholder, threatened any action by or before any governmental
agency to revoke, cancel, rescind or modify any of the Authorizations, and there
is not now issued or outstanding or, to the knowledge of Seller and the
Management Shareholder, pending or threatened any order to show cause, notice of
violation, notice of apparent liability, or notice of forfeiture or complaint
against Seller or Subsidiary with respect to the Business.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by Seller or Subsidiary in connection with the execution and delivery of
this Agreement and the Seller Documents and the consummation of the transactions
contemplated hereby and thereby. All of the approvals, consents and
authorizations listed on Schedule 2.14 shall be obtained by Seller or Subsidiary
at or prior to the First Closing or, with respect to the Subsidiary, at or prior
to the Second Closing.
16
2.15 Customers and Suppliers. Seller's and Subsidiary's relations with
their customers and suppliers, including their subscribers, are good and there
are not pending or, to Seller's knowledge, threatened claims or controversies
with any customer or suppliers that are material to the Assets or the Business.
2.16 Subscribers. Schedule 2.16(a) attached hereto sets forth, as of the
date hereof, the subscribers of the Business as listed by class, type and
billing plan as provided separately in electronic format.
2.17 Brokers. Except for fees payable to PricewaterhouseCoopers Securities
LLC, neither Seller nor Subsidiary have retained any broker or finder or other
person who would have any valid claim against any of the parties to this
Agreement for a commission or brokerage fee in connection with this Agreement or
the transactions contemplated hereby.
2.18 Collectibility of Accounts Receivable. All of the Accounts Receivable
of Seller and Subsidiary are or will be as of the First Closing Date bona fide,
valid and enforceable claims, subject to no setoff or counterclaim and to
Seller's knowledge are collectible in accordance with their terms. Neither
Seller nor Subsidiary have any accounts or loans receivable from any person,
firm or corporation which is affiliated with Seller or Subsidiary or from any
director, officer or employee of Seller or Subsidiary, or from any of their
respective spouses or family members.
2.19 Banking Relations. All of the arrangements which Seller and
subsidiary have with any banking institution are completely and accurately
described in Schedule 2.19 attached hereto, indicating with respect to each of
such arrangements the type of arrangement maintained (such as checking account,
borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
17
2.20 Intellectual Property.
(a) Set forth on Schedule 2.20 attached hereto are all computer
programs and related documentation sold, marketed, licensed and distributed by
Seller and Subsidiary (the "Products"). All of the Intellectual Property of
Seller and Subsidiary is set forth on Schedule 2.20 attached hereto. For
purposes hereof, the term "Intellectual Property" includes: (i) all patents,
patent applications, patent rights, and inventions and discoveries and invention
disclosures (whether or not patented) (collectively, "Patents"); (ii) Seller's
rights to the names "Global Information Exchange," "GIEX," "GIETEL, Inc.," and
"▇▇▇▇▇▇▇▇▇▇.▇▇▇," all trade names, trade dress, logos, packaging design,
slogans, any and all Internet domain names used or useful in the business of
Seller and Subsidiary, registered and unregistered trademarks and service marks
and applications (collectively, "Marks"); (iii) all copyrights in both published
and unpublished works, including, without limitation, all compilations,
databases and computer programs, and all copyright registrations and
applications, and all derivatives, translations, adaptations and combinations of
the above (collectively, "Copyrights"), (iv) all know-how, trade secrets,
confidential or proprietary information, customer lists, IP addresses, research
in progress, algorithms, data, designs, processes, formulae, drawings,
schematics, blueprints, flow charts, models, prototypes, techniques, Beta
testing procedures and Beta testing results (collectively, "Trade Secrets"); (v)
Seller's and Subsidiary's web-sites (including the domain name
"▇▇▇.▇▇▇▇▇▇▇▇▇▇.▇▇▇" and any other similar domain name); (vi) all goodwill,
franchises, licenses, permits, consents, approvals, technical information,
telephone numbers, and claims of infringement against third parties (the
"Rights"); and (vii) all contracts relating to the Products and the Intellectual
Property to which Seller or Subsidiary is a party or is bound, including,
without limitation, all nondisclosure and/or confidentiality agreements entered
into by persons in connection with disclosures by Seller and Subsidiary
(collectively,"Assigned Contracts").
(b) Except as described in Schedule 2.20, Seller or Subsidiary have
exclusive ownership of, and have good, valid and marketable title to, all of the
Intellectual Property, free and clear of any Liens, and has the right to use all
of the Intellectual Property without payment to any third party. Seller's and
Subsidiary's rights in all of such Intellectual Property are freely
transferable. There are no claims or demands pending or, to the knowledge of
Seller and the Management Shareholder, threatened of any other person pertaining
to any of such Intellectual Property and no proceedings have been instituted, or
are pending or, to the knowledge of Seller and the Management Shareholder,
threatened against Seller or Subsidiary and/or their officers, employees and
consultants which challenge the validity and enforceability of Seller's or
Subsidiary's rights in respect of the Intellectual Property. The Intellectual
Property constitutes all of the assets of Seller and Subsidiary used in
designing, creating and developing the Products, and represent all of such
Intellectual Property necessary for the operation of Seller's Business as
currently conducted.
To the knowledge of the Company and the Management Shareholder, no
employee, consultant or contractor of Seller or Subsidiary has entered into any
agreement that restricts or limits in any way the scope or type of work in which
the employee, consultant or contractor
18
may be engaged or requires the employee, consultant or contractor to transfer,
assign, or disclose information concerning his work to anyone other than Seller
or Subsidiary.
