EXHIBIT 10.1
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STOCK EXCHANGE AGREEMENT
BY AND AMONG
U.S. INTERNET PROVIDERS, INC.,
(ACQUIRER)
UNITED STATES INTERNET, INC.
("USI")
AND
THE SHAREHOLDERS OF UNITED STATES INTERNET, INC.
(COLLECTIVELY, TRANSFERORS)
DATED AS OF DECEMBER 21, 1998
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
1.1 Definitions........................................................... 1
ARTICLE II
THE EXCHANGE OF SHARES
2.1 Basic Transaction..................................................... 8
2.2 Effective Time of the Stock Exchange.................................. 8
2.3 Net Worth Adjustment.................................................. 9
2.4 Reserved.............................................................. 9
2.5 Earned Payout Amount.................................................. 9
2.6 Reserved.............................................................. 10
2.7 The Closing........................................................... 10
2.8 Deliveries at the Closing............................................. 10
2.9 Transferors' Representative........................................... 10
2.10 Escrow Arrangements................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES RELATING TO THE TRANSFERORS
3.1 Authorization of Transaction.......................................... 12
3.2 Noncontravention...................................................... 13
3.3 Broker's Fees......................................................... 13
3.4 Investment............................................................ 13
3.5 USI Shares............................................................ 13
3.6 Disclosure............................................................ 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO USI
4.1 Organization, Qualification, and Corporate Power...................... 14
4.2 Capitalization........................................................ 14
4.3 Noncontravention...................................................... 14
4.4 Subsidiaries.......................................................... 15
4.5 Financial Statements.................................................. 15
4.6 Events Subsequent to the Most Recent Fiscal Year End.................. 15
4.7 Undisclosed Liabilities............................................... 16
4.8 Tax Matters........................................................... 16
4.9 Tangible Assets....................................................... 17
4.10 Owned Real Property................................................... 17
4.11 Intellectual Property................................................. 17
4.12 Contracts............................................................. 18
4.13 Notes and Accounts Receivable......................................... 20
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4.14 Insurance.......................................................... 20
4.15 Litigation......................................................... 20
4.16 Employees.......................................................... 21
4.17 Employee Benefits.................................................. 21
4.18 Guaranties......................................................... 21
4.19 Legal Compliance................................................... 21
4.20 Certain Business Relationships with USI............................ 22
4.21 Brokers' Fees...................................................... 22
4.22 Systems............................................................ 22
4.23 Subscribers........................................................ 22
4.24 Disclosure......................................................... 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
5.1 Organization of the Acquirer....................................... 23
5.2 Authorization of Transaction....................................... 23
5.3 Brokers' Fees...................................................... 23
5.4 Acquirer's Capitalization.......................................... 23
5.5 Disclosure......................................................... 24
5.6 Noncontravention................................................... 24
5.7 Consolidation Activities........................................... 24
ARTICLE VI
PRE-CLOSING COVENANTS
6.1 General............................................................ 24
6.2 Notices and Consents............................................... 24
6.3 Operation of Business Prior to the Effective Time.................. 25
6.4 Preservation of Business........................................... 25
6.5 Access............................................................. 25
6.6 Notice of Developments............................................. 26
6.7 Exclusivity........................................................ 26
6.8 Cancellation of Options, Warrants, Stock Appreciation Rights, Bonus
Programs and Phantom Stock Plans.............................. 26
6.9 Reserved........................................................... 27
6.10 Reserved........................................................... 27
6.11 Reserved........................................................... 27
6.12 Tax Matters........................................................ 27
6.13 Audits............................................................. 27
6.14 Due Diligence...................................................... 27
ARTICLE VII
POST-CLOSING COVENANTS
7.1 General............................................................ 28
7.2 Transition......................................................... 28
7.3 Confidentiality.................................................... 28
7.4 Covenant Not to Compete............................................. 29
7.5 Tax Free Exchange Intent............................................ 29
7.6 Conduct During Earned Payout Period................................. 29
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 Conditions to Obligations of the Acquirer........................... 30
8.2 Conditions to Obligations of the Transferors........................ 32
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 Indemnification of The Acquirer..................................... 34
9.2 Defense of Third Party Claims....................................... 34
9.3 Procedure for Claims................................................ 35
9.4 Tax Audits, Etc..................................................... 36
9.5 Indemnification of Transferor....................................... 36
9.6 Limits on Indemnification........................................... 36
ARTICLE X
TERMINATION
10.1 Termination of Agreement............................................ 37
10.2 Effect of Termination............................................... 38
ARTICLE XI
MISCELLANEOUS
11.1 Press Releases and Announcements................................... 38
11.2 No Third-Party Beneficiaries........................................ 38
11.3 Entire Agreement.................................................... 38
11.4 Succession and Assignment........................................... 38
11.5 Facsimile/Counterparts.............................................. 38
11.6 Notices............................................................. 39
11.7 Reserved............................................................ 40
11.8 Governing Law....................................................... 40
11.9 Amendments and Waivers.............................................. 40
11.10 Severability....................................................... 40
11.11 Expenses........................................................... 41
11.12 Construction....................................................... 41
11.13 Incorporation of Exhibits, Annexes, and Schedules.................. 41
11.14 Specific Performance............................................... 41
LIST OF EXHIBITS AND ANNEXES
Exhibits
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Exhibit A Form of Escrow Agreement
Exhibit B USI's Financial Statements
Exhibit C-1 Officer/Transferors' Certificate
Exhibit C-2 Secretary's Certificate
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreements
Exhibit F Joinder to the Registration Agreement
Exhibit G Form of Opinion of USI's Legal Counsel
Exhibit H Tender Offer
ANNEXES
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Annex I Determination of Earned Payout Amount
Annex II Determination of Stock Portion of Transfer Consideration
Annex III List of USI Shareholders
Annex IV Acquirer's Capitalization Schedule
Annex V Allocation Summary
Annex VI List of Optionholders
DISCLOSURE SCHEDULES
Schedule 4.1 Officers and Directors
Schedule 4.2 Capitalization
Schedule 4.4 Subsidiaries
Schedule 4.6 Material Events
Schedule 4.7 Material Liabilities
Schedule 4.8 Tax Matters
Schedule 4.11 Intellectual Property
Schedule 4.12 Contracts
Schedule 4.14 Insurance
Schedule 4.15 Litigation
Schedule 4.17 Employee Benefits
Schedule 4.20 Affiliate Relationships
Schedule 4.22 Systems
Schedule 4.23 Subscribers
The Exhibits and Schedules to this Stock Exchange Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("AGREEMENT") is entered into as of the
21st day of December, 1998, by and among U.S. INTERNET PROVIDERS, INC., a
Delaware corporation (the "ACQUIRER"), UNITED STATES INTERNET, INC., a Tennessee
corporation ("USI"), and the Transferors' Representative (as defined in Section
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2.9) on behalf of all of the SHAREHOLDERS OF USI listed on Annex III hereof
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(collectively, the "TRANSFERORS"). The Acquirer and the Transferors are
referred to herein individually as a "PARTY" and collectively as the "PARTIES."
RECITALS
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A. The Transferors in the aggregate own all of the outstanding
capital stock of USI a corporation engaged in the business of providing internet
access and services, web hosting and other internet related services and support
(the "BUSINESS").
B. This Agreement contemplates a transaction in which the Transferors
will exchange their respective capital stock of USI for the right to receive the
Transfer Consideration (as hereinafter defined).
C. This Agreement further contemplates that the aforementioned
transaction will occur in conjunction with certain related transactions,
consisting of the IPO (as defined hereinafter) and the transfer of certain other
businesses by their owners to the Acquirer (the "RELATED TRANSACTIONS"), and the
Parties intend that the receipt of Acquirer's Shares (as defined hereinafter) by
the Transferors and by the parties involved in the Related Transactions will be
tax-free under Section 351 of the Code (as defined).
AGREEMENT
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NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
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"ACQUIRER" has the meaning set forth in the preface above.
"ACQUIRER'S COMMON STOCK" means the Acquirer's common stock, par value
$0.001 per share.
"ACQUIRER'S SHARES" means the shares of the Acquirer's Common Stock
which are issued to the Transferors pursuant to this Agreement.
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"ACQUISITION PAYMENT AMOUNT" shall have the meaning set forth in
Section 2.6 below.
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"ACQUISITION SHARES" shall have the meaning set forth in Section 2.6
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below.
"Adverse Consequences" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCATION SUMMARY" means the summary of Transferors and their
respective allocation of the Transfer Consideration attached hereto as Annex V.
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"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"CASH PORTION OF THE EARNOUT" has the meaning set forth in Section 2.5
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below.
"CASH PORTION OF THE TRANSFER CONSIDERATION" has the meaning set forth
in Section 2.8 below.
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"CASH PORTION OF THE ACQUISITION PAYMENT" shall have the meaning set
forth in Section 2.6 below.
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"CLOSING" has the meaning set forth in Section 2.7 below.
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"CLOSING DATE" has the meaning set forth in Section 2.7 below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Acquirer, or USI including, without limitation, the
identity, lists or descriptions of any customers, referral sources or
organizations; financial statements, cost reports or other financial
information; contract proposals, or bidding information; business plans and
training and operations methods and manuals; personnel records; fee structure;
and management systems, policies or procedures, including related forms and
manuals; provided, that the Confidential Information shall not include
information which (a) was or becomes generally available to the public other
than as a result of its disclosure by the receiving party, (b) was or becomes
available to the receiving party on a non-confidential basis from a source other
than the Acquirer or its advisors without
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breach of this Agreement provided that such source is not known to such
receiving party to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to receiving party by a
contractual, legal or fiduciary obligation known to such receiving party, (c)
was within receiving party's possession prior to its being furnished to such
receiving party by or on behalf of the Acquirer without breach of this
Agreement, provided that the source of such information was not bound by a
confidentiality agreement with the Acquirer or USI or otherwise prohibited from
transmitting the information to the receiving party by a contractual, legal or
fiduciary obligation, or (d) which is required to be and actually is disclosed
by operation of law.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. (S)1.1502-13.
"DISCLOSURE SCHEDULES" means the informational schedules relating to
the Transferors and USI as attached hereto.
"E&Y" shall mean Ernst & Young, L.L.P.
"EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2.5 below.
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"EARNED PAYOUT PERIOD" means the twelve-month period ending June 30,
1999.
"EARNOUT SHARES" has the meaning set forth in Section 2.5.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section 3.1
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below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means First Union National Bank, N.A.
"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Transferors, the Acquirer and the Escrow Agent in the form of Exhibit
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A attached hereto.
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"ESCROW PERIOD" has the meaning specified in Section 2.10.
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"ESCROW SUM" has the meaning specified in Section 2.10.
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"FAIR MARKET VALUE" of the Acquirer's Common Stock as of a particular
date means: (a) if traded on an exchange or the over-the-counter market, quoted
on the Nasdaq National Market or reported by the National Quotation Bureau, then
the most recently reported closing or bid price or (b) otherwise, the price, not
less than book value, determined in good faith and in such a reasonable manner
as prescribed by a majority of the Acquirer's directors who are not officers of
the Acquirer.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5 below.
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"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"GROSS REVENUES" means the gross revenue of USI as normally calculated
on the Financial Statements as calculated in accordance with GAAP on the accrual
basis of accounting.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 9.1 below.
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"INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, (e) other proprietary rights, and (f) copies and tangible
embodiments thereof (in whatever form or medium).
