Exhibit 2.12
ASSET PURCHASE AGREEMENT
Agreement made as of October 15, 1999 by and between DURO Communications,
Inc., a Delaware corporation ("Buyer"), Bitstorm, Inc., a Florida corporation,
(formerly known as Bitstorm Internet Services, Inc.) ("Seller"), and each of ▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ as the principal shareholders of the Seller (collectively
the "Principal Shareholders").
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell, transfer and assign to Buyer, and Buyer desires to purchase from Seller,
all of the properties, rights and assets used or useful in connection with
Seller's Internet service business (the "Business"),
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Upon the terms and subject to the conditions set forth
in this Agreement, and the performance by the parties hereto of their respective
obligations hereunder, Seller agrees to sell, assign, transfer and deliver to
Buyer, and Buyer agrees to purchase from Seller, all of Seller's right, title
and interest in and to all of the properties, assets and business of the
Business of every kind and description, tangible and intangible, real, personal
or mixed, and wherever located, but excluding the Excluded Assets (as defined in
Section 1.2 below), including, without limitation, the following:
(a) Equipment. All free standing kiosks, servers, routers, modems,
computers, electronic devices, test equipment and all other fixed assets,
equipment, furniture, fixtures, leasehold improvements, parts, accessories,
inventory, office materials, software, supplies and other tangible personal
property of every kind and description owned by Seller and used or held for use
in connection with the Business, all as set forth on Schedule 1.1(a) attached
hereto (collectively, "Equipment");
(b) Contracts. All of the rights of Seller under, and interest of
Seller in and to, all contracts relating to the Business (other than the
Excluded Contracts (as defined in Section 1.2(b) below)), including, without
limitation, original contracts for the provision of Internet connectivity,
dedicated service, web-hosting, web-domain, dial-up services, web- development
and Internet commerce, all leases with respect to real property and all
co-location agreements, a true, correct and complete list of which contracts is
attached hereto as Schedule 1.1(b) (collectively, the "Contracts");
(c) Intellectual Property. All of Seller's Intellectual Property (as
defined in Section 2.20), as set forth on Schedule 1.1(c) attached hereto;
(d) Licenses and Authorizations. All rights associated with the
licenses, licensing agreements, permits, easements, registrations, domains, IP
addresses and authorizations issued or granted to Seller by any governmental
authority with respect to the operation of the Business, including, without
limitation, those licenses and authorizations listed
on Schedule 1.1(d) attached hereto, and all applications therefor, together with
any renewals, extensions, or modifications thereof and additions thereto;
(e) Current Assets; Accounts Receivable. All current assets of
Seller (the "Current Assets"), including all cash, prepaid expenses, security
deposits, advance payments, inventory and all accounts receivable of Seller
incurred in the ordinary course of business and included on Seller's balance
sheet as of the Closing Date, as determined in accordance with generally
accepted accounting principles ("GAAP"), consistently applied; a complete list
of such accounts receivable is attached hereto as Schedule 1.1(e) ("Accounts
Receivable");
(f) Goodwill. All of the goodwill of Seller in, and the going
concern value of, the Business, and all of the business and customer lists,
proprietary information, and trade secrets related to the Business; and
(g) Records. All of Seller's customer logs, location files and
records, employee records, and other business files and records, in each case
relating to the Business.
The assets, properties and business of Seller being sold to and purchased
by Buyer under this Section 1.1 are referred to herein collectively as the
"Assets."
1.2 Excluded Assets. There shall be excluded from the Assets and retained
by Seller, to the extent in existence on the Closing Date, the following assets
(the "Excluded Assets"):
(a) Other Assets. All other assets of Seller which are not used or
held for use in connection with the Business or otherwise necessary to the
operation of the Business now or after the Closing Date and which are set forth
on Schedule 1.2(a) attached hereto;
(b) Excluded Contracts. All of Seller's right, title and interest
in, to and under the Contracts listed on Schedule 1.2(b) attached hereto (the
"Excluded Contracts");
(c) Insurance. All of Seller's insurance contracts and all insurance
proceeds of settlement and insurance claims made by Seller on or before the
Closing Date as set forth on Schedule 1.2(c) attached hereto;
(d) Tax Items. All claims, rights and interest in and to any refunds
for federal, state or local Taxes (as defined in Section 2.4(a) below) for
periods prior to the Closing Date;
(e) Corporate Records. All of Seller's corporate and other
organizational records; and
(f) Bank Accounts. All of Seller's bank accounts.
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1.3 Assumed Liabilities; Excluded Liabilities; Employees.
(a) Assumed Liabilities. Buyer shall, on and as of the Closing Date,
accept and assume, and shall become and be fully liable and responsible for, and
other than as expressly set forth herein, Seller shall have no further liability
or responsibility for or with respect to, (i) liabilities and obligations
arising out of events occurring on and after the Closing Date related to Buyer's
ownership of the Assets and Buyer's operation of the Business after the Closing
Date; (ii) accounts payable, advance payments by Subscribers, accrued expenses,
all deferred revenues, ordinary recurring operating expenses, and any other
current liability of Seller as of the Closing Date (except the current portion
of any bank debt or line of credit to be paid pursuant to Section 1.5) included
on Seller's balance sheet, as determined in accordance with GAAP consistently
applied and de minimis ordinary recurring operating expenses that are not
included on Seller's balance sheet (the "Assumed Current Liabilities"); and
(iii) all obligations and liabilities of Seller which are to be performed after
the Closing Date arising under the Contracts, including, without limitation,
Seller's obligations to Subscribers (as defined in Section 2.16) under such
Contracts for (A) Subscriber deposits held by Seller as of the Closing Date in
the amount for which Buyer receives a credit pursuant to Section 1.6(a) below,
(B) Subscriber advance payments held by Seller as of the Closing Date for
services to be rendered in connection with the Business in the amount for which
Buyer receives a credit pursuant to Section 1.6(a) below, and (C) the delivery
of Internet connectivity service to Subscribers (whether pursuant to a Contract
or otherwise) after the Closing Date ((i), (ii) and (iii) together, the "Assumed
Liabilities"). The assumption of the Assumed Liabilities by Buyer hereunder
shall not enlarge any rights of third parties under contracts or arrangements
with Buyer or Seller or any of their respective affiliates or subsidiaries. No
parties other than Buyer and Seller shall have any rights under this Agreement.
(b) Excluded Liabilities. It is expressly understood that, except
for the Assumed Liabilities, Buyer shall not assume, pay or be liable for any
liability or obligation of Seller of any kind or nature at any time existing or
asserted, whether, known, unknown, fixed, contingent or otherwise, not
specifically assumed herein by Buyer, including, without limitation, any
liability or obligation relating to, resulting from or arising out of (i) the
Excluded Assets, including, without limitation, the Excluded Contracts, (ii) the
employees of the Business, including, without limitation, any obligation to
provide any amounts due to the employees under any pension, profit sharing or
similar plan, any bonus or other compensation plan, or related to vacation or
other similar employee benefits, or arising as a result of the transactions
contemplated hereby or (iii) any fact existing or event occurring prior to the
Closing Date or relating to the operation of the Business prior to the Closing
Date. The liabilities which are not assumed by Buyer under this Agreement are
hereinafter sometimes referred to as the "Excluded Liabilities."
(c) Employees, Wages and Benefits.
(i) Seller shall terminate all of its employees effective as
of the Closing Date and Buyer shall not assume or have any obligations or
liabilities with
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respect to such terminations, including, without limitation, any severance
obligation. Seller acknowledges and agrees that Buyer has the right to
interview and discuss employment terms and issues with such employees
prior to and after the Closing.
(ii) Buyer agrees to employ after the Closing all of Seller's
employees; provided, however, that nothing in this Agreement shall be
construed as a commitment or obligation of Buyer to continue the existing
terms of employment of, any of Seller's employees, and no employee shall
be a third-party beneficiary of this Agreement.
(iii) Seller shall pay all wages, salaries, commissions, and
the cost of all fringe benefits provided to its employees which shall have
become due for work performed as of and through the day preceding the
Closing Date, and Seller shall collect and pay all Taxes in respect of
such wages, salaries, commissions and benefits. Seller shall retain
liability for benefits to all individuals entitled to benefits required to
be provided by the continuation health care coverage requirements of
Section 4980B of the Internal Revenue Code of 1986, as amended (the
"Code") and Sections 601 and 607 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or similar state laws as of the
Closing, including, without limitation, with respect to any individual
entitled to such coverage prior to the Closing.
(iv) Seller acknowledges and agrees that Buyer shall not
acquire any rights or interests of Seller in, or assume or have any
obligations or liabilities of Seller under, any Employee Program (as
defined in Section 2.23 hereof) maintained by, or for the benefit of any
employees of Seller prior to the Closing Date, including, without
limitation, obligations for severance or vacation accrued but not taken as
of the Closing Date.
1.4 The Closing. The transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at 10:00 a.m., local time, at
the offices of ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ LLP, on the date on which all of the
conditions to closing set forth in Sections 6 and 7 of this Agreement have been
satisfied or waived, or at such other time and place as shall be mutually agreed
upon in writing by Buyer and Seller (the "Closing Date").
1.5 Purchase Price. In consideration of the sale by Seller to Buyer of the
Assets, and subject to the assumption by Buyer of the Assumed Liabilities and
satisfaction of the conditions contained herein, at the Closing, Buyer shall
deliver to Seller:
(a) Cash in an amount (as adjusted in accordance with Section 1.6
below, the "Cash Purchase Price") equal to $1,760,000 as follows:
(i) Buyer shall deliver to Seller by bank cashier's check or
bank wire transfer pursuant to payment instructions delivered by Seller to
Buyer at the
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Closing $1,584,000 plus or minus, as applicable, the Estimated Adjustment
(as defined in Section 1.6(c).
