EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
DATED AS OF APRIL 23, 1998
BY AND AMONG
COMMUNICATIONS SYSTEMS INTERNATIONAL, INC.
AND
INTERNATIONAL TELEPHONE COMPANY
AND
ITS STOCKHOLDERS
TABLE OF CONTENTS
PAGE NO.
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ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions.................................. 1
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Section 1.2 Terms Generally...................................... 6
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ARTICLE II
PURCHASE AND SALE OF STOCK
Section 2.1 Transfer of Stock.................................... 6
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Section 2.2 Purchase Price....................................... 7
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Section 2.3 Registration Rights.................................. 8
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Section 3.1 Corporate Organization............................... 11
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Section 3.2 Ownership of Stock................................... 11
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Section 3.3 Authorization, Etc................................... 11
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Section 3.4 No Approvals or Conflicts............................ 12
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Section 3.5 Capital Stock........................................ 12
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Section 3.6 Financial Statements................................. 13
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Section 3.7 Legal Compliance..................................... 13
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Section 3.8 Litigation........................................... 13
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Section 3.9 Judgments, etc....................................... 14
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Section 3.10 Changes.............................................. 14
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Section 3.11 Taxes................................................ 14
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Section 3.12 Employee Matters..................................... 15
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Section 3.13 Labor................................................ 17
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Section 3.14 Title to Properties; Encumbrances.................... 17
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Section 3.15 Intentionally Omitted................................ 18
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Section 3.16 Leases............................................... 18
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Section 3.17 Intentionally Omitted................................ 18
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Section 3.18 Intellectual Property................................ 18
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Section 3.19 Insurance............................................ 19
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Section 3.20 Agents and Customers................................. 19
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Section 3.21 Certain Environmental Matters........................ 19
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Section 3.22 Contracts............................................ 20
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Section 3.23 Affiliate Transactions............................... 20
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Section 3.24 No Brokers' or Other Fees......................... 21
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Section 3.27 Registration Statement............................ 21
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Section 3.28 Representations and Warranties Generally.......... 21
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Corporate Organization............................ 23
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Section 4.2 Authorization, Etc................................ 23
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Section 4.3 No Approvals or Conflicts......................... 23
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Section 4.4 Capital Stock..................................... 24
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Section 4.5 Financial Statements.............................. 24
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Section 4.6 Legal Compliance.................................. 24
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Section 4.7 Litigation........................................ 25
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Section 4.8 Judgments, etc.................................... 25
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Section 4.9 Changes........................................... 25
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Section 4.10 Taxes............................................. 25
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Section 4.11 Employee Matters.................................. 26
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Section 4.12 Labor............................................. 28
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Section 4.13 Title to Properties; Encumbrances................. 28
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Section 4.14 Intentionally O................................... 29
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Section 4.15 Leases............................................ 29
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Section 4.16 Intentionally Omitted............................. 29
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Section 4.17 Intellectual Property............................. 29
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Section 4.18 Insurance......................................... 30
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Section 4.19 Agents and Customers.............................. 30
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Section 4.20 Certain Environmental Matters..................... 30
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Section 4.21 Contracts......................................... 31
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Section 4.22 Affiliate Transactions............................ 31
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Section 4.23 No Brokers' or Other Fees......................... 32
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Section 4.26 Purchaser Common Stock............................ 32
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Section 4.27 Intentionally Omitted............................. 33
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Section 4.28 Representations and Warranties Generally.......... 33
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ARTICLE V
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
Section 5.1 Access............................................ 35
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Section 5.2 Ordinary Course................................... 35
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Section 5.3 Representations and Warranties.................... 37
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Section 5.4 No Breach......................................... 37
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Section 5.5 Financial Statements.............................. 37
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Section 5.6 Litigation........................................ 37
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Section 5.7 Closing Conditions................................ 37
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Section 5.8 Employee Benefit Plans............................ 37
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Section 5.9 Contracts......................................... 37
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Section 5.10 Reciprocal Telecommunications Agreement........... 37
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Section 5.11 No Shop........................................... 38
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ARTICLE VI
PURCHASER'S COVENANTS
Section 6.1 Access............................................ 39
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Section 6.2 Ordinary Course................................... 39
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Section 6.3 Representations and Warranties.................... 41
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Section 6.4 No Breach......................................... 41
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Section 6.5 Financial Statements.............................. 41
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Section 6.6 Litigation........................................ 41
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Section 6.7 Closing Conditions................................ 41
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Section 6.8 Employee Benefit Plans............................ 41
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Section 6.9 Proposed Public Offering.......................... 41
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Section 6.10 Reciprocal Telecommunications Agreement........... 41
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Section 6.11 Public Announcement............................... 41
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Section 6.12 Confidentiality................................... 42
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Section 6.13 Standstill Agreement.............................. 42
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Section 6.14 Standstill Payments............................... 42
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ARTICLE VII
CONDITIONS OF PURCHASER'S OBLIGATIONS TO CLOSE
Section 7.1 Representations and Warranties True............... 43
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Section 7.2 Performance....................................... 43
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Section 7.3 No Material Change................................ 43
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Section 7.4 Stockholder and Company Certificate.............. 43
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Section 7.5 No Injunction..................................... 43
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Section 7.6 Employment/Consulting Agreements.................. 43
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Section 7.7 Stockholder Approval; Approval of Board of
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Directors of the Company.......................... 43
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Section 7.8 Stockholder Action................................ 43
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Section 7.9 Completion of Necessary Financing/Listing
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on Stock Market................................... 44
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Section 7.10 Consents.......................................... 44
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Section 7.11 Disclosure Schedules.............................. 44
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Section 7.12 Conditions Generally.............................. 44
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ARTICLE VIII
CONDITIONS OF THE COMPANY'S AND
THE STOCKHOLDERS' OBLIGATIONS TO CLOSE
Section 8.1 Representations and Warranties True............... 45
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Section 8.2 Performance....................................... 45
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Section 8.3 No Material Change................................ 45
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Section 8.4 Purchaser Certificate............................. 45
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Section 8.5 No Injunction..................................... 45
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Section 8.6 Employment/Consulting Agreements.................. 45
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Section 8.7 Purchaser Action.................................. 45
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Section 8.8 Approval of Board of Directors of Purchaser....... 45
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Section 8.9 Completion of Necessary Financing/Listing on
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Stock Market...................................... 46
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Section 8.10 Consents.......................................... 46
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Section 8.11 Release of Guarantees............................. 46
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Section 8.12 Disclosure Schedules.............................. 46
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Section 8.13 Conditions Generally.............................. 46
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ARTICLE IX
DELIVERIES OF THE STOCKHOLDERS
Section 9.1 Stock Certificates................................ 47
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Section 9.2 Resignations...................................... 47
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Section 9.3 Letters to Banks.................................. 47
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Section 9.4 Stockholders Certificate.......................... 47
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Section 9.5 Good Standing Certificates........................ 47
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Section 9.6 Secretary's Certificate........................... 47
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Section 9.7 Employment/Consulting Agreements.................. 47
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Section 9.8 Other Deliveries.................................. 47
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Section 9.9 Escrow Agreement.................................. 47
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Section 9.10 Releases.......................................... 47
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Section 9.11 Personal Guarantee................................ 48
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ARTICLE X
DELIVERIES OF PURCHASER ON THE CLOSING DATE
Section 10.1 Payments.......................................... 49
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Section 10.2 Secretary's Certificate........................... 49
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Section 10.3 Purchaser Certificate............................. 49
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Section 10.4 Escrow Agreement.................................. 49
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Section 10.5 Employment/Consulting Agreement................... 49
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Section 10.6 Other Deliveries.................................. 49
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ARTICLE XI
INDEMNIFICATION
Section 11.1 Indemnification by the Stockholders............... 50
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Section 11.2 Indemnification by Purchaser...................... 50
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Section 11.3 Procedures for Third-Party Claims................. 51
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Section 11.4 Direct Claim...................................... 53
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Section 11.5 Limitations of Indemnification Obligations........ 53
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Section 11.6 Recourse for Indemnification by the Stockholders.. 54
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Section 11.7 WorldCom Dispute.................................. 56
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Section 11.8 Survival of Representations, Warranties and
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Covenants......................................... 57
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Section 11.9 Third Parties..................................... 57
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ARTICLE XII
TERMINATION
Section 12.1 Termination of this Agreement..................... 58
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Section 12.2 Effect of Termination............................. 58
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Section 12.3 Sole Remedy for Termination....................... 59
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ARTICLE XIII
MISCELLANEOUS
Section 13.1 Entire Agreement................................. 60
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Section 13.2 Amendments....................................... 60
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Section 13.3 Governing Law.................................... 60
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Section 13.4 Representation by Counsel........................ 60
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Section 13.5 Benefit of Parties; Assignment................... 60
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Section 13.6 Expenses......................................... 60
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Section 13.7 Counterparts..................................... 61
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Section 13.8 Headings......................................... 61
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Section 13.9 Notices.......................................... 61
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Section 13.10 No Offer......................................... 62
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Section 13.11 Further Assurances............................... 62
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Section 13.12 Access By Stockholders After Closing............. 62
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Section 13.13 Time of Essence.................................. 63
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 23,
1998, is entered into by and among COMMUNICATIONS SYSTEMS INTERNATIONAL, INC., a
Colorado corporation ("Purchaser"), INTERNATIONAL TELEPHONE COMPANY, a Delaware
corporation (the "Company"), and the STOCKHOLDERS of the Company set forth on
the signature pages hereto (such STOCKHOLDERS being hereafter individually
referred to as "Stockholder" and collectively referred as the "Stockholders").
RECITALS:
A. The Stockholders own (beneficially or of record or both) all of the
issued and outstanding capital stock of the Company, consisting of 1,200 shares
of common stock, par value $.01 per share (the "Stock").
B. Purchaser desires to purchase and the Stockholders desire to sell, all
of the Stock upon the terms and conditions set forth herein.
C. The Boards of Directors of Purchaser and the Company deem it advisable
and in the best interests of their shareholders and Stockholders, respectively,
that Purchaser acquire the Company.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
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terms shall have the meanings set forth or as referenced below:
"Actions" shall mean any litigation and proceedings of any nature, whether
at law or in equity, before any court, arbitrator, arbitration panel, mediator
or Governmental Authority.
"Affiliate" of a Person shall mean any Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person.
"Benefit Plans" shall have the meaning set forth in Section 3.12(d).
"Business Day" shall mean any day except a Saturday, Sunday or a day on
which banking institutions in Denver, Colorado are obligated by law, regulation
or governmental order to close.
"Closing" shall mean the closing of the transactions contemplated hereby,
which shall take place at the offices of Parcel, Mauro & ▇▇▇▇▇▇▇▇▇, P.C., ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ the Closing Date commencing at
10:00 A.M. local time, or at such other time or place as the parties may agree
upon in writing. It is anticipated that the Closing shall occur simultaneously
with the closing of the Proposed Public Offering.
"Closing Date" shall mean the date on which the Closing is consummated.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean International Telephone Company, a Delaware
corporation.
"Company Balance Sheet Date" shall mean October 31, 1997.
"Company Disclosure Schedule" shall mean the disclosure schedule delivered
to Purchaser by the Company and the Stockholders on or prior to the date of this
Agreement.
"Company Financial Statements" shall have the meaning set forth in Section
3.6.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement dated April 3, 1997, from Purchaser to the Company and the
Stockholders.
"Contracts" shall mean all contracts, agreements, indentures, licenses,
leases, commitments, arrangements, sales orders and purchase orders of every
kind, whether written or oral.
"Controlled Group" shall have the meaning set forth in Section 3.13(f).
"Damages" shall mean, collectively, losses, Liabilities, Liens, costs,
damages, claims and expenses (including reasonable fees and disbursements of
counsel, consultants or experts and expenses of investigation), and, without
limiting the generality of the foregoing, with regard to environmental matters
shall also include specifically response costs, corrective action costs, natural
resource damages, costs to comply with orders or injunctions, damages or awards
for property damage or personal injury, fines, penalties and costs for testing,
remediation or cleanup costs, including those related to administrative review
of site remediation.
"Direct Claim" shall have the meaning set forth in Section 11.4.
"Dispute" shall have the meaning set forth in Section 13.12(a).
"Dollars" and "$" shall mean United States dollars.
"Employment Laws" shall mean all federal, state, local and municipal Laws
in effect at or prior to Closing relating to employees, dependent contractors
and independent contractors and their employment, or rendition of services,
including but not limited to taxation, health, labor, labor/management
relations, occupational health and safety, pay equity, employment equity or
discrimination, employment standards, benefits and workers' compensation.
"Environment" shall mean the environment or natural environment as defined
in any Environmental Laws, including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata and any sewer system.
"Environmental Claim" shall mean any litigation, proceeding, investigation,
prosecution, order, citation, directive or notice (written or oral) by any
Person alleging potential liability for Damages arising out of, based on or
resulting from (a) the presence, or release or threatened release into the
environment, of any Hazardous Material at any location, whether or not owned or
operated by the Company or (b) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law or Damages thereunder.
"Environmental Laws" shall mean all federal, state, local and municipal
Laws in existence, enacted or in effect at or prior to Closing relating to
pollution or protection of public health and safety, the workplace and the
Environment, including, without limitation, Laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport, labeling, advertising, sale, display or
handling of Hazardous Materials.
"Environmental Liabilities" shall mean Damages relating to or arising in
anyway from Environmental Laws or Environmental Claims, or both.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Escrow Agent" shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇ and any successor escrow agent
under the terms of the Escrow Agreement.
"Escrow Agreement" shall have the meaning set forth in Section 7.9.
"GAAP" shall mean generally accepted accounting principles, as in effect in
the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government, whether foreign or domestic and whether national,
federal, provincial, state, regional, local or municipal.
"Hazardous Materials" shall mean those materials that are regulated by or
form the basis of liability under Environmental Laws and includes, without
limitation, (i) all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous substance, liquid, industrial or solid or
hazardous waste, hazardous material or toxic substance, dangerous substance or
dangerous good, (ii) petroleum or petroleum derived substance or waste, (iii)
asbestos or asbestos-containing material, (iv) PCBs or PCB-containing materials
or fluids, (v) any other substance with respect to which a Governmental
Authority may require environmental investigation or remediation and (vi) any
radioactive material or substance.
"Indemnifying Party" shall mean any Person or Persons required to provide
indemnification under this Agreement.
"Indemnitee" shall mean any Person or Persons entitled to indemnification
under Article XI of this Agreement.
"Insurance Policies" shall have the meaning set forth in Section 3.19.
"Investigation" shall mean any investigation of any nature conducted by or
before any Governmental Authority.
"Laws" shall mean statutes, common laws, rules, ordinances, regulations,
codes, licensing requirements, orders, judgments, injunctions, decrees,
licenses, permits and bylaws of a Govern-mental Authority.
"Liabilities" shall mean debts, liabilities, commitments, obligations,
duties and responsibilities of any kind and description, whether absolute or
contingent, monetary or nonmonetary, direct or indirect, known or unknown or
matured or unmatured, or of any other nature.
"Lien" shall mean any security interest, lien, mortgage, claim, charge,
pledge, restriction, equitable interest or encumbrance of any nature and in the
case of securities any put, call or similar right of a third party with respect
to such securities.
"Material Adverse Effect" shall mean, with respect to the same or any
similar events, acts, conditions or occurrences, whether individually or in the
aggregate, a material adverse effect on or change in (a) any of the business,
condition (financial or otherwise), operations, assets or liabilities, taken as
a whole of the Company or Purchaser, as the case may be, (b) the legality or
enforceability against the Stockholders of this Agreement or (c) the ability of
any Stockholder to perform its material obligations and to consummate the
transactions under this Agreement. For purposes of clause (a) of this
definition and without limiting the generality of the foregoing, an effect or
change with respect to the same or any similar event(s), act(s), condition(s) or
occurrence(s) individually or in the aggregate with respect to which the Company
or Purchaser would reasonably be expected to have $25,000 in the aggregate or
more in Damages being asserted against, imposed upon or sustained by any of them
shall constitute a "material adverse" effect or change.
"Notice of Settlement" shall have the meaning set forth in Section 11.3(c).
"Notice to Contest" shall have the meaning set forth in Section 11.3(c).
"Notice to Defend" shall have the meaning set forth in Section 11.3(a).
"Pension Plan" shall have the meaning set forth in Section 3.12(f).
"Person" shall mean any natural person, corporation, business trust, joint
venture, association, company, firm, partnership or other entity or government
or Governmental Authority.
"Plans" shall have the meaning set forth in Section 3.12(f).
"Proposed GlobalTel Merger" shall mean a merger between Purchaser and
GlobalTel Resources, Inc.
"Proposed Public Offering" shall mean an underwritten public offering and
sale of securities of Purchaser with gross proceeds of at least $15,000,000 in
connection therewith.
"Proprietary Right" shall mean any trade name, trademark, service ▇▇▇▇,
patent, copyright, proprietary technology, know how, process and industrial
design, and any application for any of the foregoing.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Purchaser" shall mean Communications Systems International, Inc., a
Colorado corporation.
"Purchaser Disclosure Schedule" shall mean the disclosure schedule
delivered to the Company and the Stockholders by Purchaser on or prior to the
date of this Agreement.
"Purchaser Balance Sheet Date" shall mean October 31, 1997.
"Purchaser Financial Statements" shall have the meaning set forth in
Section 4.6.
"Purchaser Indemnitee" shall have the meaning set forth in Section 11.1.
"Reciprocal Telecommunications Agreement" shall mean the reciprocal
telecommunications agreement dated July 14, 1997 between the Company and
Purchaser.
"Returns" shall mean all returns, declarations, reports, forms, estimates,
information returns, statements or other documents (including any related or
supporting information) filed or required to be filed with or supplied to any
Governmental Authority in connection with any Taxes.
"Standstill Agreements" shall mean the standstill agreements between
Purchaser and the Company dated April 3, 1997 and October 31, 1997.
"Standstill Payments" shall mean the payments pursuant to the Standstill
Agreements.
"Stock" shall have the meaning set forth in Recital A hereto.
"Stockholder Indemnitee" shall have the meaning set forth in Section 11.2.
"Stockholders" shall mean the Persons set forth as "Stockholders" on the
signature pages to this Agreement.
"Subsidiary" shall mean any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by the Company.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties or
other assessments, including, without limitation, income, gross receipts,
excise, real and personal property, sales, transfer, license, payroll,
withholding, social security, franchise, unemployment insurance, workers'
compensation, employer health tax or other taxes, imposed by any Governmental
Authority and shall include any interest, penalties or additions to tax
attributable to any of the foregoing.
"Third Party Claim" shall have the meaning set forth in Section 11.3(a).
"WorldCom" shall mean WorldCom, Inc. or any successor to such Person.
"WorldCom Dispute" shall mean the lawsuit entitled "Worldcom, Inc. v.
International Telephone Company d/b/a Interglobal Telephone Company" which was
filed in the Superior Court for Judicial District of New Haven or any counter-
claim, cross-claim, removal, arbitration, mediation or negotiation with respect
to the claims set forth in such lawsuit.
1.2 Terms Generally. The definitions in Section 1.1 shall apply
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equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed
to be followed by the phrase "without limitation" even if not
followed actually by such phrase unless the context expressly
provides otherwise. With respect to any particular representation
contained in this Agreement, "knowledge" when used to apply to
the "knowledge" of Purchaser or of the Company shall mean that
any employee of Purchaser or the Company with managerial or
substantial responsibility for the subject matter of such
representation had actual knowledge and (b) "knowledge" with
respect to any Stockholder shall be deemed to mean that such
Stockholder had actual knowledge.
All references herein to Articles, Sections, paragraphs, Exhibits and
Schedules shall be deemed references to this Agreement unless the context shall
otherwise require. Unless otherwise expressly defined, terms defined in the
Agreement shall have the same meanings when used in any Annex, Exhibit or
Schedule and terms defined in any Exhibit or Schedule shall have the same
meanings when used in the Agreement or in any other Exhibit or Schedule. The
words "herein," "hereof," "hereto" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement.