"IPO" means the first underwritten public offering of the Acquirer's
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer's Common Stock by the IPO offering price).
"KNOWLEDGE" means, with respect to each Transferor, Acquirer or USI,
information which is actually known by such Transferor, Acquirer or USI or which
a prudent person in the position of such Transferor, Acquirer or USI would
reasonably be deemed to know; provided, however, that the Knowledge of
Transferor or USI shall mean the knowledge of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇, and the Knowledge of Acquirer shall mean the
knowledge of ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇.
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"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MAJORITY CO-TRANSFERORS" shall mean a majority, based on Revenue Run
Rate (with such definition modified to include each of the businesses acquired
by the Acquirer), of the Transferors of all businesses acquired by the Acquirer
in connection with the IPO.
"MATERIAL" means an event or matter that causes any representation or
warranty contained in this Agreement to be inaccurate, incorrect or false will
not be deemed to be "Material," to have a "Material" change in or in respect of,
to have a "Material" adverse effect or to cause a Party to be "Materially"
affected unless the loss that may reasonably be expected to occur to the
respective Party with respect to such event or matter, when taken together with
all other related losses that may reasonably be expected to occur to such Party
as a result of any such events or matters, would exceed $25,000 in the aggregate
or unless such event or matter constitutes a criminal violation of law. For
purposes of this definition, the word "loss" shall mean any and all direct or
indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or reasonably likely to be
paid or incurred, or diminution's in value or reduction in benefits or rights of
any kind or character (whether or not known or asserted before the date of this
Agreement, fixed or unfixed, conditional or unconditional, ▇▇▇▇▇▇ or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise) that are reasonably likely to occur, including without limitation,
penalties, interest on any amount payable to a third party as a result of the
foregoing, and any reasonable legal or other expenses reasonably expected to be
incurred in connection with defending any demands, claims, actions or causes of
action that, if adversely determined, could reasonably be expected to result in
losses, and all amounts paid in settlement of claims or actions; provided,
however, that losses shall be net of any insurance proceeds entitled to be
received from a nonaffiliated insurance company on account of such loss (after
taking into account any cost incurred in obtaining such proceeds or any
increases in insurance premiums as a direct result thereof). A Subscriber
Contract or Agreement is "Material" if during either calendar year 1998 such
Subscriber Contract or Agreement produced or is expected to produce $25,000 of
Gross Revenues.
"NET WORTH OF USI" means the total assets of USI less the total
liabilities of USI including any costs of conversion from a cash basis to an
accrual method of accounting, determined in accordance with GAAP, consistently
applied and on the accrual method of accounting. In calculating the total
assets of USI, no material increase in the intangible assets as a result of any
acquisitions by USI since June 30, 1998 shall be included in calculating the Net
Worth of USI without the written consent of the Acquirer.
"OUTAGE" means any loss of service to any system of the Business,
including but not limited to network access, e-mail, web, news or other
services.
"PARTY" has the meaning set forth in the preface above.
"REGISTRATION AGREEMENT" means that certain Registration Agreement to
be entered into prior to Closing by and among the Acquirer and the stockholders
of the Acquirer.
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"REGISTRATION STATEMENT" means the Acquirer's registration statement
on Form S-1 once filed with and deemed effective by the SEC in connection with
the IPO.
"RELATED TRANSACTIONS" has the meaning set forth in the Recitals.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"STOCK PORTION OF THE EARNOUT" has the meaning set forth in Section
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2.5 below.
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"STOCK PORTION OF THE TRANSFER CONSIDERATION" has the meaning set
forth in Section 2.2 below.
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"STOCK PORTION OF THE ACQUISITION PAYMENT" shall have the meaning set
forth in Section 2.6 below.
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"STUB PERIOD BALANCE SHEET" means the balance sheet included in the
Stub Period Financial Statements.
"STUB PERIOD END" has the meaning set forth in Section 4.5 below.
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"STUB PERIOD FINANCIAL STATEMENTS" means the Financial Statements for
and as of the Stub Period End.
"SUBSCRIBER" means any customers of USI who (a) are currently
connected to and receiving internet related services from USI's Systems; (b) are
being charged or have pre-paid the USI standard rates (which rates are set forth
on Schedule 4.23) pursuant to USI's standard form contracts previously provided
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to the Acquirer; (c) have paid such stated rates in full for at least one full
month; (d) are not three or more months delinquent in the payment of any invoice
from USI; (e) have not, in the preceding two months, been given a waiver or
forgiveness of service charges; (f) have not received any inducement to become
connected to USI's Systems or to receive or pay for services (other than
pursuant to the USI's customary marketing practices); and (g) have not notified
USI in writing of their intention to cancel service.
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"SUBSCRIBER CONTRACT OR AGREEMENT" means any agreement whereby USI
provides services to a Subscriber.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SYSTEMS" means the infrastructure used to provide internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), firewalls, power plants, data processing
platforms, MIS systems, office automation systems and internal LAN network
management systems.
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition thereto.
"TAX RETURN" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"TRANSFER CONSIDERATION" has the meaning set forth in Section 2.2
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below.
"TRANSFERORS" has the meaning set forth in the preface above.
"TRANSFERORS' REPRESENTATIVE" has the meaning set forth in Section 2.8
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below.
"USI" has the meaning set forth in the preface above.
"USI OPTIONHOLDERS" means the holders of options and warrants for the
purchase of USI Shares and stock appreciation rights listed on the Allocation
Summary.
"USI OPTIONS" means all the agreements between USI and those persons
listed on the Allocation Summary hereto related to the issuance of USI Shares
under any existing option, warrant, stock appreciation rights or similar
agreements or plans.
"USI SHARES" means all outstanding shares of the common stock, no par
value per share, of USI.
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ARTICLE II
THE EXCHANGE OF SHARES
2.1 BASIC TRANSACTION. On and subject to the terms and conditions of this
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Agreement, the Acquirer agrees to exchange with the Transferors, and each
Transferor agrees to exchange with the Acquirer, all of the USI Shares for the
consideration specified below in this Section 2.
2.2 TRANSFER CONSIDERATION.
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(A) GENERALLY. The Transfer Consideration exchanged for USI Shares
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shall be composed of (i) the Cash Portion of the Transfer Consideration, (ii)
the Stock Portion of the Transfer Consideration, (iii) the Earned Payout Amount
(as defined below) and (iv) the Acquisition Payment Amount (as defined below).
(B) TRANSFER CONSIDERATION ADJUSTMENTS. The Acquirer agrees to pay to
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the Transferors and the USI Optionholders in the aggregate the sum of (i)
$13,285,863.00 in U.S. currency, to be adjusted dollar for dollar (1) downward
by (A) the amount of payments made by Acquirer on behalf of USI to cancel the
stock options, warrants and stock appreciation rights described in Section 6.8,
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(B) $2,500,000 in the event Acquirer does not successfully acquire Internet
Partners of America, L.C. prior to the Closing Date, and (C) the amount paid by
Acquirer to purchase USI Shares held by unaccredited investors of USI pursuant
to the Tender Offer attached hereto as Exhibit H and (2) upward or downward by
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the Net Worth adjustment, if any, made pursuant to Section 2.3 below (the "CASH
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PORTION OF THE TRANSFER CONSIDERATION"); (ii) $12,264,137.00 worth of Acquirer's
Shares, consisting of an aggregate number of shares of Acquirer's Common Stock
pursuant to Annex II (the "STOCK PORTION OF THE TRANSFER CONSIDERATION"); and
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(iii) the Earned Payout Amount as determined pursuant to Section 2.5 below; in
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exchange for the USI Shares to be purchased by the Acquirer pursuant to the
terms hereof and the USI Options to be canceled; provided, however, that the
Cash Portion of the Transfer Consideration and the Stock Portion of the Transfer
Consideration may be altered by the Parties prior to December 22, 1998 by mutual
written agreement.
(C) ESCROW PAYMENTS. At the Closing Date, (i) $664,293 of the Cash
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Portion of the Transfer Consideration will be paid in cash by wire transfer of
funds to the Escrow Agent and (ii) five percent (5%) of the Stock Portion of the
Transfer Consideration in the form of Acquirer's Shares valued as of the Closing
Date shall be delivered to the Escrow Agent by the Acquirer to collectively be
held in escrow pursuant to Section 2.10 for satisfaction of the Transferors'
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indemnification obligations specified in Article IX.
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(D) PAYMENT. The balance of the Cash Portion of the Transfer
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Consideration shall be paid by the Acquirer to the Transferors at the Closing by
delivery of cash by wire transfer of funds in the amounts set forth on the
Allocation Summary. The balance of the Stock Portion of the Transfer
Consideration shall be issued by the Acquirer to the Transferors at the Closing
by the delivery of Acquirer's Shares in the amounts set forth on the Allocation
Summary next to such Transferor's name. The sum of the Cash Portion of the
Transfer Consideration, the Stock Portion
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of the Transfer Consideration and the Earned Payout Amount shall be referred to
as the "TRANSFER CONSIDERATION." Each of (i) the Cash Portion of the Transfer
Consideration, (ii) the Stock Portion and (iii) Earned Payout Amount of the
Transfer Consideration shall be allocated among the Transferors in dollar
amounts set forth on the Allocation Summary. Cash will be paid in lieu of any
fractional shares which would otherwise be issued in accordance with this
Agreement.
2.3 NET WORTH ADJUSTMENT. The Cash Portion of the Transfer Consideration
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shall be adjusted upward or downward on a dollar for dollar basis by the amount
by which the Net Worth of USI differs from negative $1,213,221 as of the Closing
Date. The Net Worth of USI as of the Closing Date shall be determined prior to
the Closing Date by E&Y in good faith within two business days prior to the
Closing Date.
2.4 RESERVED.
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2.5 EARNED PAYOUT AMOUNT.
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(A) In addition to the Cash Portion of the Transfer Consideration and
the Stock Portion of the Transfer Consideration, the Acquirer agrees to pay to
the Transferors, if earned, an earned payout amount (the "EARNED PAYOUT AMOUNT")
determined pursuant to the terms, conditions and calculations set forth on Annex
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I attached hereto.
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(B) The Earned Payout Amount shall be payable in a combination, such
combination determined at the discretion of Acquirer, of (i) cash (the "CASH
PORTION OF THE EARNOUT") and/or (ii) Acquirer's Shares (the "STOCK PORTION OF
THE EARNOUT"). The aggregate number of Acquirer's Shares, if any, (the "EARNOUT
SHARES") to be issued as the Stock Portion of the Earnout shall be equal to (A)
the aggregate value in dollars of the non-cash Earned Payout Amount divided by
(B) the (1) ten day moving average price of Acquirer's Common Stock as of June
30, 1999, in the event Acquirer's Common Stock is traded on an exchange or over-
the-counter market, or (2) the price, not less than book value, determined in
good faith and in such a reasonable manner as prescribed by a majority of the
Acquirer's directors who are not officers of the Acquirer, in the event
Acquirer's Common Stock is not traded on an exchange or over-the-counter market.
(C) The Cash Portion of the Earnout, if any, shall be payable in cash
by the Acquirer to the Transferors by wire transfer or other delivery of
immediately available funds to an account or accounts designated by the
Transferors. The Earnout Shares, if any, shall be payable by the delivery of the
certificates representing the Acquirer's Shares.