(c) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's and Subsidiary's Patents. All of the
issued Patents are currently in compliance with formal legal requirements
(including without limitation payment of filing, examination and maintenance
fees and proofs of working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
(90) days after the First Closing Date. In each case where a Patent is held by
Seller or Subsidiary by assignment, the assignment has been duly recorded with
the U.S. Patent and Trademark Office and all other jurisdictions of
registration. No Patent has been or is now involved in any interference,
reissue, re-examination or opposition proceeding. To the knowledge of Seller and
the Management Shareholder, there is no potentially interfering Patent of any
third party. All products made, used or sold under the Patents have been marked
with the proper patent notice.
(d) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's and Subsidiary's Marks. All Marks that
have been registered with the United States Patent and Trademark Office and/or
any other jurisdiction are currently in compliance with formal legal
requirements (including, without limitation, the timely post- registration
filing of affidavits of use and incontestability and renewal applications), are
valid and enforceable, and are not subject to any maintenance fees or taxes or
actions falling due within ninety (90) days after the First Closing Date. In
each case where a Trademark is held by Seller or Subsidiary by assignment, the
assignment has been duly recorded with the U.S. Patent and Trademark Office and
all other jurisdictions of registration. No ▇▇▇▇ has been or is now involved in
any opposition, invalidation or cancellation proceeding and, to the knowledge of
Seller and the Management Shareholder, no such action is threatened with respect
to any of the Marks. All products and materials containing a ▇▇▇▇ ▇▇▇▇ the
proper notice where permitted by law.
(e) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's and Subsidiary's Copyrights. All the
Copyrights have been registered with the United States Copyright Office and are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any fees or taxes or actions falling due
within ninety (90) days after the First Closing Date. In each case where a
Copyright is held by Seller or Subsidiary by assignment, the assignment has been
duly recorded with the U.S. Copyright Office and all other jurisdictions of
registration. None of the source or object code, algorithms, or structure
included in the Products is copied from, based upon, or derived from any other
source or object code, algorithm or structure in violation of the rights of any
third party. Any substantial similarity of the Products to any computer program
owned by any third party did not result from the Products being copied from,
based upon, or derived from any such computer software program in violation of
the rights of any third party. All copies of works encompassed by the Copyrights
have been marked with the proper copyright notice.
19
(f) Seller and Subsidiary have taken reasonable security measures
(including, without limitation, entering into appropriate confidentiality and
non-disclosure agreements with all officers, directors, employees, consultants
and contractors of Seller, Subsidiary and any other persons with access to the
Trade Secrets) to protect the secrecy, confidentiality and value of all Trade
Secrets. To the knowledge of Seller and the Management Shareholder, there has
not been any breach by any party to any such confidentiality or non- disclosure
agreement. The Trade Secrets have not been disclosed by Seller or Subsidiary to
any person or entity other than employees or contractors of Seller or Subsidiary
who had a need to know and use the Trade Secrets in the course of their
employment or contract performance. Except as set forth on Schedule 2.20, (i)
neither Seller nor Subsidiary have directly or indirectly granted any rights or
interests in the source code of the Products, and (ii) since Seller developed
the source code of the Products, neither Seller nor Subsidiary have provided,
licensed or disclosed the source code of the Products to any person or entity.
Seller or Subsidiary have the right to use, free and clear of claims of third
parties, all Trade Secrets. To the knowledge of Seller and the Management
Shareholder, there is not any assertion that the use by Seller or Subsidiary of
any Trade Secret violates the rights of any third party.
(g) Seller or Subsidiary have the exclusive right to use, license,
distribute, transfer and bring infringement actions with respect to the
Intellectual Property. Except as set forth on Schedule 2.20, neither Seller nor
Subsidiary (i) have licensed or granted to anyone rights of any nature to use
any of their Intellectual Property and (ii) are not obligated to and do not pay
royalties or other fees to anyone for their ownership, use, license or transfer
of any of its Intellectual Property.
(h) All licenses or other agreements under which Seller or
Subsidiary are granted rights by others in Intellectual Property are listed in
Schedule 2.20. All such licenses or other agreements are in full force and
effect, to the knowledge of Seller and the Management Shareholder there is no
material default by any party thereto, and all of the rights of Seller and
Subsidiary thereunder are freely assignable. True and complete copies of all
such licenses or other agreements, and any amendments thereto, have been
provided to Buyer, and neither Seller nor Subsidiary have reason to believe that
the licensors under the licenses and other agreements under which Seller or
Subsidiary are granted rights and have granted rights to others do not have and
did not have all requisite power and authority to grant the rights purported to
be conferred thereby.
(i) All licenses or other agreements under which Seller or
Subsidiary have granted rights to others in Intellectual Property are listed in
Schedule 2.20. All such licenses or other agreements are in full force and
effect, and to the knowledge of Seller and the Management Shareholder there is
no material default by any party thereto. True and complete copies of all such
licenses or other agreements, and any amendments thereto, have been provided to
Buyer.
20
(j) The Products perform in accordance with their published
specifications and documentation and as Seller or Subsidiary have warranted to
their customers. Seller and Subsidiary have reviewed the areas within their
businesses and operations which could be adversely affected by, and have
developed programs to address on a timely basis, the "Year 2000 Problem" (i.e.,
the risk that applications used by Seller, Subsidiary or their suppliers and/or
providers may be unable to recognize and properly perform date-sensitive
functions involving certain dates prior to and any date after December 31,
1999). Seller and the Management Shareholder reasonably believe that the "Year
2000 Problem" will not have any material adverse effect on the business or
operations of Seller or Subsidiary.