(ii) Buyer shall deposit the sum of $176,000 (the "Escrow
Deposit") with Boston Safe Deposit and Trust Company as Escrow Agent under
the Escrow Agreement in the form attached hereto as Exhibit A (the "Escrow
Agreement"). The Escrow Deposit shall be held, administered and
distributed in accordance with the terms of the Escrow Agreement, and
shall be a remedy of Buyer for any indemnification claims made pursuant to
Section 10 hereof.
1.6 Adjustments to Purchase Price.
(a) Net Working Capital. The Purchase Price shall be decreased, on a
dollar-for-dollar basis, by the amount of Seller's Net Working Capital (as
defined herein) if such amount is negative, or increased dollar for dollar by
the amount of Seller's Net Working Capital if such amount is positive. "Net
Working Capital" means an amount equal to Current Assets minus Assumed Current
Liabilities as of the Closing Date.
(b) Revenues Adjustment Amount. The Purchase Price shall be
decreased, on a dollar-for-dollar basis, by the Revenues Adjustment Amount (as
defined herein) in the event Recurring Revenues (as defined herein) are less
than $88,000 (the "Target Revenues"). For purposes hereof, the term "Revenues
Adjustment Amount" shall equal the product obtained by multiplying (i) $1,667 by
(ii) the quotient obtained by dividing (X) the Annualized Recurring Revenues
Deficiency (as defined herein), by (Y) one thousand dollars ($1,000). For
purposes hereof, "Recurring Revenues" shall mean revenues of Seller from
Subscribers (determined on an accrual basis), calculated by multiplying the
number of Subscribers as of the Closing Date by the average monthly rate in
effect for such Subscribers, by type, excluding one-time set-up fees and other
ancillary charges. For purposes hereof, the term "Annualized Recurring Revenues
Deficiency" shall equal the product of (i) the difference between (A) the Target
Revenues and (B) Recurring Revenues (ii) multiplied by twelve (12).
(c) Estimated Adjustment Statement. Prior to the Closing, Buyer and
Seller shall prepare a statement to be attached hereto as Schedule 1.6(c) (the
"Estimated Adjustment Statement") which sets forth (x) the estimated amount of
the Net Working Capital as of the Closing Date (the "Estimated Net Working
Capital") and (y) an estimated Revenues Adjustment Amount (the "Estimated
Revenues Adjustment Amount"). The Purchase Price payable at the Closing Date
shall be decreased on a dollar-for-dollar basis by the amount of the Estimated
Revenues Adjustment Amount. The Purchase Price payable at Closing shall be
further reduced on a dollar-for-dollar basis by the amount of the Estimated Net
Working Capital if such number is negative. The Purchase Price payable at
Closing shall be increased on a dollar-for-dollar basis by the amount of the
Estimated Net Working Capital if such number is positive. The net adjustment to
the Purchase Price calculated under this subsection (c) shall be referred to as
the "Estimated Adjustment."
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(d) Final Adjustment Statement.
(i) No later than sixty (60) days following the Closing Date,
Buyer shall prepare and deliver to Seller a statement (the "Final
Adjustment Statement") setting forth the actual Net Working Capital and
the actual Revenues Adjustment Amount. Subject to Section 1.6(d)(ii)
below, within ten (10) days following the delivery of such Final
Adjustment Statement to Seller, Buyer or Seller, as the case may be, shall
pay to the other party, by wire transfer of immediately available funds,
the net difference between (x) the Estimated Net Working Capital, as shown
on the Estimated Adjustment Statement, and the actual Net Working Capital,
as shown on the Final Adjustment Statement and (y) the Estimated Revenues
Adjustment Amount, as shown on the Estimated Adjustment Statement, and the
actual Revenues Adjustment Amount, as shown on the Final Adjustment
Statement.
(ii) In the event Seller objects to the Final Adjustment
Statement, Seller shall notify Buyer in writing of such objection within
the ten (10) day period following the delivery thereof, stating in such
written objection the reasons therefor and setting forth the Seller's
calculation of Seller's actual Net Working Capital at the Closing Date.
Upon receipt by Buyer of such written objection, the parties shall attempt
to resolve the disagreement concerning the Final Adjustment Statement
through negotiation. Notwithstanding any other dispute resolution
procedure provided for in this Agreement, if Buyer and Seller cannot
resolve such disagreement concerning the Final Adjustment Statement within
thirty (30) days following the end of the foregoing 10-day period, the
parties shall submit the matter for resolution to a nationally recognized
firm of independent certified public accountants not affiliated with
either party, with the costs thereof to be shared equally by the parties.
Such accounting firm shall deliver a statement setting forth its own
calculation of the final adjustment to the parties within thirty (30) days
of the submission of the matter to such firm. Any payment shown to be due
by a party on the statement of such accounting firm shall be paid to the
other party promptly but in no event later than five (5) days following
the delivery of such statement by such accounting firm to the parties.
1.7 Purchase Price Allocation. At or within sixty (60) days of the
Closing, Seller and Buyer shall determine the allocation of the Purchase Price.
Such allocation shall be binding upon Buyer and Seller for all purposes
(including financial accounting purposes, financial and regulatory reporting
purposes and tax purposes). Buyer and Seller each further agrees to file its
Federal income tax returns and its other tax returns reflecting such allocation,
Form 8594 and any other reports required by Section 1060 of the Code.
1.8 Records and Contracts. To the extent not previously provided to Buyer,
at the Closing, Seller shall deliver to Buyer all of the Contracts, with such
assignments thereof and the consents listed on Schedule 6.3. Seller shall also
deliver to Buyer at the Closing all of Seller's files and records constituting
Assets.
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1.9 Sales and Transfer Taxes; Filing of Tax Returns. All sales, transfer,
use, recordation, documentary stamp, excise, and personal property taxes, fees
and duties under applicable law incurred in connection with this Agreement or
the transactions contemplated thereby will be borne and paid by Seller, other
than any such taxes imposed on Buyer as a result of Buyer's use or ownership of
the Assets after Closing, and Seller shall promptly reimburse Buyer for the
payment of any such tax, fee or duty which Buyer is required to make under
applicable law. Seller hereby covenants and agrees to promptly file final sales
tax, income tax, payroll tax, franchise tax, and all such other tax returns as
may be required by federal or state law as a result of the transaction
contemplated by this Agreement to reflect the operations of Seller prior to the
Closing Date.
1.10 Transfer of Assets. At the Closing, Seller shall deliver or cause to
be delivered to Buyer good and sufficient instruments of transfer transferring
to Buyer title to all of the Assets, together with the consents listed on
Schedule 6.3. Such instruments of transfer (a) shall contain appropriate
warranties and covenants which are usual and customary for transferring the type
of property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance reasonably satisfactory to Buyer
and its counsel, (c) shall effectively vest in Buyer good and marketable title
to all of the Assets free and clear of all Liens (as defined in Section 2.8
below), and (d) where applicable, shall be accompanied by evidence of the
discharge of all Liens against the Assets.
1.11 Post-Closing Audits. The Company and each of the Principal
Shareholders hereby agree to provide such assistance as Buyer reasonably
requests, at Buyer's expense, to enable Buyer and its accountant to complete an
audit of the pre-Closing financial statement of Buyer, including, without
limitation, providing access to books and records and executing management
representation letters.
1.12 Credit Card Transactions. During the 90-day period following the
Closing Date, Seller agrees to allow Buyer to deposit credit card payments from
Subscribers that are made to Seller's First Union bank account. Seller covenants
and agrees to transfer such payments to Buyer on a weekly basis or at such other
time as reasonably requested by Buyer. At the end of such 90-day period, Buyer
shall provide to Seller a statement of all such payments that were made. Buyer
agrees to indemnify Seller for all losses, damages, chargebacks and claims
arising from the arrangements described in this Section 1.12.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND PRINCIPAL SHAREHOLDERS.
In order to induce Buyer to enter into this Agreement, Seller and each of
the Principal Shareholders, jointly and severally, hereby represent and warrant
to Buyer as follows:
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2.1 Organization; Subsidiaries.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida. Seller has all requisite
power and authority to conduct its business as it is now conducted or proposed
to be conducted and to own, lease and operate its properties and assets. The
copies of Seller's Certificate of Incorporation and By- Laws each as amended to
date, heretofore delivered to Buyer's counsel are complete and correct. Seller
is not in violation of any term of the Certificate of Incorporation and By-Laws.
Seller is duly qualified to do business in the state of its incorporation, and
is not required to be licensed or qualified to conduct its business or own its
property in any other jurisdiction, where failure to be so licensed or qualified
will have a material adverse affect on the operation of the Business.
(b) Seller has no subsidiaries and does not own any securities
issued by any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Seller does not own or have any direct or indirect interest in or control over
any corporation, partnership, joint venture or entity of any kind.
2.2 Required Action. All actions and proceedings necessary to be taken by
or on the part of Seller in connection with the transactions contemplated by
this Agreement have been duly and validly taken or will have been duly and
validly taken prior to Closing, and this Agreement and each other agreement,
document and instrument to be executed and delivered by or on behalf of Seller
pursuant to, or as contemplated by, this Agreement (collectively, the "Seller
Documents") has been or shall be duly and validly authorized, executed and
delivered by Seller and no other action on the part of Seller or its officers,
directors or shareholders shall be required in connection therewith. Each of
Seller and the Principal Shareholders have full right, authority, power and
capacity to execute and deliver this Agreement and each other Seller Document
and to carry out the transactions contemplated hereby and thereby. This
Agreement and each other Seller Document constitutes, or when executed and
delivered will constitute, the legal, valid and binding obligation of each of
Seller and the Principal Shareholders enforceable in accordance with its
respective terms.