ARTICLE
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock. On the Closing Date and subject to the terms
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and conditions set forth in this Agreement, the Stockholders will
sell, convey, assign, transfer and
deliver all of the issued and outstanding Stock to Purchaser,
free and clear of all Liens with respect thereto.
2.2 Purchase Price.
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(a) The total consideration (the "Purchase Price") to be paid and/or
provided by Purchaser to Stockholders for the Stock shall be as set forth below
which amounts shall be divided equally among the three Stockholders (i.e., one-
third (1/3/rd/) each), to be paid as follows:
(A) The Standstill Payments previously paid by Purchaser (i.e.,
$225,000 or such greater amount as actually paid);
(B) (i) Purchaser shall, on the first anniversary of the Closing
Date, deliver to the Stockholders (or their estates, in the case of
deceased Stockholders who are natural Persons) Certificates for duly
authorized, validly issued, fully paid and nonassessable shares of common
stock of Purchaser ("Purchaser Common Stock") equal in number to
$2,070,000 divided by the "Price to Public" of Purchaser Common Stock set
forth on the cover of the final prospectus relating to the Proposed Public
Offering; provided, however that the number of shares of Purchaser Common
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Stock to be issued and delivered may be reduced by set-off pursuant to
Article XI hereof. Purchaser Common Stock shall be issued (and registered
in the name of) one-third to each of the Stockholders.
(ii) If any time after the completion of the Closing but prior
to the issuance and delivery of Purchaser Common Stock pursuant to this
subsection, Purchaser increases or decreases the number of its issued and
outstanding shares of Common Stock of Purchaser, or changes in any way the
rights and privileges of such shares of Common Stock, by means of (a) the
payment of a share dividend or the making of any other distribution on
such shares of Common Stock payable in its shares of Common Stock, (b) a
split or subdivision of shares of Common Stock, or (c) a merger,
consolidation or combination of shares of Common Stock, then the number of
shares of Purchaser Common Stock to be issued pursuant to this subsection
shall be proportionately adjusted so that the number of shares of
Purchaser Common Stock shall be increased, decreased or changed in like
manner, as if Purchaser Common Stock required to be issued pursuant to
this Subsection immediately prior to the event had been issued,
outstanding, fully paid and nonassessable at the time of such event. Any
dividend paid or distributed on the shares of Common Stock in shares of
any other class of Purchaser or securities convertible into shares of
Common Stock shall be treated as a dividend paid in shares of Common Stock
to the extent shares of Common Stock are issuable on the payment or
conversion thereof. Any adjustment made pursuant to this Subsection shall,
in the case of a stock dividend or distribution, become effective as of
the record date therefor and, in the case of a split, subdivision,
consolidation or combination, be made as of the effective date thereof.
Purchaser shall not be required to deliver fractions of shares of Common
Stock; provided, however, that Purchaser shall purchase such fraction for
an amount in cash equal to the current value of such
fraction computed on the basis of the closing bid price on the trading day
immediately preceding the day upon such Purchaser Common Stock is required
to be delivered.
(iii) The obligation of Purchaser to deliver Purchaser Common
Stock shall not entitle the Stockholders to any of the rights of
shareholders or to any dividend declared on the shares of Purchaser Common
Stock unless the record date fixed by the Board of Directors of Purchaser
for the determination of holders of shares of Common Stock entitled to
such dividend or other right is set after the first anniversary of the
Closing Date and the Stockholders are still holders of the Purchaser
Common Stock as of such record date.
(C) Purchaser shall pay a total of $3,300,000 (less the Standstill
Payments previously paid and the Escrow Payments) in cash, payable by wire
transfer or other immediately available funds on the Closing Date, payable
one-third to each of the Stockholders (the "Cash Payments"); and
(D) Purchaser shall pay to the Escrow Agent, in its capacity as the
Escrow Agent under the terms of the Escrow Agreement with each of the
Stockholders, a total of an amount equal to $385,430.00 in cash payable by
wire transfer or other immediately available funds on the Closing, to be
held and disbursed in accordance with the terms of the Escrow Agreement
(the "Escrow Payments").
(b) Purchaser agrees that: (a) it shall claim a tax basis in the Stock
equal only to the sum of the Standstill Payments plus the Cash Payments plus the
Escrow Payments until the Purchaser Common Stock is delivered pursuant to
Section 2.2(a)(B) hereof; (b) when the Purchaser Common Stock is delivered, it
shall increase its tax basis in the Stock by the fair market value of the
Purchaser Common Stock on such delivery date and (c) if delivery of the
Purchaser Common Stock is deferred longer than one year after the Closing Date,
Purchaser shall be required to report a portion of the Purchaser Common Stock as
an interest payment in accordance with the Code and regulations promulgated
thereunder. The Stockholders agree that they shall not report the transactions
contemplated by this Agreement in a manner inconsistent therewith.
2.3 Registration Rights.
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(a) At any time after the first anniversary of the Closing Date, any,
some or all of the Stockholders shall have the right, exercisable
by written notice to Purchaser (the "Registration Exercise
Notice") to have Purchaser prepare and file with the Securities
and Exchange Commission (the "Commission") on one occasion within
30 days of such notice, at the sole expense of Purchaser, a
Registration Statement on Form S-3 and such other documents,
including a prospectus, if necessary (in the opinion of both
counsel for Purchaser and counsel for the applicable
Stockholder), in order to comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), as to permit a
public offering and sale of the Purchaser Common Stock by the
Stockholders; provided however, that Purchaser shall not be
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obligated to
effect any such registration if Purchaser shall furnish to the
Stockholders a certificate signed by the President of Purchaser
stating that in the good faith judgment of the Board of Directors
of Purchaser, it is currently entering into, or engaged in
discussions with respect to, a transaction for which a Form 8-K,
including financial statements, will need to be filed with the
Commission, in which event Purchaser shall have the right to
defer the filing of the Registration Statement for a period of
not more than 90 days after receipt of the request of any of the
Stockholders pursuant to this Section 2.3.
(b) For the purposes of this Section 2.3, Purchaser shall not be
deemed to have satisfied its obligations hereunder, unless
Purchaser shall have:
(i) Utilized its best efforts to cause the Registration
Statement to become effective under the Act within ninety
(90) days from the date of filing with the Commission so as
to permit a public offering and sale of the Purchaser
Common Stock;
(ii) Prepared and filed with the Commission such amendments and
supplements, prospectuses and other documents in connection
with such Registration Statement as may be necessary to
comply with the provisions of the Act with respect to the
disposition of all securities covered by the Registration
Statement;
(iii) Filed such supplements and post-effective amendments as may
be required in order that the Registration Statement shall
remain effective for such period as is necessary to permit
the Stockholders to dispose of all of the Purchaser Common
Stock without regard as to whether any shares of the
Purchaser Common Stock shall otherwise become freely
tradable without restriction under the Act by any or all of
the Stockholders pursuant to Rule 144 promulgated under the
Act;
(iv) Furnished to the Stockholders such number of copies of any
prospectus in conformity with the requirements of the Act,
and such other documents as the Stockholders may reasonably
request in order to facilitate the disposition of the
Purchaser Common Stock owned by the Stockholders;
(v) Utilized its best efforts to register and qualify the
securities covered by said Registration Statement under the
securities or Blue Sky laws of such jurisdictions as shall
be reasonably appropriate for the distribution of the
securities covered by said Registration Statement, except
no such registration shall be required in any jurisdiction
where solely as a result of such registration Purchaser
would be subject to service of general process or to
taxation or qualification as a foreign corporation doing
business in such jurisdiction.
(vi) Paid any and all expenses incurred in connection with any
registration pursuant to this Section 2.3 (excluding
underwriter's discounts and brokerage or dealer
commissions), including without limitation, all
registration and qualification fees, printers' fees,
accounting fees, and fees and disbursements of counsel for
Purchaser.
(c) In the event that Purchaser has not: (a) filed the Registration
Statement with the Commission within 30 days of receipt of the Registration
Exercise Notice then Purchaser shall pay to the Stockholders a penalty of $2,500
per day for each day such Registration Statement has not been filed in excess of
such 30 days; or (b) utilized its best efforts to cause the Registration
Statement to become effective within 90 days of filing such Registration
Statement, then Purchaser shall pay to the Stockholders a penalty of $2,500 per
day for each day said effectiveness is delayed beyond the expiration of such 90
day period. Said penalties shall be payable on a monthly basis, in arrears,
commencing on the first day of the month following the expiration of such 30 or
90 day period, as the case may be, and on the first day of each month
thereafter. Any indemnification obligation of Purchaser pursuant to Article XI
hereof for breach of this Section 2.3 shall be reduced by any and all amounts
which have been paid pursuant to this Subsection 2.3(c).
2.4 Reports Under Exchange Act. Notwithstanding the availability of the
--------------------------
Registration Rights set forth in Section 2.3, Purchaser acknowledges
that in the event such Registration Statement shall not become
effective, or in the event there shall be a default in the undertaking
by Purchaser of its obligations pursuant to Section 2.3, the
Stockholders may be required to rely upon an exemption under the Act
for the purpose of disposing of the Purchaser Common Stock.
Accordingly, with a view to making available to the Stockholders the
benefits of Rule 144 promulgated under the Act, and any other rule or
regulation of the Commission that may at any time permit the
Stockholders to sell the Purchaser Common Stock to the public without
registration, Purchaser shall (a) make and keep "public information"
available, as such terms are contemplated and defined in Rule 144, (b)
file with the Commission in a timely manner all reports and other
documents required of Purchaser under the Act (if any) and the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
and (c) furnish to each Stockholder, so long as each Stockholder owns
any of the Purchaser Common Stock, forthwith upon request (i) a
written statement by Purchaser that it has complied with the reporting
requirements necessary to enable the Stockholders to sell the
Purchaser Common Stock pursuant to Rule 144, (ii) a copy of the most
recent annual or quarterly report of Purchaser, and (iii) such other
reports and documents so filed by Purchaser as may be reasonably
requested in availing a Stockholder of any rule or regulation of the
Commission permitting the selling of any such securities without
registration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Company and each of the Stockholders jointly and severally (except with
respect to Section 3.2 for which the Stockholders severally (but not jointly))
represent and warrant to Purchaser as follows.
3.1 Corporate Organization. The Company is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of
Delaware. The Company has no Subsidiaries, and does not have an
ownership interest in any Person other than as set forth in Section
3.1 of the Company Disclosure Schedule attached to this Agreement (the
"Company Disclosure Schedule"). The Company is qualified to do
business in the jurisdictions set forth in Section 3.1 of the Company
Disclosure Schedule. The Company has the corporate power and authority
to own, lease and operate its respective properties and assets and to
carry on its business as now being conducted and is duly qualified or
licensed to do business as a foreign corporation in good standing in
the jurisdictions in which the ownership, lease or operation of its
property or the conduct of its business requires such qualification,
except jurisdictions in which the failure to be so qualified or
licensed would not reasonably be expected to have a Material Adverse
Effect. The Stockholders have delivered to Purchaser complete and
correct copies of the charter documents and all amendments thereto to
the date hereof of the Company.
3.2 Ownership of Stock. Each Stockholder represents as to the Stock to be
------------------
acquired from such Stockholder that the Stock is owned by such
Stockholder free and clear of all Liens with respect thereto, other
than any restrictions imposed by federal and state securities laws.
Each Stockholder represents as to the Stock to be acquired from such
Stockholder that, upon the consummation of the transactions
contemplated hereby, Purchaser will acquire from such Stockholder good
title to the Stock that Purchaser purchases free and clear of all
Liens with respect thereto, other than any the restrictions imposed by
federal and state securities laws.
3.3 Authorization, Etc. The Company has full corporate power and
-------------------
authority to execute, deliver and perform its obligations under this
Agreement and the documents and instruments contemplated hereby and to
carry out the transactions contemplated hereby and thereby. The
Company and each of the Stockholders has duly approved and authorized
the execution and delivery of this Agreement and the documents and
instruments contemplated hereby and the consummation of the
transactions contemplated hereby and thereby, and no other corporate
proceedings or other action on the part of the Company or any of the
Stockholders are necessary to approve and authorize the execution,
delivery and performance by the Company and each of the Stockholders
of this Agreement and the documents and instruments contemplated
hereby or the consummation by the Company and the Stockholders of the
transactions contemplated hereby or thereby. This Agreement
constitutes a legal,
valid and binding agreement of the Company and each of the
Stockholders, enforceable against the Company and each of the
Stockholders in accordance with its terms, except as enforcement
hereof may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally.
3.4 No Approvals or Conflicts. Except as set forth in Section 3.4 of the
-------------------------
Company Disclosure Schedule neither the execution, delivery or
performance by the Company and the Stockholders of this Agreement nor
the consummation by the Company and the Stockholders of the
transactions contemplated hereby will (a) violate, conflict with or
result in a breach of any provision of the certificate of
incorporation, bylaws or other governing documents of the Company, and
to the best of the Company's and the Stockholder's knowledge, and
subject to Purchaser obtaining any and all required consents,
approvals and authorizations from third parties and/or Government
Authorities. (b) violate, conflict with or result in a breach of any
provision of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the termination of,
or accelerate or alter in any material way the performance required by
or result in the creation of or give any party the right to create any
Lien on any of the assets or properties of the Company under, any
note, bond, mortgage, loan agreement, deed of trust, franchise, permit
or other instrument or Contract to which any of the Company, the
Stockholders or any of their respective properties may be bound, (c)
violate any Law applicable to any of the Company, the Stockholders or
any of their respective assets or properties, or (d) require any
consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any Governmental Authority or other third
party in connection with the execution, delivery and performance of
this Agreement by the Stockholders or to enable the Company to
continue to conduct its business and operations immediately after the
Closing Date in the same manner in which they are presently conducted.
The parties acknowledge that certain consents, approvals or
authorizations of or notice to or declarations, filings or
registrations with, one or more Governmental Authorities, (including,
without limitation, the Federal Communications Commission ("FCC"))
and/or other third parties may be required in connection with the
execution, delivery and performance of this Agreement by the Company
and/or Stockholders and/or to enable the Company to continue to
conduct its business and operations immediately after the Closing Date
in the same manner in which they are presently conducted. Purchaser
shall be responsible for obtaining, giving and/or filing any and all
such consents, approvals, authorizations, notices, declarations,
filings or registrations; provided, however, the Company and the
Stockholders shall reasonably assist Purchaser with respect to same;
provided, further that if Purchaser decides not to obtain any such
consents, approvals, authorizations, notices, declarations, filings or
registrations, it shall not be required hereunder to obtain any such
consents, approvals, authorizations, notices, declarations, filings or
registrations.
3.5 Capital Stock. As of the date hereof, the authorized capital stock of
-------------
the Company consists of 1,200
shares of common stock, par value $.01 per share, of which 1,200
shares of Stock are issued and outstanding and owned by the
Stockholders. Section 3.5 of the Company Disclosure Schedule sets
forth the name of each Person owning Stock and the amount of Stock
owned by such Person. Other than the Stock held by the Stockholders,
all of which are set forth and accounted for in Section 3.5 of the
Company Disclosure Schedule, there are no shares of capital stock of
the Company issued or outstanding. Except as set forth in Section 3.5
of the Company Disclosure Schedule, there are no outstanding
subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements relating to
the issuance, sale, transfer or voting of any shares of Stock,
including any rights of conversion or exchange under any outstanding
securities or other instruments. All outstanding shares of Stock have
been validly issued and are fully paid, nonassessable and free of
preemptive or similar rights.
3.6 Financial Statements. The Company has delivered to Purchaser the
--------------------
audited balance sheets of the Company as of December 31, 1995 and 1996
and October 31, 1997 and related statements of earnings, changes in
financial position and stockholder's equity for the periods ended on
said dates. Such audited financial statements, including the notes
thereto, accompanied by the unqualified reports of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ &
Company, LLP, certified public accountants are collectively referred
to herein as the "Company Financial Statements." To the best of the
Company's and Stockholders' knowledge, the Company Financial
Statements are in accordance with the books and records of the
Company, fairly present the consolidated financial position of the
Company and its results of operations as of and for the periods
indicated in accordance with GAAP and have been prepared in accordance
with GAAP consistently applied. Except as set forth in Section 3.6 of
the Company Disclosure Schedule and as disclosed in the Company
Financial Statements, the Company does not have any material
Liabilities (i.e., in excess of $25,000 as to any individual
liability), whether or not of a nature required to be reflected or
reserved against on a consolidated balance sheet in accordance with
GAAP, except for Liabilities incurred by the Company in the ordinary
course of business consistent with past practice that individually or
in the aggregate would not have a Material Adverse Effect upon or
change in any of the business, condition (financial or otherwise),
operations, assets or liabilities of the Company taken as a whole. For
purposes of this Section "Liabilities" shall not be deemed to include
Contracts.
3.7 Legal Compliance. Except as set forth in Section 3.7 of the Company
----------------
Disclosure Schedule, to the knowledge of the Company and the
Stockholders; (i) the Company has complied and is in compliance with
all Laws applicable to the Company and their business except where the
failure to be in compliance would not reasonably be expected to have a
Material Adverse Effect and (ii) the Company holds all material
licenses, permits and other authorizations of Governmental Authorities
necessary to conduct its business as now being conducted or to
continue to conduct its business as now being conducted. Except as set
forth in Section 3.7 of the Company Disclosure Schedule and except for
the transactions contemplated hereby, the Company has no knowledge of
or intention to make any changes in the conduct of its business that
will result in or cause the Company to be in noncompliance with
applicable Laws or that will require changes in or a loss of any such
licenses, permits or other authorizations or an increase in any
expenses related thereto except where such noncompliance, change, loss
or increase would not reasonably be expected to have a Material
Adverse Effect. To the knowledge of the Company and the Stockholders,
such licenses, permits and other authorizations as aforesaid held by
the Company are valid and in full force and effect, and there are no
(a) Actions pending, or to the knowledge of the Company or any
Stockholder, threatened or (b) Investigations to the knowledge of the
Company or any Stockholder pending or threatened that would reasonably
be expected to result in the termination, impairment or nonrenewal
thereof.
3.8 Litigation. Section 3.8(a) of the Company Disclosure Schedule lists
----------
all (a) Actions pending, or to the knowledge of the Company and any
Stockholder, threatened or (b) Investigations to the knowledge of the
Company or any Stockholder pending or threatened against any of its
properties. Except as set forth in Section 3.8(b) of the Company
Disclosure Schedule, there are no (i) Actions pending or, to the
Company's or any Stockholder's knowledge, threatened or (ii)
Investigations to the knowledge of the Company or any Stockholder
pending or threatened against, relating to or involving the Company
(or any of its officers or directors in connection with the business
and affairs of the Company) or any properties or rights of the Company
(x) in which there is a reasonable likelihood of an adverse
determination that would reasonably be expected to have a Material
Adverse Effect, or (y) that questions or challenges the validity of
this Agreement or any action taken or to be taken by the Stockholders
pursuant to this Agreement. There is no Action pending or, to the
knowledge of each Stockholder, threatened against or involving the
Stockholders in their capacity as Stockholders, officers or directors
of the Company.
3.9 Judgments, etc. Except as set forth in Section 3.9 of the
---------------
Company Disclosure Schedule, the Company is not (a) subject to any
judgment, injunction, order or decree of a Governmental Authority that
has had or continues to have or would reasonably be expected to have a
Material Adverse Effect or (b) in default of any judgment, injunction,
order or decree of a Governmental Authority.