The Earned Payout Amount shall be determined by E&Y in accordance with the
terms of this Agreement and Annex I hereto and shall be based on an income
-------
statement of the Surviving Corporation prepared by E&Y for the 12 months ended
June 30, 1999. The Earned Payout Amount shall be paid as soon as the amount has
been calculated by E&Y and such final calculation delivered to the Acquirers by
E&Y but in no event later than December 31, 1999, provided, however, that the
Transferors will receive interest equivalent to the Citibank prime rate for each
day the Earned Payout Amount has not been paid by Acquirer after September 15,
1999.
-9-
A portion of the Earned Payout Amount, determined by E&Y in accordance with
Treasury Regulation section 1.483-4 and based on an interest rate of 4.33
percent per annum, shall be treated as interest for federal and state income tax
purposes. The parties agree that the interest portion of the Earned Payout
Amount shall be treated as paid entirely out of the Cash Portion of the Earnout
and that no part of the Stock Portion of the Earnout shall be treated as a
payment of interest unless the interest portion of the Earned Payout Amount
exceeds the Cash Portion of the Earnout (and then only to the extent of such
excess).
2.6 RESERVED.
--------
2.7 THE CLOSING. The closing of the transactions contemplated by this
-----------
Agreement (the "CLOSING") shall take place at the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇,
L.L.P. in Washington, D.C. commencing at 9:00 a.m. local time simultaneously
with the closing of the IPO and the other Related Transactions or such other
date as the Acquirer and the Transferors may mutually determine (the "CLOSING
DATE").
2.8 DELIVERIES AT THE CLOSING. At the Closing, (a) the Transferors will
-------------------------
deliver to the Acquirer the various certificates, instruments, and documents
referred to in Section 8.1 below, (b) the Acquirer will deliver to the
-----------
Transferors (as applicable) the various certificates, instruments, and documents
referred to in Section 8.2 below, (c) each of the Transferors will deliver to
-----------
the Acquirer stock certificates representing all of its USI Shares, endorsed in
blank or accompanied by duly executed assignment documents and (d) the Acquirer
will deliver to the Transferors and the USI Optionholders the consideration
specified in Section 2.2 above as may be adjusted after the Closing pursuant to
-----------
Sections 2.3 and 2.4 above and Section 2.10 below.
------------ --- ------------
2.9 TRANSFERORS' REPRESENTATIVE.
---------------------------
(A) In order to administer efficiently (i) the execution and
implementation of the Agreement by the Transferors, (ii) the waiver of any
condition to the obligations of the Transferors to consummate the transactions
contemplated hereby and (iii) the settlement of any dispute with respect to the
Agreement, the Transferors at a duly called and held meeting of the Transferors
have designated, and do hereby designate and irrevocably appoint ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ as their representative and attorney-in-fact for all purposes under
this Agreement (the "TRANSFERORS' REPRESENTATIVE"). ▇▇▇▇▇ ▇▇▇▇▇▇ shall be the
alternate Transferors' Representative.
(B) The Transferors have authorized and do hereby authorize the
Transferors' Representative (i) to take all action necessary in connection with
the implementation of the Agreement on behalf of the Transferors, the waiver of
any condition to the obligations of the Transferors to consummate the
transactions contemplated hereby, or the settlement of any dispute, (ii) to give
and receive all notices required to be given under the Agreement and (iii) to
take any and all additional action as is contemplated to be taken by or on
behalf of the Transferors by the terms of this Agreement.
(C) In the event that the Transferors' Representative dies, becomes
legally incapacitated or resigns from such position, the Transferors have
authorized and do hereby authorize ▇▇▇▇▇ ▇▇▇▇▇▇ to fill such vacancy and shall
be deemed to be the Transferors'
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Representative for all purposes of this Agreement; however, no change in the
Transferors' Representative shall be effective until the Acquirer is given
notice of it by the Transferors.
(D) All decisions and actions by the Transferors' Representative
shall be binding upon all of the Transferors, and no individual Transferor shall
have the right to object, dissent, protest or otherwise contest the same, in the
absence of fraud, gross negligence or willful misconduct of the Transferors'
Representative.
(E) By their execution of this Agreement, the Transferors agree that:
(i) the Acquirer shall be able to rely conclusively on the instructions and
decisions of the Transferors' Representative as to any actions required or
permitted to be taken by the Transferors or the Transferors' Representative
hereunder, and no party hereunder shall have any cause of action against the
Acquirer for action taken by the Acquirer in reliance upon the instructions or
decisions of the Transferors' Representative; (ii) all actions, decisions and
instructions of the Transferors' Representative shall be conclusive and binding
upon all of the Transferors; no Transferor shall have any cause of action
against the Acquirer or USI for any action taken or omitted to be taken,
decision made or omitted to be made or any instruction given or omitted to be
given by the Transferors' Representative; and no Transferor shall have any cause
of action against the Transferors' Representative for any action taken, decision
made or instruction given by the Transferors' Representative under this
Agreement, except for fraud, gross negligence or willful breach of this
Agreement by the Transferors' Representative; (iii) the Transferors'
Representative shall be deemed to fulfill any fiduciary obligation to the
Transferors so long as no Transferor is adversely affected by any action or
failure to act of the Transferors' Representative in a disproportionate measure
compared to any other Transferor; (iv) remedies available at law for any breach
of the provisions of this Section are inadequate; therefore, the Acquirer shall
be entitled to temporary and permanent injunctive relief without the necessity
of proving damages if the Acquirer brings an action to enforce the provisions of
this Section; (v) the provisions of this Section are independent and severable,
shall constitute an irrevocable power of attorney, coupled with an interest and
surviving death of the Transferors, granted by the Transferors to the
Transferors' Representative and shall be binding upon the executors, heirs,
legal representatives and successors of each Transferor; and (vi) all fees and
expenses incurred by the Transferors' Representative shall be paid by USI.
2.10 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Transferors, the Acquirer and the Escrow Agent (a) $664,293.00 of
the Cash Portion of the Transfer Consideration (the "CASH ESCROW") in
immediately available funds and (ii) five percent (5%) of the Stock Portion of
the Transfer Consideration in the form of Acquirer's Shares shall be delivered
to the Escrow Agent at Closing. Such monies and securities (which, together
with all interest accrued thereon which may be due to the party to whom such
funds are ultimately paid in accordance with the terms of the Escrow Agreement,
is hereinafter referred to as the "ESCROW SUM") shall be held pursuant to the
terms of the Escrow Agreement for payment from such Escrow Sum of the amounts,
if any, owing by the Transferors to the Acquirer pursuant to the indemnification
provisions of Article IX below, together with accrued interest thereon.
----------
Pursuant to the terms of the Escrow Agreement, the Cash Escrow shall be used
first, and the Stock Escrow shall be used second, to satisfy any such owed
amounts. At the conclusion of the period ending on the
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first anniversary of the Closing Date (such period being referred to herein as
the "ESCROW PERIOD"), such remaining portion of the Escrow Sum not theretofore
paid to the Acquirer in accordance with the terms of the Escrow Agreement or
subject to a pending claim under the Escrow Agreement and this Agreement shall
be disbursed to the Transferors together with accrued interest thereon. The
Transferors and the Acquirer agree that each will execute and deliver such
reasonable instruments and documents as are furnished by any other party to
enable such furnishing party to receive those portions of the Escrow Sum to
which the furnishing party is entitled under the provisions of the Escrow
Agreement and this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO THE TRANSFERORS
Each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
individually represents and warrants to the Acquirer as follows as of the date
of this Agreement and as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Article III).
-----------
3.1 AUTHORIZATION OF TRANSACTION. Transferors have full power and
----------------------------
authority to authorize the Transferors' Representative to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Transferors' Representative. The
Transferors have met at a duly called meeting of the stockholders of USI held in
December, 1998 and have duly approved the terms of this Agreement and the
appointment of the Transferors' Representative to act on their behalf in
accordance with the terms of Section 2.9. This Agreement constitutes the valid
-----------
and legally binding obligation of each Transferor, enforceable in accordance
with its terms and conditions, except that (a) such enforceability may be
subject to bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other laws, decisions or equitable principles now or hereafter in
effect relating to or affecting the enforcement of creditors' rights or debtors'
obligations generally or non-competition arrangements, and to general equity
principles, and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought (the
terms of clause (a) and (b) are sometimes collectively referred to as the
"EQUITABLE EXCEPTIONS"). The Transferors need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement (other than as provided for in Article II of this Agreement).
----------
3.2 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by the Transferors' Representative, nor the consummation of the
transactions contemplated hereby by the Transferors, will (a) violate any
statute, regulation, rule, judgment, order, decree, stipulation, injunction,
charge, or other restriction of any government, governmental agency, or court to
which the Transferors are subject or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any part
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
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indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other agreement to which the Transferors are a party or by
which they are bound or to which any of their assets is subject.
3.3 BROKER'S FEES. The Transferors have no Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Acquirer could become
liable or obligated.
3.4 INVESTMENT. The Transferors are not acquiring the Acquirer's Shares
----------
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
3.5 USI SHARES. Each Transferor holds of record and owns beneficially
----------
the number of USI Shares set forth next to his or her name on Schedule 4.2, and
------------
except as set forth in Schedule 4.2, such USI Shares are free and clear of any
------------
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), claims, Taxes, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities, and demands. Except
as set forth in Schedule 4.2, the Transferors are not a party to (or have
------------
otherwise waived all rights under) any option, warrant, right, contract, call,
put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of USI (other than this Agreement). The
Transferors are not a party to (or have otherwise terminated) any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
capital stock of USI.
3.6 DISCLOSURE. The representations and warranties contained in this
----------
Article III do not contain any untrue statement of a fact or omit to state any
-----------
Material fact necessary in order to make the statements and information
contained in this Article III not misleading.
-----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO USI
Each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇
and USI represent and warrant to the Acquirer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).
----------
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. USI is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. USI is duly authorized to
conduct business and is in good standing under the laws of the State of
Tennessee, which is the only jurisdiction in which the nature of its businesses
or the ownership or leasing of its properties requires such qualification. USI
has full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it. Schedule 4.1
------------
lists the directors and officers of USI. The Transferors have delivered to the
Acquirer correct and complete copies of the charter and bylaws of USI (as
amended to date). The minute books containing the records of meetings and/or
resolutions of the stockholders, the board of directors, and any committees of
the board of
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directors, the stock certificate books and the stock record books of USI are
correct and complete in all Material respects. USI is not in default under or in
violation of any provision of its charter or bylaws.
4.2 CAPITALIZATION. As set forth in Schedule 4.2 of the Disclosure
-------------- ------------
Schedule, the entire authorized capital stock of USI consists of 5,000,000
shares of common stock, no par value, of which 1,899,688 are issued and
outstanding; 508,846 shares are subject to issuance pursuant to vested options,
26,200 are subject to issuance pursuant to unvested options and 0 are reserved
for issuance pursuant to future option grants; 41,051 shares are subject to
unexercised warrants. All of the issued and outstanding USI Shares have been
duly authorized, are validly issued, fully paid, and nonassessable, and are held
of record by the Transferors. Except as set forth in Schedule 4.2, there are no
------------
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which USI is a party or which are binding upon USI providing for the issuance,
disposition, or acquisition of any of its capital stock. Except as set forth in
Schedule 4.2, there are no outstanding or authorized stock appreciation, phantom
------------
stock, or similar rights with respect to USI. There are no voting trusts,
proxies, or any other agreements or understandings with respect to the voting of
the capital stock of USI except for those agreements or arrangements listed on
Schedule 4.2 as will be terminated at the Closing.