2.21 Absence of Restrictions. Neither Seller nor Subsidiary has entered
into any other agreement or arrangement with any other party with respect to the
sale, transfer or any other disposition or encumbrance of the Business or the
Assets, in whole or in part.
2.22 Transactions with Interested Persons. Except as set forth in Schedule
2.22 hereto, neither Seller nor Subsidiary, nor any shareholder, officer,
supervisory employee or director of Seller or Subsidiary or, to the knowledge of
Seller or the Management Shareholder, any of their respective spouses or family
members owns directly or indirectly on an individual or joint basis any material
interest in, or serves as an officer or director or in another similar capacity
of, any competitor or supplier of Seller or Subsidiary, or any organization
which has a material contract or arrangement with Seller or Subsidiary.
2.23 Employee Benefit Programs.
21
(a) Schedule 2.23 sets forth a list of every Employee Program that
has been maintained by the Seller, Subsidiary or an Affiliate at any time during
the six-year period ending on the First Closing Date. Each Employee Program
which has ever been maintained by the Seller, the Subsidiary or an Affiliate and
which has been intended to qualify under Section 401(a) or 501(c)(9) of the
Internal Revenue Code of 1986, as amended (the "Code") has received a favorable
determination or approval letter from the Internal Revenue Service ("IRS")
regarding its qualification under such section and has, in fact, been qualified
under the applicable section of the Code from the effective date of such
Employee Program through and including the First Closing Date (or, if earlier,
the date that all of such Employee Program's assets were distributed). No event
or omission has occurred which would cause any such Employee Program to lose its
qualification or otherwise fail to satisfy the relevant requirements to provide
tax-favored benefits under the applicable Code Section (including without
limitation Code Sections 105, 125, 401(a) and 501(c)(9)). With respect to any
Employee Program ever maintained by the Seller, the Subsidiary or any Affiliate,
there has been no (i) "prohibited transaction," as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Code
Section 4975, or (ii) failure to comply with any provision of ERISA, other
applicable law, or any agreement which, in the case of either of (i) or (ii),
could subject the Seller, Subsidiary or any Affiliate to liability either
directly or indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. All payments and/or contributions required to have been
made (under the provisions of any agreements or other governing documents or
applicable law) with respect to all Employee Programs ever maintained by the
Seller, Subsidiary or any Affiliate, for all periods prior to the First Closing
Date, either have been made or have been accrued (and all such unpaid but
accrued amounts are described on Schedule 2.23). Each Employee Program ever
maintained by the Seller, Subsidiary or an Affiliate has complied with the
applicable notification and other applicable requirements of the Consolidated
Omnibus Budget Reconciliation Act of 1985.
(b) Neither the Seller, Subsidiary nor any Affiliate (A) has ever
maintained any Employee Program which has been subject to title IV of ERISA or
Code Section 412, including, but not limited to, any Multiemployer Plan (as
defined in Section 3(37) of ERISA) or (B) has ever provided health care or any
other non-pension benefits to any employees after their employment is terminated
(other than as required by part 6 of subtitle B of title I of ERISA) or has ever
promised to provide such post-termination benefits.
(c) For purposes of this section:
(i) "Employee Program" means all employee benefit plans within
the meaning of ERISA Section 3(3) as well as all other employee benefit
plans, agreements and arrangements of any kind.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under or through such
Employee
22
Program, or has any obligation (by agreement or under applicable law) to
contribute to or provide benefits under or through such Employee Program,
or if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or beneficiaries).
(iii) An entity is an "Affiliate" of the Seller or Subsidiary
if it would have ever been considered a single employer with the Seller or
Subsidiary under ERISA Section 4001(b) or part of the same "controlled
group" as the Seller or Subsidiary for purposes of ERISA Section
302(d)(8)(C).
2.24 Environmental Matters.
(a) Except as set forth in Schedule 2.24, to the knowledge of Seller
or the Management Shareholder (i) neither Seller nor Subsidiary has generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste
(as defined below) at any time; (ii) no Hazardous Material (as defined below)
has ever been or is threatened to be spilled, released, or disposed of at any
site associated with a structure presently or formerly owned, operated, leased,
or used by Seller or Subsidiary, or has ever been located in the soil or
groundwater at any such site; (iii) no Hazardous Material has ever been
transported from any site associated with a structure presently or formerly
owned, operated, leased, or used by Seller or Subsidiary for treatment, storage,
or disposal at any other place; (iv) neither Seller nor Subsidiary presently
owns, operates, leases, or uses, and has not previously owned, operated, leased,
or used any site associated with a structure on which underground storage tanks
are or were located; and (v) no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by either Seller or Subsidiary in connection with the presence
of any Hazardous Material.
(b) Except as set forth in Schedule 2.24, to the knowledge of Seller
or the Management Shareholder (i) neither Seller nor Subsidiary has any
liability under, nor has it ever violated, any Environmental Law (as defined
below); (ii) none of Seller, Subsidiary nor any property associated with a
structure owned, operated, leased, or used by Seller or Subsidiary, nor
facilities or operations thereon are presently not in compliance with all
applicable Environmental Laws; (iii) neither Seller nor Subsidiary has entered
into or been subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither Seller nor the Management Stockholder has
any knowledge or reason to know that any of the items enumerated in clause (iii)
of this subsection will be forthcoming.