3.10 Changes. Since the Company Balance Sheet Date, except as
--------
disclosed in Section 3.10 of the Company Disclosure Schedule, to the
knowledge of the Company and the Stockholders: (a) the business of the
Company has in all material respects been conducted only in the
ordinary course, consistent with past practice and consistent with the
terms and conditions of this Agreement and no unusual cash payments or
bonuses have been made or agreed to be made inconsistent with past
practice; (b) there has been no direct or indirect redemption,
purchase or other acquisition by the Company of any shares of its
capital stock; (c) there has not been any declaration, setting aside
or payment of any dividend or other distribution by the Company other
than cash management procedures in the ordinary course of business
consistent with past practice; and (d) there has been no material
adverse effect or change in any of the business, condition (financial
or otherwise), operations, assets or liabilities of the Company, as a
whole (the foregoing to pertain only to matters
respecting the Company in particular, as opposed to matters
generally affecting the business in which the Company is
engaged).
3.11 Taxes. (a) Except as set forth in Section 3.11(a) of the Company
------
Disclosure Schedule, to the knowledge of the Company and the
Stockholders the Company has (i) filed or will timely file with
the appropriate Governmental Authorities all Returns (including,
without limitation, those pertaining to telecommunications taxes,
interstate and federal excise taxes, sales taxes and FCC mandated
surcharges) which are required to be filed prior to the Closing
Date by or with respect to the Company, and such Returns when
filed are or will be correct and complete in all material
respects and (ii) paid or will timely pay or made or will make
provision for in the appropriate financial statements all
material Taxes of the Company required to be shown to be due on
such Returns; provided, however that the Company makes no
representation with respect to, and Purchaser accepts full
responsibility for, any unpaid federal excise taxes. There are no
Liens for Taxes upon the assets of the Company except liens for
current Taxes not yet due or Taxes being contested in good faith
by appropriate proceedings and in each case where such Lien would
not reasonably be expected to have a Material Adverse Effect.
Except as set forth in Section 3.11(a) of the Company Disclosure
Schedule, neither the Company nor the Stockholders has received
any written notice of deficiency or assessment from any taxing
Governmental Authority with respect to liabilities for Taxes of
the Company which have not been paid or finally settled, and any
such deficiency or assessment disclosed in Section 3.11(a) of the
Company Disclosure Schedule is being contested in good faith
through appropriate proceedings.
(b) Except as set forth in Section 3.11(b) of the Company
Disclosure Schedule, the Company does not have any material Liability (i.e., in
excess of $25,000) for the payment of Taxes, except such as are recorded in the
Company Financial Statements or such Taxes as are not yet due, or such Taxes as
have arisen since the Company Balance Sheet Date and for which adequate
provision in the accounts of the Company has been made, and to the knowledge of
the Company and the Stockholders the Company is not in arrears with respect to
any required withholdings or installment payments of any Tax and has not filed
any waiver or extension of the applicable statute of limitations for assessment
of Taxes for a taxation year under the Code or any foreign, state or local law.
3.12 Employee Matters.
----------------
(a) Section 3.12(a) to the Company Disclosure Schedule lists all
employment contracts and all other material contracts to
which the Company is a party with dependent and independent
contractors. Section 3.12(a) of the Company Disclosure
Schedule sets forth the position held by each employee with
the Company, and the annual salary and the length of
employment of each employee.
(b) Except as disclosed on Section 3.12(b) to the Company
Disclosure Schedule,
(i) no trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent holds bargaining rights
with respect to any of the Company's employees by way of
certification, interim certification, voluntary recognition,
designation or successor rights,
(ii) the Company has not received notice that any trade union,
council of trade unions, employee bargaining agency or
affiliated bargaining agent has applied to be certified as the
bargaining agent of any of the Company's employees, and
(iii) the Company has not received notice that any trade union,
council of trade unions, employee bargaining agency or
affiliated bargaining agent has applied to have the Company
declared a related employer or successor employer pursuant to
applicable labor legislation.
(c) Except (i) as disclosed in Section 3.12(c) to the Company Disclosure
Schedule and (ii) for remuneration paid to employees and independent
contractors in the usual and ordinary course of business, no material
payments have been made or authorized since the Company Balance Sheet
Date by the Company to officers, directors, employees, or independent
contractors of the Company.
(d) Section 3.12(d) to the Company Disclosure Schedule contains a correct
and complete in all material respects list of all bonus, deferred
compensation, incentive compensation, share or stock bonus, share or
stock purchase, share or stock appreciation right, share or stock
option, severance pay or termination pay, health or other medical,
life or other insurance, death benefit, disability, medical
reimbursement, supplementary unemployment benefit, profit sharing,
pension, retirement and every other benefit plan, program, agreement
or arrangement ("Benefit Plans") maintained or contributed to or
required to be contributed to by the Company thereof for the benefit
of any current or former directors, officers, employees or independent
contractors of the Company or their respective dependents or
beneficiaries.
(e) The Company shall provide, within 15 days of request, to Purchaser
copies of the Company's Benefit Plans and all amendments thereto and
make available to Purchaser all documents in the Company's possession
pertaining to compensation practices, benefits and other terms and
conditions of employment of all directors, officers or employees of
the Company.
(f) Each "employee pension benefit plan" as defined in Section 3(2) of
ERISA that is subject to ERISA (a "Pension Plan") and that has been
maintained or contributed to within the last three years by the
Company or any trade or business (whether or not incorporated) that is
under common control with the Company (as determined in accordance
with Section 4001 of ERISA) or is
a member of a "controlled group" with the Company (as defined in
Section 4971(e)(2)(B) of the Code) (the "Controlled Group") is
identified as such on Section 3.12(f) to the Company Disclosure
Schedule. Each "employee welfare benefit plan" as defined in Section
3(1) of ERISA and that is subject to ERISA and that has been
maintained or contributed to by any member of the Controlled Group is
identified as such on Section 3.12(f) to the Company Disclosure
Schedule. The Pension Plans and the employee welfare benefit plans
shall be referred to collectively as "Plans. "
(g) None of the Company's Pension Plans is subject to Title IV of ERISA or
to the minimum funding standards of Code section 412. None of the
Company's Pension Plans is a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA and neither the Company nor any member of
the Controlled Group has incurred or is expected to incur any
withdrawal liability under ERISA with respect to any "multi-employer
plan" or any single employer plan subject to Section 4063 of ERISA.
(h) Neither the Company nor any member of the Company's Controlled Group
is aware of any facts that would adversely affect the qualified status
of any Pension Plan under Section 401 of the Code.
(i) To the knowledge of the Company, there are no outstanding or pending
Actions, claims (other than routine claims for benefits) or
Investigations asserted or instituted against any of the Company's
Plans or against the Company or any member of the Controlled Group or
any fiduciary of the Plans with respect to the operation of the
Company's Plans.
(j) To the knowledge of the Company: (x) the Company's Plans have, in all
material respects, been maintained, administered and operated in
accordance with their terms and with all provisions of ERISA, the
Code, and any other statute (including rules and regulations under
ERISA, the Code and any other applicable statute) applicable thereto;
and (y) neither the Company nor any member of the Controlled Group nor
any "party in interest" or "disqualified person" within the control of
the Company or any member of the Controlled Group with respect to the
Company's Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Code or Title I, Part 4 of ERISA.
(k) The Company shall furnish to Purchaser, within 15 days of request,
copies of the latest summary plan description for each Plan of the
Company. The Company shall furnish, within 15 days of request, to
Purchaser copies, including all schedules and attachments, of each
Form 5500 for each Plan of the Company for the last two years.
(l) The Company has no knowledge of any fact, condition, or circumstance
since the date of the documents provided pursuant to Section 3.12(e)
above that
would materially affect the information contained therein and no
promises have been made by the Company to amend any Plan of the
Company or to provide increased benefits thereunder, except as
required by applicable law.
(m) Except as disclosed in Section 3.12(m) to the Company Disclosure
Schedule and except as would not reasonably be expected to have a
Material Adverse Effect, the Company does not have any liability
arising out of claims made or suits brought (including workers
compensation, occupational health and safety, environmental,
equal employment or nondiscrimination) for injury, sickness,
disease, death or termination of employment of any employees or
former employees of the Company to the extent attributable to an
event occurring or facts and circumstances existing at or prior
to Closing.
(n) To the Stockholders' and the Company's knowledge, no Plan of the
Company contains any term or provision that precludes or
otherwise prohibits its termination.
3.13 Labor. Except as set forth in Section 3.13 of the Company
-----
Disclosure Schedule, there are no labor strikes, disputes, slowdowns,
work stoppages or other labor troubles or grievances or claims pending
or, to the Company's or any Stockholder's knowledge, threatened
against or involving the Company with respect to Employment Laws or
collective bargaining agreements. No unfair labor practice complaint
before the National Labor Relations Board, no charges pending before
the Equal Employment Opportunity Commission and no complaint, charge
or grievance of any nature before any similar or comparable
Governmental Authority, in any case relating to the Company or the
conduct of its business, is pending or, to the knowledge of the
Company or any Stockholder, threatened. The Company has not received
notice, nor has any knowledge, of the intent of any Governmental
Authority responsible for the enforcement of labor or Employment Laws
to conduct any investigation of or relating to the Company or the
conduct of its business. Except as set forth in Section 3.13 of the
Company Disclosure Schedule to the knowledge of the Company and each
of the Stockholders, (i) no employee or independent contractor of the
Company whom the Stockholders consider to be a "key employee" or a
contractor who accounts for more than 5% of the Company's revenues for
the year ended October 31, 1997, has notified the Company of any plans
to terminate his or her employment with the Company and (ii) no union
organizing or election activities involving the Company's employees
are in progress, or threatened.
3.14 Title to Properties; Encumbrances. Section 3.14 of the Company
---------------------------------
Disclosure Schedule contains a correct and complete list of all real
property leased or regularly occupied in the conduct of business by
the Company as of the date hereof. The Company does not own any real
property. The Company has good title to or a valid leasehold interest
in all of their respective properties and assets, real, personal and
mixed property (tangible and intangible), which the Company purports
to own or lease, respectively. None of the properties and assets of
the Company owned, leased
or held are subject to any material (i.e.,in excess of $25,000) Lien,
except (i) Liens reflected in the Company Financial Statements, (ii)
Liens specifically identified in Section 3.14 of the Company
Disclosure Schedule securing specified liabilities or obligations with
respect to which no known default exists and (iii) other Liens
(including, without limitation, statutory liens for current Taxes not
yet due or delinquent or which are being contested in good faith by
appropriate proceedings and mechanics', carriers', materialmens' and
similar liens imposed by law incurred in the ordinary course of
business and not delinquent or which are being contested in good faith
by appropriate proceedings) that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect.
3.15 Intentionally Omitted.
---------------------
3.16 Leases. Section 3.16 of the Company Disclosure Schedule contains
------
a correct and complete list of all material leases pursuant to which
the Company is the lessee of any real or personal property. Except as
set forth in Section 3.16 of the Company Disclosure Schedule, to the
knowledge of the Company, all such leases are valid and enforceable in
accordance with their terms and are in full force and effect. Except
as set forth in Section 3.16 of the Company Disclosure Schedule, no
notice of any existing default under any lease has been received by
the Company or given by the Company to any other party thereunder.
3.17 Intentionally Omitted.
---------------------
3.18 Intellectual Property.
---------------------
(a) Material Proprietary Rights. Section 3.18(a) of the Company
---------------------------
Disclosure Schedule contains a correct and complete list of all
material Proprietary Rights which, to the knowledge of the
Stockholders and the Company, are used or owned by the Company
and registered with any Governmental Authority, and a list of all
licenses and other agreements relating thereto. The Company has
valid and enforceable rights to all such Proprietary Rights that
are necessary to permit the Company to use such Proprietary
Rights in the conduct of its business substantially as now
conducted, except where the lack of such rights would not
reasonably be expected to have a Material Adverse Effect.
(b) Infringement, etc. Except as set forth in Section 3.18(b) of the
-----------------
Company Disclosure Schedule, (i) no royalty or other payment by
the Company to any third party is required to use any Proprietary
Right described in Section 3.18(a) of the Company Disclosure
Schedule; (ii) all Proprietary Rights described in Section
3.18(a) above are valid and in full force and
effect; (iii) no such Proprietary Right used by the Company
infringes valid rights of any third party and there are no (1)
pending or, to the knowledge of the Company or the Stockholders,
threatened Actions or (2) to the knowledge of the Company or the
Stockholders, pending or threatened Investigations in which any
such infringement is alleged except where the outcome of such
infringement would not reasonably be expected to have a Material
Adverse Effect; (iv) to the knowledge of the Company and the
Stockholders, none of the Proprietary Rights used or owned by the
Company is being infringed by any third party; and (v) to the
knowledge of the Company and the Stockholders, no Stockholder and
no officer, director or employee of the Company owns or has any
interest in any Proprietary Right or trade secret, process,
invention or know-how used by the Company in the conduct of its
business.
3.19 Insurance. Section 3.19 of the Company Disclosure Schedule contains
---------
an accurate and complete description of all insurance contracts
(collectively, the "Insurance Policies"), currently maintained by the
Company. To the Company's knowledge: all the Insurance Policies are in
full force and effect, all premiums with respect thereto covering all
periods up to and including the date hereof have been paid, and no
notice of cancellation or termination has been received with respect
to any such Insurance Policy; and the Company has not been refused any
insurance with respect to its assets or operations, nor has its
coverage been limited, by any insurance carrier to which it has
applied for any such insurance or with which it has carried insurance
during the last three years.
3.20 Agents and Customers. Section 3.20 of the Company Disclosure
--------------------
Schedule sets forth a correct and complete list of (a) all of the
agents of the Company and (b) all of the customers of the Company, in
each case from which the Company received 5% or more of the Company's
total revenues during each of the Company's fiscal years ended
December 31, 1995 and 1996 and for the ten months ended October 31,
1997. Except as set forth in Section 3.20 of the Company Disclosure
Schedule, to the Stockholders' and the Company's knowledge, the
Company has not received any written or oral communication that would
lead the Company to believe that any termination of (or other material
change in) the business relationship of the Company with any agent or
customer named in Section 3.20 of the Company Disclosure Schedule.
3.21 Certain Environmental Matters.
-----------------------------
(a) Except as set forth in Section 3.21(a) of the Company Disclosure
Schedule, the Company has not received any written notice from
any Governmental Authority of any outstanding violation of any
Environmental Laws. Except as set forth in Section 3.21(a) of the
Company Disclosure Schedule, to the knowledge of the Company, the
Company has all material permits, licenses and other governmental
authorizations, if any, required of the Company under applicable
Environmental Laws, and all such permits, licenses and other
governmental authorizations, if any, are in good standing and in
full force and
effect, and the Company has not received any written notice from any
Governmental Authority respecting any outstanding violation of the
terms and conditions thereof. To the knowledge of the Company, all
such permits and other governmental authorizations currently held by
the Company pursuant to Environmental Laws, if any, are identified in
Section 3.21(a) of the Company Disclosure Schedule; PROVIDED, HOWEVER,
-------- -------
no warranty or representation is made as to the effect under any
Environmental Laws or upon any such permits, licenses or
authorizations of the transfer of the Stock and/or transactions
contemplated by this Agreement.
(b) No Environmental Claims have actually been asserted or initiated and
are pending or, to the knowledge of any Stockholder, threatened
against the Company.
(c) To the knowledge of the Company, there are no past or present actions,
activities, circumstances, conditions, events or incidents by or
involving the Company, including, without limitation, the Release,
threatened Release, emissions, discharge, presence or disposal of any
Hazardous Materials, that would or would reasonably be expected to
form the basis of any Environmental Claims having a Material Adverse
Effect. Except as set forth in Section 3.21(c) of the Company
Disclosure Schedule, to the knowledge of the Company, the Company is
not now, nor does the Company reasonably expect that it will be,
subject to any Environmental Liability resulting from any actions (or
omissions thereof), activities, circumstances, conditions, events or
incidents by or involving the Company prior to the Closing Date that
would reasonably be expected to have a Material Adverse Effect.
3.22 Contracts.
---------
(a) Disclosure of Certain Contracts. Except as set forth in Section
-------------------------------
3.22(a) of the Company Disclosure Schedule or elsewhere in the Company
Disclosure Schedule, the Company is not a party to, or subject to or
bound by, any material Contract (i.e., any individual contract that
involves more than $25,000 per year) that would be binding upon the
Company after the Closing Date and which is not terminable by the
Company without penalty upon not more than 60 days prior written
notice to the other party that is a (i) Contract not made in the
ordinary course of business and (ii) royalty, distribution, agency,
territorial or license agreement; (iii) Contract (other than
agreements covered by clause (ix) below) with any officer, employee,
director or Stockholder (or any Affiliate of any such officer,
employee, director or Stockholder) or any professional person or firm,
independent contractor, dependent contractor or advertising firm or
agency which involves, or has involved, more than $25,000 annually;
(iv) except as otherwise set forth in Section 3.12(b), collective
bargaining agreement with any labor union or representative of
employees; (v) Contract guaranteeing the payment or performance of the
obligations of others; (vi) note, loan agreement or other
Contract under which the Company has incurred, guaranteed or otherwise
become liable for borrowed money indebtedness; (vii) except as
otherwise set forth in Section 3.12(d), group health or life
insurance, pension, profit sharing, retirement, medical, bonus,
incentive, severance, stock option or purchase plan or other similar
benefit plan, agreement or arrangement in effect with respect to its
employees or others; (viii) Contract limiting the freedom of the
Company to engage in any line of business or to compete with any
Person; (ix) except as otherwise set forth in Section 3.12(a)
consulting agreement that is not terminable at will (or with notice
not to exceed thirty days or payment not to exceed $25,000) by the
Company; (x) joint venture agreement or other Contract with respect to
the operation or management of any entity; or (xi) Contract not
otherwise identified by the foregoing clauses that involves payments
by or to at an annualized rate of more than $25,000 per annum. Within
15 days of request by Purchaser, true and complete copies of any
Contract listed on Schedule 3.22(a) shall be delivered to or otherwise
made available for review by Purchaser.
(b) Status of Contracts. Except as set forth in Section 3.22(b) of the
-------------------
Company Disclosure Schedule, (i) to the knowledge of the Company and
the Stockholders, each Contract listed in Section 3.22(a) of the
Company Disclosure Schedule is a valid Contract of the Company (except
as validity may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally), and (ii)
the Company has not received or given any written notice of default
under any such Contract and to their knowledge no other party is in
default under any such Contract such that said default could
reasonably be expected to have a Material Adverse Effect.
3.23 Affiliate Transactions. Since the Company Balance Sheet Date, except as
----------------------
disclosed in Section 3.23 of the Company Disclosure Schedule, or in the
ordinary course of business the Company has not (a) made purchases or sales
of products or services from or to any of the Stockholders or any Affiliate
of any of the Stockholders; (b) transferred any assets to or acquired any
assets from any Stockholders or any Affiliate of any Stockholders, except
for reasonable compensation and expense reimbursement in the ordinary
course of business consistent with past practice; (c) made any loan to or
borrowed any money from any Stockholder or any Affiliate of any
Stockholder, except for borrowing in the ordinary course under existing
credit facilities which amounts (together with the total outstanding amount
of consolidated indebtedness as of the date hereof) are set forth on
Schedule 3.23 of the Company Disclosure Schedule; (d) entered into, amended
or canceled any transaction, contract, agreement or commitment, except
those contemplated by this Agreement, involving any Stockholder or any
Affiliate of any Stockholder; or (e) introduced or made any change with
respect to its method or terms of payment of, accounting for or allocation
of, expenses or charges involving any of Stockholder or any Affiliate of
any of the Stockholders. The Company is not using any material property,
asset,
facility, service or personnel held, owned or employed by any
Stockholder or any Affiliate of any Stockholder.
3.24 No Brokers' or Other Fees. Except with respect to a commission to be
-------------------------
paid to ▇▇▇▇ ▇▇▇▇▇▇ by the Stockholders, in accordance with the terms
of a separate written agreement with ▇▇. ▇▇▇▇▇▇, no broker, finder or
investment banker is entitled to any fee or commission in connection
with the sale of the Stock pursuant to this Agreement based upon
arrangements made by or on behalf of any Stockholder or the Company.