------------
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which USI is subject or any provision of the charter or bylaws of
USI, except to the extent any such violation does not or could not result in a
Material adverse effect on USI, or (b) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other arrangement to which USI is a party or by which it
is bound or to which any of its assets is subject (or result in the imposition
of any Security Interest upon any of its assets). USI does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
4.4 SUBSIDIARIES. Except as disclosed in Schedule 4.4, USI has no
------------ ------------
Subsidiaries.
4.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the USI's
-------------------- ---------
financial statements (collectively the "FINANCIAL STATEMENTS") for its three
most recent fiscal years and an unaudited consolidated balance sheet and
statement of income, changes in stockholder's equity, and cash flow as of and
for the six month period ended June 30, 1998 for USI (the "STUB PERIOD END").
The Financial Statements have been prepared in accordance with standards
described on Exhibit B applied on a consistent basis throughout the periods
---------
covered thereby, are correct and complete, fairly present the financial
condition of USI as of such dates, and are consistent with the books and records
of USI (which books and records are, to the Knowledge of
-14-
Transferors and USI, correct and complete), subject, in the case of the Stub
Period Financial Statements or any previously unaudited financial statements, to
normal adjustments upon audit.
4.6 EVENTS SUBSEQUENT TO THE STUB PERIOD END. To Transferor's and USI's
----------------------------------------
Knowledge, since the Stub Period End, there has not been any Material adverse
change in the assets, Liabilities, business, financial condition, operations,
results of operations, or future prospects of USI. Without limiting the
generality of the foregoing since that date except as set forth on Schedule 4.6:
------------
(A) USI has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business;
(B) USI has not entered into any Material contract, lease, sublease,
license or sublicense (or series or related contracts, leases, subleases,
licenses and sublicenses) outside the ordinary course of business;
(C) Except as set forth in Schedule 4.6, USI has not made any capital
------------
expenditure (or series of related capital expenditures) involving more than
$250,000 in the aggregate, or outside the ordinary course of business;
(D) USI has not entered into any employment contract or collective
bargaining agreement, written or oral, or modified the terms of any existing
such contract or agreement with any of its full-time staff employees other than
in the ordinary course of business;
(E) USI has not granted any dividends or any increase outside the
ordinary course of business in the base compensation of any of its directors,
officers, and employees, nor has USI made any payments or promises or
commitments to make any other payments (other than salary and reimbursement of
customary expenses) to any of such Persons, including without limitation bonuses
other than in the ordinary course of business; and
(F) Except as set forth on Schedule 4.6, USI has not adopted any (i)
------------
bonus, (ii) profit-sharing, (iii) incentive compensation, (iv) pension, (v)
retirement, (vi) medical, hospitalization, life, or other insurance, (vii)
severance or (viii) other plan, contract or commitment for any of its directors,
officers, and employees, or modified or terminated any existing plan, contract
or commitment.
4.7 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.7, to
----------------------- ------------
the Knowledge of Transferors and USI, USI does not have any Liability (and to
Transferors' and USI's Knowledge, there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against USI giving rise to any Liability) which is individually in excess
of $25,000, except for (a) Liabilities set forth on the face of the Stub Period
1998 Balance Sheet, (b) Liabilities described on Schedule 4.7 and (c)
------------
Liabilities which have arisen after the Stub Period End in the ordinary course
of business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of law or arose out of any charge,
complaint, action, suit, proceedings, hearing, investigation, claim, or demand).
-15-
4.8 TAX MATTERS. Except as set forth on Schedule 4.8:
----------- ------------
(A) USI has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed by
USI (whether or not shown on any Tax Return) based on operations through the
Stub Period End have been paid or accrued on the Stub Period Balance Sheet. USI
currently is not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by any taxing authority in a
jurisdiction where USI does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of the
assets of USI that arose in connection with any failure (or alleged failure) to
pay any Tax, other than for Taxes that are not yet due which are accrued for
since December 31, 1997.
(B) USI has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party and USI has properly
reflected the status of all employees and independent contractors in connection
therewith as required by applicable Tax law and the Fair Labor Standards Act of
1938, as amended, and the rules and regulations promulgated thereunder.
(C) USI has not received any notice that any taxing authority intends
to assess any additional Taxes for any period for which Tax Returns have been
filed, and no officer of USI and no employee of USI with responsibility for Tax
matters has Knowledge of any basis upon which a claim for such additional Taxes
could be made. There is no dispute or claim concerning any Tax Liability of USI
either (i) claimed or raised by any authority in writing or (ii) as to which the
Transferors or the officers of USI or employees responsible for Tax matters of
USI have Knowledge based upon personal contact with any agent of such authority.
Schedule 4.8 lists all federal, state, local, and foreign income Tax Returns
------------
filed with respect to USI for taxable periods ended on or after November, 1993,
indicates those Tax Returns that have been audited by federal, state or local
agencies, and indicates those Tax Returns that currently to the Knowledge of
Transferors, are the subject of an audit by federal, state or local agencies.
USI has delivered to the Acquirer correct and complete copies of all federal
income Tax Returns filed, examination reports received, and statements of
deficiencies assessed against or agreed to, by USI since November, 1993. USI has
not waived any statute of limitations in respect of Taxes which waiver is
currently in effect. USI is not a party to any "closing agreement," as described
in Section 7121 of the Code or any corresponding provision of state or local Tax
law, and there are no Tax rulings or requests for Tax rulings with respect to
USI.
(D) USI has not filed a consent under Code Sec. 341(f) concerning
collapsible corporations. USI has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that, under any
circumstances, will not be deductible to USI under Code Sec. 280G. USI is not
and has never been a United States real property holding corporation within the
meaning of Code Sec. 897(c)(2). USI has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662. USI
is not a party to any Tax allocation or sharing agreement. USI has never been
(nor has any Liability for unpaid Taxes because it once was) a member of an
Affiliated Group filing a
-16-
consolidated federal income Tax Return and has never incurred any Liability for
the Taxes of any Person under Treas. Reg. (S)1.1502-6 (or any similar provision
of state, local, or foreign law). To the best of Transferors and USI's Knowledge
USI has never incurred any Liability for the Taxes of any Person as a transferee
or successor, by contract, or otherwise.
4.9 TANGIBLE ASSETS. USI owns or leases substantially all tangible
---------------
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. To the Knowledge of the Transferors and
USI, each such tangible asset is free from Material defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used.
4.10 OWNED REAL PROPERTY. USI does not own nor does it have any interest
-------------------
in any real property or improvements thereon (other than the leases disclosed in
Schedule 4.12, and the leasehold improvements relating to the same) nor does USI
-------------
have any options, agreements or contracts under which it has the right or
obligation to acquire any interest in any real property or improvements (other
than as disclosed in Schedule 4.12)
-------------
4.11 INTELLECTUAL PROPERTY.
---------------------
(A) To the Knowledge of Transferors, attached hereto as Schedule 4.11
-------------
is a list and brief description of all Intellectual Property owned or utilized
by USI. USI has furnished the Acquirer with copies of all license agreements to
which USI is a party, either as licenser or licensee, with respect to any
Intellectual Property. To the Knowledge of Transferors and USI, USI has good
title to or the right to use all the Intellectual Property and all inventions,
processes, designs, formulae, trade secrets and know-how necessary for the
conduct of the USI's business, in its business as presently conducted or
currently proposed to be conducted and USI is not infringing on any Intellectual
Property right of others, and neither USI nor Transferors have Knowledge of any
infringement by others of any such rights owned by USI.
(B) To Transferors' and USI's Knowledge, all licenses set forth on
Schedule 4.11 are valid and binding obligations of USI, and to the Knowledge of
-------------
the Transferors and USI, of the other parties thereto, and enforceable against
USI, and to the Knowledge of the Transferors and USI, the other parties thereto
in accordance with their respective terms, except for the Equitable Exceptions.
To the Knowledge of Transferors and USI, USI owns and possesses all right, title
and interest in and to, or has the right to use pursuant to a valid license, all
Intellectual Property necessary for the operation of the business of USI as
presently conducted.
(C) To the Knowledge of Transferors and USI, the Transferors and USI
have taken all reasonably necessary measures to protect and maintain the rights
of USI in its Intellectual Property, and each piece of Intellectual Property
used by USI is used with the authorization of every other claimant thereto and
the execution, delivery and performance of this Agreement will not impair such
use.
(D) The Transferors have also delivered to the Acquirer correct and
complete samples or copies of all trademarks, service marks, trade names,
copyrights, patents, registrations
-17-
and, as relate to the foregoing, applications, licenses, agreements, and
permissions (as amended to date) held by USI, and have made available to the
Acquirer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item. To the
Knowledge of Transferors and USI, with respect to each item of Intellectual
Property used in, or otherwise necessary for the conduct of, the business of USI
as heretofore conducted: (i) the identified owner possesses all right, title,
and interest in and to the item; (ii) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge; (iii) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, to the Knowledge of any of the Transferors or officers (and
employees with responsibility for Intellectual Property matters) of USI, is
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item; and (iv) USI has not agreed to indemnify any person or
entity for or against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(E) To the Knowledge of Transferors and USI, none of the Material
computer software, computer firmware, computer hardware (whether general or
special purpose), and other similar or related items of automated, computerized,
and/or software system(s) that are used or relied on by USI in the conduct of
its business will in any Material respect malfunction, cease to function,
generate incorrect data, or produce incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the twentieth
and twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries up to the year 2030.
4.12 CONTRACTS. Except as disclosed on Schedule 4.12, USI is not a party
--------- -------------
to or bound by, and none of the assets of USI are covered by or subject to the
following contracts, agreements, Subscriber Contracts or Agreements (whether
written or oral):
(A) any written agreement (or group of related written agreements)
for the lease of real or personal property from or to third parties providing
for lease payments in excess of $25,000 per annum;
(B) any Material equipment or supplier agreement;
(C) any written agreement (or group of related written agreement)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $25,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(D) any Material Subscriber contract;
(E) any formal or informal partnering arrangement with any merchant
or service or web content provider;
(F) any agreement with any local exchange carrier, competitive local
exchange carrier, competitive access provider or other telecommunications
carrier;
-18-
(G) any peering, transit or other agreement with any internet service
provider, online company or similar entity;
(H) any written arrangement requiring confidentiality or
noncompetition other than agreements with customers, employees or subcontractors
in the Ordinary Course of Business; or
(I) any other written arrangement (or group of related written
arrangements) either involving more than $25,000 per annum or not entered into
in the Ordinary Course of Business.
The Transferors have delivered to the Acquirer or made available for
review by the Acquirer a correct and complete copy of each written arrangement
listed in Schedule 4.12 (as amended to date). With respect to each written
-------------
arrangement so listed: To the Knowledge of Transferors (a) the written
arrangement is legal, valid, binding, and enforceable against USI, and is in
full force and effect on and against USI, subject to Equitable Exceptions; (b)
the written arrangement will continue to be legal, valid, binding, and
enforceable against USI, and in full force and effect on identical terms
immediately following the Closing, subject to Equitable Exceptions; (c) USI is
not, nor to the Knowledge of the Transferors is any other party, in breach or
default, and no event has occurred which to the Knowledge of the Transferors
with notice or lapse of time would constitute a Material breach or default or
permit termination, modification, or acceleration, under the written
arrangement; and (d) USI has not, nor to the Knowledge of the Transferors has
any other party, repudiated any provision of the written arrangement. To the
best of the Knowledge of Transferors and USI, USI is not a party to any oral
contract, agreement, or other arrangement which, if reduced to written form,
would be required to be listed in Schedule 4.12 under the terms of this Section
------------- -------
4.12. No unfilled Subscriber Contract or Agreement obligating USI to perform
----
services will result in a loss to USI upon completion of performance. Except as
set forth in Schedule 4.12, USI has not been notified that any of its
-------------
Subscribers intend either to dispute charges under or to terminate early a
Material Subscriber Contract or Agreement.