(c) For purposes of this Agreement, (i) "Hazardous Material" shall
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the
23
environment or to human health or safety, as defined or regulated under any
Environmental Law; (ii) "Hazardous Waste" shall mean and include any hazardous
waste as defined or regulated under any Environmental Law; and (iii)
"Environmental Law" shall mean any environmental or health and safety-related
law, regulation, rule, ordinance, or By-law at the foreign, federal, state, or
local level, whether existing as of the date hereof, previously enforced, or
subsequently enacted.
2.25 Disclosure. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
Seller and the Management Shareholder to Buyer pursuant to this Agreement do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made. There are no facts known
to Seller or the Management Shareholder which presently or may in the future
have a material adverse affect on the Business, properties, Assets, prospects,
operations or (financial or other) condition of Seller which has not been
specifically disclosed herein or in a Schedule furnished herewith, other than
general economic conditions affecting the Internet services industry generally.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
As a material inducement to Seller entering into this Agreement, Buyer
hereby represents and warrants to Seller as follows:
3.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Buyer has all
requisite power and authority to conduct its business as it is now conducted and
to own, lease and operate its properties and assets.
3.2 Required Action; Authority. All actions and proceedings necessary to
be taken by or on the part of Buyer in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement and each other agreement, document and instrument to be executed and
delivered by or on behalf of Buyer pursuant to, or as contemplated by, this
Agreement (collectively, the "Buyer Documents") has been duly and validly
authorized, executed and delivered by Buyer. Buyer has full right, authority,
power and capacity to execute and deliver this Agreement and each other Buyer
Document and to carry out the transactions contemplated hereby and thereby. This
Agreement and each other Buyer Document constitutes, or when executed and
delivered will constitute, the legal, valid and binding obligations of Buyer
enforceable in accordance with its respective terms.
3.3 No Conflicts. The execution, delivery and performance by Buyer of this
Agreement and each other Buyer Document does not and will not (a) violate any
provision of the Certificate of Incorporation or bylaws of Buyer, as amended to
date, (b) constitute a
24
violation of, or conflict with or result in any breach of, acceleration of any
obligation under, right of termination under, or default under, any agreement or
instrument to which Buyer is a party or by which it is bound, (c) violate any
judgment, decree, order, statute, rule or regulation applicable to Buyer, (d)
require Buyer to obtain any approval, consent or waiver of, or to make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made. The officers who execute this Agreement and the other Buyer
Documents contemplated hereby on behalf of Buyer have and shall have all
requisite power to do so in the name of and on behalf of Buyer.
3.4 Brokers. Buyer has not retained any broker or finder or other person
who would have any valid claim against any of the parties to this Agreement for
a commission or brokerage fee in connection with this Agreement or the
transactions contemplated hereby.
SECTION 4. COVENANTS OF SELLER.
Seller covenants and agrees that, from the date hereof until consummation
of the transactions contemplated hereby at the First Closing, Seller shall:
4.1 Confidentiality. Seller agrees that Seller, Subsidiary and their
representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Buyer with respect
to its business or financial condition except for the purpose of evaluating,
negotiating and completing the transactions contemplated hereby. Information
generally known in Buyer's industry or which has been disclosed to Seller or
Subsidiary by third parties which have a right to do so shall not be deemed
confidential or proprietary information for purposes of this Agreement. If the
transactions contemplated by this Agreement are not consummated, Seller will
return, and cause its respective officers, directors, agents and representatives
to return, to Buyer (or certify that they have destroyed) all copies of such
data and information made available to Seller (and its officers, directors,
agents and representatives) in connection with the transaction.
4.2 Use of Trade Names. After the Second Closing Date, neither Seller,
Subsidiary nor any person controlling, controlled by or under common control
with Seller or Subsidiary will for any reason, directly or indirectly, for
itself or any other person, (a) use the names "Global Information Exchange,"
"GIEX, " "GIETEL, Inc.," "▇▇▇▇▇▇▇▇▇▇.▇▇▇" or any other Internet domain name used
or useful in the business of Seller or Subsidiary, or (b) use or disclose any
trade secrets, confidential information, know-how, proprietary information or
other intellectual property of Seller or Subsidiary transferred pursuant to this
Agreement.
25
4.3 Post-Closing Transitional Matters. For a period of ninety (90) days
following the First Closing, and with respect to the Subsidiary for a period of
ninety (90) days following the Second Closing, Seller shall provide, without
additional cost to Buyer, such assistance as is reasonably requested by Buyer in
order to effect an orderly transition in the ownership and operation of the
Assets; provided, however, such post-closing assistance shall not, in any event,
exceed ten (10) hours per week and that Buyer shall pay reasonable out-of-pocket
expenses incurred by the Management Shareholder in connection therewith.
4.4 Collection of Assets. Subsequent to the First Closing and Second
Closing, Buyer shall have the right and authority to collect all receivables and
other items transferred and assigned to Buyer by Seller hereunder as of the
First Closing and Second Closing, respectively, and to endorse with the name of
Seller any checks received on account of such receivables or other items, and
Seller agrees that it will promptly transfer or deliver to Buyer from time to
time, any cash or other property that such Seller may receive with respect to
any claims, contracts, licenses, leases, commitments, sales orders, purchase
orders, receivables of any character or any other items included in the Subject
Assets.
4.5 Payment of Obligations. Seller shall pay all of the Excluded
Liabilities in the ordinary course of business as they become due.