3.25 Certain Payments. To the Stockholders' and the Company's
----------------
knowledge, neither the Company, nor any Stockholder, officer, agent or
employee of the Company, any other person associated with, or acting
on behalf of, any of the foregoing, has, directly or indirectly, (i)
used any funds of the Company for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political or
other activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds, (iii) violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended,
(iv) established or maintained any unlawful or unrecorded fund of
corporate monies or other assets, (v) made any false or fictitious
entry on the books or records of the Company, (vi) made any bribe,
kickback, or other payment of a similar or comparable nature, whether
lawful or not, to any person or entity, private or public, regardless
of form, whether in money, property or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured for special
concessions already obtained.
3.25 Florida H.B. 1771. No written notice of any existing violation of
-----------------
Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, or any regulations promulgated thereunder relating to the
doing business with Cuba by the Company, has been received by the
Company from any Governmental Authority.
3.26 Registration Statement. The marked statements contained in Exhibit F
----------------------
hereto are true and correct in all material respects.
3.28 Representations and Warranties Generally.
----------------------------------------
(a) One Section of the Company Disclosure Schedule may specifically
cross reference other applicable Sections or parts thereof of the
Company Disclosure Schedule without repeating disclosure that
applies to more than one Section.
(b) In addition, any matters disclosed in any Section of this
Agreement or in any Section of the Company Disclosure Schedule
shall be deemed to be disclosed with respect to all Sections of
this Agreement regardless of whether any cross reference is made.
(c) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
ARTICLE III, NEITHER THE COMPANY NOR THE STOCKHOLDERS NOR ANY OF THEIR
RESPECTIVE EMPLOYEES, AGENTS OR ANY OTHER PERSON ACTING ON THEIR
BEHALF MAKES ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY
OR IMPLIED RELATING TO THE COMPANY, THE STOCKHOLDERS, THE STOCK OR ANY
OTHER MATTER THAT IS THE SUBJECT OF THIS AGREEMENT, AND THE COMPANY
AND THE STOCKHOLDERS HEREBY DISCLAIM ANY SUCH REPRESENTATION OR
WARRANTY NOT SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
(d) Notwithstanding the foregoing, or any provisions of this Article III
or other applicable Sections of this Agreement or parts thereof, or
any statements set forth in or made part of the Company Disclosure
Schedule or any other materials or information delivered in connection
with this Agreement, the Company Disclosure Schedule or the
transactions contemplated thereby, Purchaser acknowledges and agrees
that to the extent any of such materials or information constitutes
any forward-looking statement, information or projection whatsoever,
such statements, information or projections constituting same have
been presented at the request of Purchaser for illustrative purposes
only, and Purchaser expressly acknowledges herein that other than to
the extent such statements or information either relate to or
constitute any express covenant subsequently to be undertaken by the
Company or the Stockholders pursuant to the provisions of this
Agreement, neither the Company nor the Stockholders provide any
assurances or otherwise represent or warrant in any manner whatsoever,
that the results indicated by such forward-looking statements,
information or projections will be experienced or achieved, it being
expressly acknowledged herein by Purchaser that the factors relied
upon for the purpose of such forward-looking statements, information
or projections have not been independently verified by the Company or
the Stockholders, and may differ from those assumed by the Company or
the Stockholders at the time of their respective presentation or
delivery.
(e) Except to the extent expressly set forth herein or in the Company
Disclosure Schedule, or except to the extent verified under an express
written statement to such effect by one or more of the Stockholders,
neither the Company nor the Stockholders make any representation or
warranty to Purchaser, or to any of Purchaser's representatives,
agents, advisors or underwriters, concerning the accuracy, sufficiency
or completeness of any information obtained or derived by, or
otherwise provided to Purchaser, or any of Purchaser's
representatives, agents, advisors or underwriters, including, but not
limited
to, any legal, financial, technical, marketing, management or other
materials or information obtained by or delivered to Purchaser or
other such parties in the undertaking of their respective due
diligence activities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company and the
Stockholders as follows:
4.1 Corporate Organization. Purchaser is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of
Colorado. Purchaser has no Subsidiaries, and does not have an
ownership interest in any Person other than as set forth in Section
4.1 of the Purchaser Disclosure Schedule attached to this Agreement
(the "Purchaser Disclosure Schedule"). Purchaser is qualified to do
business in the jurisdictions set forth in Section 4.1 of the
Purchaser Disclosure Schedule. Purchaser has the corporate power and
authority to own, lease and operate its respective properties and
assets and to carry on its business as now being conducted and is duly
qualified or licensed to do business as a foreign corporation in good
standing in the jurisdictions in which the ownership, lease or
operation of its property or the conduct of its business requires such
qualification, except jurisdictions in which the failure to be so
qualified or licensed would not reasonably be expected to have a
Material Adverse Effect.
4.2 Authorization, Etc. Purchaser has full corporate power and
------------------
authority to execute, deliver and perform its obligations under this
Agreement and the documents and instruments contemplated hereby and to
carry out the transactions contemplated hereby and thereby. Purchaser
has duly approved and authorized the execution and delivery of this
Agreement and the documents and instruments contemplated hereby and
the consummation of the transactions contemplated hereby and thereby,
and no other corporate proceedings or other action on the part of
Purchaser are necessary to approve and authorize the execution,
delivery and performance by Purchaser of this Agreement and the
documents and instruments contemplated hereby or the consummation by
Purchaser of the transactions contemplated hereby or thereby. This
Agreement constitutes a legal, valid and binding agreement of
Purchaser, enforceable against Purchaser in accordance with its terms,
except as enforcement hereof may be limited by equitable principles
and by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally.
4.3 No Approvals or Conflicts. Except as set forth in Section 4.3 of
-------------------------
the Purchaser Disclosure Schedule neither the execution, delivery or
performance by Purchaser of this Agreement nor the consummation by
Purchaser of the transactions contemplated hereby will (a) violate,
conflict with or result in a breach of any provision of the articles
of incorporation, bylaws or other governing documents of Purchaser,
and, to the best of Purchaser's knowledge, and subject to Purchaser
obtaining any and all required consents, approvals and authorization
from third parties and/or Governmental Authorities, (b) violate,
conflict with or result in a breach of any
provision of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the termination of, or accelerate or
alter in any material way the performance required by or result in the
creation of or give any party the right to create any Lien on any of the
assets or properties of Purchaser under, any note, bond, mortgage, loan
agreement, deed of trust, franchise, permit or other instrument or Contract
to which Purchaser or any of its properties may be bound, (c) violate any
Law applicable to Purchaser or any of its assets or properties, or (d)
require any consent, approval or authorization of, or notice to, or
declaration, filing or registration with, any Governmental Authority or
other third party in connection with the execution, delivery and
performance of this Agreement by Purchaser or to enable Purchaser to
continue to conduct its business and operations immediately after the
Closing Date in the same manner in which they are presently conducted.
4.4 Capital Stock. As of the date hereof, the authorized capital stock of
-------------
Purchaser consists of (a) 25,000,000 shares of Purchaser Common Stock, no
par value per share, of which approximately 10,047,091 shares are issued
and outstanding and (b) 5,000,000 shares of preferred stock, no par value,
of which none are issued and outstanding; provided, however, that
additional shares may be issued prior to Closing pursuant to outstanding
convertible or exercisable securities and that a reverse stock split is
anticipated in connection with the Proposed Public Offering. Except as set
forth in Section 4.4 of the Purchaser Disclosure Schedule, there are no
outstanding subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, transfer or voting of any shares of Purchaser Common Stock,
including any rights of conversion or exchange under any outstanding
securities or other instruments. Except as set forth in Section 4.4 of the
Purchaser Disclosure Schedule, all outstanding shares of Purchaser Common
Stock have been validly issued and are fully paid, nonassessable and free
of preemptive or similar rights.
4.5 Financial Statements. Purchaser has delivered to the Company the
--------------------
audited balance sheets of Purchaser as of April 30, 1996 and 1997, and the
unaudited balance sheets of Purchaser as of October 31, 1997, and related
statements of earnings, changes in financial position and shareholder's
equity for the periods ended on said dates. Such audited financial
statements, including the notes thereto, accompanied by the unqualified
reports of ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., certified public
accountants, delivered to the Company by Purchaser, and the unaudited
financial statements are collectively referred to herein as the "Purchaser
Financial Statements." To the best of Purchaser's knowledge, the Purchaser
Financial Statements are in accordance with the books and records of
Purchaser, fairly present the financial position of Purchaser and its
results of operations as of and for the periods indicated in accordance
with GAAP and have been prepared in accordance with GAAP consistently
applied. Except as set forth in Section 4.5 of the Purchaser Disclosure
Schedule and as disclosed in the Purchaser Financial Statements, Purchaser
does not have any material Liabilities (i.e. in excess of $25,000 as to any
individual liability), whether or not of a nature required to be reflected
or reserved against on a
consolidated balance sheet in accordance with GAAP, except for Liabilities
incurred by Purchaser in the ordinary course of business consistent with
past practice that individually or in the aggregate would not have a
Material Adverse Effect upon or change in any of the business, condition
(financial or otherwise), operations, assets or liabilities of Purchaser
taken as a whole. For purposes of this Section, "Liabilities" shall not be
deemed to include Contracts.
4.6 Legal Compliance. Except as set forth in Section 4.6 of the Purchaser
----------------
Disclosure Schedule, to the knowledge of Purchaser: (i) Purchaser has
complied and is in compliance with all Laws applicable to Purchaser and
their business except where the failure to be in compliance would not
reasonably be expected to have a Material Adverse Effect, and (ii)
Purchaser holds all material licenses, permits and other authorizations of
Governmental Authorities necessary to conduct its business as now being
conducted or to continue to conduct its business as now being conducted.
Except as set forth in Section 4.6 of the Purchaser Disclosure Schedule and
except for the transactions contemplated hereby, Purchaser has no knowledge
of or intention to make any changes in the conduct of its business that
will result in or cause Purchaser to be in noncompliance with applicable
Laws or that will require changes in or a loss of any such licenses,
permits or other authorizations or an increase in any expenses related
thereto except where such noncompliance, change, loss or increase would not
reasonably be expected to have a Material Adverse Effect. To Purchaser's
knowledge, such licenses, permits and other authorizations as aforesaid
held by Purchaser are valid and in full force and effect, and there are no
(a) Actions pending, or to the knowledge of Purchaser, threatened or (b)
Investigations to the knowledge of Purchaser pending or threatened that
would reasonably be expected to result in the termination, impairment or
nonrenewal thereof.
4.7 Litigation. Section 4.7(a) of the Purchaser Disclosure Schedule lists all
----------
(a) Actions pending, or to the knowledge of Purchaser, threatened or (b)
Investigations to the knowledge of Purchaser pending or threatened against
any of its properties. Except as set forth in Section 4.7(b) of the
Purchaser Disclosure Schedule, there are no (i) Actions pending or, to
Purchaser's knowledge, threatened or (ii) Investigations to the knowledge
of Purchaser pending or threatened against, relating to or involving
Purchaser (or any of its officers or directors in connection with the
business and affairs of Purchaser) or any properties or rights of Purchaser
(x) in which there is a reasonable likelihood of an adverse determination
that would reasonably be expected to have a Material Adverse Effect, or (y)
that questions or challenges the validity of this Agreement or any action
taken or to be taken by Purchaser pursuant to this Agreement.
4.8 Judgments, etc. Except as set forth in Section 4.8 of the Purchaser
--------------
Disclosure Schedule, Purchaser is not (a) subject to any judgment,
injunction, order or decree of a Governmental Authority that has had or
continues to have or would reasonably be expected to have a Material
Adverse Effect or (b) in default of any judgment, injunction, order or
decree of a Governmental Authority.
4.9 Changes. Since the Purchaser Balance Sheet Date, except as disclosed
-------
in Section 4.9 of the Purchaser Disclosure Schedule, to the knowledge of
Purchaser: (a) the business of Purchaser has in all material respects been
conducted only in the ordinary course, consistent with past practice and
consistent with the terms and conditions of this Agreement and no unusual
cash payments or bonuses have been made or agreed to be made inconsistent
with past practice; (b) there has been no direct or indirect redemption,
purchase or other acquisition by Purchaser of any shares of its capital
stock; (c) there has not been any declaration, setting aside or payment of
any dividend or other distribution by Purchaser other than cash management
procedures in the ordinary course of business consistent with past
practice; and (d) there has been no material adverse effect or change in
any of the business, condition (financial or otherwise), operations, assets
or liabilities of Purchaser, as a whole (the foregoing to pertain only to
matters respecting Purchaser in particular, as opposed to matters generally
affecting the business in which Purchaser is engaged).
4.10 Taxes. (a) Except as set forth in Section 4.10(a) of the Purchaser
-----
Disclosure Schedule to the knowledge of Purchaser, Purchaser has (i) filed
or will timely file with the appropriate Governmental Authorities all
Returns which are required to be filed prior to the Closing Date by or with
respect to Purchaser, and such Returns (including without limitation, those
pertaining to telecommunications taxes, interstate and federal excise
taxes, sales taxes and FCC mandated surcharges) when filed are or will be
correct and complete in all material respects and (ii) paid or will timely
pay or made or will make provision for in the appropriate financial
statements all material Taxes of Purchaser required to be shown to be due
on such Returns; provided, however that Purchaser makes no representation
with respect to any unpaid federal excise taxes. There are no Liens for
Taxes upon the assets of Purchaser except liens for current Taxes not yet
due or Taxes being contested in good faith by appropriate proceedings and
in each case where such Lien would not reasonably be expected to have a
Material Adverse Effect. Except as set forth in Section 4.10(a) of the
Purchaser Disclosure Schedule, Purchaser has not received any written
notice of deficiency or assessment from any taxing Governmental Authority
with respect to liabilities for Taxes of Purchaser which have not been paid
or finally settled, and any such deficiency or assessment disclosed in
Section 4.10(a) of the Purchaser Disclosure Schedule is being contested in
good faith through appropriate proceedings.
(b) Except as set forth in Section 4.10(b) of the Purchaser Disclosure
Schedule, Purchaser does not have any material Liability (i.e., in excess of
$25,000) for the payment of Taxes, except such as are recorded in the Purchaser
Financial Statements or such Taxes as are not yet due as have arisen since the
Purchaser Balance Sheet Date and for which adequate provision in the accounts of
Purchaser has been made, and to the knowledge of Purchaser, Purchaser is not in
arrears with respect to any required withholdings or installment payments of any
Tax and has not filed any waiver or extension of the applicable statute of
limitations for assessment of Taxes for a taxation year under the Code or any
state income or franchise tax law or any other legislation imposing tax on
Purchaser.
4.11 Employee Matters.
----------------
(a) Purchaser is not a party to any employment contract. Section 4.11(a)
to the Purchaser Disclosure Schedule lists all material contracts to
which Purchaser is a party with dependent and independent contractors.
Section 4.11(a) of the Purchaser Disclosure Schedule sets forth the
position held by each employee with Purchaser, and the annual salary
and the length of employment of each employee.
(b) Except as disclosed on Section 4.11(b) to the Purchaser Disclosure
Schedule,
(i) no trade union, council of trade unions, employee bargaining
agency or affiliated bargaining agent holds bargaining rights
with respect to any of Purchaser's employees by way of
certification, interim certification, voluntary recognition,
designation or successor rights,
(ii) Purchaser has not received notice that any trade union, council
of trade unions, employee bargaining agency or affiliated
bargaining agent has applied to be certified as the bargaining
agent of any of Purchaser's employees, and
(iii) Purchaser has not received notice that any trade union, council
of trade unions, employee bargaining agency or affiliated
bargaining agent has applied to have Purchaser declared a
related employer or successor employer pursuant to applicable
labor legislation.
(c) Except (i) as disclosed in Section 4.11(c) to the Purchaser Disclosure
Schedule and (ii) for remuneration paid to employees and independent
contractors in the usual and ordinary course of business, no material
payments have been made or authorized since the Purchaser Balance
Sheet Date by Purchaser to officers, directors, employees or
independent contractors of Purchaser.
(d) Section 4.11(d) to the Purchaser Disclosure Schedule contains a
correct and complete list of all Benefit Plans.
(e) Purchaser shall provide, within 15 days of request, to the Company
copies of Purchaser's Benefit Plans and all amendments thereto and
have made available to the Purchaser all documents in Purchaser's
possession pertaining to compensation practices, benefits and other
terms and conditions of employment of all directors, officers or
employees of Purchaser.
(f) Each Pension Plan that has been maintained or contributed to within
the last three years by Purchaser or any trade or business (whether or
not incorporated) that is under common control with Purchaser (as
determined in
accordance with Section 4001 of ERISA) or is a member of a Controlled
Group is identified as such on Section 4.11(f) to the Purchaser
Disclosure Schedule. Each "employee welfare benefit plan" as defined
in Section 3(1) of ERISA and that is subject to ERISA and that has
been maintained or contributed to by any member of the Controlled
Group is identified as such on Section 4.11(f) to the Purchaser
Disclosure Schedule.
(g) None of Purchaser's Pension Plans is subject to Title IV of ERISA or
to the minimum funding standards of Code section 412. None of the U.S.
Pension Plans is a "multi-employer plan" as defined in Section
4001(a)(3) of ERISA and neither Purchaser nor any member of the
Controlled Group has incurred or is expected to incur any withdrawal
liability under ERISA with respect to any "multi-employer plan" or any
single employer plan subject to Section 4063 of ERISA.
(h) Neither Purchaser nor any member of Purchaser's Controlled Group is
aware of any facts that would adversely affect the qualified status of
any Pension Plan under Section 401 of the Code.
(i) To the knowledge of Purchaser, there are no outstanding or pending
Actions, claims (other than routine claims for benefits) or
Investigations asserted or instituted against any of Purchaser's Plans
or against Purchaser or any member of the Controlled Group or any
fiduciary of Purchaser's Plans with respect to the operation of
Purchaser's Plans.
(j) To the knowledge of Purchaser, (x) Purchaser's Plans have, in all
material respects, been maintained, administered and operated in
accordance with their terms and with all provisions of ERISA, the
Code, and any other statute (including rules and regulations under
ERISA, the Code and any other applicable statute) applicable thereto,
and (y) neither Purchaser nor any member of the Controlled Group nor
any "party in interest" or "disqualified person" within the control of
Purchaser or any member of the Controlled Group with respect to
Purchaser's Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the Code or Title I, Part 4 of ERISA.
(k) Purchaser shall furnish, within 15 days of request, to the Company
copies of the latest summary plan description for each of Purchaser's
Plans. Purchaser shall, within 15 days of request, furnish to the
Company copies, including all schedules and attachments, of each Form
5500 for each Plan of Purchaser for the last two years.
(l) Purchaser has no knowledge of any fact, condition, or circumstance
since the date of the documents provided pursuant to Section 4.11(e)
above that would materially affect the information contained therein
and no promises have
been made by Purchaser to amend any of Purchaser's Plan or to provide
increased benefits thereunder, except as required by applicable law.
(m) Except as disclosed in Section 4.11(m) to the Purchaser Disclosure
Schedule and except as would not reasonably be expected to have a
Material Adverse Effect, Purchaser does not have any liability arising
out of claims made or suits brought (including workers compensation,
occupational health and safety, environmental, equal employment or
nondiscrimination) for injury, sickness, disease, death or termination
of employment of any employees or former employees of Purchaser to the
extent attributable to an event occurring or facts and circumstances
existing at or prior to Closing.
(n) To Purchaser's knowledge, no Plan of Purchaser contains any term or
provision that precludes or otherwise prohibits its termination.