4.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
-----------------------------
USI are reflected properly on its books and records, are valid receivables and
to the Knowledge of the Transferors and USI are subject to no setoffs or
counterclaims, to the Knowledge of Transferors are presently current and
collectible, and to the Knowledge of Transferors will be collected in accordance
with their terms at their recorded amounts, subject only to the reserve for bad
debts set forth on the face of the Stub Period Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of USI.
4.14 INSURANCE.
---------
(A) Schedule 4.14 sets forth the following information with respect
-------------
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which USI has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past two (2) years: the name, address and
telephone number of the agent or broker; the name of the insurer,
-19-
the name of the policyholder, and the name of each covered insured; the policy
number and the period of coverage; the scope and amount of coverage; and a
description of any material retroactive premium adjustments or other loss
sharing arrangements.
(B) To the Knowledge of Transferors, with respect to each insurance
policy listed on Schedule 4.14: (i) to the Knowledge of USI and Transferors, the
-------------
policy is legal, valid, binding, and enforceable and in full force and effect;
(ii) the policy will continue to be legal, valid, binding, and enforceable and
in full force and effect on identical terms immediately following the Closing
Date; (iii) USI is not in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default or
permit termination, modification, or acceleration under the policy; and (iv) USI
has not and to the Knowledge of the Transferors and USI, no other party to the
policy has repudiated any provision thereof. To the best of the Knowledge of
Transferors and USI, USI has been covered during the past three (3) years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Except as set forth in
Schedule 4.14, USI currently does not have and has never had any self-insurance
-------------
arrangements.
4.15 LITIGATION. Schedule 4.15 sets forth each instance in which USI (a)
---------- -------------
is subject to any unsatisfied judgment, order, decree, stipulation, injunction,
or charge or (b) is a party or, to the Knowledge of the Transferors and the
directors and officers of USI, is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. Except as specifically
described on Schedule 4.15, no matter listed thereon could reasonably be
-------------
expected, individually, to result in a Material adverse effect to USI. Neither
the Transferors nor any of the directors or the officers (or employees with
responsibility for litigation matters) of USI has any reason to believe that any
such charge, complaint, action, suit, proceeding, hearing, or investigation may
be brought or threatened against USI.
4.16 EMPLOYEES. To the Knowledge of the Transferors and USI, no non-
---------
clerical employee or any full-time group of employees has any plans to terminate
employment with USI and USI has not committed any unfair labor practice.
4.17 EMPLOYEE BENEFITS. Other than as described in Schedule 4.17, USI
-----------------
has no Employee Benefit Plans that USI maintains or to which USI contributes for
the benefit of any current or former employee of USI and USI has never been a
party to any Employee Benefit Plan.
4.18 GUARANTIES. To the Knowledge of Transferors, USI has not agreed to
----------
be a guarantor nor has it otherwise agreed to be liable for any Liability or
obligation (including indebtedness) of any other person other than such
potential liabilities to which USI is subject based on the acts or omissions of
its employees, subcontractors and other agents performing services for USI in
the ordinary course of business (of which USI has no Knowledge of any claim for
actual liability therefor).
-20-
4.19 LEGAL COMPLIANCE . Except as it would not, individually or in the
----------------
aggregate, have a Material adverse effect, and as limited to the Knowledge of
USI and the Transferors:
(A) USI has complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), including without limitation, all environmental and employee health
and safety laws. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against USI
which is currently pending and alleges any failure to comply with any such law
or regulation;
(B) USI has complied with all applicable laws (including rules and
regulations thereunder) relating to the employment of labor employee civil
rights, hiring of engaging non-United States citizens, and equal employment
opportunities;
(C) USI has not made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or agent where
either the contribution, payment, or gift or the purpose thereof was illegal
under the laws of any federal, state, local, or foreign jurisdiction;
(D) USI has filed in a timely manner all reports, documents, and
other materials it was required to file (and the information contained therein
was correct and complete in all respects) under all applicable laws (including
rules and regulations thereunder); and
(E) USI has possession of all records and documents it was required
to retain under all applicable laws (including rules and regulations
thereunder).
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH USI. Except as set forth in
---------------------------------------
Schedule 4.20, neither the Transferors nor its Affiliates has been involved in
-------------
any business arrangement or relationship with USI within the past twelve (12)
months other than service relationships in the ordinary course of business, and
neither the Transferors nor their Affiliates owns any material property or
right, tangible or intangible, which is used in the business of USI.
4.21 BROKERS' FEES'. USI does not have any Liability or obligation to
-------------
pay any fees or commissions to any broker, finder, or similar representative
with respect to the transactions contemplated by this Agreement.
4.22 SYSTEMS. To the Knowledge of Transferors, except as set forth on
-------
Schedule 4.22 and with such other exceptions as will not, individually or in the
-------------
aggregate, have a Material adverse effect, (i) all of the Systems services and
platform servers are running, or peaking, at no higher than 90% of capacity,
(ii) all of the Systems' services are replicated in a redundant manner across
available platform servers, (iii) all remote physical points of presence
("POPS") are secure, conform to equipment manufacturers' recommended
environmental parameters, and contain an uninterrupted power supply with a
battery back-up of at least 15 minutes, (iv) the average Subscriber blockage
rate for dial-in Subscribers is no greater than 1.0% of Subscriber attempts
across the overall network infrastructure, (v) the configuration diagrams
provided to the Acquirer reasonably represent the redundant network facilities
between major backbone
-21-
locations, and between remote physical POPs and major network concentration
points, (vi) the existing power plant at USI's main location is equipped with an
uninterrupted power supply with a battery back-up of at least 60 minutes, (vii)
by February 1, 1999, all deployed dial-in modem, modem shelf and corresponding
technology conform to applicable industry standards necessary to support
Subscriber traffic at a rate of 56Kbps or above, (viii) all Systems owned,
leased by, or licensed to or by USI will be year 2000 compliant by February 1,
1999, (ix) USI utilizes an IP address allocation scheme that conforms to
industry standards, and (x) USI has access to the quantity of IP addresses
sufficient to support USI's Subscriber base as currently existing and as
currently contemplated to exist as of April 1, 1999.
4.23 SUBSCRIBERS. Schedule 4.23 sets forth (a) the number of Subscribers
----------- -------------
served by USI by type of business (i.e., segregated by the following categories,
if applicable to USI: (i) dial-up, (ii) dedicated access, (iii) web hosting, and
(iv) other businesses) as of June 30, 1998 and USI's standard rates for such
Subscribers for each type of business; (b) for the period commencing January 1,
1997, USI's monthly churn rate (consisting of (i) cancellations of month-to-
month service and/or long-term subscription or service contracts prior to
expiration (ii) terminations of any such contracts, and (iii) non-renewal of any
such contracts upon expiration) by business type during each full calendar month
prior to the date hereof; and (c) as of June 30, 1998, detail as to the amount
of prepaid subscription or service contracts and the amount of unearned revenue
for all Subscriber contracts with a remaining term of (i) less than or equal to
90 days, (ii) greater than 90 days and less than or equal to one year, (iii)
greater than one year and less than or equal to two years, (iv) greater than two
years and less than or equal to three years and (v) greater than three years.
4.24 DISCLOSURE. The representations and warranties contained in this
----------
Article IV as amended, modified and/or supplemented by the Disclosure Schedules
----------
do not contain any untrue statement of a fact or omit to state any Material fact
necessary in order to make the statements and information contained in this
Article IV not misleading.
----------
All references in Sections 4.5 through 4.24 to "USI" shall be deemed to
------------ ----
refer to and include all Subsidiaries of the USI.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
The Acquirer represents and warrants to the Transferors the statements
contained in this Article V are correct and complete as of the date of this
---------
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article V):
---------
5.1 ORGANIZATION OF THE ACQUIRER. The Acquirer is a corporation duly
----------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
5.2 AUTHORIZATION OF TRANSACTION. The Acquirer has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by
-22-
the Acquirer. This Agreement constitutes the valid and legally binding
obligation of the Acquirer, enforceable in accordance with its terms and
conditions except for Equitable Exceptions. The Acquirer does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement (other than as provided for in
Article II of this Agreement).
----------
5.3 BROKERS' FEES'. The Acquirer has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Transferors could
become liable or obligated.
5.4 ACQUIRER'S CAPITALIZATION'. The authorized capital stock of the
-------------------------
Acquirer consists of (a) 100,000,000 shares of common stock, and (b) 10,000,000
shares of preferred stock. The issued and outstanding shares of and the
holders of record of the Acquirer's Common Stock are as set forth in Annex IV,
--------
and as of the date hereof, there are no issued and outstanding shares of
preferred stock. All of the Acquirer's issued and outstanding common stock have
been duly authorized, are validly issued, fully paid, and nonassessable.
5.5 DISCLOSURE. To the Knowledge of the Acquirer, the representations
----------
and warranties contained in this Article V do not contain any untrue statement
---------
of a fact or omit to state any Material fact necessary in order to make the
statements in Article V not misleading.
---------
5.6 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by Acquirer, nor the consummation of the transactions contemplated
hereby by the Acquirer, will (a) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which Acquirer is subject or
(b) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any part the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
agreement to which Acquirer is a party or by which it is bound or to which any
of its assets are subject.
5.7 CONSOLIDATION ACTIVITIES. As of the date hereof, Acquirer has not
------------------------
engaged in any activity not either (1) previously disclosed to USI or (2)
related to the IPO, the Business, Related Transactions, acquisitions of
companies related to the Business, employment agreements for Acquirer,
professional services related to the aforementioned activities, and other
agreements and activities related to or necessary for the execution of the
aforementioned.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing or the earlier termination of this
Agreement:
6.1 GENERAL. Each of the Parties will use its reasonable efforts to
-------
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the
-23-
transactions contemplated by this Agreement (including satisfying the closing
conditions set forth in Article IX below).
----------
6.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to
--------------------
third parties, and will use best efforts to obtain third party consents, that
the other Party may reasonably request in connection with matters disclosed or
required to be disclosed on the Disclosure Schedules. Each of the Parties will
take any additional action (and the Transferors will cause USI to take any
additional action) that may be necessary, proper, or advisable in connection
with any other notices to, filings with, and authorizations, consents, and
approvals of governments, governmental agencies, and third parties that he, she
or it may be required to give, make, or obtain.
6.3 OPERATION OF BUSINESS PRIOR TO THE EFFECTIVE TIME. Except as
-------------------------------------------------
contemplated hereby, or as may be incidental to or in furtherance of the
transactions contemplated hereby, or as may have been set forth herein or in the
Disclosure Schedules, USI will not (and the Transferors will not cause or permit
USI to) engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the ordinary course of business.
Without limiting the generality of the foregoing, from the date hereof to the
Effective Time:
(A) USI will not adopt or propose any change in its certificate of
incorporation or bylaws;
(B) USI will not merge or consolidate with any other Person or
acquire a material amount of assets of any other Person without the written
permission of Acquirer;
(C) USI will not sell, lease, license or otherwise dispose of any
material assets or property except (i) pursuant to existing contracts or
commitments, (ii) in the ordinary course of business, and (iii) as consented to
in writing by Acquirer.