4.6 Further Assurances. Seller, from time to time after the First Closing
at the request of Buyer and without further consideration, shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Assets free and clear of all Liens (as defined in
Section 2.8).
4.7 CLEC License Transfer. Seller hereby covenants and agrees to take all
commercially reasonably steps as may be necessary to effect the CLEC License
Transfer.
SECTION 5. COVENANTS OF BUYER.
Buyer covenants and agrees that, from the date hereof until consummation
of the transactions contemplated hereby at the First Closing, Buyer shall:
5.1 Confidentiality. Buyer agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Seller or Subsidiary with respect to their
business or financial condition except for the purpose of evaluating,
negotiating and completing the transactions contemplated hereby. Information
generally known in Seller's and Subsidiary's industry or which has been
disclosed to Buyer by third parties which have a right to do so shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transactions contemplated by this Agreement are not consummated, Buyer
will return, and cause its respective officers, directors, agents and
representatives to return, to Seller or Subsidiary (or certify that they have
26
destroyed) all copies of such data and information made available to Buyer (and
its officers, directors, agents and representatives) in connection with the
transaction.
5.2 Foreign Qualification. Prior to the Second Closing, Buyer shall take
such steps as are necessary for Buyer to become qualified to do business as a
foreign corporation in the State of North Carolina.
5.3 CLEC License Transfer. Buyer hereby covenants and agrees to take all
commercially reasonably steps as may be necessary to effect the CLEC License
Transfer. Regardless of whether actual approval to the CLEC License Transfer has
been granted, or actual transfer of the CLEC license ever occurs, Buyer shall
pay to Seller the purchase price identified in Section 1.5A within sixty days of
the First Closing Date.
5.4 Consummation of Agreement. Buyer shall use its reasonable efforts to
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement. Buyer will use reasonable efforts to obtain
all authorizations/covenants and permits required to or permit the consummation
by Buyer of the transactions contemplated by this Agreement.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER AT THE
FIRST CLOSING.
Buyer's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction, on or prior to the First Closing Date,
of each of the following conditions, unless otherwise waived by Buyer in
writing:
6.1 Performance of Agreements and Deliveries on the First Closing. Seller
shall have performed in all material respects all of its covenants, agreements
and obligations under this Agreement which are to be performed or complied with
by Seller prior to or upon the First Closing Date and shall have delivered all
documents and items required to be delivered at or prior to the First Closing,
including, without limitation:
(a) A certificate, dated the First Closing Date (the "First Closing
Certificate"), from the President of Seller to the effect that the conditions
set forth in Sections 6.1 and 6.2 have been satisfied;
(b) A certificate, dated the First Closing Date, from Seller's
Secretary as to Seller's and Subsidiary's certificates of incorporation and
bylaws, authority and the incumbency of all officers executing the Seller
Documents on behalf of Seller;
(c) A certified copy of Seller's and Subsidiary's certificate of
incorporation from the Secretary of State of the State of North Carolina;
27
(d) A certificate of good standing from the Secretary of State of
the State of North Carolina; and
(e) Such other certificates and instruments reasonably requested by
Buyer.
6.2 Asset Transfer. Seller shall have delivered to Buyer the following
instruments of transfer and assignment in accordance with the provisions hereof,
transferring to Buyer all of Seller's right, title and interest in and to the
Assets, free and clear of all Liens:
(a) A ▇▇▇▇ of Sale in the form attached hereto as Exhibit B;
(b) An Assignment and Assumption Agreement in the form attached
hereto as Exhibit C;
(c) An Assignment of Patents and Trademarks in the form attached
hereto as Exhibit D;
(d) An Assignment of Internet Domain Name in the form attached
hereto as Exhibit E; and
(e) Such other instruments of transfer reasonably requested by
Buyer.
6.3 Assignment of Contracts and Authorizations; Approvals. All Contracts
except the Excluded Contracts set forth in Schedule 1.2(b) shall have been duly
and validly assigned to Buyer by Seller, and all consents and approvals required
in connection with the consummation of the transactions contemplated hereby
under any Contract or Authorization or otherwise shall have been obtained in
form and substance satisfactory to Buyer and without conditions materially and
adversely affecting Buyer and which do not require Buyer to pay money to any
party to any such Contract or Authorization in excess of amounts required to be
so paid pursuant to the terms and conditions thereof. All such Contracts and
Authorizations shall remain in full force and effect and shall not have been
amended, modified or repudiated in any material respect by either party thereto.
None of Seller, Subsidiary nor, to the knowledge of Seller and the Management
Shareholder, the other party thereto, shall have breached or defaulted under any
Contract or Authorization. Neither Seller nor Subsidiary shall have received
notice of or have knowledge of any fact which could result in the termination,
repudiation or breach of any Contract or Authorization.
6.4 Escrow Agreement. Seller shall have executed and delivered to Buyer
the Escrow Agreement.
6.5 Non-competition Agreement. Seller, the Management Shareholder, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ shall have executed and delivered to Buyer a
Non-competition Agreement in substantially the form attached hereto as Exhibit
F.
28
6.6 Release of Liens. Seller shall have obtained and delivered to Buyer at
or prior to the First Closing instruments (including payoff letters, bills of
sale and UCC-3 termination statements) releasing any and all Liens on the
Assets.
6.7 Opinion of Seller's Counsel. Buyer shall have received the opinion or
opinions of Sumrell, Sugg, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, P.A., counsel for Seller,
dated the First Closing Date, substantially in the form of Exhibit G attached
hereto.