2.3 No Conflicts.
(a) The execution, delivery and performance by Seller of this
Agreement and each other Seller Document does not and will not (i) violate any
provision of the Certificate of Incorporation and By-Laws of Seller, in each
case as amended to date, (ii) to the knowledge of the Seller and the Principal
Shareholders, constitute a violation of, or conflict with or result in any
breach of, acceleration of any obligation under, right of termination under, or
default under, any material agreement or instrument to which Seller is a party
or by which Seller or the Assets is bound, (iii) to the knowledge of the Seller
and the Principal Shareholders, violate any judgment, decree, order, statute,
rule or regulation applicable to Seller or the Assets, (iv) to the knowledge of
the Seller and the Principal Shareholders, require
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Seller to obtain any approval, consent or waiver of, or to make any filing with,
any person or entity (governmental or otherwise) that has not been obtained or
made (other than consents and approvals to assignment of Contracts not
identified on Schedule 6.3) or (v) to the knowledge of the Seller and the
Principal Shareholders, result in the creation or imposition of any Lien (as
defined in Section 2.8 below) on any of the Assets.
(b) The execution, delivery and performance by each of the Principal
Shareholders of this Agreement and each other Seller Document does not and will
not, to the knowledge of the Seller and the Principal Shareholders, (i)
constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which any or all of the Principal
Shareholders are a party or by which any or all of the Principal Shareholders
are bound, (ii) violate any judgment, decree, order, statute, rule or regulation
applicable to the Principal Shareholders, (iii) require the Principal
Shareholders to obtain any approval, consent or waiver of, or to make any filing
with, any person or entity (governmental or otherwise) that has not been
obtained or made (other than consents and approvals to assignment of Contracts
not identified on Schedule 6.3) or (iv) result in the creation or imposition of
any Lien (as defined in Section 2.8 below) on any of the Assets.
2.4 Taxes.
(a) To the knowledge of Seller and the Principal Shareholders,
Seller has paid or caused to be paid all federal, state, local, foreign and
other taxes, including, without limitation, income taxes, estimated taxes,
alternative minimum taxes, excise taxes, sales taxes, use taxes, value-added
taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment
and payroll-related taxes, withholding taxes, stamp taxes, transfer taxes,
windfall profit taxes, environmental taxes and property taxes, whether or not
measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it (collectively,
"Taxes"), required to be paid by it through the date hereof whether disputed or
not.
(b) To the knowledge of Seller and the Principal Shareholders,
Seller has in accordance with applicable law filed all federal, state, local and
foreign tax returns required to be filed by it through the date hereof, and all
such returns correctly and accurately set forth the amount of any Taxes relating
to the applicable period. A list of all federal, state, local and foreign income
tax returns filed with respect to Seller for taxable periods ended on or after
December 31, 1993, is set forth on Schedule 2.4 attached hereto. Seller has
delivered to Buyer correct and complete copies of all federal, state, local and
foreign income tax returns listed on said schedule, and of all examination
reports and statements of deficiencies assessed against or agreed to by Seller
with respect to said returns.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of Seller or the Principal
Shareholders, threatening to assert against Seller any deficiency or claim for
additional Taxes. No claim has
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ever been made by an authority in a jurisdiction where Seller does not file
reports and returns that Seller is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the Assets of Seller
that arose in connection with any failure (or alleged failure) to pay any Taxes.
Seller has never entered into a closing agreement pursuant to Section 7121 of
the Code.
(d) There has not been any audit of any tax return filed by Seller,
no audit of any tax return of Seller is in progress, and Seller has not been
notified by any tax authority that any such audit is contemplated or pending. No
extension of time with respect to any date on which a tax return was or is to be
filed by Seller is in force, and no waiver or agreement by Seller is in force
for the extension of time for the assessment or payment of any Taxes.
(e) Seller has never been (and has never had any liability for
unpaid Taxes because it once was) a member of an "affiliated group" (as defined
in Section 1504(a) of the Code). Seller has never filed, and has never been
required to file, a consolidated, combined or unitary tax return with any other
entity. Seller does not own and has never owned a direct or indirect interest in
any trust, partnership, corporation or other entity and therefore Buyer is not
acquiring from Seller an interest in any entity. Seller is not a party to any
tax sharing agreement.
(f) Seller is not a "foreign person" within the meaning of Section
1445 of the Code and Treasury Regulations Section 1.1445-2.
(g) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
2.5 Compliance with Laws. To the knowledge of Seller and the Principal
Shareholders, Seller's operation of the Business and the Assets is in compliance
in all material respects with all applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority (including the Federal Communications Commission), and
Seller has not received notice of a violation or alleged violation of any such
statute, ordinance, order, rule or regulation.
2.6 Insurance. The physical properties and tangible Assets of Seller are
insured to the extent disclosed on Schedule 2.6 attached hereto, and all
insurance policies and arrangements of Seller in effect as of the date hereof
are disclosed on said Schedule. Said insurance policies and arrangements are in
full force and effect, all premiums with respect thereto are currently paid, and
Seller is in compliance in all material respects with the terms thereof. Said
insurance is reasonably considered by Seller to be adequate and customary for
the business engaged in by Seller and, to the knowledge of Seller and the
Principal Shareholders, is sufficient for compliance by Seller with all
requirements of law and all agreements and leases to which Seller is a party.
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2.7 Contracts. The Contracts, together with the Excluded Contracts,
constitute all leases, contracts and arrangements, whether oral or written,
under which Seller is bound or to which Seller is a party which relate to the
Business or Assets. Schedule 1.1(b) attached hereto contains a true, correct and
complete list of all Contracts. With respect to each oral agreement or
understanding involving and material to the Business, Seller has provided a
written summary of the material terms of each such agreement or understanding on
Schedule 1.1(b). Each Contract is valid, in full force and effect and binding
upon Seller and, to the knowledge of Seller and the Principal Shareholders, the
other parties thereto in accordance with its terms. Neither Seller nor, to the
knowledge of Seller and the Principal Shareholders, any other party is in
default under or in arrears in the performance, payment or satisfaction of any
agreement or condition on its part to be performed or satisfied under any
Contract, nor does any condition exist that with notice or lapse of time or both
would constitute such a default, and no waiver or indulgence has been granted by
any party under any Contract. Seller has not received notice of, and each of
Seller and the Principal Shareholders have no knowledge of, any fact which would
result in a termination, repudiation or breach of any Contract. Seller has
provided Buyer with true and complete copies of all of such Contracts, other
than with respect to the oral agreements or understandings described on Schedule
1.1(b).
2.8 Title. Seller has good and marketable title to all of the Assets free
and clear of all mortgages, pledges, security interests, charges, liens,
restrictions and encumbrances of any kind (collectively, "Liens"). Upon the
sale, assignment, transfer and delivery of the Assets to Buyer hereunder and
under the Seller Documents, there will be vested in Buyer good, marketable and
indefeasible title to the Assets, free and clear of all Liens. The Assets
include all of the assets and properties (i) held for use by Seller to conduct
the Business as presently conducted and (ii) necessary or useful for Buyer to
operate the Business in the same manner as such business is currently operated
by Seller with the exception of Excluded Assets. All of the tangible Assets are
in good repair, have been well maintained and are in good operating condition,
ordinary wear and tear excepted, do not require any material modifications or
repairs, and comply in all material respects with applicable laws, ordinances
and regulations. Seller has delivered complete and true copies of all real
property leases (the "Leases") set forth on Schedule 1.1(b). To the knowledge of
Seller and the Principal Shareholders, Seller holds good, clear, marketable,
valid and enforceable leasehold interest in the real property subject to the
Leases (the "Leased Real Property"), subject only to the right of reversion of
the landlord or lessor under the Leases, free and clear of all other prior or
subordinate interests, including, without limitation, mortgages, deeds of trust,
ground leases, leases, subleases, assessments, tenancies, claims, covenants,
conditions, restrictions, easements, judgments or other encumbrances or matters
affecting title, and free of encroachments onto or off of the leased real
property. To the knowledge of Seller and the Principal Shareholders, there are
no material defects in the physical condition of any improvements constituting a
part of the Leased Real Property, including, without limitation, structural
elements, mechanical systems, roofs or parking and loading areas, and all of
such improvements are in good operating condition and repair, and have been well
maintained.
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2.9 No Litigation. Seller is not now involved in nor, to the knowledge of
Seller and the Principal Shareholders, is Seller threatened to be involved in
any litigation or legal or other proceedings likely to have a material adverse
affect on the Business or any Asset (including any Intellectual Property) or
which would prevent or hinder the consummation of the transactions contemplated
by this Agreement. Seller has not been operating the Business under, and the
Business is not subject to, any order, injunction or decree of any court of
federal, state, municipal or other governmental department, commission, board,
agency or instrumentality.
2.10 Employees; Labor Matters. Seller employs approximately seven (7)
full-time employees and three (3) part-time employees. Seller shall provide to
Buyer a list of the employees of Seller in connection with the Business at the
Closing, including the name, date of hire and wages of such employees. Seller is
not delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed for
it to the date hereof or amounts required to be reimbursed to such employees.
Upon termination of the employment of any of said employees, neither Seller nor
Buyer will by reason of the transactions contemplated hereby or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other payments, except as set forth on Schedule 2.10 attached
hereto. Seller does not have any policy, practice, plan or program of paying
severance pay or any form of severance compensation in connection with the
termination of employment, except as set forth on said Schedule, or otherwise
required by law. Seller is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations existing, pending or, to the
knowledge of Seller and the Principal Shareholders, threatened against or
involving Seller. No question concerning union representation exists respecting
any group of employees of Seller. No collective bargaining agreement is in
effect or is currently being or is about to be negotiated by Seller. Seller has
received no information to indicate that any of its employment policies or
practices is currently being audited or investigated by any federal, state or
local government agency. Seller is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.11 Financial Statements. Attached hereto as Schedule 2.11 are copies of
the balance sheet of Seller as at September 30, 1999 (the "Base Balance Sheet")
and the statements of income and expense of Seller for the nine (9) months ended
September 30, 1999 (collectively the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied consistently during the periods covered thereby (except for
the absence of footnotes with respect to unaudited financial statements), are
complete and correct and present fairly and accurately the financial condition
of the Business at the dates of said statements and the results of operations of
the Business for the periods covered thereby. As of the date of the Base Balance
Sheet (the "Base Balance
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Sheet Date"), Seller had no liabilities or obligations of any kind with respect
to the Business, whether accrued, contingent or otherwise, that are not
disclosed and adequately reserved against on the Base Balance Sheet. As of the
date hereof and at the Closing, Seller had and will have no liabilities or
obligations of any kind with respect to the Business, whether accrued,
contingent or otherwise, that are not disclosed and adequately reserved against
on the Base Balance Sheet, other than de minimis ordinary recurring operating
expenses.