4.12 Labor. Except as set forth in Section 4.12 of the Purchaser Disclosure
-----
Schedule, there are no labor strikes, disputes, slowdowns, work stoppages
or other labor troubles or grievances or claims pending or, to Purchaser's
knowledge, threatened against or involving Purchaser with respect to
Employment Laws or collective bargaining agreements. No unfair labor
practice complaint before the National Labor Relations Board, no charges
pending before the Equal Employment Opportunity Commission and no
complaint, charge or grievance of any nature before any similar or
comparable Governmental Authority, in any case relating to Purchaser or the
conduct of its business, is pending or, to the knowledge of Purchaser,
threatened. Purchaser has not received notice, nor has any knowledge, of
the intent of any Governmental Authority responsible for the enforcement of
labor or Employment Laws to conduct any investigation of or relating to
Purchaser or the conduct of its business. Except as set forth in Section
4.12 of the Purchaser Disclosure Schedule, to the knowledge of Purchaser,
(i) no employee or independent contractor of Purchaser it considers to be a
"key employee" or a contractor who accounts for more than 5% of Purchaser's
revenues for the year ended October 31, 1997, notified Purchaser of any
plans to terminate his or her employment with Purchaser and (ii) no union
organizing or election activities involving Purchaser's employees are in
progress, or threatened.
4.13 Title to Properties; Encumbrances. Section 4.13 of the Purchaser
---------------------------------
Disclosure Schedule contains a correct and complete list of all real
property leased or regularly occupied in the conduct of business by
Purchaser as of the date hereof. Purchaser has good and marketable title to
or a valid leasehold interest in all of their respective properties and
assets, real, personal and mixed property (tangible and intangible), which
the Company purports to own or lease respectively. None of the properties
and assets of Purchaser owned, leased or held are subject to any material
Lien (i.e., in excess of $25,000), except (i) Liens reflected in the
Purchaser Financial Statements, (ii) Liens specifically identified in
Section 4.13 of the Purchaser Disclosure Schedule securing specified
liabilities or obligations with respect to which no default exists and
(iii) other Liens (including, without limitation, statutory liens
for current Taxes not yet due or delinquent or which are being contested in
good faith by appropriate proceedings and mechanics', carriers',
materialmens' and similar liens imposed by law incurred in the ordinary
course of business and not delinquent or which are being contested in good
faith by appropriate proceedings) that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect .
4.14 Intentionally Omitted.
---------------------
4.16 Leases. Section 4.15 of the Purchaser Disclosure Schedule
------
contains a correct and complete list of all material leases pursuant to
which Purchaser is the lessee of any real or personal property. Except as
set forth in Section 4.15 of the Purchaser Disclosure Schedule, to the
knowledge of Purchaser, all such leases are valid and enforceable in
accordance with their terms and are in full force and effect. Except as set
forth in Section 4.15 of the Purchaser Disclosure Schedule, no notice of
any existing default under any lease has been received by Purchaser or give
by Purchaser to any other party thereunder.
4.17 Intentionally Omitted.
---------------------
4.13 Intellectual Property.
---------------------
(a) Material Proprietary Rights. Section 4.17(a) of the Purchaser
---------------------------
Disclosure Schedule contains a correct and complete list of all
material Proprietary Rights which, to the knowledge of Purchaser are
used or owned by Purchaser and registered with any Governmental
Authority, and a list of all licenses and other agreements relating
thereto. Purchaser has valid and enforceable rights to all such
Proprietary Rights that are necessary to permit Purchaser to use such
Proprietary Rights in the conduct of its business substantially as now
conducted, except where the lack of such rights would not reasonably
be expected to have a Material Adverse Effect.
(b) Infringement, etc. Except as set forth in Section 4.17(b) of the
-----------------
Purchaser Disclosure Schedule, (i) no royalty or other payment by
Purchaser to any third party is required to use any Proprietary Right
described in Section 4.17(a) of the Purchaser Disclosure Schedule;
(ii) all Proprietary Rights described in Section 4.17(a) above are
valid and in full force and effect; (iii) no such Proprietary Right
used by Purchaser infringes valid rights of any third party and there
are no (1) pending or, to the knowledge of Purchaser, threatened
Actions or (2) to the knowledge of Purchaser, pending or threatened
Investigations in which any such infringement is alleged except where
the outcome of such infringement would not reasonably be expected to
have a Material Adverse Effect; (iv) to the knowledge of Purchaser,
none of the Proprietary Rights used or owned by Purchaser is being
infringed by any third party; and (v) to the knowledge of Purchaser,
no officer, director or employee of Purchaser owns or has any interest
in any Proprietary Right or trade secret,
process, invention or know-how used by Purchaser in the
conduct of its business.
4.18 Insurance. Section 4.18 of the Purchaser Disclosure Schedule
---------
contains an accurate and complete description of all Insurance
Policies currently maintained by Purchaser. To Purchaser's knowledge:
all the Insurance Policies are in full force and effect, all premiums
with respect thereto covering all periods up to and including the date
hereof have been paid, and no notice of cancellation or termination
has been received with respect to any such Insurance Policy; and
Purchaser has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any
insurance carrier to which it has applied for any such insurance or
with which it has carried insurance during the last three years.
4.19 Agents and Customers. Section 4.19 of the Purchaser Disclosure
--------------------
Schedule sets forth a correct and complete list of (a) all of the
customers of Purchaser and (b) all of the customers of Purchaser in
each case from which Purchaser received 5% or more of Purchaser's
total revenues during each of Purchaser's fiscal years ended April 30,
1996 and 1997 and the six months ended October 31, 1997. Except as set
forth in Section 4.19 of the Purchaser Disclosure Schedule, to
Purchaser's knowledge, Purchaser has not received any written or oral
communication that would lead the Purchaser to believe that any
termination of (or other material change in) the business relationship
of Purchaser with any agent or customer named in Section 4.19 of the
Purchaser Disclosure Schedule.
4.20 Certain Environmental Matters.
-----------------------------
(a) Except as set forth in Section 4.20(a) of the Purchaser
Disclosure Schedule, Purchaser has not received any written notice from any
Governmental Authority of any outstanding violation of any Environmental Laws.
Except as set forth in Section 4.20(a) of the Purchaser Disclosure Schedule, to
the knowledge of Purchaser, Purchaser has all material permits, licenses and
other governmental authorizations, if any, required of Purchaser under
applicable Environmental Laws, and all such permits, licenses and other
governmental authorizations, if any, are in good standing and in full force and
effect, and Purchaser has not received any written notice from any Governmental
Authority respecting any outstanding violation of the terms and conditions
thereof. To the knowledge of Purchaser, all such permits and other governmental
authorizations currently held by Purchaser pursuant to Environmental Laws, if
any, are identified in Section 4.20(a) of the Purchaser Disclosure Schedule;
PROVIDED, HOWEVER, no warranty or representation is made as to the effect under
-------- -------
any Environmental Laws or upon any such permits, licenses or authorizations of
the transfer of the Stock and/or transactions contemplated by this Agreement.
(b) No Environmental Claims have actually been asserted or initiated
and are pending or, to the knowledge of Purchaser, threatened against Purchaser.
(c) To the knowledge of Purchaser, there are no past or present
actions, activities, circumstances, conditions, events or incidents by or
involving Purchaser, including, without limitation, the Release, threatened
Release, emissions, discharge, presence or disposal of any
Hazardous Materials, that would or would reasonably be expected to form the
basis of any Environmental Claims having a Material Adverse Effect. Except as
set forth in Section 4.20(c) of the Purchaser Disclosure Schedule, to the
knowledge of Purchaser, Purchaser is not now, nor does Purchaser reasonably
expect that it will be, subject to any Environmental Liability resulting from
any actions (or omissions thereof), activities, circumstances, conditions,
events or incidents by or involving Purchaser prior to the Closing Date that
would reasonably be expected to have a Material Adverse Effect.
4.21 Contracts.
---------
(a) Disclosure of Certain Contracts. Except as set forth in Section
-------------------------------
4.21(a) of the Purchaser Disclosure Schedule, Purchaser is not a
party to, or subject to or bound by, any material Contract (i.e.,
any individual contract that involves more than $25,000 per year)
that would be binding upon Purchaser after the Closing Date and
which is not terminable by Purchaser without penalty upon not
more than 60 days prior written notice to the other party and
that is a (i) Contract not made in the ordinary course of
business; (ii) royalty, distribution, agency, territorial or
license agreement; (iii) Contract (other than agreements covered
by clause (ix) below) with any officer, employee, director or
shareholder (or any Affiliate of any such officer, employee,
director or shareholder) or any professional person or firm,
independent contractor, dependent contractor or advertising firm
or agency which involves, or has involved, more than $25,000
annually; (iv) except as otherwise set forth in Section 4.11(b),
collective bargaining agreement with any labor union or
representative of employees; (v) Contract guaranteeing the
payment or performance of the obligations of others; (vi) note,
loan agreement or other Contract under which Purchaser has
incurred, guaranteed or otherwise become liable for borrowed
money indebtedness; (vii) except as otherwise set forth in
Section 4.11(d), group health or life insurance, pension, profit
sharing, retirement, medical, bonus, incentive, severance, stock
option or purchase plan or other similar benefit plan, agreement
or arrangement in effect with respect to its employees or others;
(viii) Contract limiting the freedom of Purchaser to engage in
any line of business or to compete with any Person; (ix) except
as otherwise set forth in Section 4.11(a) consulting agreement
that is not terminable at will (or with notice not to exceed
thirty days or payment not to exceed $25,000) by Purchaser; (x)
joint venture agreement or other Contract with respect to the
operation or management of any entity; or (xi) Contract not
otherwise identified by the foregoing clauses that involves
payments by or to at an annualized rate of more than $25,000 per
annum. Within 15 days of request by Purchaser, true and complete
copies of any Contract listed on Schedule 4.21(a) shall be
delivered to or otherwise made available for review by the
Company and the Stockholders.
(b) Status of Contracts. Except as set forth in Section 4.21(b) of
-------------------
the Purchaser Disclosure Schedule, (i) to the knowledge of
Purchaser, each Contract listed in Section 4.21(a) of the
Purchaser Disclosure Schedule is a valid Contract
of Purchaser (except as validity may be limited by equitable
principles and by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally), and (ii) Purchaser has
not received or given any written notice of default under any
such Contract and to their knowledge no other party is in default
under any such Contract such that said default could reasonably
be expected to have a Material Adverse Effect.
4.22 Affiliate Transactions. Since the Purchaser Balance Sheet Date,
----------------------
except as disclosed in Section 4.22 of the Purchaser Disclosure
Schedule or in the ordinary course of business, Purchaser has not (a)
made purchases or sales of products or services from or to any
Affiliate of Purchaser; (b) transferred any assets to or acquired any
assets from any Affiliate of Purchaser, except for reasonable
compensation and expense reimbursement in the ordinary course of
business consistent with past practice; (c) made any loan to or
borrowed any money from any Affiliate of Purchaser, except for
borrowing in the ordinary course under existing credit facilities
which amounts (together with the total outstanding amount of
consolidated indebtedness as of the date hereof) are set forth on
Schedule 4.22 of the Purchaser Disclosure Schedule; (d) entered into,
amended or canceled any transaction, contract, agreement or
commitment, except those contemplated by this Agreement, involving any
Affiliate of Purchaser; or (e) introduced or made any change with
respect to its method or terms of payment of, accounting for or
allocation of, expenses or charges involving any Affiliate of
Purchaser. Purchaser is not using any material property, asset,
facility, service or personnel held, owned or employed by any
Affiliate of Purchaser.
4.23 No Brokers' or Other Fees. Except with respect to commission to be
-------------------------
paid to ▇▇▇▇ ▇▇▇▇▇▇ by the Stockholders, no broker, finder or
investment banker is entitled to any fee or commission in connection
with the sale of the Stock pursuant to this Agreement based upon
arrangements made by or on behalf of Purchaser.
4.24 Certain Payments. To Purchaser's knowledge, neither Purchaser, nor
-----------------
any officer, director, agent or employee of Purchaser, or any other
person associated with, or acting on behalf of, any of the foregoing,
has, directly or indirectly, (i) used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses
relating to political or other activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to
foreign or domestic political parties or campaigns from corporate
funds, (iii) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, (iv) established or maintained any unlawful
or unrecorded fund of corporate monies or other assets, (v) made any
false or fictitious entry on the books or records of Purchaser, (vi)
made any bribe, kickback, or other payment of a similar or comparable
nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property or services, to
obtain favorable treatment in securing business or to obtain special
concessions, or to pay for favorable treatment for business secured
for special concessions already obtained.
4.25 Florida H.B. 1771. No written notice of any existing violation of
------------------
Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, or any regulations promulgated thereunder relating to the
doing business with Cuba by the Purchaser has been received by the
Purchaser from any Governmental Authority.
4.26 Purchaser Common Stock. The issuance and delivery by Purchaser of
----------------------
shares of Purchaser Common Stock pursuant to Section 2.2 hereof, shall
be duly and validly authorized by all necessary corporate action on
the part of Purchaser prior to Closing. The shares of Purchaser Common
Stock to be issued pursuant to Section 2.2 hereof, when issued and
delivered in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable. Purchaser is
solely responsible for the content of the prospectus, Registration
Statement and all other materials or reports filed or provided in
connection with the Proposed Public Offering; provided, however that
-------- -------
the parties hereto agree that Purchaser may rely on the
representations and warranties contained in Article III hereof and the
Company Disclosure Schedule in preparing such materials; provided,
--------
further, that Purchaser may not rely on any other information provided
-------
by the Company or the Stockholders in preparing such materials unless
such information is in writing and explicitly authorizes such
reliance.
4.27 Intentionally Omitted.
---------------------
4.28 Representations and Warranties Generally.
----------------------------------------
(a) One Section of the Purchaser Disclosure Schedule may specifically
cross reference other applicable Sections or parts thereof of the
Purchaser Disclosure Schedule without repeating disclosure that
applies to more than one Section.
(b) In addition, any matters disclosed in any Section of this
Agreement or in any Section of the Company Disclosure Schedule
shall be deemed to be disclosed with respect to all Sections of
this Agreement regardless of whether any cross reference is made.
(c) EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
ARTICLE IV, NEITHER PURCHASER NOR ANY OF THEIR RESPECTIVE
EMPLOYEES, AGENTS OR ANY OTHER PERSON ACTING ON THEIR BEHALF
MAKES ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS, STATUTORY OR
IMPLIED RELATING TO PURCHASER, THE PURCHASER COMMON STOCK OR ANY
OTHER MATTER THAT IS THE SUBJECT OF THIS AGREEMENT, AND PURCHASER
HEREBY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY NOT SET
FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(d) Notwithstanding the foregoing, or any provisions of this Article
IV or other applicable Sections of this Agreement or parts
thereof, or any statements set forth in or made part of the
Purchaser Disclosure Schedule or any other materials or
information delivered in connection with this Agreement, the
Purchaser Disclosure Schedule or the transactions contemplated
thereby, Company acknowledges and agrees that to the extent any
of such materials or information constitutes any forward-looking
statement, information or projection whatsoever, such
statements, information or projections constituting same have
been presented at the request of the Company for illustrative
purposes only, and the Company and the Stockholders expressly
acknowledge herein that other than to the extent such statements
or information either relate to or constitute any express
covenant subsequently to be undertaken by the Purchaser pursuant
to the provisions of this Agreement, provides no assurances or
otherwise represent or warrant in any manner whatsoever, that
the results indicated by such forward-looking statements,
information or projections will be experienced or achieved, it
being expressly acknowledged herein by the Company and the
Stockholders that the factors relied upon for the purpose of
such forward-looking statements, information or projections have
not been independently verified by the Purchaser and may differ
from those assumed by the Purchaser at the time of their
respective presentation or delivery.
(e) Except to the extent expressly set forth herein or in the
Purchaser Disclosure Schedule, or except to the extent verified
under an express written statement to such effect by one or more
of the executive officers of Purchaser makes no representation
or warranty to the Company, the Stockholders, or to any of the
Company's representatives, agents, advisors or underwriters,
concerning the accuracy, sufficiency or completeness of any
information obtained or derived by, or otherwise provided to the
Company, the Stockholders, or any of the Company's
representatives, agents, advisors or underwriters, including,
but not limited to, any legal, financial, technical, marketing,
management or other materials or information obtained by or
delivered to the Company, the Stockholders or other such parties
in the undertaking of their respective due diligence activities.
ARTICLE
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
From and after the date hereof and until the Closing Date (except as
hereinafter otherwise provided), unless Purchaser shall otherwise agree in
writing, but only so long as this Agreement is in full force and effect and
Purchaser is not in default of its obligations hereunder:
5.1 Access. Subject in all events to the terms of the
------
Confidentiality Agreement, the Company shall permit:
(a) Purchaser and its advisers to have reasonable access to
all properties, books, accounts, records, Contracts,
files, correspondence, tax records, and documents of or
relating to the Company, and to discuss such matters
with the Stockholders; the Company shall make available
to Purchaser and its advisers a copy of all other
information concerning its business and properties as
Purchaser may reasonably request;
(b) Purchaser, at its sole cost and expense, to conduct, or
cause its agents to conduct, such reasonable reviews,
inspections, surveys, tests, and investigations of the
assets of the Company as Purchaser deems reasonably
necessary or advisable;
(c) Purchaser, and its advisers to consult with the
accountants for the Company, and said accountants are
hereby authorized to disclose all information in their
possession to Purchaser and its advisers with respect to
the Company and the businesses thereof;
(d) subject in each case to the prior approval of the
Company, Purchaser, and its advisers to discuss the
proposed acquisition with the employees of the Company;
provided that representatives of the Company may be
present during any such discussions and provided that
such discussions are coordinated with representatives of
the Company as to the content of such proposed
discussions to assure that such discussions do not
interfere unreasonably with the business and operations
of the Company or harm the relationship which the
Company has with its employees; and
(e) Purchaser to have such additional access as is
reasonably necessary to permit Purchaser to prepare its
registration statement, and any amendments thereto,
relating to its Proposed Public Offering;
provided, however, any investigation pursuant to this Section shall be conducted
-------- -------
in such manner as not to interfere unreasonably with the businesses and
operations of the Company.
5.2 Ordinary Course. Except as set forth in Exhibit 5.2, and except
---------------
for any actions required to be performed by the Company, or
otherwise permitted pursuant to this
Agreement, the Company shall conduct its business generally in
the ordinary and usual course in all material respects and use
all reasonable efforts to preserve its business organizations
intact and its existing relations with customers, suppliers,
employees, independent contractors and business associates, and
the Company shall not do any of the following without the
approval of Purchaser (which approval shall not be unreasonably
withheld):
(a) amend its Certificate of Incorporation (or like charter
documents) or By-laws;
(b) subdivide, split, combine, consolidate, or reclassify
any of its outstanding shares of capital stock;
(c) declare, set aside or pay any dividend or make any other
distribution payable in cash, shares, stock, securities
or property with respect to any of its shares of capital
stock; provided, however, that the Company shall
continue to have the right to distribute Standstill
Payments among the Stockholders;
(d) repurchase, redeem, or otherwise acquire, directly or
indirectly, any of its capital stock or any securities
convertible into or exchangeable or exercisable into any
of its capital stock;
(e) enter into any material transaction not in the ordinary
course of its business consistent with past practice;
(f) issue, sell, pledge, dispose of, or encumber, or
authorize or propose the issuance, sale, pledge,
disposition, or encumbrance of, any of its capital
stock, or any securities convertible into or
exchangeable or exercisable for, or options, puts,
warrants, calls, commitments or rights of any kind to
acquire, any of its shares of capital stock;
(g) transfer, lease, license, sell, mortgage, pledge,
encumber, or dispose of any material property or assets
or incur, guarantee, assume, or increase any
indebtedness or other liability in excess of $25,000
other than in the ordinary and usual course of business
consistent with past practice;
(h) authorize capital expenditures in excess of $25,000
other than in the ordinary and usual course of business
consistent with past practice; provided, however, that
--------- --------
the nothing in this Agreement shall be construed to
prohibit (or require any consent from Purchaser for) the
Company taking any of the following actions (including,
without limitation, making any capital expenditure in
connection therewith): the satisfaction and termination
of the Company's credit line with ▇▇▇▇▇▇▇ ▇▇▇▇▇; the
termination (and payment of any outstanding balance) of
the Company's corporate credit card; any payments to
Zion Credit Corporation or the landlord's of the
Company's Connecticut and Florida locations in
connection with the obtaining of releases of any
personal guarantees by the Stockholders or ▇▇▇▇ ▇▇▇▇▇ of
the Company's
obligations to such persons or entities; provided,
---------
further, that the Stockholders shall promptly notify
--------
Purchaser of such actions.