SECTION 6A. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER AT THE
SECOND CLOSING
6A.1 Performance of Agreements and Deliveries on the Second Closing.
Seller shall have performed in all material respects all of its covenants,
agreements and obligations under this Agreement which are to be performed or
complied with by Seller prior to or upon the Second Closing Date and shall have
delivered all documents and items required to be delivered at or prior to the
Second Closing, including, without limitation:
(a) A certificate, dated the Second Closing Date (the "Second
Closing Certificate"), from the President of Seller to the effect that: (i)
Seller and Subsidiary have obtained all necessary regulatory approvals
pertaining to the purchase and sale of Subsidiary's business; (ii) the
representations and warranties made by Seller and the Managing Stockholder in
the Asset Purchase Agreement are true and correct in all material respects on
the Second Closing Date with the same force and effect as if they had been made
on and as of that date; and (iii) there has been no material adverse change in
the financial condition of Subsidiary on or prior to the Second Closing Date;
(b) A certificate of good standing from the Secretary of State of
the State of North Carolina; and
(c) Such other certificates and instruments reasonably requested by
Buyer.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER AT THE
FIRST CLOSING.
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to the satisfaction, on or prior to the First Closing
Date, of the following conditions, unless waived by Seller in writing:
7.1 Performance of Agreement and Deliveries. Buyer shall have performed in
all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Buyer prior to or
upon the First Closing Date and
29
shall have delivered all documents and items required to be delivered at or
prior to the First Closing, including, without limitation:
(a) A certificate, dated the Second Closing Date (the "Second
Closing Certificate"), from the President of Buyer to the effect that: (i) the
representations and warranties made by Buyer in the Asset Purchase Agreement are
true and correct in all material respects on the Second Closing Date with the
same force and effect as if they had been made on and as of that date; and (ii)
there has been no material adverse change in the financial condition of Buyer on
or prior to the Second Closing Date;
(b) A certificate, dated the First Closing Date, from Buyer's
Secretary as to the Certificate of Incorporation, bylaws, authority and the
incumbency of all officers executing the Buyer Documents on behalf of Buyer;
(c) A certified copy of Buyer's Certificate of Incorporation from
the Secretary of State of the State of Delaware; and
(d) A certificate of good standing from the Secretary of State of
the State of Delaware.
7.2 Escrow Agreement. Buyer shall have executed and delivered to Seller
the Escrow Agreement.
7.3 Employment Agreements. Buyer and each of ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and ▇▇▇▇ ▇▇▇▇▇▇ shall have entered into an Employment Agreement in substantially
the form of Exhibit H attached hereto.
SECTION 7A. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER AT THE
SECOND CLOSING
7A.1 Performance of Agreement and Deliveries on the Second Closing. Buyer
shall have performed in all material respects all of its covenants, agreements
and obligations under this Agreement which are to be performed or complied with
by Buyer prior to or upon the Second Closing Date and shall have delivered all
documents and items required to be delivered at or prior to the Second Closing,
including, without limitation:
(a) A certificate, dated the Second Closing Date, from the President
of Buyer to the effect that the conditions set forth in Sections 7.1 and 7.2
have been satisfied and that the Buyer is licensed and authorized to do business
in the state of North Carolina;
(b) A certificate of good standing from the Secretary of State of
the State of Delaware.
30
SECTION 8. SURVIVAL.
8.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closings for a
period of one year regardless of any investigation and shall not merge in the
performance of any obligation by either party hereto; provided, however, that
notwithstanding anything to the contrary in the foregoing clause, the
representations, warranties and/or covenants set forth in Sections 2.1, 2.3,
3.1, 3.3, 4.5 and 5.3 shall survive until expiration of the applicable statute
of limitations.
SECTION 9. INDEMNIFICATION.
9.1 Indemnification by Seller and the Management Shareholder.
(a) Seller and the Management Shareholder hereby agree, jointly and
severally, to indemnify and hold harmless Buyer, its affiliates and its and
their respective directors, officers, stockholders, partners, members,
employees, and agents (individually, a "Buyer Indemnified Party" and
collectively, "Buyer Indemnified Parties"), against and in respect of all
losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys and
consultants) of any kind or nature whatsoever, but net of the proceeds from any
insurance policies or other third party reimbursement for such loss, to the
extent sustained, suffered or incurred by or made against any Buyer Indemnified
Party, to the extent based upon, arising out of or in connection with: (i) any
breach of any representation or warranty made by Seller and the Management
Shareholder in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement; (ii) any
breach of any covenant or agreement made by Seller or the Management Shareholder
in this Agreement or in any schedule, exhibit, certificate, financial statement,
agreement or other instrument delivered pursuant to this Agreement; (iii) any
claim made by any person or entity which relates to the operation of the Assets
or the Business which arises in connection with or on the basis of events, acts,
omissions, conditions or any other state of facts occurring on or existing
before the First Closing Date or, with respect to the Subsidiary, the Second
Closing Date; and (iv) any claim which arises in connection with any liability
or obligation of Seller or Subsidiary other than the Assumed Liabilities.
9.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
Seller and its officers, directors, managers, members, employees and agents
(individually, a "Seller Indemnified Party" and collectively, "Seller
Indemnified Parties") at all times against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, costs and expenses (including the
reasonable fees,
31
disbursements and expenses of attorneys and consultants), of any kind or nature
whatsoever, to the extent sustained, suffered or incurred by or made against any
Seller Indemnified Party, to the extent based upon, arising out of or in
connection with: (A) any breach of any representation or warranty made by Buyer
in this Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered pursuant to this Agreement; (B) any breach of any covenant
or agreement made by Buyer in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered pursuant to this Agreement;
(C) any claim made against Seller which relates to, results from or arises out
of Buyer's operation of the Assets or the Business from and after the First
Closing Date; and (D) the Assumed Liabilities.