(D) except as otherwise provided for in this Agreement, USI will not
issue, sell, purchase, repurchase, redeem or otherwise acquire any USI
securities;
(E) except with the prior written consent of the Acquirer, USI shall
not make any Tax election that would have an adverse effect on USI;
(F) USI will timely file all Tax Returns due on or before the
Effective Time and pay (or reserve for) all Taxes due and payable with respect
to periods;
(G) USI will not do any of the items described in Section 4.6; and
-----------
(H) USI will not agree or commitment to do any of the foregoing.
6.4 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may
------------------------
be incidental to or in furtherance of the transactions contemplated hereby, or
as may have been set forth herein or in the Schedules, the Transferors will
cause USI to use reasonable commercial efforts to keep its business and
properties substantially intact, including its present operations,
-24-
physical facilities, working conditions, and relationships with lessors,
licensers, suppliers, Subscribers, any other customers, and employees.
6.5 ACCESS.
------
(A) Only in the event that neither the Acquirer nor the Transferors
exercise their right to terminate this Agreement as provided in Article X
---------
herein, the Transferors will cause USI to permit the Acquirer's representatives
access at reasonable times, and in a manner so as not to interfere with the
normal business operations of USI, to the headquarters of USI and to all books,
records, contracts, Tax records, and documents of or pertaining to USI;
provided, however, that the Acquirer shall direct all requests for information
and material only through the Transferors' Representative, unless otherwise
agreed to by the Acquirer and the Transferors' Representative in writing.
(B) The Acquirer shall proceed to arrange with the Transferors a
mutually agreeable time and place at which the Acquirer may conduct interviews
with key employees and/or customers of USI mutually agreed to by the Acquirer
and the Transferors' Representative.
6.6 NOTICE OF DEVELOPMENTS. USI will give prompt written notice to the
----------------------
Acquirer after any of USI or the Transferors obtains Knowledge of any Material
development affecting the assets, Liabilities, business, financial condition,
operations, results of operations, or future prospects of USI including but not
limited to (a) any development affecting the ability of USI to consummate the
transactions contemplated by this Agreement, (b) any Outage affecting more than
1% of all Subscribers lasting for 3 hours or more or (c) any loss of any
Material Subscriber or any material equipment or other supplier to USI. No
disclosure by any Party pursuant to this Section 6.6 shall be deemed to amend or
-----------
supplement the Disclosure Schedules or to prevent or cure any misrepresentation,
breach of warranty, and/or breach of covenant, except with respect to Article IX
of this Agreement, provided, however, that in the event Acquirer does not
terminate the Agreement as a result of the modification discussed in this
Section 6.6, such modification shall not be deemed a breach of any
-----------
representations, warranties or covenants of this Agreement.
6.7 EXCLUSIVITY. Through June 30, 1999, the Transferors will not (and
-----------
the Transferors will not cause or permit USI to) (a) solicit, initiate, or
encourage the submission of any proposal or offer from any person relating to
any (i) liquidation, dissolution, or recapitalization, (ii) Stock Exchange or
consolidation, (iii) acquisition or purchase of securities or assets or (iv)
similar transaction or business combination involving USI, or (b) participate in
any discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other manner any effort or
attempt by any person to do or seek any of the foregoing. The Transferors will
notify the Acquirer immediately if any entity or person makes any such proposal,
offer, inquiry, or contact with respect to any of the foregoing and shall
provide the identity of such entity or person as well as any other relevant
details regarding the contact.
6.8 CANCELLATION OF OPTIONS, WARRANTS, STOCK APPRECIATION RIGHTS, BONUS
-------------------------------------------------------------------
PROGRAMS AND PHANTOM STOCK PLANS. USI shall have provided for the
--------------------------------
cancellation, at or prior to the Closing, of all USI stock options, warrants,
stock appreciation rights, deferred bonus
-25-
programs or phantom equity plans. The amounts payable for the cancellation of
the USI Options will be a reduction of the Cash Portion of the Transfer
Consideration pursuant to Section 2.2, will be funded by Acquirer to USI at
-----------
Closing and will be paid by USI to the recipients at Closing. In conjunction
with the cancellation of such programs, all employees earning more than $70,000
who have not executed new employment agreements shall have signed cancellation
agreements which include provisions that each employee will not, for a period of
one year from the date of Closing or one year from the termination of his or her
employment with USI whichever period is longer: (a) compete with USI, (b)
service or solicit any customers of USI, or (c) solicit for employment any
employee of USI.
6.9 RESERVED.
--------
6.10 RESERVED.
--------
6.11 RESERVED.
--------
6.12 TAX MATTERS.
-----------
(A) TAX RETURNS. The Transferors shall cause USI to file with the
-----------
appropriate governmental authorities all Tax returns required to be filed by it
for any taxable period ending prior to the Closing Date and Transferors and/or
USI shall remit any Taxes due in respect of such Tax returns. In addition, the
Transferors shall cause USI's independent accounting firm, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
P.C., to prepare a short period tax return for USI covering the period January
1, 1998 through the Closing Date. The cost of preparation of such short period
tax return shall be paid for by the Transferors.
(b) INDEMNITY. The Transferors shall be liable for, and shall
---------
indemnify and hold Acquirer and USI harmless against, any Taxes or other costs
attributable solely to (i) a failure on the part of any of the Transferors to
take all actions required of them under Section 6.12 for periods prior to the
------------
Closing Date or (ii) a failure on the part of USI to qualify, at or prior to the
Closing, as an "S corporation" for federal and/or state income Tax purposes.
6.13 AUDITS. Following the Closing and at Acquirer's expense, the
------
Transferors shall use their best efforts to deliver, or cause to be delivered,
to Acquirer any unqualified and unmodified audit report of E&Y on the balance
sheets of USI as of September 30, 1998, December 31, 1997 and December 31, 1996,
for periods and consolidated audited statements of operations and cash flows of
USI for the fiscal years then ended, which report shall be without limitation as
to the scope of the audit. Transferors and any of the officers or directors of
USI, in their capacities as officers and directors of USI, shall provide all
management letters, reports or representations reasonably requested by such
auditors in connection with such audits, and in connection with audits of USI
for the years ended December 31, 1997 and December 31, 1996 and for the nine
month period ending September 30, 1998.
6.14 DUE DILIGENCE. USI covenants that within 5 days of the date hereof,
-------------
it will provide Acquirer with substantial due diligence material concerning USI,
and Acquirer covenants that within 7 days of the receipt of such due diligence
material to either (i) request
-26-
further due diligence material from USI, which request will begin the time
period response and review provisions of this Section 6.14 anew; or (ii) notify
------------
USI of its intention whether or not to terminate this Agreement, provided,
however, that termination pursuant to this Section 6.14 will not be deemed a
------------
breach of this Agreement.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 GENERAL. In case at any time after the Closing any further action
-------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article IX
----------
below). The Transferors acknowledge and agree that from and after the Closing
the Acquirer will be entitled to possession of all documents, books, records,
agreements, and financial data of any sort relating to USI; provided that the
Transferors may retain any copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
7.2 TRANSITION. The Transferors will not take any action that primarily
----------
is designed or intended to have the effect of discouraging any lessor, licenser,
subscriber, supplier, or other business associate of USI from maintaining the
same business relationships with USI after the Closing for a period of twenty-
four (24) months thereafter as it maintained with USI prior to the Closing.
7.3 CONFIDENTIALITY. USI, the Transferors and Acquirer shall, and shall
---------------
cause their subsidiaries, affiliates, officers, directors, employees,
accountants, counsel, financial advisors and other representatives and agents,
to treat and hold as such all of the Confidential Information, refrain from
disclosing or using any of the Confidential Information except in connection
with this Agreement and the transactions contemplated hereby for a period of two
(2) years from the date hereof, and except as otherwise permitted hereunder or
as may be required by law, deliver promptly to the Acquirer or USI or destroy,
at the request and option of the Acquirer or USI, all tangible embodiments (and
all copies) of the Confidential Information which are in the possession of USI
or Acquirer or any Transferor. In the event that USI or Acquirer or any
Transferor is requested or required (by request for information or documents in
any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar legal process) to disclose any Confidential Information, USI or Acquirer
or such Transferor will notify the Acquirer or USI promptly of the request or
requirement so that the Acquirer or USI may seek an appropriate protective order
or waive compliance with the provisions of this Section 7.3. If, in the absence
-----------
of a protective order or the receipt of a waiver hereunder, Acquirer, USI or any
Transferor is compelled to disclose any Confidential Information or else stand
liable for contempt, then USI or Acquirer or such Transferor may disclose the
Confidential Information; provided, however, that the Transferors, USI and
Acquirer shall use their reasonable efforts to obtain, at the reasonable request
of the Acquirer or USI, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Acquirer or USI shall reasonably designate.
7.4 COVENANT NOT TO COMPETE. For a period of three (3) years from and
-----------------------
after the Closing Date, all Transferors employed by USI who sign employment
agreements will not, directly or indirectly, as principal, agent, trustee or
through the agency of any corporation, partnership, association or agent or
agency, (i) own, manage, control, participate in, consult with, render services
for, or in any manner engage in any activity or business competing within an
area comprised within a 300 mile radius from USI's executive offices in
Knoxville, Tennessee, and a 100 mile radius from any of USI's offices in the
states of Virginia, Kentucky, Alabama and Georgia, (ii) solicit from USI any
known Subscriber or other customer of USI, (iii) request or advise any known
Subscriber or other customer of USI to withdraw, curtail or cancel such
subscriber's or others customer's business with USI, or (iv) solicit for
employment any person employed by USI at any time within the two (2) year period
immediately preceding such solicitation; provided, however, that no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of that
corporation's businesses. For purposes of this Agreement, the Parties have
agreed to allocate $50,000 of the Transfer Consideration to the covenant not to
compete contained in this Section 7.4, provided, however, that such allocation
-----------
will not otherwise affect any other sections of this Agreement.
7.5 TAX FREE EXCHANGE INTENT. The Parties agree that this transaction
------------------------
will occur in conjunction with the Related Transactions, and the Parties intend
that the receipt of the Acquirer's Shares by the Transferors and by the parties
involved in the Related Transactions will be tax-free under Section 351 of the
Code.
7.6 CONDUCT DURING EARNED PAYOUT PERIOD. The Transferors acknowledge
-----------------------------------
and agree that, during the Earned Payout Period, the Acquirer shall be entitled
to oversee the operation and management of USI's Business, including the setting
of goals and review of budgets and performance. USI and those Transferors
holding executive positions in USI, further agree, during the Earned Payout
Period, not to allow USI to cut staff, capital expenditures and general and
administrative expenses or take other actions that are not consistent with USI's
prior practices or approved by Acquirer's board of directors and/or prudent
business practices, and the Transferors agree not and not to allow USI to engage
in any activity involving a Material act primarily intended to be inconsistent
with USI's prior practices in order to increase current earnings and revenue of
the business of USI at the expense of the longer term growth of the business of
USI. During the Earned Payout Period, the Acquirer agrees that it will not (a)
unreasonably require that the business of USI be operated substantially
different than it was prior to the Stock Exchange except in so far as the prior
practices of USI were imprudent or unreasonable or its productivity, efficiency
and profitability can be improved and increased through economies of scale, the
Acquirer's experience or otherwise; (b) unreasonably change (i) the prices
charged for USI's services, (ii) the level of compensation of USI's full-time
corporate employees or (iii) the level USI's general and administrative
expenses, unless the prior business practices were unreasonable or imprudent
and/or unless the changes are reasonably necessary to support the growth of
USI's business.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER. The obligation of the
-----------------------------------------
Acquirer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Transferors and USI set forth in Articles III and IV above
shall be true and correct in all material respects at and as of the Closing Date
and the Transferors shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(B) CONSENTS. The Transferors and USI will have procured all third
--------
party consents and given all notices required in connection with this Agreement
and the transactions contemplated hereby, including without limitation all
action necessary in connection with and/or the receipt of any notices to,
filings with, and authorizations, consents and approvals of governments,
governmental agencies, and third parties as set forth herein or in the
Disclosure Schedules including any filing required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Act;
(C) RESIGNATIONS. The Acquirer shall have received the
------------
resignations, effective as of the Closing, of each director of USI prior to the
Closing.