(i) make any material acquisition of, or investment in,
assets, shares, capital stock or other securities of any
other person or entity other than in the ordinary and
usual course of business consistent with past practice;
(j) except as may be required to satisfy contractual
obligations existing as of the date hereof and the
requirements of applicable Laws, establish, adopt, enter
into, make, amend in any material respect, or make any
material elections under any collective bargaining
agreement or Employee Plan;
(k) implement any change in its accounting principles,
practices, or methods, other than as may be required by
generally accepted accounting principles; and
(l) authorize or enter into any agreement to take any of the
actions referred to in this Section.
5.3 Representations and Warranties. The Company and the
------------------------------
Stockholders shall not knowingly and intentionally do, or cause
to be done, anything that would cause any of the representations
and warranties set forth in Article III from being true,
complete, and accurate in all material respects on the Closing
Date as if made on such date (except to the extent that such
representations and warranties are, by their terms, made
expressly as of the date of this Agreement).
5.4 No Breach. The Company and the Stockholders shall not knowingly
---------
and intentionally do any act or omit to do any act, or permit
any act or omission to act, which will cause a material breach
of this Agreement.
5.5 Financial Statements. The Company shall furnish to Purchaser
--------------------
within 60 days after the end of each fiscal quarter ending after
the date hereof an unaudited balance sheet and income statement
of the Company for each such period.
5.6 Litigation. The Company shall promptly notify Purchaser in
----------
writing of any action, written investigation, claim, audit,
action, suit, or proceeding which is commenced against, by or
relating to the Company or this Agreement by or before any court
or Governmental Authority, commission, board, bureau, agency, or
instrumentality.
5.7 Closing Conditions. The Company and the Stockholders shall use
------------------
reasonable efforts to cause all of the conditions to the
obligations of Purchaser under this Agreement to be satisfied on
or prior to the Closing Date (but only to the extent the
satisfaction of such conditions is within the control of the
Company or the Stockholders).
5.8 Employee Benefit Plans. The Company and the Stockholders agree
----------------------
to use their reasonable efforts to coordinate the conversion or
merger of any employee benefit
plans of the Company into Purchaser plans, to the extent that
such plans may exist, to provide any and all employees of the
Company who become employees of Purchaser with the same employee
benefits uniformly offered to employees of Purchaser.
5.9 Contracts. The Company shall use reasonable efforts to cause
---------
the Company to consult with Purchaser prior to entering into any
Contract not in the ordinary course of business.
5.10 Reciprocal Telecommunications Agreement. Subject to any right of
---------------------------------------
offset of sums owing by the Company to Purchaser, relating to
sums due and owing to the Company's accountants and other
professionals from Purchaser, the Company shall not knowingly
and intentionally take any action that would cause it to be in a
state of default beyond notice and opportunity to cure under the
Reciprocal Telecommunications Agreement.
5.11 No Shop. In consideration for the Standstill Payments made by
-------
Purchaser under the October 31, 1997 Standstill Agreement (a)
from and after the date hereof until the Closing Date, but only
so long as this Agreement remains in full force and effect and
has not been terminated, the Company and the Stockholders shall
not, and shall not permit the respective officers, employees,
representatives, and other advisors of the Company on behalf of
the Company to (1) actively pursue discussions or negotiations
with any person, other than Purchaser, relating to the possible
acquisition of, or business combination with, the Company
(whether by way of merger, consolidation, take-over bid, tender
offer, purchase of shares, purchase of assets, or otherwise) or
any material portion of its or their shares of capital stock or
assets (with any such efforts by any such person, including a
firm proposal to make such an acquisition or combination, herein
referred to as a "Competing Transaction"), (2) make or authorize
any public statement, recommendation, or solicitation in support
of any possible Competing Transaction by any Person other than
by Purchaser, or (3) enter into a binding written agreement with
any person, other than Purchaser, providing for a possible
Competing Transaction. The Company and its respective directors,
officers, employees, representatives, and other advisors and
each of the Stockholders shall immediately cease any and all
active, discussions, or negotiations with any parties conducted
heretofore with respect to any Competing Transaction.
ARTICLE
PURCHASER'S COVENANTS
From and after the date hereof and until the Closing Date (except as
hereinafter otherwise provided), unless the Company shall otherwise agree in
writing, but only so long as this Agreement is in full force and effect and
neither the Company nor the Stockholders are in default of their obligations
hereunder:
6.1 Access. Purchaser shall permit:
------
(a) the Company, the Stockholders and their respective
advisers to have reasonable access to all properties,
books, accounts, records, Contracts, files,
correspondence, tax records, and documents of or
relating to Purchaser and to discuss such matters with
the executive officers of Purchaser; Purchaser shall
make available to the Company and the Stockholders and
their respective advisers, prior to the filing of same,
a copy of any materials, reports or statement to be
filed with the SEC or any other Governmental Authority,
and all other information concerning its business and
properties as the Company and the Stockholders may
reasonably request;
(b) the Company and the Stockholders, at their sole cost and
expense, to conduct, or cause its agents to conduct,
such reasonable reviews, inspections, surveys, tests,
and investigations of the assets of Purchaser as the
Company or the Stockholders deem reasonably necessary or
advisable;
(c) the Company and the Stockholders and their respective
advisers to consult with the accountants for Purchaser,
and said accountants are hereby authorized to disclose
all information in their possession to the Company, the
Stockholders and their advisers with respect to
Purchaser and the businesses thereof; and
(d) subject in each case to the prior approval of Purchaser,
the Company, the Stockholders and their respective
advisers to discuss the proposed acquisition with the
employees of Purchaser; provided that representatives of
Purchaser may be present during any such discussions and
provided that such discussions are coordinated with
representatives of Purchaser as to the content of such
proposed discussions to assure that such discussions do
not interfere unreasonably with the business and
operations of Purchaser or harm the relationship which
Purchaser has with its employees;
provided, however, any investigation pursuant to this Section shall be conducted
-------- -------
in such manner as not to interfere unreasonably with the businesses and
operations of Purchaser.
6.2 Ordinary Course. Except for the Proposed Public Offering, the
---------------
Proposed GlobalTel Merger and as set forth in Exhibit 6.2, and
except for any actions required to be
performed by Purchaser or otherwise permitted pursuant to this
Agreement, Purchaser shall conduct its business generally in the
ordinary and usual course in all material respects and use all
reasonable efforts to preserve its business organizations intact
and its existing relations with customers, suppliers,
independent contractors, employees, and business associates, and
Purchaser shall not do any of the following without the approval
of the Stockholders (which approval shall not be unreasonably
withheld):
(a) amend its Articles of Incorporation (or like charter
documents) or By-laws or subdivide, split, combine,
consolidate, or reclassify any of its outstanding shares
of capital stock; provided, however, that nothing in
this Agreement shall be construed to prohibit Purchaser
effectuating a reverse split of its capital stock or
amending its By-Laws to allow additional directors in
contemplation of the Proposed GlobalTel Merger ;
(b) repurchase, redeem, or otherwise acquire, directly or
indirectly, any of its capital stock or any securities
convertible into or exchangeable or exercisable into any
of its capital stock except in the ordinary course of
business;
(c) reclassify any of its outstanding shares of capital
stock; provided, however, that nothing in this agreement
shall be construed to prohibit Purchaser from
effectuating a reverse split of its capital stock;
(d) enter into any material transaction not in the ordinary
course of its business consistent with past practice
other than the Proposed Public Offering and the Proposed
GlobalTel Merger;
(e) transfer, lease, license, sell, mortgage, pledge,
encumber, or dispose of any material property or assets
or incur, guarantee, assume, or increase any
indebtedness or other liability in excess of $25,000
other than in the ordinary and usual course of business
consistent with past practice;
(f) authorize capital expenditures in excess of $25,000
other than in the ordinary and usual course of business
consistent with past practice or in connection with
Proposed Public Offering or the Proposed GlobalTel
Merger;
(g) make any material acquisition of, or investment in,
assets, shares, capital stock or other securities of any
other person or entity other than in the ordinary and
usual course of business consistent with past practice
or in connection with the Proposed GlobalTel Merger;
(h) except as may be required to satisfy contractual
obligations existing as of the date hereof and the
requirements of applicable Laws, establish, adopt, enter
into, make, amend in any material respect, or make any
material elections under any collective bargaining
agreement or Employee Plan;
(i) implement any change in its accounting principles,
practices, or methods, other than as may be required by
generally accepted accounting principles; and
(j) authorize or enter into any agreement to take any of the
actions referred to in this Section.
6.3 Representations and Warranties. Purchaser shall not knowingly
------------------------------
and intentionally do, or cause to be done, anything that would
cause any of the representations and warranties set forth in
Article IV from being true, complete, and accurate in all
material respects on the Closing Date as if made on such date
(except to the extent that such representations and warranties
are, by their terms, made expressly as of the date of this
Agreement).
6.4 No Breach. Purchaser shall not knowingly and intentionally do
---------
any act or omit to do any act, or permit any act or omission to
act, which will cause a material breach of this Agreement.
6.5 Financial Statements. Purchaser shall furnish to the Company and
--------------------
each Stockholder within 60 days after the end of each fiscal
quarter ending after the date hereof an unaudited consolidated
balance sheet and income statement of Purchaser for each such
period.
6.6 Litigation. Purchaser shall promptly notify the Company and each
----------
Stockholder in writing of any action, written investigation,
claim, audit, action, suit, or proceeding which is commenced
against, by or relating to Purchaser or this Agreement by or
before any court or Governmental Authority, commission, board,
bureau, agency, or instrumentality.
6.7 Closing Conditions. Purchaser shall use reasonable efforts to
------------------
cause all of the conditions to the obligations of the Company
under this Agreement to be satisfied on or prior to the Closing
Date (but only to the extent the satisfaction of such conditions
is within the control of Purchaser).
6.8 Employee Benefit Plans. Purchaser agrees to use its reasonable
----------------------
efforts to coordinate the conversion or merger of any employee
benefit plans of the Company into Purchaser plans, to the extent
that such plans may exist, to provide any and all employees of
the Company who become employees of Purchaser with the same
employee benefits uniformly offered to employees of Purchaser.
6.9 Proposed Public Offering. Purchaser shall use its best efforts
------------------------
to cause the registration statement relating to the Proposed
Public Offering to be declared effective by the Commission prior
to the Termination Date.
6.10 Reciprocal Telecommunications Agreement. Purchaser shall not
---------------------------------------
knowingly and intentionally take any action that would cause it to be
in a state of default beyond notice and opportunity to cure under the
Reciprocal Telecommunications Agreement.
6.11 Public Announcement. Purchaser shall not make any public announcement
-------------------
regarding this Agreement or the transactions contemplated hereby
without the prior written consent of the Company and the Stockholders,
which consent shall not be unreasonably withheld; provided, however
that nothing in this Agreement shall be construed to prohibit
Purchaser from filing and distributing all information relating to
this Agreement and the transactions contemplated hereby as is
necessary to complete the Proposed Public Offering.
6.12 Confidentiality. Purchaser shall comply and cause its
---------------
"Representatives" to comply with the terms of the Confidentiality
Agreement, which are hereby ratified, confirmed and incorporated
herein by reference as though fully set forth herein as obligations of
Purchaser under this Agreement.
6.12 Standstill Agreement. Purchaser shall not knowingly and intentionally
--------------------
take any action that would cause it to be in a state of default beyond
notice and opportunity to cure under the Standstill Agreement dated
October 31, 1997.
6.14 Standstill Payments. On each of May 1, 1998 and June 1, 1998,
-------------------
Purchaser shall make Standstill Payments in the amount of $25,000 each
(and the failure to timely make such payments shall be a material
breach by Purchaser under this Agreement), except if the Closing has
occurred on or prior to either of such dates, then the respective
Standstill Payment shall not be required to be made.
ARTICLE VII
CONDITIONS OF PURCHASER'S OBLIGATIONS TO CLOSE
The obligations of Purchaser to close under this Agreement are subject to
satisfaction of the following conditions, unless waived in writing by Purchaser:
7.1 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Company and the Stockholders contained in this
Agreement shall be true and correct in all material respects (or
where any statement in a representation or warranty expressly
contains a standard of materiality such statement shall be true
and correct in all respects) on and as of the Closing Date,
except to the extent that a representation or warranty is made
as of a specific earlier date, in which case such representation
or warranty shall be true and correct in the manner specified
above as of such earlier date and shall be deemed to have been
made on and as of the Closing Date.
7.2 Performance. The Company and the Stockholders shall have
-----------
performed and complied in all material respects with all
agreements and conditions required by this Agreement to be
performed or complied with by them on or prior to the Closing.
7.3 No Material Change. Since the Company Balance Sheet Date, there
------------------
shall have been no material adverse effect on or material
adverse change in (i) any of the business, condition (financial
or otherwise), operations, prospects, assets or liabilities of
the Company taken as a whole, (ii) the legality or
enforceability against Stockholders or the Company of this
Agreement or (iii) the ability of any Stockholder or the Company
to perform its obligations and to consummate the transactions
under this Agreement.
7.4 Stockholder and Company Certificate. Purchaser shall have
------------------------------------
received a certificate dated the Closing Date and executed by
each Stockholder and the Company, substantially in the form of
Exhibit D hereto, to the effect that the conditions expressed in
Sections 7.1, 7.2 and 7.3 have been fulfilled.
7.5 No Injunction. On the Closing Date there shall be no Laws or
-------------
effective injunction, preliminary restraining order or any order
of any nature issued by a court of competent jurisdiction that
prevents or makes illegal the consummation of the transaction
contemplated hereby.
7.6 Employment/Consulting Agreements. ▇▇▇▇ ▇▇▇▇▇ shall have entered
--------------------------------
into the consulting agreement with Purchaser in form of Exhibit
B hereto. ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ shall have entered into
the employment agreements with Purchaser in the form of Exhibit
C hereto.
7.7 Stockholder Approval; Approval of Board of Directors of the
-----------------------------------------------------------
Company. Purchaser shall have received copies of resolutions of
-------
the Stockholders and the Board of
Directors of the Company, certified by the Secretary or
Assistant Secretary of the Company approving this Agreement and
the transactions contemplated hereby.
7.8 Stockholder Action. Each Stockholder shall have executed and
------------------
delivered to Purchaser this Agreement and the Escrow Agreement
among Purchaser, such Stockholder and the escrow agent named
therein substantially in the form attached hereto as Exhibit B
(the "Escrow Agreement").
7.9 Completion of Necessary Financing/Listing on Stock Market.
---------------------------------------------------------
Purchaser shall have completed new financings of not less than
$15,000,000 to enable Purchaser to complete the transactions
contemplated hereby. Purchaser's Common Stock shall be approved
for listing on the Nasdaq Stock Market, the American Stock
Exchange or the New York Stock Exchange.
7.10 Consents. All consents, approvals or authorizations listed as
--------
being required to execute, deliver and perform this Agreement
and the transactions contemplated hereby in Section 3.4 of the
Company Disclosure Schedule shall have been obtained by the
Company.
7.11 Disclosure Schedules. The Company and Purchaser shall have
--------------------
agreed upon forms of Company Disclosure Schedule, Purchaser
Disclosure Schedule and Exhibit F hereof within 20 days of the
date hereof.
7.12 Conditions Generally. If any of the foregoing conditions are
--------------------
not fulfilled at the time set forth herein for Closing,
Purchaser may only, at Purchaser's option, either:
(a) Waive the unfulfilled condition or conditions and
consummate Closing hereunder; or
(b) Terminate this Agreement pursuant to Article XII hereof.
It is agreed that if Purchaser is informed in writing by the Stockholders
or the Company at or before the time of Closing of any breach or non-fulfillment
of any warranty, representation or covenant by the Stockholders or the Company
or non-fulfillment of any condition, and Purchaser does not elect to terminate
this Agreement and proceeds to consummate Closing hereunder, then Purchaser
shall be deemed to have waived its rights with respect to the applicable
warranty, representation, covenant or condition.
ARTICLE VIII
CONDITIONS OF THE COMPANY'S AND
THE STOCKHOLDERS' OBLIGATIONS TO CLOSE
The obligation of the Company and the Stockholders to close under this
Agreement is subject to satisfaction of the following conditions, unless waived
in writing by the Stockholders.
8.1 Representations and Warranties True. The representations and
-----------------------------------
warranties of Purchaser contained in this Agreement shall be
true and correct in all material respects (or where any
statement in a representation or warranty expressly contains a
standard of materiality such statement shall be true and correct
in all respects) on and as of the Closing Date, except to the
extent that a representation or warranty is made as of a
specific earlier date, in which case such representation or
warranty shall be true and correct in the manner specified above
as of such earlier date and shall be deemed to have been made on
and as of the Closing Date.
8.2 Performance. Purchaser shall have performed and complied in all
-----------
material respects with all agreements and conditions required by
this Agreement to be performed or complied with by it on or
prior to the Closing.
8.3 No Material Change. Since the Purchaser Balance Sheet Date,
------------------
there shall have been no material adverse effect on or material
adverse change in (i) any of the business, condition (financial
or otherwise), operations, prospects, assets or liabilities of
Purchaser taken as a whole, (ii) the legality or enforceability
against Purchaser of this Agreement or (iii) the ability of
Purchaser to perform its obligations and to consummate the
transactions under this Agreement.
8.4 Purchaser Certificate. The Company and the Stockholders shall
---------------------
have received a certificate dated the Closing Date and executed
by an executive officer of Purchaser, substantially in the form
of Exhibit E hereto, to the effect that the conditions expressed
in Sections 8.1, 8.2 and 8.3 have been fulfilled.
8.5 No Injunction. On the Closing Date there shall be no Law or
-------------
effective injunction, preliminary restraining order or any order
of any nature issued by a court of competent jurisdiction that
prevents or makes illegal the consummation of the transaction
contemplated hereby.
8.6 Employment/Consulting Agreements. Purchaser shall have entered
--------------------------------
into a consulting agreement with ▇▇▇▇ ▇▇▇▇▇ in the form of
Exhibit B hereto. Purchaser shall have entered into employment
agreements with ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ in the form of
Exhibit C hereto.
8.7 Purchaser Action. Purchaser shall have (i) executed and
----------------
delivered to the each Stockholder this Agreement and the Escrow
Agreement and (ii) paid to each Stockholder the Purchase Price
in accordance with Section 2.2 hereof.
8.8 Approval of Board of Directors of Purchaser. The Company and
-------------------------------------------
the Stockholders shall have received copies of resolutions of
the Board of Directors of the Purchaser, certified by the
Secretary or Assistant Secretary of the Purchaser, approving
this Agreement and the transactions contemplated hereby.
8.9 Completion of Necessary Financing/Listing on Stock Market.
---------------------------------------------------------
Purchaser shall have completed new financings of not less than
$15,000,000 to enable Purchaser to complete the transactions
contemplated hereby. Purchaser's Common Stock shall be approved
for listing on the Nasdaq Stock Market, the American Stock
Exchange or the New York Stock Exchange.
8.10 Consents. All consents, approvals or authorizations listed as
--------
being required to execute, deliver and perform this Agreement
and the transactions contemplated hereby in Exhibit G shall have
been obtained by the Company or the Purchaser.
8.11 Release of Guarantees. The Company shall have obtained the
---------------------
release of the personal guarantees provided by the Stockholders
and/or ▇▇▇▇ ▇▇▇▇▇ of the Company's real estate leases in
Connecticut and Florida and of the Company's obligations to
Zions Credit Corporation.