9.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified party
of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted.
(b) Third Party Claims. With respect to third party claims, if
within twenty (20) days after receiving the notice described in clause (a) above
the indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense and (ii) provides reasonable assurance to the indemnified party that
such claim will be promptly paid in full if required, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent of
the indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the indemnifying parties'
obligation to indemnify the indemnified party therefor will be fully satisfied.
The indemnifying party shall keep the indemnified party apprised of the status
of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters, including
settlement
32
discussions. Notwithstanding anything herein stated, the indemnified party shall
at all times have the right to fully participate in such defense at its own
expense directly or through counsel; provided, however, if the named parties to
the action or proceeding include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the expense of
separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party claims,
if within twenty (20) days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice. If the
indemnifying party provides written notice to the indemnified party within such
20-day period that it contests such indemnity, the parties shall attempt in good
faith to reach an agreement with regard thereto within thirty (30) days of
delivery of the indemnifying party's notice. If the parties cannot reach
agreement within such 30-day period, the matter may be submitted by either party
for binding arbitration in accordance with the provisions of Section 11.10
hereof.
9.4 Claims Against Escrow Deposit. In the event that any Buyer Indemnified
Party sustains or incurs damages, liabilities, losses, taxes, fines, penalties,
costs or expenses, including, without limitation, attorneys fees, for which it
is entitled to indemnification from Seller or the Management Shareholder under
this Agreement, in addition to all other rights or remedies that Buyer may have
(including the right to collect directly from Seller or the Management
Shareholder), such Buyer Indemnified Party shall be entitled to receive in cash
from the Escrow Deposit an amount equal to the damages, liabilities, losses,
taxes, fines, penalties, costs and expenses, including, without limitation,
attorneys fees, sustained or incurred by such Buyer Indemnified Party. In order
to receive payment from the Escrow Deposit such Buyer Indemnified Party shall
first deliver to Seller a written claim for damages arising under or by virtue
of this Agreement specifying the nature of the claim and the type and amount of
damages, liabilities, losses, taxes, fines, penalties, costs and expenses
sustained or incurred by such Buyer Indemnified Party. Within thirty (30)
calendar days of receiving a claim against the Escrow Deposit from or on behalf
of any Buyer Indemnified Party, Seller shall provide a written response to such
Buyer Indemnified Party with a copy to the Escrow Agent, which either accepts or
rejects all or any portion of such Buyer Indemnified Party's claim, the amount
accepted by Seller shall be paid to such Buyer Indemnified Party from the Escrow
Deposit by the Escrow Agent within ten (10) calendar days of the Escrow Agent's
33
receipt of Seller's acceptance of such Buyer Indemnified Party's claim. If
Seller rejects any portion of such Buyer Indemnified Party's claim, Seller's
written response shall specify the specific reason(s) for the rejection and the
amount, if any, of such Buyer Indemnified Party's claim which is accepted. The
amount of any claim rejected by Seller shall be retained in escrow and
distributed by the Escrow Agent only as directed by a written settlement
agreement signed by both Seller and such Buyer Indemnified Party or in
accordance with an award rendered by an arbitrator(s) in accordance with Section
11.11 of this Agreement.
9.5 Certain Limitations.
(a) Time. Twelve (12) months after the First Closing Date, or the
expiration of the applicable statute of limitations with respect to Excluded
Liabilities and the representations and warranties in Sections 2.1, 2.3, 3.1 and
3.5, no party shall have any further obligations under this Section 9 or this
Agreement, except for claims with respect to which a Buyer Indemnified Party or
Seller Indemnified Party, as the case may be, has given Seller, the Management
Shareholder or Buyer, as applicable, written notice prior to such date.
(b) Management Shareholder Liability. In no event shall the
Management Shareholder be liable for claims exceeding in the aggregate thirty
percent (30%) of the sum of the First Closing Purchase Price and the Second
Closing Purchase Price.
SECTION 10. NOTICES.
All notices and other communications required to be given hereunder, or
which may be given pursuant or relative to the provisions hereof, shall be in
writing and shall be deemed to have been given when delivered in hand or mailed,
postage prepaid, by first class United States mail, certified return receipt
requested as follows:
34
If to Seller: Global Information Exchange Corporation
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
With a copy to: Sumrell, Sugg, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇,
P.A.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
If to Buyer: DURO Communications, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇
With a copy to: ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
SECTION 11. MISCELLANEOUS.
11.1 Assignability; Binding Effect. This Agreement shall not be assignable
by Buyer or Seller except with the written consent of the other, except that
Buyer may assign its rights hereunder either (a) to any affiliate of Buyer or
its owners, (b) as a result of any merger, reorganization or other
consolidation, or (c) in connection with the granting of a security interest to
its senior lender. This Agreement shall be binding upon and shall inure to the
benefit of, the parties hereto and their respective successors, and assigns.
11.2 Headings. The subject headings used in this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
11.3 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer and Seller or, in the
case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, or any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
35
11.4 Bulk Sales Law. Buyer hereby waives compliance by Seller of any
applicable bulk sales law and Seller agrees, to make full and timely payment
when due of all amounts owed by such Seller to its creditors. Seller agrees to
indemnify and hold Buyer harmless from, and reimburse Buyer for, any loss, cost,
expense, liability or damage (including reasonable counsel fees and
disbursements and expenses) which Buyer may suffer or incur by virtue of the
non-compliance by Seller with such laws.