(D) DOCUMENTS TO BE DELIVERED BY THE TRANSFERORS. The following
--------------------------------------------
documents shall be delivered at Closing by the Transferors:
(I) CERTIFICATES. The Transferors and USI shall have
------------
delivered to the Acquirer an Officers/Transferors Certificate and a Secretary's
Certificate substantially in the form of the certificates respectively attached
as Exhibit C-1 and C-2 hereto.
----------- ----------
(II) ESCROW AGREEMENT. The Acquirer shall have received from
----------------
the Transferors an executed Escrow Agreement in the form and substance set forth
as Exhibit A attached hereto.
---------
(III) EMPLOYMENT AGREEMENTS. The Acquirer shall have received
---------------------
from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, an executed employment agreement in the form and
substance attached hereto as Exhibit E.
---------
(IV) REGISTRATION AGREEMENT JOINDER. The Acquirer shall have
------------------------------
received from each Transferor an executed joinder to the Registration Agreement
in the form and substance set forth as Exhibit F attached hereto;
---------
(V) USI OPTION CANCELLATIONS. The Transferors shall have
------------------------
caused USI to cancel each outstanding option, warrant, stock appreciation right,
phantom stock, deferred bonus or other option plan, if any, and all outstanding
USI Options shall have been canceled, with the cost of such cancellation being a
reduction of the Cash Portion of the Transfer Consideration pursuant to
-29-
Section 2.2, provided, however, that Acquirer shall advance to USI the funds
necessary to accomplish such cancellation.
(VI) SUBSCRIPTION AGREEMENT JOINDER. The Transferors shall
------------------------------
have caused each party receiving Acquirer's Shares under this Agreement to
execute an Equity Subscription Agreement in the form of Exhibit D hereto;
---------
(VII) OPINION OF COUNSEL. The Acquirer shall have received
------------------
from the Transferors and USI opinion of counsel in the form and substance set
forth as Exhibit G hereto.
---------
(E) FINANCIAL CONDITION. Each of the following shall be true and
-------------------
complete as of the Closing Date:
(i) USI shall use its best efforts to ensure the release
within a reasonable time after Closing, of all liens and Security Interests
securing debts of USI which have been paid in full prior to or at the Closing
and all Uniform Commercial Code financing statements covering such paid debts
shall have been terminated;
(ii) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against USI, or against or in any way affecting
any USI Share;
(iii) the Transferors and USI shall have caused all of USI's
officers, directors and/or key employees of USI to have repaid in full all debts
and other obligations, if any, owed to USI;
(F) DUE DILIGENCE COMPLETED. The Acquirer shall be satisfied in its
-----------------------
sole discretion with the results of its continuing legal, financial and business
due diligence investigations of USI, all of which shall be final and completed
to the Acquirer's satisfaction by February 15, 1999, provided, however, that USI
has assisted in good faith with such due diligence. By February 15, 1999,
Acquirer shall either immediately terminate this Agreement or it shall be
conclusively presumed that such diligence was satisfactory to Acquirer and this
condition shall terminate;
(G) MATERIAL ADVERSE CHANGE. No Material adverse change shall have
-----------------------
occurred in USI's Business or its future prospects;
(H) IPO. The Acquirer shall have received from USI the Financial
---
Statements and such Financial Statements must, in the opinion of the Acquirer's
independent public accountants, be suitable or readily adaptable for
incorporation in the Registration Statement, and any prospectus and annual and
periodic reports to be filed by the Acquirer with the SEC relating to the IPO
and the Registration Statement filed by the Acquirer with the SEC in connection
with the IPO shall have become effective and there shall be no other impediments
to the closing of the IPO; and
(I) USI SHARES. The Transferors shall deliver the certificates
----------
representing the USI Shares to the Acquirer and the acquisition by the Acquirer
of the USI Shares shall represent one hundred percent (100%) of the issued and
outstanding capital stock of USI and all of such USI
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Shares shall be free and clear of any Security Interests or other liens, claims
or encumbrances of any nature whatsoever.
The Acquirer may waive any condition specified in this Section 8.1 if
-----------
it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRANSFERORS. The obligations of
--------------------------------------------
the Transferors to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction or waiver of the
following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Acquirer set forth in Article V above shall be true and
----------
correct in all material respects at and as of the Closing Date and the Acquirer
shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing;
(B) CONSENTS. The Acquirer will have procured all third party
--------
consents needed by the Acquirer and given all notices required in connection
with this Agreement and the transactions contemplated hereby, including without
limitation all action necessary in connection with and/or the receipt of any
notices to, filings with, and authorizations, consents and approvals of
governments, governmental agencies, and third parties as set forth herein or in
the Disclosure Schedules including any filing required under the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Act;
(C) USI OPTION CANCELLATION FUNDING. The Acquirer, to the extent of
-------------------------------
the reduction in the Cash Portion of the Transfer Consideration in Section 2.2,
-----------
shall have provided funding to USI sufficient to fund the payments required to
the USI Optionholders to satisfy and secure the cancellation of the USI Options.
(D) MINIMUM IPO PRICE. The Registration Statement filed by the
-----------------
Acquirer with the SEC in connection with the IPO shall have become effective and
there shall be no other impediments to the closing of the IPO. Notwithstanding
the foregoing, the provisions of this Section 8.2(d) may be waived by the
--------------
Majority Co-Transferors in the event that the following conditions have been
attained: (i) Acquirer is able to fund the Cash Portion of the Transfer
Consideration through a private equity investment in the capital stock of the
Acquirer or through borrowed money; (ii) the Transferors receive the Stock
Portion of the Transfer Consideration on a basis reasonably equivalent to what
they would have received in an IPO; (iii) the Transferors will receive the right
to obtain liquidity for the Stock Portion of the Transfer Consideration within a
reasonably short period of years following the Closing; and (iv) following the
Closing, the Acquirer will have access to cash or availability under debt
facilities or equity financing commitments sufficient to enable it to provide a
reasonable amount of financing for working capital, equipment upgrades and
future acquisitions for the USI and the other subsidiaries of the Acquirer;
provided, however, that USI may elect not to participate in any private equity
investment described in this Section 8.2(d).
--------------
(E) DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
-----------------------------------------
documents shall be delivered at the Closing by Acquirer.
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(I) CERTIFICATES. The Acquirer shall have delivered to the
------------
Transferors an Officers Certificate substantially in the form of the Officer's
Certificate attached as Exhibit C-1 hereto.
-----------
(II) ESCROW AGREEMENT. The Transferors shall have received
from the Acquirer an executed Escrow Agreement in the form and substance set
forth as Exhibit A attached hereto.
---------
(III) SUBSCRIPTION AGREEMENT JOINDER. The Acquirer shall
------------------------------
execute and deliver an Equity Subscription Agreement in the form of Exhibit D
---------
hereto, with each of the Transferors acquiring Acquirer Shares.
(IV) EMPLOYMENT AGREEMENTS. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
---------------------
Jonker, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall
have received from USI an executed employment Agreement, in the form and
substance attached hereto as Exhibit E;
---------
(V) REGISTRATION AGREEMENT JOINDER. Each Transferor shall
------------------------------
have received from the Acquirer an executed joinder to the Registration
Agreement in the form and substance set forth as Exhibit F attached hereto;
---------
(VI) OPTIONS. The Acquirer shall have issued options for the
-------
purchase of up to 153,300 shares of the Acquirer's Common Stock to those certain
non-stockholder management and employees of USI listed on Annex VI hereto; and
--------
(F) RECEIPT OF ACQUIRER'S SHARES AND CASH PORTION OF THE TRANSFER
-------------------------------------------------------------
CONSIDERATION. Transferors shall receive the Cash Portion of the Transfer
-------------
Consideration and the Acquirer's Shares at the Closing.
The Transferors may waive any condition specified in this Section 8.2 if
-----------
they execute a writing so stating at or prior to the Closing.
-32-
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER Except as provided in and subject
-------------------------------
to Section 9.6, the Transferors agree to indemnify and hold harmless the
-----------
Acquirer, each officer and director of the Acquirer and any successor thereof
(collectively, the "INDEMNIFIED PARTIES") from and against any and all Adverse
Consequences, which any of the Indemnified Parties may sustain, or to which any
of the Indemnified Parties may be subjected, arising out of (a) any
misrepresentation, breach or default by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, the Transferors or USI of or under any of the
representations, warranties, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith and (b)
the Transferors or USI's tortious acts or omissions to act prior to Closing for
which USI did not carry liability insurance for itself as the insured party
sufficient to satisfy such claim or liability, whether or not such acts or
omissions to act result in a breach or violation of any representation or
warranty.
9.2 DEFENSE OF THIRD PARTY CLAIMS . If any legal proceeding shall be
-----------------------------
instituted, or any claim or demand made, by any third party against any
Indemnified Parties in respect of which the Transferors may be liable hereunder
(and such determination shall be made without regard to the limitations set
forth in Section 9.6), such Indemnified Party shall give prompt written notice
-----------
thereof to the Transferors and, except as otherwise provided in Section 9.4
-----------
below, the Transferors shall have the right to defend any litigation, action,
suit, demand, or claim for which such Indemnified Party may seek indemnification
with counsel satisfactory to the Transferors; provided, however, that the
Transferors may not settle any such litigation, action, suit, demand, or claim
without the prior written consent of the Acquirer, which shall not be
unreasonably withheld. Notwithstanding the foregoing, if in the reasonable
judgment of the Acquirer, such litigation, action, suit, demand or claim, or the
resolution thereof, would have a (a) Material adverse effect on the Acquirer or
the USI or (b) the Transferors have a conflict of interest in defending such
action on Acquirer's or USI's behalf, at the Acquirer's election, the Acquirer
may defend itself and in either of such instances the Transferors shall be
liable for all expenses reasonably incurred in connection therewith (including,
without limitation, settlement payments and reasonable attorney's fees);
provided, however, that the Acquirer may not settle any such litigation, action,
suit, demand, or claim without the prior written consent of the Transferors,
which shall not be unreasonably withheld. If neither (a) nor (b) are applicable
but the Acquirer desires to participate in the defense of an action the
Transferors are defending because in the Acquirer's reasonable judgment the
outcome of such action could have an ongoing effect on the Acquirer (or its
successors), the Acquirer may participate but at its own expense. In the event
the Transferors fail or refuse to defend any legal proceeding they are required
to defend under this Article IX within a reasonable length of time, the
----------
Indemnified Parties shall be entitled to assume the defense thereof, and the
Transferors shall be liable to repay the Indemnified Parties for all expenses
reasonably incurred in connection with said defense (including, without
limitation, settlement payments and reasonable attorney's fees). If the
Transferors do not or refuse to assume the defense of any litigation, action,
suit, demand, or claim in any legal proceeding they are required to defend under
this Article IX, the Indemnified Parties shall have the absolute right, at the
----------
Transferor's expense, to control the defense of and to
-33-
settle, in their sole discretion and without the consent of the Transferors,
such litigation, action, suit, demand, or claim, but the Transferors shall be
entitled, at their own expense, to participate in such litigation, action, suit,
demand, or claim, and if the Transferors elect to participate in such litigation
the Indemnified Parties shall consult with the Transferors prior to settling
such litigation. The Party controlling any defense pursuant to this Section 9.2
-----------
shall deliver, or cause to be delivered to the other Party, copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of any such litigation,
action, suit, demand, or claim, and timely notices of any hearing or other court
proceeding relating to such litigation, action, suit, demand, or claim.