8.12 Disclosure Schedules. The Company and Purchaser shall have
--------------------
agreed upon forms of Company Disclosure Schedule, Purchase
Disclosure Schedule and Exhibit F hereof within 20 days of the
date hereof.
8.13 Conditions Generally. If any of the foregoing conditions are
--------------------
not fulfilled at the time set forth herein for Closing, the
Company and the Stockholders may only, at their option, either:
(a) waive the unfilled condition or conditions and
consummate Closing hereunder; or
(b) terminate this Agreement pursuant to Article XII hereof.
It is agreed that if the Stockholders are informed in writing by Purchaser
at or before the time of Closing of any breach or non-fulfillment of any
warranty, representation or covenant by Purchaser or non-fulfillment of any
condition, and the Company and the Stockholders do not elect to terminate this
Agreement and proceed to consummate Closing hereunder, then the Company and the
Stockholders shall be deemed to have waived their rights with respect to the
applicable warranty, representation, covenant or condition.
ARTICLE
DELIVERIES OF THE STOCKHOLDERS
The Stockholders agree on the Closing Date to deliver or cause to be
delivered to Purchaser the following:
9.1 Stock Certificates. Certificates evidencing the Stock properly
------------------
endorsed for transfer or accompanied by duly executed stock
powers, in either case executed in blank and otherwise in form
acceptable for transfer on the books of the Company.
9.2 Resignations. Written resignations of each of the directors of
------------
the Company.
9.3 Letters to Banks. If requested by Purchaser, letters to banks
----------------
at which the Company maintains accounts or borrows funds
revoking the authority of existing signatories and authorizing
signatories designated by Purchaser.
9.4 Stockholders Certificate. The certificate of the Stockholders
------------------------
referenced in Section 7.4.
9.5 Good Standing Certificates. Good standing certificates,
--------------------------
certificates of foreign qualification, certificates of status or
certificates of compliance, dated no more than ten (10) days
prior to the Closing Date, from the appropriate authorities in
the jurisdiction of incorporation of the Company and in each
jurisdiction in which the Company is qualified to do business,
showing the Company to be in good standing in the applicable
jurisdiction.
9.6 Secretary's Certificate. Certificate of the Secretary or an
-----------------------
Assistant Secretary of the Company as to Certificate of
Incorporation and Bylaws of the Company, the resolutions adopted
by the Board of Directors of the Company authorizing and
approving this Agreement and the consummation of the
transactions contemplated hereby, and the incumbency of
officers.
9.7 Employment/Consulting Agreements. An original executed
--------------------------------
counterpart of the consulting agreement between ▇▇▇▇ ▇▇▇▇▇ and
Purchaser in the form of Exhibit B hereto. Original executed
counterparts of the employment agreements between Purchaser and
each of ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ in the form of Exhibit C
hereto.
9.8 Other Deliveries. All previously undelivered documents required
----------------
to be delivered pursuant to this Agreement and such other
documents or instruments as Purchaser or its counsel may
reasonably request.
9.9 Escrow Agreement. An original executed counterpart of the
----------------
Escrow Agreement with each of the Stockholders.
9.10 Releases. The Company and the Stockholders shall have exchanged
---------
general releases, containing an exclusion for the Stockholder's
rights under any Plans and such other exclusions as may be
reasonably requested by the Stockholders and agreed to by
Purchaser (which agreement shall not be unreasonably withheld).
9.11 Personal Guarantee. ▇▇▇▇ ▇▇▇▇▇ shall deliver his personal
-------------------
guarantee, in a form reasonably acceptable to Purchaser and its
counsel, of the obligations of ▇▇▇▇▇ Family, LLC pursuant to
Section 11.6(e) hereof.
ARTICLE
DELIVERIES OF PURCHASER ON THE CLOSING DATE
Purchaser agrees on the Closing Date to deliver to the Stockholders the
following:
10.1 Payments. Subject to Section 11.6 and the Escrow Agreement,
--------
payment of the Purchase Price pursuant to and in accordance with
Section 2.2.
10.2 Secretary's Certificate. A certificate of the Secretary or an
-----------------------
Assistant Secretary of Purchaser setting forth a copy of the
resolutions adopted by the Board of Directors of Purchaser
authorizing and approving the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby.
10.3 Purchaser Certificate. The officer's certificate of Purchaser
---------------------
referenced in Section 8.3.
10.4 Escrow Agreement. An original counterpart of the Escrow
----------------
Agreement with each Stockholder duly executed by the Purchaser.
10.5 Employment/Consulting Agreement. Original executed counterpart
-------------------------------
of the consulting agreement between ▇▇▇▇ ▇▇▇▇▇ and Purchaser in
the form of Exhibit B hereof. Original executed counterpart of
the employment agreements between Purchaser and each of ▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ in the form of the Exhibit C hereof.
10.6 Other Deliveries. All previously undelivered documents required
----------------
to be delivered pursuant to this Agreement and such other
documents or instruments as the Stockholders or their counsel
may reasonably request.
ARTICLE
INDEMNIFICATION
11.1 Indemnification by the Stockholders.
-----------------------------------
From and after the completion of the Closing, subject to the terms,
conditions and limitations set forth herein, each of the Stockholders,
proportionately as set forth below (except with respect to breaches of the
representations and warranties contained in Section 3.2, for which the
Stockholders severally (and not jointly)), agrees to indemnify Purchaser and its
Affiliates (and their respective officers and directors) of Purchaser (which
shall specifically include the Company) (each a "Purchaser Indemnitee") against
and hold them harmless from any and all Damages which may be asserted against,
imposed upon or sustained by a Purchaser Indemnitee by reason of or arising out
of the breach, default, inaccuracy or failure of any of the warranties,
representations, covenants or agreements of the Company or the Stockholders
contained in this Agreement or in any certificate or instrument required to be
delivered pursuant hereto.
Notwithstanding anything contained in this Agreement to the contrary;
(i) the representations and warranties in Section 3.2 are made by each
Stockholder only with respect to himself and not any other Stockholder; (ii) as
to other indemnification obligations of the Stockholders, the liability of the
Stockholders shall be proportionate (i.e., each Stockholder shall only be liable
for one-third (1/3rd) thereof); and (iii) subject to the right of the Purchaser
to recover fees from the Company, pursuant to Section 12.2 hereof, the
Stockholders shall have no liability of any sort under this Agreement unless and
until the Closing under this Agreement is actually consummated, (which post
Closing liabilities shall be limited as set forth herein). The Purchaser shall
be responsible for any and all reasonable legal and other costs and expenses
paid or incurred by the Stockholders (or any of them) in enforcing the foregoing
limitation on liability.
11.2 Indemnification by Purchaser.
----------------------------
(a) From and after Closing, subject to the terms, conditions
and limitations set forth herein, Purchaser agrees to
indemnify each Stockholder and every Affiliate of such
Stockholder (each a "Stockholder Indemnitee") and hold
them harmless from and against any and all Damages which
may be asserted against, imposed upon or sustained by a
Stockholder Indemnitee at any time by reason of or
arising out of (i) the breach, default, inaccuracy or
failure of any warranties, representations, conditions,
covenants or agreements of Purchaser contained in this
Agreement or in any certificate, instrument or document
delivered pursuant hereto, or (ii) the ownership of the
Purchaser Common Stock by the Stockholders after Closing
solely from such ownership.
(b) The Purchaser shall further indemnify and hold harmless
the Stockholders, the Company and its officers,
directors, employees, and each person, if any, who
controls the Company within the meaning of the Act,
against, and pay
or reimburse any such person for, any and all losses,
claims, damages or liabilities or expenses whatsoever
(or actions, proceedings or investigations in respect
thereof) to which the Company or any such person may
become subject under the Act or otherwise (which will,
for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and
all reasonable attorneys' fees, including appeals),
whether such losses, claims, damages, liabilities or
expenses shall result from (A) any claim of the Company,
any of its officers, directors, employees, or any person
who controls the Company within the meaning of the Act
or any third party, insofar as such losses, claims,
damages or liabilities are based upon any untrue
statement or alleged untrue statement of any material
fact contained in any registration statement, amendment,
supplement, prospectus or other disclosure, including
those relating to the Proposed Public Offering, or filed
by the Purchaser upon exercise of the Registration
Rights set forth in Section 2.3 hereof, unless such
untrue statement or alleged untrue statements were made
in such registration statement, amendment, supplement,
prospectus or other disclosure primarily in reliance (to
the extent permitted by this Agreement) upon information
furnished to Purchaser in connection therewith by the
Company or a Stockholder, or (B) any violations by the
Purchaser of the Act or state securities laws. The
Purchaser shall reimburse the Company or any such person
for any legal or other expenses reasonably incurred in
connection with investigating or defending against any
such claim, damage, liability or action, proceeding or
investigation to which such indemnity obligation
applies, and such indemnity obligations shall be in
addition to any liability of the Purchaser herein or
otherwise at law or equity. The obligations of the
Purchaser under this Section 11.2(b) shall survive the
termination of this Agreement for any reason prior to
Closing.
11.3 Procedures for Third-Party Claims.
---------------------------------
(a) If any Indemnitee receives written notice of the
assertion of any claim or of the commencement of any
action or proceeding by any Governmental Authority or
any person or entity who is not a party to this
Agreement (a "Third Party Claim") against or affecting
such Indemnitee, and if such assertion were presumed to
be true (regardless of the actual outcome) then a party
could be obligated to provide indemnification under this
Agreement as a result of or in connection with such
claim, action or proceeding, such Indemnitee will give
such Indemnifying Party reasonably prompt written notice
thereof, but in any event no later than thirty (30)
calendar days after receipt of such written notice of
such Third Party Claim; provided however, that failure
to give notice as provided in this paragraph (a) shall
not relieve the Indemnifying Party of its
indemnification obligations under this Article XI except
to the extent that such Indemnifying Party is actually
prejudiced by such failure. Said written notice to the
Indemnifying Party shall set forth the basis of the
Third Party Claim in reasonable detail and include
copies of all pertinent correspondence relating to such
Third Party
Claim. The Indemnifying Party (which, in the case of any matter for
which the Stockholders are severally liable and for purposes of this
Section 11.3 shall act as a single group) will have the right to
assume and control the defense of any Third Party Claim at such
Indemnifying Party's sole expense and by such Indemnifying Party's own
counsel (which counsel must be reasonably satisfactory to the
Indemnitee), by giving written notice to the Indemnitee (the "Notice
to Defend") no later than thirty (30) calendar days after receipt of
the above-described notice of such Third Party Claim. The Indemnitee
also will have the right to participate in the defense of any Third
Party Claim assisted by counsel of its own choosing, but all fees and
expenses of such counsel shall be paid by the Indemnitee. The
Indemnifying Party and the Indemnitee will reasonably cooperate with
each other in good faith in such defense and make available all
employees and books and records in its control as reasonably deemed
necessary with respect to such defense (but not to the extent that
would require waiver of any privilege). If the Indemnitee does not
receive from the Indemnifying Party a Notice to Defend with respect to
a Third Party Claim or a written notice of objection to the claim for
indemnification specifying in reasonable detail the basis for the
objection within the thirty (30) day period described above, the
Indemnitee may, at its option, elect to solely defend the Third Party
Claim assisted by counsel of its own choosing, and the Indemnifying
Party will be liable for all reasonable costs and expenses, and all
settlement amounts (subject to and in accordance with paragraph (c)
below of this Section 11.3) or other liabilities, losses, damages and
injuries paid or incurred in connection therewith to the extent such
claim is or would have been indemnifiable under this Agreement if such
claim is or had been proved.
(b) If, within the thirty (30) day period set forth in paragraph (a) above
of this Section 11.3, an Indemnitee receives a Notice to Defend from
an Indemnifying Party with respect to any Third Party Claim, the
Indemnifying Party will not be liable for any legal expenses of the
Indemnitee incurred after receipt by the Indemnitee of such Notice to
Defend.
(b) In the event there is a dispute between the Indemnifying Party and
Indemnitee concerning whether a Third Party Claim should be contested,
settled or compromised, it shall be settled, compromised or contested,
in accordance with the next succeeding sentences; provided, however,
-------- -------
that the Indemnitee, or its respective successors or assigns, shall
neither be required to refrain from paying or satisfying any claim
which has matured by court judgment or decree, unless appeal is taken
thereafter and proper appeal bond posted by the Indemnifying Party,
nor shall the Indemnitee be required to refrain from paying or
satisfying any Third Party Claim after and to the extent that such
Third Party Claim has resulted in an unstayed injunction. The
Indemnifying Party shall not, without the Indemnitee's prior written
consent, not to be unreasonably withheld, settle or compromise any
action or claim or consent to the entry of any judgment with respect
to any action, claim or proceeding.
Subject to the foregoing, in the event that the Indemnifying Party, on
the one hand, or the Indemnitee, on the other hand, has reached a good
faith, bona fide settlement, agreement or compromise, subject only to
approval hereunder, with any claimant regarding a matter which may be
the subject of indemnification hereunder and desires to settle on the
basis of such agreement or compromise, such party who desires to so
settle or compromise shall notify the other party in writing of its
desire setting forth the terms of such settlement or compromise (the
"Notice of Settlement"). The Third Party Claim may be settled or
compromised on such basis unless within twenty (20) days of the
receipt of the Notice of Settlement the party who issued the Notice of
Settlement receives a notice from the other party of its desire to
continue to contest the matter (the "Notice to Contest") and, in such
case:
(i) Should the Indemnitee deliver a Notice to Contest, the claim
shall be so contested and the liability of the Indemnifying
Party shall be limited as provided in clause (iii) below;
(ii) If the settlement or compromise could result in a further claim
for indemnification being made against the Indemnifying Party
and if the Indemnifying Party delivers the Notice to Contest,
the claim shall be so contested and the liability of the
Indemnitee shall be limited as provided in clause (iii) below;
and
(iii) If a matter is contested as provided in clauses (i) or (ii)
above and is later adjudicated, settled, compromised or
otherwise disposed of and such adjudication, compromise,
settlement or disposition results in a liability, loss, damage
or injury in excess of the amount for which one party desired
previously to settle the matter, then the liability of such
party shall be limited to such lesser proposed settlement amount
(plus attorney's fees and expenses to the date of the proposed
but unapproved settlement to the extent provided for in
paragraphs (a) and (b) above) and the party contesting the
matter shall be solely responsible for any additional amount.
11.4 Direct Claim. Any claim for which an Indemnitee intends to assert a
------------
right to indemnifiable Damages under this Agreement which does not
result from a Third-Party Claim (a "Direct Claim") shall be asserted
by giving each Indemnifying Party reasonably prompt written notice
thereof, and each Indemnifying Party shall have a period of thirty
(30) calendar days within which to respond to such Direct Claim. If
any Indemnifying Party does not so respond within such thirty (30)
calendar day period, such Indemnifying Party shall be deemed to have
rejected such claim, in which event the Indemnitee shall be free to
pursue such remedies as may be available to the Indemnitee pursuant to
this Agreement. A failure to give timely notice as provided in this
Section 11.4 shall not affect the rights or obligations of any party
hereunder except and only to the extent that, as a result of such
failure, any party which was entitled to receive such notice was
deprived of its right to recover any
payment under its applicable insurance coverage, incurred an
obligation or liability which otherwise would have been avoided, or
was otherwise actually prejudiced.
11.5 Limitations of Indemnification Obligations.
------------------------------------------
(a) All warranties, representations, conditions, covenants,
agreements and undertakings of the parties under this Agreement
shall survive the consummation of the Closing hereunder;
provided, however, claims by the Purchaser Indemnitees against
the Stockholders for the breach of any warranty or representation
contained in Article III hereof and claims by Stockholder
Indemnitees against Purchaser for the breach of any warranty or
representation contained in Article IV hereof shall survive only
for 12 months following the Closing Date. All other obligations
shall be unlimited as to duration. Any claims for indemnification
based upon any such breach which are pending on or asserted or
identified prior to the expiration of the 12 month time period
specified above may continue to be made and indemnified against
pursuant to this Agreement and the Escrow Agreement and the
related obligation to indemnify shall not terminate.
(b) Losses Net of Insurance, Etc. The amount of any Damages suffered
----------------------------
as a result of an injury to an Indemnitee for which
indemnification is available hereunder, shall be net of any
insurance proceeds, if any, actually received by the Indemnitee
in respect of such injury and (i) increased to take account of
any net tax cost incurred by the Indemnitee arising from the
receipt of indemnity payments hereunder (grossed up for such
increase and any tax consequences resulting from any payments
pursuant to this Section 11.5(b)) and (ii) reduced to take
account of any net tax benefit realized by the Indemnitee arising
from the incurrence or payment of any such Damage. In computing
the amount of any such tax cost or tax benefit, the Indemnitee
shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising
from the receipt of any indemnity payment hereunder or the
incurrence or payment of any indemnified Damages. Any indemnity
payment under this Agreement shall be treated as an adjustment to
the Purchase Price for tax purposes, unless a final determination
(which shall include the execution of a Form 870-AD or successor
form) with respect to the Indemnitee or any Affiliate of such
Indemnitee causes any such payment not to be treated as an
adjustment to the Purchase Price for Federal tax purposes. The
purpose of this Section 11.5(b) is to put the Indemnitee in such
a position as if the Damage for which indemnification is provided
hereunder had not occurred.
(c) Exclusive Remedy. The parties acknowledge and agree that after
----------------
the Closing the indemnities set forth in this Article XI shall be
the sole and exclusive remedy for breach, default, inaccuracy or
failure of any of the warranties, representations, conditions,
covenants or agreements contained in this Agreement and in any
certificates or documents delivered pursuant hereto,
except in the case of judicially determined fraud, intentional or
willful misrepresentation or breach, equitable remedies and
except that the Stockholders shall have the right to seek
specific performance and/or to pursue any and all remedies
available at law or in equity (all of which shall be cumulative)
in connection with any failure of the Purchaser to perform its
obligations under Sections 2.2(a)(B), 2.3 and/or 2.4. The
foregoing is not intended to limit or in any way affect the
respective rights and obligations of the parties under the Escrow
Agreement and/or the employment agreements and consulting
agreement entered into by the Purchaser.
(d) No Lost Profits. Notwithstanding anything to the contrary in
---------------
this Agreement, except for any breach of Purchaser's obligations
under Sections 2.2(a)(B), 2.3 and 2.4 hereof, in no event will
any party hereto have any liability under this Agreement to any
other party hereto for consequential, indirect or incidental
damages of any kind or nature or lost profits.
(e) Maximum Indemnification by Purchaser. With respect only to claims
------------------------------------
by Stockholder Indemnitees against Purchaser for indemnification
based upon breaches defaults or inaccuracies of the warranties
and representations contained in Article IV, there shall be an
aggregate limitation of $2,070,000.00. There shall be no
limitation on Purchaser's liability for, or in connection with,
any of its other obligations under this Agreement.
11.6 Recourse for Indemnification by the Stockholders.
------------------------------------------------
(a) To induce the Purchaser and the Stockholders to enter into this
Agreement and to serve as the sole recourse for the indemnity obligations of the
Stockholders under this Article XI (except as set forth in Sections 11.6(e) and
11.7), the Purchaser shall have a right of set-off against the shares of
Purchaser Common Stock to be issued to the Stockholders (to be exercised prior
to their issuance) to enforce the Stockholders' obligations and the Purchaser
Indemnitees collective rights. Except for breaches referred to in Section
11.6(e), said right of set-off shall be exercised equally with respect to each
of the Stockholders (i.e., one-third (1/3/rd/) against the Purchaser Common
Stock to be issued to each Stockholder.