11.5 Entire Agreement. This Agreement, together with the schedules and
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes and cancels any and all
prior or contemporaneous arrangements, understandings and agreements between
them relating to the subject matter hereof.
11.6 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, then the
remaining provisions of this Agreement (and the remaining portion of any
provision held to be void or unenforceable in part only) shall continue in full
force and effect.
11.7 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed and construed by and enforced in accordance with the
laws of the State of North Carolina, without regard to conflict of laws
principles.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same instrument.
11.9 Expenses. Each party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accountants undertaken
pursuant to this Agreement, whether or not the transactions contemplated hereby
are consummated.
11.10 Remedies. It is specifically understood and agreed that certain
breaches of this Agreement will result in irreparable injury to the parties
hereto, that the remedies available to the parties at law alone will be an
inadequate remedy for such breach, and that, in addition to any other legal or
equitable remedies which the parties may have, a party may enforce its rights by
an action for specific performance and the parties expressly waive the defense
that a remedy in damages will be adequate.
11.11 Dispute Resolution. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity hereof shall be finally settled
solely and exclusively by arbitration conducted expeditiously in accordance with
the CPR Institute for Dispute Resolution Rules for Nonadministered Arbitration
of Business Disputes (the "CPR Rules"). The CPR Institute for Dispute Resolution
shall appoint a neutral advisor from its National
36
CPR Panel. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. ss.1-16, and judgment upon the award rendered by the arbitrators
may be entered by any court having jurisdiction thereof. The place of
arbitration shall be Boston, Massachusetts.
Such proceedings shall be administered by the neutral advisor in
accordance with the CPR Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(a) Mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
(b) No other discovery;
(c) Hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place in one or two days at a maximum; and
(d) Decision to be rendered not later than ten (10) days following
such hearings.
Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of any United States District Court of competent
jurisdiction located in the Commonwealth of Massachusetts for the purpose of
enforcing the award or decision in any such proceeding and (b) hereby waives,
and agrees not to assert in any civil action to enforce the award, any claim
that it is not subject personally to the jurisdiction of the above-named court,
that its property is exempt or immune from attachment or execution, that the
civil action is brought in an inconvenient forum, that the venue of the civil
action is improper or that this Agreement or the subject matter hereof may not
be enforced in or by such court, and (c) hereby waives and agrees not to seek
any review by any court of any other jurisdiction which may be called upon to
grant an enforcement of the judgment of any such court. Each of the parties
hereto hereby consents to service of process by registered mail at the address
to which notices are to be given. Each of the parties hereto agrees that its
submission to jurisdiction and its consent to service of process by mail is made
for the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction; provided,
however, that any party may at its option bring suit, or institute other
judicial proceedings, in any state or federal court of the United States or of
any country or place where the other parties or their assets, may be found.
Notwithstanding the foregoing, the parties may enforce their rights under
this Agreement in accordance with Section 11.10.
37
11.12 Third Party Rights. This Agreement is for the benefit of the parties
hereto and is not entered into for the benefit of, and shall not be construed to
confer any benefit upon, any other party or entity.
38
IN WITNESS WHEREOF, Seller, Management Shareholder and Buyer have caused
this Asset Purchase Agreement to be executed as of the date first above written.
SELLER:
GLOBAL INFORMATION EXCHANGE
CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
MANAGEMENT SHAREHOLDER:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
BUYER:
DURO COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
LIST OF EXHIBITS AND SCHEDULES
SCHEDULES
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of ▇▇▇▇ of Sale
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Form of Assignment of Patents and Trademarks
Exhibit E - Form of Assignment of Internet Domain Name
Exhibit F - Form of Non-competition Agreement
Exhibit G - Form of Opinion of Seller's Counsel
Exhibit H - Form of Employment Agreement
Schedule 1.1(a) Equipment
Schedule 1.1(b) Contracts
Schedule 1.1(c) Intellectual Property
Schedule 1.1(d) Licenses and Authorizations
Schedule 1.1(e) Accounts Receivable
Schedule 1.2(a) Excluded Assets
Schedule 1.2(b) Excluded Contracts
Schedule 1.2(c) Insurance Exclusions
Schedule 1.2(d) Excluded Tax Items
Schedule 1.3(a)(i) superPOP Liability
Schedule 1.3(a)(ii) Competitive Local Exchange Carrier Liabilities Incurred
Prior to Second Closing
Schedule 1.3(c)(ii) Anticipated Employment Offers
Schedule 1.3(c)(iv) Employee Benefit Plans and Contracts
Schedule 1.5(a) Debt Repayment Amount
Schedule 1.6(c) Estimated Adjustment Statement
Schedule 1.7 Allocation of Purchase Price
Schedule 1.8 Contracts Requiring Consent
Schedule 2.1(b) Subsidiary
Schedule 2.4 Taxes
Schedule 2.6 Insurance
Schedule 2.10 Employees; Labor Matters
Schedule 2.11 Financial Statements
Schedule 2.14 Approvals; Consents
Schedule 2.16(a) Subscribers
Schedule 2.19 Banking Relations
Schedule 2.20 Intellectual Property
Schedule 2.22 Affiliated Transactions
Schedule 2.23 Employee Benefits
Schedule 2.24 Environmental Matters