2.12 Business Since the Base Balance Sheet Date. Since the Base Balance
Sheet Date:
(a) there has been no material adverse change in the Business or in
the Assets, operations or financial condition of the Business;
(b) the Business has, in all material respects, been conducted in
the ordinary course of business and in substantially the same manner as it was
conducted before the date of the Base Balance Sheet Date;
(c) there has not been any material obligation or liability
(contingent or other) incurred by Seller with respect to the Business, whether
or not incurred in the ordinary course of business;
(d) there has not been any purchase, sale or other disposition, or
any agreement or other arrangement, oral or written, for the purchase, sale or
other disposition, of any material properties or assets of the Business, whether
or not in the ordinary course of business, unless any disposed of assets have
been replaced;
(e) there has not been any mortgage, encumbrance or lien placed on
any of the Assets, nor any payment or discharge of a material lien or liability
of Seller which was not reflected on the Base Balance Sheet;
(f) there has not been any damage, destruction or loss, whether or
not covered by insurance, materially adversely affecting the Business or Assets;
(g) there has not been any change in Seller's pricing, marketing,
customer service, billing, operational or promotional activities in any material
way from that which Seller was providing these activities directly prior to the
Base Balance Sheet Date; and
(h) there has not been any agreement or understanding, whether in
writing or otherwise, for Seller to take any of the actions specified above.
2.13 Licenses. As of the date of this Agreement, Seller is the holder of
all licenses, permits and authorizations with respect to the Business (the
"Authorizations"). The Authorizations constitute all of the licenses, permits
and authorizations required for operation of the Business as now operated, the
absence of which would have a material adverse affect on
13
the Business or Assets. All of the Authorizations are in full force and effect
and, to the knowledge of Seller and the Principal Shareholders, no licenses,
permits or authorizations of any governmental department or agency are required
for the operation of the Business which have not been duly obtained. As of the
date hereof, there is not pending or, to the knowledge of Seller and the
Principal Shareholders, threatened any action by or before any governmental
agency to revoke, cancel, rescind or modify any of the Authorizations, and there
is not now issued, outstanding, pending or, to the knowledge of Seller and the
Principal Shareholders, threatened any order to show cause, notice of violation,
notice of apparent liability, or notice of forfeiture or complaint against
Seller with respect to the Business.
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by Seller in connection with the execution and delivery of this Agreement
and the Seller Documents and the consummation of the transactions contemplated
hereby and thereby.
2.15 Customers and Suppliers. Seller's relations with its customers and
suppliers, including its Subscribers (as defined in Section 2.16 below), are
good and there are not pending or, to Seller's knowledge, threatened claims or
controversies with any customer, supplier or Subscriber that are material to the
Assets or the Business.
2.16 Subscribers. Schedule 2.16(a) attached hereto sets forth, as of the
date hereof, the Subscribers (as defined herein) of the Business as listed by
class, type and billing plan. For purposes of this Agreement, the term
"Subscriber" shall mean any active subscriber to Internet services offered by
Seller in the Business, including, without limitation, any person or corporation
who receives dial-up Internet access through the Business (a "Dial-up
Subscriber"), any person who receives dedicated Internet access from Seller
offering higher data transmission rates than available from dial-up access (a
"Dedicated Subscriber"), and any person with a web page or domain name on
Seller's server and to whom Seller provides Internet access (a
"Web-hosting/Domain-hosting Subscriber"); provided, however, that "Subscriber"
shall not include any person who is (i) more than thirty (30) days delinquent in
payment of such person's ▇▇▇▇ for such services provided by the Business and
(ii) any person receiving complimentary Internet services or Internet services
at a promotional discounted rate. Set forth on Schedule 2.16(b) attached hereto
is a listing of all such accounts which receive complimentary Internet services
or Internet services at a promotional discounted rate. Set forth on Schedule
2.16(c) attached hereto is Seller's policy and practice with respect to the
disconnection of Subscribers, with which Seller has, except as set forth on
Schedule on Schedule 2.16(c), at all times since its inception, complied in all
material respects.
2.17 Brokers. Seller has not retained any broker or finder or other person
who would have any valid claim against any of the parties to this Agreement for
a commission or brokerage fee in connection with this Agreement or the
transactions contemplated hereby.
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2.18 Collectibility of Accounts Receivable. To the knowledge of Seller and
the Principal Shareholders, all of the Accounts Receivable of Seller are or will
be as of the Closing Date bona fide, valid and enforceable claims, subject to no
set off or counterclaim and are collectible in accordance with their terms.
Seller has no accounts or loans receivable from any person, firm or corporation
which is affiliated with Seller or from any director, officer or employee of
Seller, or from any of their respective spouses or family members.
2.19 Banking Relations. All of the arrangements which Seller has with any
banking institution are completely and accurately described in Schedule 2.19
attached hereto, indicating with respect to each of such arrangements the type
of arrangement maintained (such as checking account, borrowing arrangements,
safe deposit box, etc.) and the person or persons authorized in respect thereof.
2.20 Intellectual Property.
(a) All of the Intellectual Property of Seller is set forth on
Schedule 2.20 attached hereto. For purposes hereof, the term "Intellectual
Property" includes: (i) all patents, patent applications, patent rights, and
inventions and discoveries and invention disclosures (whether or not patented)
(collectively, "Patents"); (ii) Seller's rights to the names "Bitstorm Internet
Services, Inc.", "Bitstorm", all trade names, trade dress, logos, packaging
design, slogans, any and all Internet domain names used or useful in the
business of Seller, registered and unregistered trademarks and service marks and
applications (collectively, "Marks"); (iii) all copyrights in both published and
unpublished works, including, without limitation, all compilations, databases
and computer programs, and all copyright registrations and applications, and all
derivatives, translations, adaptations and combinations of the above
(collectively, "Copyrights"), (iv) all know-how, trade secrets, confidential or
proprietary information, customer lists, IP addresses, research in progress,
algorithms, data, designs, processes, formulae, drawings, schematics,
blueprints, flow charts, models, prototypes, techniques, Beta testing procedures
and Beta testing results (collectively, "Trade Secrets"); (v) Seller's web-sites
(including the domain name "▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇" and any other similar domain
name); (vi) all goodwill, franchises, licenses, permits, consents, approvals,
technical information, telephone numbers, and claims of infringement against
third parties (the "Rights"); and (vii) all contracts relating to the
Intellectual Property to which Seller is a party or is bound, including, without
limitation, all nondisclosure and/or confidentiality agreements entered into by
persons in connection with disclosures by Seller (collectively,"Assigned
Contracts").
(b) Except as described on Schedule 2.20, Seller has exclusive
ownership of, and has good, valid and marketable title to, all of the
Intellectual Property, free and clear of any Liens, and has the right to use all
of the Intellectual Property without payment to any third party. Seller's rights
in all of such Intellectual Property are freely transferable. There are no
claims or demands pending or, to the knowledge of Seller and the Principal
Shareholders, threatened of any other person pertaining to any of such
Intellectual Property and no proceedings have been instituted, or are pending
or, to the knowledge of Seller and the
15
Principal Shareholders, threatened against Seller and/or its officers, employees
and consultants which challenge the validity and enforceability of Seller's
rights in respect of the Intellectual Property. The Intellectual Property
represents all of the assets of Seller of such class or type necessary for the
operation of Seller's Business as currently conducted.
Except as set forth as Schedule 2.20, all former and current employees,
consultants and contractors of Seller have executed written instruments with
Seller that assign to Seller all rights to any inventions, improvements,
discoveries, or information relating to the business of Seller. To the best
knowledge of Seller after inquiry, no employee, consultant or contractor of
Seller has entered into any agreement that restricts or limits in any way the
scope or type of work in which the employee, consultant or contractor may be
engaged or requires the employee, consultant or contractor to transfer, assign,
or disclose information concerning his work to anyone other than Seller.
(c) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's Patents. All of the issued Patents are
currently in compliance with formal legal requirements (including without
limitation payment of filing, examination and maintenance fees and proofs of
working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety (90) days after
the Closing Date. In each case where a Patent is held by Seller by assignment,
the assignment has been duly recorded with the U.S. Patent and Trademark Office
and all other jurisdictions of registration. No Patent has been or is now
involved in any interference, reissue, re- examination or opposition proceeding.
To the knowledge of Seller and the Principal Shareholders, there is no
potentially interfering Patent of any third party. All products made, used or
sold under the Patents have been marked with the proper patent notice.
(d) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's Marks. All Marks that have been
registered with the United States Patent and Trademark Office and/or any other
jurisdiction are currently in compliance with formal legal requirements
(including, without limitation, the timely post-registration filing of
affidavits of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety (90) days after the Closing Date. In each case where a
▇▇▇▇ is held by Seller by assignment, the assignment has been duly recorded with
the U.S. Patent and Trademark Office and all other jurisdictions of
registration. No ▇▇▇▇ has been or is now involved in any opposition,
invalidation or cancellation proceeding and, to the knowledge of Seller and the
Principal Shareholders, no such action is threatened with respect to any of the
Marks. All products and materials containing a ▇▇▇▇ ▇▇▇▇ the proper notice where
permitted by law.
(e) Schedule 2.20 sets forth a complete and accurate list and
summary description of all of Seller's Copyrights. All the Copyrights that have
been registered with the United States Copyright Office are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any fees or taxes or actions falling due within ninety (90) days
after the Closing Date. In each case where a Copyright is held by Seller by
16
assignment, the assignment has been duly recorded with the U.S. Copyright Office
and all other jurisdictions of registration. All copies of works encompassed by
the Copyrights have been marked with the proper copyright notice.