9.3 PROCEDURE FOR CLAIMS.
--------------------
(A) ESCROW CLAIMS. If any good faith claim for indemnification is
-------------
made by an Indemnified Party pursuant to this Article IX prior to the expiration
----------
of the Escrow Period, such Indemnified Party shall first apply to the Escrow
Agent for reimbursement of such claim in accordance with the provisions of the
Escrow Agreement; provided, however, the Escrow Sum is not intended to be an
exclusive remedy in the event the Acquirer has indemnification claims hereunder
which exceed such amount. Once the Cash Escrow sum has been fully depleted to
satisfy claims pursuant to Section 9.1, any one or more of the Transferors shall
-----------
have the option to satisfy such Transferor's obligation to the Acquirer by
surrendering to the Acquirer that portion of the Stock Portion of the Transfer
Consideration required to fund the indemnification obligation (with such
surrendered Acquirer's Shares valued at the Fair Market Value of such shares).
Notwithstanding the foregoing, and in lieu of receiving a cash payment or
Acquirer's Shares from the Transferors, the Acquirer, in its sole discretion,
may after the first anniversary of the Closing Date, elect to offset against any
Earned Payout Amount payable to the Transferors, after an indemnification claim
has been made therefor, the amount of any Adverse Consequences or any other
payments to which the Acquirer has become entitled to by reason of the
provisions of this Agreement.
(B) OTHER CLAIMS. If pursuant to this Article IX any claim for
------------
indemnification is made by (i) an Indemnified Party after the expiration of the
Escrow Period, other than claims of third parties which are governed by Section
-------
9.2 hereof, or (ii) the Transferors, the Indemnified Party or the Transferors,
---
as the case may be (in either instance, the "CLAIMANT"), shall send written
notice to the other person (by certified mail, return receipt requested or by
personal service as provided in Section 11.7 hereof) setting forth in reasonable
------------
detail a description of the facts upon which the claim is based and a reasonable
estimate of the amount of the claim (a "CLAIM", with the notice thereof referred
to as the "CLAIM NOTICE"). The person against whom the Claim is brought (the
"RESPONDENT") shall have fifteen (15) calendar days from receipt of the Claim
Notice to respond to such Claim. Such response shall be in writing and shall (i)
set forth in reasonable detail the Respondent's objection to the Claim and the
basis for such objection, or (ii) the efforts undertaken or to be undertaken by
the Respondent to cure the Claim. In the event the Respondent fails to respond
to the Claim Notice in the manner set forth above within such 15-day period, the
Respondent shall be deemed to have conceded the Claim in full. In the event the
Parties are unable to resolve the Claim within thirty (30) calendar days from
the date of receipt of the Claim Notice, the Claim shall be submitted to
arbitration in accordance with Section 11.8 below.
------------
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9.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of USI
---------------
with respect to which an Indemnified Party might be entitled to indemnification
pursuant to this Article IX, the Acquirer shall have the right to control any
----------
and all such audits which may result in the assessment of additional Taxes
against USI and any and all subsequent proceedings in connection therewith,
including appeals (subject to the prior written consent of the Transferors,
which shall not unreasonably be withheld and subject to the right of the
Transferors to have their accountants and attorneys consult with the Acquirer on
such audits or procedures at the Transferors' expense); provided, however, that
the Transferors and the Acquirer shall jointly control, and shall cooperate with
each other in connection with, any and all such audits which may result in the
assessment of additional Taxes against both the Transferors and USI. The
Transferors shall cooperate fully in all matters relating to any such audit or
other Tax proceeding (including according access to all records pertaining
thereto), and will execute and file any and all consents, powers of attorney,
and other documents as shall be reasonably necessary in connection therewith.
If additional Taxes are payable by USI as a result of any such audit or other
proceeding by reason of matters, actions or inactions occurring prior to
Closing, the Transferors shall be responsible for and shall promptly pay all
Taxes, interest, and penalties for which any of the Indemnified Parties shall be
entitled to indemnification.
9.5 INDEMNIFICATION OF TRANSFEROR. The Acquirer agrees to indemnify and
-----------------------------
hold harmless the Transferors and USI and each officer, director, stockholder or
affiliate of USI, from and against any Adverse Consequences arising out of any
misrepresentation, breach or default by the Acquirer of or under any of the
representations, warranties, covenants, agreements or other provisions of this
Agreement or any agreement or document executed in connection herewith, and any
torts or negligent actions or inactions taken pre-closing by Acquirer pursuant
to the Closing which adversely and materially affect USI or the Transferors.
9.6 LIMITS ON INDEMNIFICATION. All Adverse Consequences sought by any
-------------------------
Party hereunder shall be net of any insurance proceeds received by such Party
with respect to such claim (less the present value of any premium increases
occurring as a result of such claim). Except for any claims for breach of the
representations, warranties and covenants of the Transferors under Sections 4.8,
------------
4.19, and 4.21 hereof (for which indemnification claims must be made prior to
---- ----
the expiration of the applicable statute of limitations plus sixty (60) days and
if so made, such claims shall continue after such date until finally resolved
and made) and Sections 3.5 and 4.2 hereof (pursuant to which the right to make
------------ ---
claims for indemnification under this Article IX shall survive the Closing Date
----------
indefinitely), the right to make claims for indemnification provided under this
Article IX shall expire on the first anniversary of the Closing Date (except for
----------
claims made prior to such date which shall continue after such date until
finally resolved). The Transferor shall not be obligated to pay any amounts for
indemnification under this Article IX until the aggregate indemnification
----------
obligation sought by the Acquirer hereunder exceeds $25,000, whereupon the
Transferors shall be liable for all amounts for which indemnification may be
sought back to the first dollar up to a maximum indemnification by Transferors
equal to the Transfer Consideration. The Acquirer shall not be obligated to pay
any amounts for indemnification under this Article IX until the aggregate
----------
indemnification obligation sought by the Transferors hereunder exceeds $25,000,
whereupon the Acquirer shall be liable for all amounts for which indemnification
may be sought back to the first dollar. For purposes of
-35-
Section 9.1 or 9.5, any requirement in any representation or warranty that an
----------- ---
event or fact be Material or have a Material adverse effect, as appropriate, in
order for such event or fact to constitute a misrepresentation or breach of such
representation or warranty shall be ignored. Notwithstanding the foregoing, in
no event shall the aggregate liability of any individual Transferor to the
Acquirer or the Acquirer to the Transferors exceed the Transfer Consideration
received by such Transferor. However, nothing in this Article IX shall limit the
Acquirer or the Transferors in exercising or securing any remedies provided by
applicable statutory or common law with respect to the conduct of the
Transferors or the Acquirer in connection with this Agreement or in the amount
of damages that it can recover from the other in the event that the Acquirer,
USI or Transferors successfully prove intentional fraud or intentional
fraudulent conduct in connection with this Agreement. The amount of all Adverse
Consequences paid by the Transferors shall be deemed to be a reduction of the
Transfer Consideration paid by Acquirer under this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
------------------------
as provided below:
(A) the Acquirer and the Transferors may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(B) the Acquirer may terminate this Agreement by giving written
notice to the Transferors at any time prior to the Closing in the event the
Transferors are in breach of any representation, warranty, or covenant contained
in this Agreement in any Material respect and such breach has not been cured
within ten (10) days of written notice thereof, and the Transferors may
terminate this Agreement by giving written notice to the Acquirer at any time
prior to the Closing in the event the Acquirer is in breach of any
representation, warranty, or covenant contained in this Agreement in any
Material respect and such breach has not been cured within ten (10) days of
written notice thereof;
(C) this Agreement will terminate if the Closing shall not have
occurred on or before March 31, 1999; provided, however, that in the event
Acquirer has filed a registration agreement with the SEC and either (i)
Acquirer's lead underwriter informs Acquirer that a public offering of stock is
not advisable or (ii) the Registration Statement has not been declared effective
but Acquirer is using reasonable efforts to have the Registration Statement
declared effective, then this Agreement shall terminate if the Closing has not
occurred on or before June 30, 1999; provided, however, that in the event this
Agreement is extended to a date after March 31, 1999, the Cash Portion of the
Transfer Consideration, after accounting for the adjustments described in
Section 2.2(b)(i), and the Stock Portion of the Transfer Consideration will each
be increased by three (3) percent.
(D) Nothing contained in this Section 10.1 shall alter, affect,
------------
modify or restrict any Parties' rights to rely on and/or seek indemnification
for a breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement.
-36-
10.2 EFFECT OF TERMINATION. If either the Acquirer or the Transferors
---------------------
terminate this Agreement pursuant to Section 10.1 above, all obligations of the
------------
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
ARTICLE XI
MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
--------------------------------
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Transferors, which written approval will not be
unreasonably withheld by each party; provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party will advise the other Parties prior to
making the disclosure).
11.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.3 ENTIRE AGREEMENT. This Agreement shall not confer any rights or
----------------
remedies upon any person other than the Parties and their respective successors
and permitted assigns. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, that may have related in any way to the subject matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her or its rights, interests, or obligations hereunder without the prior written
approval of the Acquirer and the Transferors; provided, however, that the
Acquirer may assign any or all of rights of the Agreement to any lender
providing debt financing to the Acquirer or its Affiliates.
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
11.6 NOTICES. All notices or other communications hereunder will be in
-------
writing and shall be delivered by hand, facsimile or sent, postage prepaid, by
registered or certified mail or reputable overnight courier service (and shall
be deemed given when so delivered by hand or facsimile, or, if
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mailed, five days after mailing (one business day in the case of overnight
courier)) addressed to the intended recipient as set forth below:
If to USI or the Transferors:
United States Internet, Inc. and/or the Transferors'
Representative
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
NationsBank Center
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Acquirer:
U.S. Internet Providers, Inc.
c/o Unison Partners
▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn.: ▇. ▇▇▇▇▇ ▇▇▇▇ and
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 RESERVED.
---------
11.8 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
-------------
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquirer and the Transferors. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.10 SEVERABILITY. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
11.11 EXPENSES. Each of the Parties and USI will bear his, her or its own
--------
costs and expenses (including legal fees and expenses and investment banking
fees) incurred in connection with this Agreement and the transactions
contemplated hereby. USI shall bear all of USI's expenses.
11.12 CONSTRUCTION. The language used in this Agreement will be deemed to
------------
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
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11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
ACQUIRER:
U.S. INTERNET PROVIDERS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
Title: President
------------------------
UNITED STATES INTERNET, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
Title: Chairman & CEO
------------------------
TRANSFERORS:
By: TRANSFERORS' REPRESENTATIVE
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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