(b) Notwithstanding anything contained in this Agreement (or in any
instrument or document delivered pursuant hereto; provided, however that the
-----------------
parties agree and acknowledge that Purchaser shall have rights against the
Escrow Payment (to the extent and as provided in the Escrow Agreement) and
Purchaser shall have certain indemnification rights under the related Employment
Agreements and the Consulting Agreement) to the contrary, Purchaser hereby
acknowledges and agrees as follows, except as and to the extent provided in (e)
below with respect to any breach of the representations and warranties contained
in Section 3.2 hereof, that:
(i) the Stockholders shall have no personal liability of any
sort under or in connection with this Agreement and/or any
related instrument or document;
(ii) after the Closing, the sole and exclusive right, remedy and
recourse of the Purchaser, any Purchaser Indemnitee and/or
any other person claiming by, through or under the
Purchaser for the enforcement of breach, default,
inaccuracy or failure of any of the warranties,
representations, conditions, covenants or agreements on the
part of any of the Company or the Stockholders (and/or for
any other obligation of any of the Company or the
Stockholders) in, under, pursuant to or in connection with
this Agreement and/or any instrument or document made or
delivered pursuant thereto, whether for Damages or other
legal or equitable relief, and whether based upon contract,
tort, fraud, or upon any other theory of law, shall be said
right of set-off against the Purchaser Common Stock to be
issued pursuant to Section 2.2(a)(B).
(iii) the Purchaser, for itself and its successors and assigns,
and any Purchaser Indemnitees hereby irrevocably waive and
relinquish any and all right to pursue any Action relating
to this Agreement of any kind or nature against the
Stockholders or any of their respective assets other than
an Action against the Purchaser Common Stock as aforesaid;
(iv) the limitations on the liability of the Stockholders set
forth herein were a material inducement to the Stockholders
entering into this Agreement, and but for said limitations,
the Stockholders would not have entered into this
Agreement; and
(v) Purchaser shall be responsible for any and all reasonable
legal and other costs and expenses paid or incurred by the
Stockholders (or any of them) in enforcing the foregoing
limitations on liability.
(c) Purchaser shall have the right (pending judicial determination or
mutual agreement as to the amount of claimed Damages for which set-off may be
made) to set-off from the number of shares owed to the Stockholders pursuant to
Section 2.2(a)(B) hereto a number of shares equal to (x) any and all Damages
which may be asserted against, imposed upon or sustained by a Purchaser
Indemnitee by reason of or arising out of the breach, default, inaccuracy or
failure of any of the warranties, representations, covenants or agreements of
the Company or the Stockholders contained in this Agreement or in any
certificate or instrument required to be delivered pursuant hereto divided by
(y) the Fair Market Value of the shares of Purchaser Common Stock as of the
first anniversary of the Closing Date
(d) For purposes of this Agreement, shares of Purchaser Common Stock
shall be deemed to have a "Fair Market Value" per share equal to the daily
average of the volume-weighted average trading price per share of Purchaser
Common Stock as quoted by Bloomberg (or if Bloomberg service is not available,
the daily average closing bid price per share as reported on the Nasdaq) for
each trading day of the most recent period of twenty consecutive trading days
ending prior to the date of determination.
(e) In the event any Stockholder breaches any of such Stockholder's
representations or warranties contained in Section 3.2, such Stockholder (but
not any of the other Stockholders) shall be liable for any and all Damages which
are actually sustained by a Purchaser
Indemnitee by reason of such breach. With respect to such Damages only,
Purchaser shall have the right to recover against the Purchaser Common Stock and
against such Stockholder personally.
11.7 WorldCom Dispute.
----------------
(a) Unless on or prior to the first anniversary of the Closing Date the
WorldCom Dispute has been adjudicated, arbitrated or settled in the favor of the
Company or in the favor of WorldCom for an amount less than or equal to
$365,000, then, as an adjustment of the Purchase Price, Purchaser shall have the
right to recover against certain portions of the Escrow Payment and set-off from
the Purchaser Common Stock to be issued to the Stockholders as follows:
(i) If on the first anniversary of the Closing Date the
WorldCom Dispute has not been adjudicated, arbitrated or settled then Purchaser
shall be entitled to $770,860.35 ($1,135,860.35 less $365,000) to be recovered
pursuant to Section 11.7(a)(iii) below.
(ii) If on or prior to the first anniversary of the Closing Date
the WorldCom Dispute has been adjudicated, arbitrated or settled in favor of
WorldCom for an amount greater than $365,000 then Purchaser shall be entitled to
the amount of such adjudication, arbitration or settlement plus reasonable
attorneys' fees and costs and related consulting fees less $365,000 to be
recovered pursuant to Section 11.7(a)(iii) below as of the date of such
adjudication, arbitration or settlement.
(iii) Any amount to be recovered pursuant to Section (i) and (ii)
shall be exclusively recovered equally (i.e., one-half) from the Escrow Payments
and from set-offs from the Purchaser Common Stock based on the Fair Market Value
of the Purchaser Common Stock.
(b) Said right of recovery against the Escrow Payment and right of set-off
from the Purchaser Common Stock to be issued shall be the sole remedy for
Purchaser, and in no case shall any Stockholder be personally liable with
respect to any such amounts recoverable in connection with the WorldCom
Dispute.
(c) The obligations of the Stockholders and the rights of the Purchaser
under this Section 11.7 are conditioned upon (i) Purchaser vigorously defending
the WorldCom Dispute and vigorously pursuing its counterclaims in connection
therewith, all with counsel reasonably acceptable to the Stockholders (it being
agreed that Parcel, Mauro & ▇▇▇▇▇▇▇▇▇, P.C. is acceptable to the Stockholders),
and (ii) ▇▇▇▇ ▇▇▇▇▇ being authorized to pursue the settlement of the WorldCom
Dispute with WorldCom on terms reasonably acceptable to Purchaser, and (iii)
Purchaser shall not settle the WorldCom Dispute prior to the first anniversary
of the Closing Date without the prior written consent of the Stockholders, which
consent shall not be unreasonably withheld.
(d) If WorldCom offers or agrees (or otherwise indicates its willingness)
to settle the WorldCom Dispute for the payment of a sum certain, regardless of
whether the Purchaser or the Company accepts said offer or agreement or
consummates said settlement, then, at the option of the
Stockholders, the WorldCom Dispute shall be deemed to have been settled for said
sum certain; provided, however that if such offer, agreement or indication of
-----------------
settlement contains additional conditions (i.e. other than the payment of money
and delivery of a release) that Purchaser reasonably deems commercially
unreasonable, then the Stockholders shall not have the option to deem the
WorldCom Dispute settled unless such offer, agreement or indication of
settlement is actually accepted by Purchaser or the Company; provided, further
--------- -------
that if the Company or Purchaser attempts on a timely basis to settle with
WorldCom based on such offer, agreement or indication of WorldCom, Inc.'s
willingness to settle the WorldCom Dispute for the payment of a sum certain and
the Company or Purchaser is unable to complete such settlement solely because
WorldCom withdraws or materially changes such offer, agreement or indication,
then the Stockholders shall not have the option to deem the WorldCom Dispute
settled.
(e) In the event that after the first anniversary of the Closing Date, but
before the second anniversary of the Closing Date, the WorldCom Dispute is
settled or otherwise satisfied for less than $1,135,860.35, then the Purchaser
shall promptly (but in any event within 30 days) pay and provide to the
Stockholders the sums recovered from the Escrow Payment and the number of shares
of Purchaser Common Stock set-off against in excess of such amounts as Purchaser
would have been entitled to recover and set-off had the WorldCom Dispute been
settled for said amount prior to said first anniversary. In the event the
Stockholders have exercised their demand registration right under Section 2.3
prior to the issuance and delivery of such additional shares of Purchaser Common
Stock pursuant to this Subsection, then the Stockholders shall not be entitled
to a second demand registration right with respect to such shares of Purchaser
Common Stock.
11.8 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations, warranties, covenants, indemnities, conditions and
agreements contained herein are and will be deemed to be continuing
representations, warranties, covenants, indemnities, conditions and
agreements that survive the Closing and remain in full force and
effect regardless of any investigations or knowledge of or on behalf
of any party, but subject to the applicable limitations contained in
this Article XI.
11.9 Third Parties. It is the intention and agreement of the parties that
-------------
the obligations of the Stockholders to the Purchaser under this
Article XI do not and will not create any rights whatsoever in any
third parties other than the Purchaser Indemnitees and Stockholder
Indemnitees; provided, however that the Purchaser Indemnitees and
Stockholder Indemnitees shall not have any rights or remedies under
this Agreement beyond those granted to the Purchaser and the
Stockholders, respectively.
ARTICLE XII
TERMINATION
12.1 Termination of this Agreement.
-----------------------------
(a) In the event that for any reason the Closing shall not have
occurred on or before June 30, 1998 (the "Termination Date"),
then the Company and the Stockholders or Purchaser shall have the
right (regardless of whether such person or persons is in
material breach of its obligations under this Agreement),
exercisable at any time after such date by notice in writing, to
terminate this Agreement and its obligations hereunder.
(b) In the event that, on or prior to the Termination Date, any Party
(the "Breaching Party") is in material breach of its or their
obligations under this Agreement (and such breach cannot
reasonably be expected to be cured by the Breaching Party prior
to the Termination Date, or the Breaching Party is not taking
reasonable efforts to cure such breach, and, in either event,
such breach is not waived), then, so long as any other Party (the
"Non-Breaching Party") entitled to the benefit of such
obligations is not in default of its or their obligations under
this Agreement, the Non-Breaching Party shall have the right, as
its sole and exclusive remedy in event of such breach, to
terminate this Agreement pursuant to this Article XII (unless
such breach is or has been cured prior to the giving of such
notice of termination). The failure of the Proposed Public
Offering to be completed shall not constitute a material breach
of this Agreement so long as Purchaser uses its best efforts to
cause such Registration Statement to become effective. The sole
remedy of the Company and the Stockholders in the event of such a
failure of the Proposed Public Offering to be completed shall
that described in Section 12.2(a)(i). Failure by the Purchaser to
timely pay any Standstill Payment shall constitute material
breach by the Purchaser.
(c) If any party attempts to terminate this Agreement for any reason
other than those contained in Section 12.1(a) or (b), such
termination shall constitute a material breach of this Agreement
by the terminating party.
12.2 Effect of Termination.
---------------------
(a) Termination by Stockholders or the Company. Notwithstanding
------------------------------------------
anything contained in this Agreement or in the Standstill
Agreements to the contrary, if this Agreement is terminated by
any of the Stockholders or the Company: (i) pursuant to Section
12.1(a) then Purchaser shall forfeit and the Company shall retain
any Standstill Payments paid by Purchaser as liquidated damages
to the Company, or (ii) pursuant to Section 12.1(b) then
Purchaser shall forfeit and the Company shall retain any
Standstill Payments paid by
Purchaser and Purchaser shall pay to the Company a fee equal to
$150,000 as liquidated damages to the Company; and thereupon, in
each such case, the parties shall be released of all further
liabilities under this Agreement.
(b) Termination by Purchaser. Notwithstanding anything contained in
------------------------
this Agreement or in the Standstill Agreements to the contrary,
if this Agreement is terminated by Purchaser: (i) pursuant to
Section 12.1(a) then Purchaser shall forfeit and the Company
shall retain any Standstill Payments paid by Purchaser as
liquidated damages to the Company, or (ii) pursuant to Section
12.1(b) then the Company shall return all Standstill Payments to
Purchaser and the Company shall pay to Purchaser a fee equal to
$150,000 as liquidated damages to Purchaser; and thereupon, in
each case, the parties shall be released of all further
liabilities under this Agreement.
12.3 Sole Remedy for Termination. The remedies provided in Section 12.2(a)
---------------------------
and (b) shall constitute the sole and exclusive rights and remedies of
the Purchaser, on one hand, and of the Company and the Stockholders,
on the other, against the other in the event of any termination of
this Agreement by any party for any reason and/or breach of this
Agreement by any party prior to the consummation of the Closing under
this Agreement. Notwithstanding anything contained in this Agreement
to the contrary, except for the right of Purchaser to terminate this
Agreement under Section 12.1(b) above and to receive the return of the
Standstill Payments and receive payment of $150,000 from the Company
as provided in Section 12.2 above, Purchaser hereby acknowledges and
agrees that it shall have no right to seek or pursue damages, specific
performance and/or any other rights or remedies, whether at law or in
equity, against the Company and/or against any of the Stockholders for
or on account of or in connection with any breach of or failure or
refusal to perform any of their respective obligations under this
Agreement (regardless of whether such breach or failure or refusal to
perform is intentional or unintentional). Notwithstanding anything
contained in this Agreement to the contrary, except for the right of
the Company or the Stockholders to terminate this Agreement under
Section 12.1(a) or (b) above and to retain the Standstill Payments
and/or receive payment of $150,000, as the case may be, from Purchaser
as provided in Section 12.2 above, the Company and the Stockholders
hereby acknowledge and agree that it shall have no right to seek or
pursue damages, specific performance and/or any other rights or
remedies, whether at law or in equity, against Purchaser for or on
account of or in connection with any breach of or failure or refusal
to perform any of its obligations under this Agreement (regardless of
whether such breach or failure or refusal to perform is intentional or
unintentional). The parties acknowledge that the foregoing limitations
on the liability of the parties hereto and on the rights and remedies
of the other parties are a material inducement to the parties entering
into this Agreement. Purchaser shall be responsible for any and all
reasonable legal and other costs and expenses paid or incurred by the
Company or the Stockholders (or any of them) in enforcing the
foregoing limitations on their liability. The Company and the
Stockholders shall be responsible for any and all reasonable legal and
other costs and expenses paid or incurred by the Purchaser in
enforcing the foregoing limitations on its liability.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement. This Agreement, which also includes the Exhibits
----------------
and Schedules hereto, sets forth the entire agreement and
understanding among the parties and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature
among them as to the subject matter hereof, and no party shall be
bound by any condition, definition, warranty or representation other
than as expressly provided for in this Agreement or as may be on a
date on or subsequent to the date hereof duly set forth in writing
signed by each party which is to be bound thereby. Except as otherwise
expressly provided herein, the foregoing is not intended to supersede
or otherwise affect the respective rights and obligations of the
parties under the Standstill Agreement dated October 31, 1997, the
Reciprocal Telecommunications Agreement or the Confidentiality
Agreement.
13.2 Amendments. This Agreement (including the Exhibits and Schedules
----------
hereto) shall not be changed, modified or amended except by a writing
signed by each party to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a
writing signed by each party to be charged. The rights and remedies of
the parties hereunder are cumulative and not exclusive of any other
right or remedy any party may have. No failure or delay by any party
hereto in exercising any right, power or privilege shall operate as a
waiver of any such right, power or privilege, except as expressly set
forth in this Agreement. No waiver of any default shall constitute a
waiver of any other or any subsequent default. No single or partial
exercise of any right, power or privilege shall preclude the further
or other exercise of the same or other right, power or privilege.
13.3 Governing Law. THIS AGREEMENT AND ITS VALIDITY, CONSTRUCTION AND
-------------
PERFORMANCE SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE
OF DELAWARE WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
13.4 Representation by Counsel. Each party and its counsel cooperated in
-------------------------
the drafting and preparation of this Agreement and the documents
referred to herein. Accordingly, any rule of law or any legal decision
that would require interpretation of any ambiguities in this Agreement
against the party that drafted it is of no application and is hereby
expressly waived by each party.
13.5 Benefit of Parties; Assignment. This Agreement shall be binding upon
------------------------------
and shall inure to the benefit of the parties hereto and their
respective successors, legal representatives and permitted assigns.
The Agreement may not be assigned by any party except with the prior
written consent of other parties hereto. Nothing herein contained
shall confer or is intended to confer on any third party or entity
which is not a party to this Agreement any rights under this
Agreement, except as provided in Section 11.8.
13.6 Expenses. Except as specifically provided otherwise in this
--------
Agreement, or as otherwise agreed in writing by any party (e.g., the
Purchaser has previously agreed, in writing, to pay certain fees to
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ & Company, LLP, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. and ▇▇▇▇
▇▇▇▇▇▇▇, CPA, and the failure by the Purchaser to timely pay any such
sums in accordance with said agreement shall be a material default by
the Purchaser under this Agreement), each party will pay its own
expenses incident to this Agreement and the transactions contemplated
hereby, including legal and accounting fees.
After the date hereof, the Company shall not incur any material fees or
expenses on behalf of the Stockholders in connection with the transactions
contemplated by this Agreement; provided, however that nothing contained in this
or any other Section of this Agreement shall prohibit or affect the right of the
Company to pay, after the date hereof and prior to or at the Closing, any of the
following: (i) accounting and other reasonable fees to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ &
Company, LLP and/or ▇▇▇▇ ▇▇▇▇▇▇▇, CPA; or (ii) up to a total of $50,000 of the
legal fees incurred by the Company and/or the Stockholders in connection with
this Agreement and/or the transactions contemplated hereby which are payable to
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C. and/or ▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
13.7 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original instrument and all of which
shall constitute one and the same instrument.
13.8 Headings. The headings in the Sections, paragraphs, Schedules and
--------
Exhibits of this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
13.9 Notices. All notices, requests, demands and other communications
-------
provided for by this Agreement shall be in writing and shall be deemed
to have been given when hand delivered, when received if sent by
telecopier or by same day or overnight recognized commercial courier
service or three business days after being mailed in any general or
branch office of the United States Postal Service, enclosed in a
registered or certified postpaid envelope, addressed to the address of
the parties stated below or to such changed address as such party may
have fixed by notice:
To a Stockholder: ▇▇▇▇▇ Family, LLC
c/o ▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇▇, #▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
To the Company: International Telephone Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
To Purchaser: Communications Systems International, Inc.
▇ ▇. ▇▇▇▇▇▇ ▇▇▇., #▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Parcel, Mauro & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
provided, that any notice of change of address shall be effective only upon
receipt.
13.10 No Offer. This Agreement is submitted to the parties for examination
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only and it shall not be considered an offer and shall not bind any
party in any way unless and
until (a) Purchaser has duly executed and delivered duplicate
originals of this Agreement to the Company and the Stockholders, and
(b) the Company and the Stockholders have duly executed and delivered
at least one of said originals to the Purchaser.
13.11 Further Assurances. After the Closing, each party hereto shall from
time to time, at the request of any other party hereto and without
further cost or expense to such other party, execute and deliver such
other instruments of conveyance and transfer and take such other
actions as such other party may reasonably request in order to more
effectively consummate the transactions contemplated hereby and
perfect such party's rights and interests hereunder.
13.12 Access By Stockholders After Closing. Subject to applicable
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securities laws, from and after the Closing, until such time as the
Stockholders no longer own any Purchaser Common Stock, Purchaser will
give the Stockholders and their respective attorneys, accountants and
representatives, reasonable access to all properties, documents,
contracts, books and records of the Company for any reasonable
purpose, (which, to the extent commercially reasonable, Purchaser
hereby agrees to keep and maintain for a period of at least five
years after the Closing), and will furnish the Stockholders with
copies of such documents and with such other information respecting
the Company as Seller may from time to time reasonably request;
provided, however that prior to granting such access the Stockholders
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shall enter into such confidentiality agreements as Purchaser may
reasonably request with respect to such documents and information.
13.13 Time of Essence. Time is of the essence under this Agreement.
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IN WITNESS WHEREOF, Purchaser, the Company and each of the Stockholders
have caused this Agreement to be duly executed on the day and year first above
written.
COMMUNICATIONS SYSTEMS
INTERNATIONAL, INC.
By:_________________________________
Name:____________________________
Title:___________________________
INTERNATIONAL TELEPHONE COMPANY
By:_________________________________
Name:____________________________
Title:___________________________
STOCKHOLDERS:
▇▇▇▇▇ FAMILY, LLC
By:_________________________________
▇▇▇▇ ▇. ▇▇▇▇▇, Manager
____________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
____________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇
Exhibit A
Form of Escrow Agreement
Exhibit B
Form of Consulting Agreement
Exhibit C
Form of Employment Agreement
Exhibit D
Officer's Certificate
Exhibit E
Officer's Certificate
Exhibit F
Registration Statement Information