(f) Seller has taken all security measures (including, without
limitation, entering into appropriate confidentiality and non-disclosure
agreements with all officers, directors, employees, consultants and contractors
of Seller and any other persons with access to the Trade Secrets) deemed
reasonable and appropriate by Seller to protect the secrecy, confidentiality and
value of all Trade Secrets. To the knowledge of Seller and the Principal
Shareholders, there has not been any breach by any party to any such
confidentiality or non- disclosure agreement. The Trade Secrets have not been
disclosed by Seller to any person or entity other than employees or contractors
of Seller who had a need to know and use the Trade Secrets in the course of
their employment or contract performance. Seller has the right to use, free and
clear of claims of third parties, all Trade Secrets. To the knowledge of Seller
and the Principal Shareholders, there is not any assertion that the use by
Seller of any Trade Secret violates the rights of any third party.
(g) Seller has the right to use, license, distribute, transfer and
bring infringement actions with respect to the Intellectual Property. Except as
set forth on Schedule 2.20, Seller (i) has not licensed or granted to anyone
rights of any nature to use any of its Intellectual Property and (ii) is not
obligated to and does not pay royalties or other fees to anyone for its
ownership, use, license or transfer of any of its Intellectual Property.
(h) All licenses or other agreements under which Seller is granted
rights by others in Intellectual Property are listed on Schedule 2.20. All such
licenses or other agreements are in full force and effect, to the knowledge of
Seller and the Principal Shareholders there is no material default by any party
thereto, and all of the rights of Seller thereunder are freely assignable. True
and complete copies of all such licenses or other agreements, and any amendments
thereto, have been provided to Buyer, and Seller has no reason to believe that
the licensors under the licenses and other agreements under which Seller is
granted rights and has granted rights to others do not have and did not have all
requisite power and authority to grant the rights purported to be conferred
thereby.
(i) All licenses or other agreements under which Seller has granted
rights to others in Intellectual Property are listed on Schedule 2.20. All such
licenses or other agreements are in full force and effect, and to the knowledge
of Seller and the Principal Shareholders there is no material default by any
party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Buyer.
(j) Seller has reviewed the areas within its businesses and
operations which could be adversely affected by, and has developed a program to
address on a timely basis, the "Year 2000 Problem" (i.e., the risk that
applications used by Seller or its suppliers and/or providers may be unable to
recognize and properly perform date-sensitive functions involving certain dates
prior to and any date after December 31, 1999). Seller and the Principal
17
Shareholders reasonably believe that, to the extent Seller and the Principal
Shareholders can anticipate in a reasonably commercial manner, the "Year 2000
Problem" will not have any material adverse effect on the operation of Seller.
2.21 Absence of Restrictions. Seller has not entered into any other
agreement or arrangement with any other party with respect to the sale, transfer
or any other disposition or encumbrance of the Business or the Assets, in whole
or in part.
2.22 Transactions with Interested Persons. Except as set forth on Schedule
2.22 hereto, neither Seller, nor any shareholder, officer, supervisory employee
or director of Seller or, to the knowledge of Seller or the Principal
Shareholders, any of their respective spouses or family members owns directly or
indirectly on an individual or joint basis any material interest in, or serves
as an officer or director or in another similar capacity of, any competitor or
supplier of Seller, or any organization which has a material contract or
arrangement with Seller.
2.23 Employee Benefit Programs.
(a) Schedule 2.23 sets forth a list of every Employee Program (as
defined in Section 2.23(c) below) that has been maintained by the Seller or an
Affiliate (as defined herein) at any time during the six-year period ending on
the Closing Date. Each Employee Program which has ever been maintained by the
Seller or an Affiliate and which has been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the Internal Revenue Service ("IRS") regarding its
qualification under such section and has, in fact, been qualified under the
applicable section of the Code from the effective date of such Employee Program
through and including the Closing Date (or, if earlier, the date that all of
such Employee Program's assets were distributed). To the knowledge of Seller and
the Principal Shareholders, no event or omission has occurred which would cause
any such Employee Program to lose its qualification or otherwise fail to satisfy
the relevant requirements to provide tax-favored benefits under the applicable
Code Section (including without limitation Code Sections 105, 125, 401(a) and
501(c)(9)). With respect to any Employee Program ever maintained by the Seller
or any Affiliate, to the knowledge of Seller and the Principal Shareholders,
there has been no (i) "prohibited transaction," as defined in Section 406 of
ERISA or Code Section 4975, or (ii) failure to comply with any provision of
ERISA, other applicable law, or any agreement which, in the case of either of
(i) or (ii), could subject the Seller or any Affiliate to liability either
directly or indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. All payments and/or contributions required to have been
made (under the provisions of any agreements or other governing documents or
applicable law) with respect to all Employee Programs ever maintained by the
Seller or any Affiliate, for all periods prior to the Closing Date, either have
been made or have been accrued (and all such unpaid but accrued amounts are
described on Schedule 2.23). To the knowledge of Seller and the Principal
Shareholders, each Employee Program ever maintained by the Seller or an
Affiliate has complied with the applicable
18
notification and other applicable requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985.
(b) To the knowledge of Seller and the Principal Shareholders,
neither the Seller nor any Affiliate (A) has ever maintained any Employee
Program which has been subject to title IV of ERISA or Code Section 412,
including, but not limited to, any Multi employer Plan (as defined in Section
3(37) of ERISA) or (B) has ever provided health care or any other non-pension
benefits to any employees after their employment is terminated (other than as
required by part 6 of subtitle B of title I of ERISA) or has ever promised to
provide such post- termination benefits.
(c) For purposes of this section:
(i) "Employee Program" means all employee benefit plans within
the meaning of ERISA Section 3(3) as well as all other employee benefit
plans, agreements and arrangements of any kind.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under or through such
Employee Program, or has any obligation (by agreement or under applicable
law) to contribute to or provide benefits under or through such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity (or their spouses, dependents, or
beneficiaries).
(iii) An entity is an "Affiliate" of the Seller if it would
have ever been considered a single employer with the Seller under ERISA
Section 4001(b) or part of the same "controlled group" as the Seller for
purposes of ERISA Section 302(d)(8)(C).
2.24 Environmental Matters.
(a) Except as set forth in Schedule 2.24, (i) to the knowledge of
Seller and the Principal Shareholders, Seller has not generated, transported,
used, stored, treated, disposed of, or managed any Hazardous Waste (as defined
in Section 2.24(c) below) at any time; (ii) to the knowledge of Seller and the
Principal Shareholders, no Hazardous Material (as defined in Section 2.24(c)
below) has ever been or is threatened to be spilled, released, or disposed of at
any site associated with a structure presently or formerly owned, operated,
leased, or used by Seller, or has ever been located in the soil or groundwater
at any such site; (iii) to the knowledge of Seller and the Principal
Shareholders, no Hazardous Material has ever been transported from any site
associated with a structure presently or formerly owned, operated, leased, or
used by Seller for treatment, storage, or disposal at any other place; (iv) To
the knowledge of Seller and the Principal Shareholders, Seller does not
presently own, operate, lease, or use, and has not previously owned, operated,
leased, or used any site associated with a structure on which underground
storage tanks are or were located; and (v) to the knowledge of Seller and the
Principal Shareholders, no lien has ever been imposed by any
19
governmental agency on any property, facility, machinery, or equipment owned,
operated, leased, or used by Seller in connection with the presence of any
Hazardous Material.
(b) Except as set forth on Schedule 2.24 and to the knowledge of
Seller and the Principal Shareholders, (i) Seller does not have any liability
under, nor has it ever violated, any Environmental Law (as defined in Section
2.24(c) below); (ii) Seller, nor any property associated with a structure owned,
operated, leased, or used by Seller, nor facilities or operations thereon are
presently not in compliance with all applicable Environmental Laws; (iii) Seller
has not entered into or been subject to any judgment, consent decree, compliance
order, or administrative order with respect to any environmental or health and
safety matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither Seller nor any Principal Shareholder has any
knowledge or reason to know that any of the items enumerated in clause (iii) of
this subsection will be forthcoming.
(c) For purposes of this Agreement, (i) "Hazardous Material" shall
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; and (iii) "Environmental Law" shall mean any
environmental or health and safety-related law, regulation, rule, ordinance, or
By-law at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted.
2.25 Disclosure. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
Seller and the Principal Shareholders to Buyer pursuant to this Agreement do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to Seller or
the Principal Shareholders which presently or in the future are reasonably
foreseeable and likely to have a material adverse affect on the Business,
properties, Assets, prospects, operations or (financial or other) condition of
Seller which has not been specifically disclosed herein or in a Schedule
furnished herewith, other than general economic or market conditions affecting
the Internet services industry generally.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER.
As a material inducement to Seller entering into this Agreement, Buyer
hereby represents and warrants to Seller and the Principal Shareholders as
follows:
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3.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Buyer has all
requisite power and authority to conduct its business as it is now conducted and
to own, lease and operate its properties and assets.
3.2 Required Action: Authority. All actions and proceedings necessary to
be taken by or on the part of Buyer in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement and each other agreement, document and instrument to be executed and
delivered by or on behalf of Buyer pursuant to, or as contemplated by, this
Agreement (collectively, the "Buyer Documents") has been duly and validly
authorized, executed and delivered by Buyer. Buyer has full right, authority,
power and capacity to execute and deliver this Agreement and each other Buyer
Document, to deliver the Shares and to carry out the transactions contemplated
hereby and thereby. This Agreement and each other Buyer Document constitutes, or
when executed and delivered will constitute, the legal, valid and binding
obligations of Buyer enforceable in accordance with its respective terms.
3.3 No Conflicts. The execution, delivery and performance by Buyer of this
Agreement and each other Buyer Document do not and will not (a) violate any
provision of the Certificate of Incorporation or By-Laws of Buyer, as amended to
date, (b) constitute a violation of, or conflict with or result in any breach
of, acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which Buyer is a party or by which it is
bound, (c) violate any judgment, decree, order, statute, rule or regulation
applicable to Buyer, (d) require Buyer to obtain any approval, consent or waiver
of, or to make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made. The officers who execute this Agreement and
the other Buyer Documents contemplated hereby on behalf of Buyer have and shall
have all requisite power to do so in the name of and on behalf of Buyer.
3.4 Brokers. Except for fees payable to Rampart Associates, LLC, Buyer has
not retained any broker or finder or other person who would have any valid claim
against any of the parties to this Agreement for a commission or brokerage fee
in connection with this Agreement or the transactions contemplated hereby.
SECTION 4. COVENANTS OF SELLER.
Seller covenants and agrees that from the date hereof until the Closing
Date:
4.1 Access to Premises and Records. Subject to Section 5.1 of this
Agreement and to the terms and conditions of the Mutual Non-Disclosure Agreement
defined in Section 4.8, from the date hereof until consummation of the
transactions contemplated hereby at the Closing, Seller shall give Buyer and its
representatives, at reasonable times and with reasonable prior notice, free
access to the properties, books and records of the Business and to
21
the Assets and will furnish to Buyer and its representatives such information
regarding the Business and the Assets as Buyer or its representatives may from
time to time reasonably request in order that Buyer may have full opportunity to
make a diligent investigation consistent with this Agreement. In addition to,
and not in limitation of the foregoing, Seller shall provide Buyer with access
to and copies of the records of all: (a) Accounts Receivable, (b) Subscriber
▇▇▇▇▇▇▇▇, (c) pre-paid accounts, (d) accounts for which no remuneration is
received by Seller and (e) general reports with respect to each category of
service provided by the Business.
4.2 Continuity and Maintenance of Operations of the Business. Except as to
actions of which Buyer has been advised and to which Buyer has consented to in
writing, and except as specifically permitted or required by this Agreement,
Seller shall:
(a) Operate the Business in the ordinary course consistent with past
practices, use its commercially reasonable efforts to keep available the
services of the employees who are involved in the operation of the Business, and
use commercially reasonable efforts to preserve any beneficial business
relationships with Subscribers, customers, suppliers and others having business
dealings with Seller relating to the Business;
(b) Use and operate the Assets in a manner consistent with past
practice and maintain the Assets in good operating condition, ordinary wear and
tear excepted;
(c) Maintain insurance upon the Assets in such amounts and types as
in effect on the date of this Agreement as set forth in Schedule 2.6 attached
hereto;
(d) Keep all of its business books, records and files in the
ordinary course of business in accordance with past practices, and provide Buyer
with access thereto upon its reasonable request;
(e) Continue to implement and enforce its procedures for
disconnection and discontinuance of service to Subscribers whose accounts are
delinquent in accordance with the procedures in effect on the date of this
Agreement;
(f) Perform and comply in all material respects with the terms of
the Contracts and keep such Contracts in full force and effect, except where the
failure to keep any such Contract in full force and effect would not have a
material adverse effect on the Business; and
(g) Use its reasonable best efforts to preserve the goodwill of the
Business.
4.3 Negative Covenants. Seller shall not, without the prior written
consent of Buyer:
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(a) Sell, transfer, lease, assign or otherwise dispose of, or agree
to sell, transfer, lease, assign or otherwise dispose of, any Assets outside the
ordinary course of business;
(b) Enter into any contract or commitment for the acquisition of
goods or services relating to the Business or which otherwise obligates Seller
to perform in full or in part beyond the Closing Date (other than in the
ordinary course of business);
(c) Hire any new employees or enter into any employment arrangements
or otherwise increase the salary or compensation of any existing employees,
unless necessary to replace terminating employees;
(d) Renegotiate, modify, amend or terminate any Contract in
otherwise than the ordinary course of business;
(e) Create, assume, or permit to exist, or agree to incur, assume or
acquire, any Lien, claim or liability on the Assets;
(f) Make any modifications or changes to the existing rate schedules
or product offerings in effect with respect to the Business;
(g) Offer or employ any sales discounts, free services or other
extraordinary marketing practices or extraordinary promotions outside the
ordinary course of business and not consistent with Seller's past practices;
(h) Take any actions or permit its employees and agents to take any
actions which would materially interfere with or preclude the transactions
contemplated by this Agreement; or
(i) Cause or permit the provision for any new and material pension,
retirement or other employment benefits for employees who perform services in
connection with the conduct of the Business or any material increase in any
existing benefits (other than as required by law).
4.4 Consents. Seller will use its reasonable best efforts to obtain, as
soon as practicable and at its expense, the consent of all third parties under
the Contracts for which the prior approval of such third party is required
pursuant to the terms of the Contract; provided, however, that "reasonable best
effort" for this purpose shall not require Seller to undertake extraordinary or
unreasonable measures to obtain such approvals and consents, including, without
limitation, the initiation or prosecution of legal proceedings or the payment of
fees in excess of customary filing and processing fees.
4.5 Notification of Certain Matters. Seller shall promptly notify Buyer of
(i) any fact, event, circumstances or action the existence or occurrence of
which would cause any of
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Seller's representations or warranties under this Agreement, or the disclosures
in any schedules or exhibits attached hereto, not to be true in any material
respect and (ii) any failure on its part to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement. Seller shall promptly notify Buyer in
writing of the assertion, commencement or threat of any claim, litigation,
proceeding or investigation in which Seller is a party or in which the Assets or
Business may be affected and which could reasonably be expected to be material
or which relates to the transactions contemplated hereby.
4.6 Adverse Change. Seller shall promptly notify Buyer in writing of any
materially adverse developments affecting the Assets or the Business which
become known to Seller, including, without limitation, (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting any of the Assets or the Business, (ii) any material notice
of violation, forfeiture or complaint under any material Contract, or (iii)
anything which, if not corrected prior to the Closing Date, would prevent Seller
from fulfilling any condition to Closing described in Section 6 hereof.
4.7 No Solicitation. Seller shall not, and Seller shall cause its
officers, employees, stockholders, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
Seller) and all other employees who perform services with respect to the
operation of the Business not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to the
Assets or the Business, or engage in any negotiations concerning, or provide to
any other person any information or data relating to, the Business, the Assets
or Seller for the purpose of, or have any discussions with, any person relating
to, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any effort or attempt by
any other person to seek or effect a transaction, or enter into a transaction
with any person or persons, other than Buyer, concerning the possible sale of
the Assets or Business, or the capital stock of Seller. Seller shall promptly
inform Buyer of any such inquiries or proposals and provide all pertinent
documentation related thereto.
4.8 Confidentiality. Seller agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Buyer with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Buyer's industry or which has been disclosed to Seller by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, Seller will return, and cause its respective
officers, directors, agents and representatives to return, to Buyer (or certify
that they have destroyed) all copies of such data and information made available
to Seller (and its officers, directors, agents and representatives) in
connection with the transaction. The Mutual Non-Disclosure Agreement by and
among Buyer, Seller and
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Rampart Associates, LLC (the "Mutual Non-Disclosure Agreement") shall remain in
full force and effect.
4.9 Use of Trade Names. After the Closing Date, neither Seller, nor any
person controlling, controlled by or under common control with Seller will for
any reason, directly or indirectly, for itself or any other person, (a) use the
names "Bitstorm Internet Services, Inc.," "Bitstorm", or "▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇" or
any other Internet domain name used or useful in the business of Seller or (b)
use or disclose any trade secrets, confidential information, proprietary
information or other intellectual property of Seller transferred pursuant to
this Agreement. Seller shall have the right to use the know-how that it has
developed in its operation of the Business in operations other than in
connection with providing internet access and web-hosting services.
4.10 Post-Closing Transitional Matters. For a period of ninety (90) days
following the Closing, Seller shall provide, without additional cost to Buyer or
Seller, such assistance as is reasonably requested by Buyer in order to effect
an orderly transition in the ownership and operation of the Assets; provided,
however, such post-Closing assistance shall not, in any event, exceed five (5)
hours per week. Further, Seller shall only be required to provide such
assistance during three (3) days of each week during the period.
4.11 Collection of Assets. Subsequent to the Closing, Buyer shall have the
right and authority to collect all receivables and other items transferred and
assigned to Buyer by Seller hereunder and to endorse with the name of Seller any
checks received on account of such receivables or other items, and Seller agrees
that it will promptly transfer or deliver to Buyer from time to time, any cash
or other property that such Seller may receive with respect to any claims,
contracts, licenses, leases, commitments, sales orders, purchase orders,
receivables of any character or any other items included in the Assets.
4.12 Payment of Obligations. Seller shall pay all of the Excluded
Liabilities in the ordinary course of business as they become due.
4.13 Further Assurances. Seller, from time to time after the Closing at
the request of Buyer and without further consideration, shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Assets free and clear of all Liens (as defined in
Section 2.8).
SECTION 5. COVENANTS OF BUYER.
Buyer covenants and agrees that:
5.1 Confidentiality. Buyer agrees that, from the date hereof until
consummation of the transactions contemplated hereby at the Closing, Buyer and
its representatives will hold in
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strict confidence, and will not use, any confidential or proprietary data or
information obtained from Seller with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transactions contemplated hereby. Information generally known in Seller's
industry or which has been disclosed to Buyer by third parties which have a
right to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transactions contemplated by this Agreement
are not consummated, Buyer will return, and cause its respective officers,
directors, agents and representatives to return, to Seller (or certify that they
have destroyed) all copies of such data and information made available to Buyer
(and its officers, directors, agents and representatives) in connection with the
transaction.
5.2 Assumed Liabilities. From and after the Closing Date, Buyer shall pay
and/or perform the Assumed Liabilities in the ordinary course as they become
due.
5.3 Notification of Certain Matters. Buyer shall promptly notify Seller of
(i) any fact, event, circumstances or action the existence or occurrence of
which would cause any of Buyer's representations or warranties under this
Agreement, or the disclosures in any schedules or exhibits attached hereto, not
to be true in any material respect and (ii) any failure on its part to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement. Buyer shall promptly
notify Seller in writing of the assertion, commencement or threat of any claim,
litigation, proceeding or investigation in which Seller is a party or in which
the Assets or Business may be affected and which could reasonably be expected to
be material or which relates to the transactions contemplated hereby.
5.4 Books and Records. After the Closing, Buyer shall retain all books and
records acquired from Seller pursuant to this Agreement (the "Records") for a
period of two (2) years and shall permit Seller to have access to and to copy,
at Seller's cost and expense, the Records during normal business hours for the
purpose of preparing financial statements, preparing income tax returns, the
prosecution and defense of litigation or for other legitimate corporate purposes
relating to periods prior to the Closing. Buyer shall reasonably cooperate in
all respects in furnishing or providing access to all records and information
relevant to any audit of Seller conducted after the Closing, relating to the
business of Seller conducted prior to Closing, provided that such furnishing or
access shall be done during normal business hours and so as not to cause undue
disruption to the business of Buyer.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER.
Buyer's obligation to consummate the transactions contemplated by this
Agreement is subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, unless otherwise waived by Buyer in writing:
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6.1 Performance of Agreements and Deliveries. Seller shall have performed
in all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Seller prior to or
upon the Closing Date and shall have delivered all documents and items required
to be delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
Seller to the effect that the conditions set forth in Sections 6.1 and 6.2 have
been satisfied;
(b) A certificate, dated the Closing Date, from Seller's Secretary
as to the Seller's Articles of Incorporation, By-Laws, authority and the
incumbency of all officers executing the Seller Documents on behalf of Seller;
(c) A certified copy of Seller's Articles of Incorporation from the
Secretary of State of the State of Florida;
(d) An Amendment to the Articles of Incorporation and any other
required documentation, which effect a change of Seller's name, which name
change shall take effect not more than five (5) days following the date of
Closing;
(e) A Certificate of Good Standing from the Secretary of State of
the State of Florida; and
(f) Such other certificates and instruments reasonably requested by
Buyer.
6.2 Asset Transfer. Seller shall have delivered to Buyer the following
instruments of transfer and assignment in accordance with the provisions hereof,
transferring to Buyer all of Seller's right, title and interest in and to the
Assets, free and clear of all Liens:
(a) A ▇▇▇▇ of Sale in the form attached hereto as Exhibit B;
(b) An Assignment and Assumption Agreement in the form attached
hereto as Exhibit C;
(c) [Intentionally Omitted];
(d) An Assignment of Internet Domain Names in the form attached
hereto as Exhibit E; and
(e) Such other instruments of transfer reasonably requested by
Buyer.
6.3 Assignment of Contracts and Authorizations; Approvals. All Contracts
shall have been duly and validly assigned to Buyer by Seller, and all consents
identified on Schedule
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6.3 hereto have been obtained in form and substance satisfactory to Buyer. All
such Contracts and Authorizations shall remain in full force and effect and
shall not have been amended, modified or repudiated in any material respect by
either party thereto. Neither Seller nor, to the knowledge of Seller and the
Principal Shareholders, the other party thereto, shall have breached or
defaulted under any Contract or Authorization. Seller shall not have received
notice of or have knowledge of any fact which could result in the termination,
repudiation or breach of any Contract or Authorization.
6.4 Escrow Agreement. Seller shall have executed and delivered to Buyer
the Escrow Agreement.
6.5 Non-competition Agreement. Seller and the Principal Shareholders shall
have executed and delivered to Buyer a Non-competition Agreement in
substantially the form attached hereto as Exhibit F.
6.6 Release of Liens. Seller shall have obtained and delivered to Buyer at
or prior to the Closing instruments (including payoff letters, bills of sale and
UCC-3 termination statements) releasing any and all Liens on the Assets.
6.7 Opinion of Seller's Counsel. Buyer shall have received the opinion of
Broad and ▇▇▇▇▇▇, counsel for Seller, dated the Closing Date, substantially in
the form of Exhibit G attached hereto.
6.8 Closing Date Balance Sheet. No later than thirty (30) days following
the Closing, Seller shall provide to Buyer a balance sheet dated as of the
Closing, as determined in accordance with GAAP consistently applied, which
includes, but is not limited to, Seller's Accounts Receivable, accounts payable,
and all deferred and all unearned revenue.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER.
The obligation of Seller to consummate the transactions contemplated by
this Agreement is subject to the satisfaction, on or prior to the Closing Date,
of the following conditions, unless waived by Seller in writing:
7.1 Performance of Agreement and Deliveries. Buyer shall have performed in
all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Buyer prior to or
upon the Closing Date and shall have delivered all documents and items required
to be delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
Buyer to the effect that the conditions set forth in Sections 7.1 and 7.2 have
been satisfied;
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(b) A certificate, dated the Closing Date, from Buyer's Secretary as
to the Buyer's Certificate of Incorporation, By-Laws, authority and the
incumbency of all officers executing the Buyer Documents on behalf of Buyer;
(c) A certified copy of Buyer's Certificate of Incorporation, as
amended to date, from the Secretary of State of the State of Delaware; and
(d) A Certificate of Good Standing from the Secretary of State of
the State of Delaware.
7.2 Escrow Agreement. Buyer shall have executed and delivered to Seller
the Escrow Agreement.
7.3 Consents. Seller shall have received all of the consents and approvals
listed on Schedule 6.3 in connection with the consummation of the transactions
contemplated by this Agreement.
SECTION 8. TERMINATION.
8.1 Events of Termination. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing:
(a) By the mutual written consent of Buyer and Seller.
(b) By Seller, if it is not in breach or default hereunder:
(i) if any representation or warranty of Buyer made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Buyer's receipt of a notice from Seller that
such breach exists or has occurred;
(ii) if Buyer shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Buyer's receipt
of a notice from Seller that such default exists or has occurred;
(iii) subject to Section 8.4 below, if the conditions to
Seller's obligations to consummate the Closing as set forth in
Section 7 cannot reasonably be satisfied or performed on or before
October 29, 1999 (unless such failure of satisfaction,
non-compliance or non-performance is the result, directly or
indirectly, of any action or failure to act on the part of Seller);
or
(iv) if the Closing has not occurred prior to November 15,
1999.
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(c) By Buyer, if it is not in breach or default hereunder:
(i) if any representation or warranty of Seller made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Seller's receipt of a notice from Buyer that
such breach exists or has occurred;
(ii) if Seller shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Seller's receipt
of a notice from Buyer that such default exists or has occurred; or
(iii) subject to Section 8.4 below, if the conditions to
Buyer's obligations to consummate the Closing as set forth in
Section 6 cannot reasonably be satisfied or performed on or before
October 29, 1999 (unless such failure of satisfaction,
non-compliance or non-performance is the result directly or
indirectly of any action or failure to act on the part of Buyer); or
(iv) if the Closing has not occurred prior to November 15,
1999.
8.2 Manner of Exercise. In the event of the termination of this Agreement
by either Buyer or Seller pursuant to Section 8.1, notice thereof shall
forthwith be given to the other party in accordance with the provisions set
forth in Section 11 hereto and this Agreement shall terminate and the
transactions contemplated hereunder shall be abandoned without further action by
Buyer or Seller.
8.3 Effect of Termination; Liabilities. In the event of the termination of
this Agreement pursuant to Section 8.1 or Section 8.4 and prior to the Closing,
all obligations of the parties hereunder (other than pursuant to Sections 4.8
and 5.1 hereof) shall terminate, and neither Seller nor Buyer shall have any
further liability hereunder, including for losses, liabilities, obligations,
damages, deficiencies, actions, suits, proceedings, demands, assessments,
orders, judgments, costs and expenses (including attorneys' fees) of any kind
whatsoever; except upon termination of this Agreement pursuant to Sections
8.1(c)(i) and 8.1(c)(ii), Buyer shall be entitled to any remedy which it may
have, whether at law or in equity, and, except upon termination of this
Agreement pursuant to Sections 8.1(b)(i) and 8.1(b)(ii), Seller shall be
entitled to any remedy which it may have, whether at law or in equity.
8.4 Waiver; Extension of Time for Performance. Seller may extend the time
for the performance of any of the obligations or other acts of Buyer hereunder,
waive any inaccuracies in the representations and warranties of Buyer contained
herein or in any document delivered pursuant hereto, or waive compliance by
Buyer with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by Seller. Buyer may extend the time for the performance of any of the
obligations or other acts of Seller or the Principal Shareholders
30
hereunder, waive any inaccuracies in the representations and warranties of
Seller or the Principal Shareholders contained herein or in any document
delivered pursuant hereto, or waive compliance by Seller or the Principal
Shareholders with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by Buyer. The agreement by Buyer to close the transactions contemplated
by this Agreement despite Buyer's actual knowledge at the Closing of a
misrepresentation, default or breach by the Seller or a Principal Shareholder
shall be a waiver of such misrepresentation, default or breach.
SECTION 9. SURVIVAL.
9.1 Survival of Warranties. Each of the representations, warranties,
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing for a
period of six (6) months, except for the representations and warranties set
forth in Sections 2.1, 2.3 and 2.4 and the covenants set forth in Sections 4.12,
which shall survive until expiration of the applicable statute of limitations,
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto (i.e., a representation or warranty, other
than one set forth in Section 2.1, 2.3 or 2.4 shall only be effective for a
period of six (6) months from the Closing Date and after such six (6) month
period a suit for breach may no longer be brought unless written notice of
breach was given to the party making such representation or covenant within such
six-month period).
SECTION 10. INDEMNIFICATION.
10.1 Indemnification by Seller and the Principal Shareholders.
(a) Seller and each of the Principal Shareholders hereby agrees,
jointly and severally, to indemnify and hold harmless Buyer, its affiliates and
its and their respective directors, officers, stockholders, partners, members,
employees, and agents (individually, a "Buyer Indemnified Party" and
collectively, "Buyer Indemnified Parties"), against and in respect of all
losses, liabilities, obligations, damages, deficiencies, actions, suits,
proceedings, demands, assessments, orders, judgments, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys and
consultants) of any kind or nature whatsoever, but net of the proceeds from any
insurance policies or other third party reimbursement for such loss, to the
extent sustained, suffered or incurred by or made against any Buyer Indemnified
Party, to the extent based upon, arising out of or in connection with: (i) any
breach of any representation or warranty made by Seller and the Principal
Shareholders in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement, unless such
breach has been waived, (ii) any breach of any covenant or agreement made by
Seller or the Principal Shareholders in this Agreement or in
31
any schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered pursuant to this Agreement, unless such breach has been
waived, (iii) any claim made by any person or entity which relates to the
operation of the Assets or the Business which arises in connection with or on
the basis of events, acts, omissions, conditions or any other state of facts
occurring on or existing before the Closing Date; (iv) any claim which arises in
connection with any liability or obligation of Seller, including, without
limitation, arising from a failure to pay any Taxes or file any Tax returns; (v)
any failure of Seller or any of its affiliates, service providers or agents or
any Employee Program to comply with any provision of ERISA, the Code or other
applicable law; or (vi) any claim which arises in connection with any liability
or obligation of Seller other than the Assumed Liabilities.
10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
Seller and its officers, directors, managers, members, employees and agents
(individually, a "Seller Indemnified Party" and collectively, "Seller
Indemnified Parties") at all times against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, costs and expenses (including the
reasonable fees, disbursements and expenses of attorneys and consultants), of
any kind or nature whatsoever, to the extent sustained, suffered or incurred by
or made against any Seller Indemnified Party, to the extent based upon, arising
out of or in connection with: (i) any breach of any representation or warranty
made by Buyer in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement, unless such
breach has been waived, (ii) any breach of any covenant or agreement made by
Buyer in this Agreement or in any schedule, exhibit, certificate, agreement or
other instrument delivered pursuant to this Agreement, unless such breach has
been waived, (iii) any claim made against Seller which relates to, results from
or arises out of the operation of the Assets or the Business from and after the
Closing Date; and (iv) the Assumed Liabilities.
10.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified party
of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted.
(b) Third Party Claims. With respect to third party claims, if
within twenty (20) days after receiving the notice described in clause (a) above
the indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost
32
and expense and (ii) provides reasonable assurance to the indemnified party that
such claim will be promptly paid in full if required, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent of
the indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the indemnifying parties'
obligation to indemnify the indemnified party therefor will be fully satisfied.
The indemnifying party shall keep the indemnified party apprised of the status
of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, the indemnified
party shall at all times have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party claims,
if within twenty (20) days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice. If the
indemnifying party provides written notice to the indemnified party within such
20-day period that it contests such indemnity, the parties shall attempt in good
faith to reach an agreement with regard thereto within thirty (30) days of
delivery of the indemnifying party's notice. If the parties cannot reach
agreement within such 30-day period, the matter may be submitted by either party
for binding arbitration in accordance with the provisions of Section 12.11
hereof.
10.4 Claims Against Escrow Deposit. In the event that any Buyer
Indemnified Party is entitled to indemnification from Seller or the Principal
Shareholders under this Agreement,
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in addition to all other rights or remedies that Buyer may have (including the
right to collect directly from Seller or the Principal Shareholders), such Buyer
Indemnified Party shall be entitled to receive in cash from the Escrow Deposit
an amount equal to the indemnification obligation in accordance with the
provisions of the Escrow Agreement.
10.5 Limitations of Indemnity Obligations.
(a) The aggregate indemnity obligations of the Seller and the
Principal Shareholders under this Agreement shall not in any event exceed the
Purchase Price, except to the extent that such losses arise from or in
connection with the Excluded Liabilities.
(b) The aggregate indemnity obligations of the Buyer under this
Agreement shall not in any event exceed the Purchase Price, except to the extent
that such losses arise from or result from Buyer's operation of the business
from and after the Closing Date or in connection with the Assumed Liabilities.
SECTION 11. NOTICES.
All notices and other communications required to be given hereunder, or
which may be given pursuant or relative to the provisions hereof, shall be in
writing and shall be deemed to have been given when delivered in hand or mailed,
postage prepaid, by first class United States mail, certified return receipt
requested as follows:
If to Seller: Bitstorm, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇
With a copy to: Broad and ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, P.A.
If to Buyer: DURO Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
With a copy to: ▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
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SECTION 12. MISCELLANEOUS.
12.1 Assignability; Binding Effect. This Agreement shall not be assignable
by Buyer or Seller except with the written consent of the other, except that
Buyer may assign its rights hereunder either (a) to any affiliate of Buyer or
its owners, (b) as a result of any merger, reorganization or other
consolidation, or (c) in connection with the granting of a security interest to
its senior lender. This Agreement shall be binding upon and shall inure to the
benefit of, the parties hereto and their respective successors and assigns.
12.2 Headings. The subject headings used in this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
12.3 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer and Seller or, in the
case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, or any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
12.4 Bulk Sales Law. Buyer hereby waives compliance by Seller of any
applicable bulk sales law and Seller agrees to make full and timely payment when
due of all amounts owed by such Seller to its creditors.
12.5 Entire Agreement. This Agreement, together with the schedules and
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes and cancels any and all
prior or contemporaneous arrangements, understandings and agreements between
them relating to the subject matter hereof.
12.6 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, then the
remaining provisions of this Agreement (and the remaining portion of any
provision held to be void or unenforceable in part only) shall continue in full
force and effect.
12.7 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed and construed by and enforced in accordance with the
laws of the State of Florida, without regard to conflict of laws principles.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same instrument.
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12.9 Expenses. Each party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accountants undertaken
pursuant to this Agreement, whether or not the transactions contemplated hereby
are consummated.
12.10 Remedies. It is specifically understood and agreed that certain
breaches of this Agreement will result in irreparable injury to the parties
hereto, that the remedies available to the parties at law alone will be an
inadequate remedy for such breach, and that, in addition to any other legal or
equitable remedies which the parties may have, a party may enforce its rights by
an action for specific performance and the parties expressly waive the defense
that a remedy in damages will be adequate.
12.11 Dispute Resolution. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity hereof shall be finally settled
solely and exclusively by arbitration conducted expeditiously in accordance with
the Rules of the American Arbitration Association (the "AAA Rules"). The AAA
shall appoint a neutral advisor from its national panel. The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. ss.ss.1-16, and
judgment upon the award rendered by the arbitrators may be entered by any court
having jurisdiction thereof. The place of arbitration shall be Orlando, Florida.
Such proceedings shall be administered by the neutral advisor in
accordance with the AAA Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(a) Mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
(b) No other discovery;
(c) Hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place in one or two days at a maximum; and
(d) Decision to be rendered not later than ten (10) days following
such hearings.
Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of any United States District Court of competent
jurisdiction located in the State of Florida for the purpose of enforcing the
award or decision in any such proceeding and (b) hereby waives, and agrees not
to assert in any civil action to enforce the award, any claim that it is not
subject personally to the jurisdiction of the above-named court, that its
property is exempt or immune from attachment or execution, that the civil action
is brought in an inconvenient forum, that the venue of the civil action is
improper or that this Agreement or the subject matter
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hereof may not be enforced in or by such court, and (c) hereby waives and agrees
not to seek any review by any court of any other jurisdiction which may be
called upon to grant an enforcement of the judgment of any such court. Each of
the parties hereto hereby consents to service of process by registered mail at
the address to which notices are to be given. Each of the parties hereto agrees
that its submission to jurisdiction and its consent to service of process by
mail is made for the express benefit of the other parties hereto. Final judgment
against any party hereto in any such action, suit or proceeding may be enforced
in other jurisdictions by suit, action or proceeding on the judgment, or in any
other manner provided by or pursuant to the laws of such other jurisdiction;
provided, however, that any party may at its option bring suit, or institute
other judicial proceedings, in any state or federal court of the United States
or of any country or place where the other parties or their assets, may be
found.
Notwithstanding the foregoing, the parties may enforce their rights under
this Agreement in accordance with Section 12.10.
12.12 Third Party Rights. This Agreement is for the benefit of the parties
hereto and is not entered into for the benefit of, and shall not be construed to
confer any benefit upon, any other party or entity.
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IN WITNESS WHEREOF, Seller, Principal Shareholders and Buyer have caused
this Asset Purchase Agreement to be executed as of the date first above written.
SELLER:
BITSTORM, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
____________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Title: President
PRINCIPAL SHAREHOLDERS:
/s/ ▇▇▇ ▇▇▇▇▇
_____________________________________
▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
_____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
BUYER:
DURO COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
LIST OF EXHIBITS AND SCHEDULES
SCHEDULES
Exhibit A - Form of Escrow Agreement
Exhibit B - Form of ▇▇▇▇ of Sale
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Intentionally Omitted
Exhibit E - Form of Assignment of Internet Domain Name
Exhibit F - Form of Non-competition Agreement
Exhibit G - Form of Opinion of Seller's Counsel
Schedule 1.1(a) Equipment
Schedule 1.1(b) Contracts
Schedule 1.1(c) Intellectual Property
Schedule 1.1(d) Licenses and Authorizations
Schedule 1.1(e) Accounts Receivable
Schedule 1.2(a) Excluded Assets
Schedule 1.2(b) Excluded Contracts
Schedule 1.2(c) Insurance
Schedule 1.6(c) Estimated Adjustment Statement
Schedule 2.4 Taxes
Schedule 2.6 Insurance
Schedule 2.10 Employees; Labor Matters
Schedule 2.11 Financial Statements
Schedule 2.14 Approvals; Consents
Schedule 2.16(a) Subscribers
Schedule 2.16(b) Complimentary Accounts
Schedule 2.16(c) Disconnection Policy
Schedule 2.19 Banking Relations
Schedule 2.20 Intellectual Property
Schedule 2.22 Transactions with Interested Persons
Schedule 2.23 Employee Benefit Programs
Schedule 2.24 Environmental Matters
Schedule 6.3 Consents