______________________________________________________________________________
STOCK PURCHASE AGREEMENT
BY and AMONG
ECONOPHONE, INC., as Buyer
and
XXXXXXX XXXXXX and XXXXXX XXXXXX, as Sellers
WHO ARE ALL THE SHAREHOLDERS OF
VOICENET CORPORATION
_______________________________________________________________________________
January 28, 1998
TABLE of CONTENTS
Article Page
1. Purchase and Sale of Shares . . . . . . . . . . . . . . . . . . . . . . 1
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Additional Consideration. . . . . . . . . . . . . . . . . . . . . . . . 3
4. Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . 5
5. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Representations and Warranties of Sellers . . . . . . . . . . . . . . . 12
7. Covenants of Sellers. . . . . . . . . . . . . . . . . . . . . . . . . . 35
8. Representations and Warranties of Buyer. . . . . . . . . . . . . . . . .43
9. Covenants of Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10. Mutual Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11. Employee and Related Matters. . . . . . . . . . . . . . . . . . . . . . 47
12. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
13. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
14. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
15. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
16. No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . 62
17. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . 62
18. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19. Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
20. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
22. Interpretation; Exhibits and Schedules; Certain Definitions . . . . . . 64
23. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
24. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
25. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
26. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
27. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . .66
28. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
29. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("this Agreement"), dated as of January 28,
1998, is made by and among Econophone, Inc., a New York corporation
("Buyer"); and Xxxxxxx Xxxxxx, an individual domiciliary of the State of New
York ("Xxxxxx"), and Xxxxxx Xxxxxx, an individual domiciliary of the State
of Connecticut ("Xxxxxx"), together the holders of all the issued and
outstanding shares of capital stock of VoiceNet Corporation, a New York
corporation ("the Company") (each of Xxxxxx and Xxxxxx individually a
"Seller" and together, jointly and severally, the "Sellers").
Sellers are the beneficial and record owners of all the issued and
outstanding shares of common stock, no par value (the "Shares"), of the
Company. Buyer desires to purchase from Sellers, and Sellers desire to sell
to Buyer, all the Shares upon the terms and subject to the conditions of
this Agreement.
Accordingly, Sellers and Buyer hereby agree as follows:
1. Purchase and Sale of Shares
1.1 On the terms and subject to the conditions of this Agreement, Sellers
shall sell, transfer and deliver or cause to be sold, transferred and
delivered to Buyer, and Buyer shall purchase from Sellers, the Shares
for an aggregate purchase price of US$21,000,000 (the "Purchase
Price"), payable as set forth below in Article 2, and subject to
adjustment as set forth herein. The Purchase Price shall be allocated
as follows: $20,500,000 for the Shares and $500,000 for the
non-competition covenant set forth in Section 7.6. Neither Buyer nor
Sellers (nor any of their respective Affiliates, as defined below)
shall take any position on any Tax return or with any taxing authority
that is inconsistent with the allocation of the Purchase Price set
forth in the preceding sentence.
2. Closing
2.1 The closing of the purchase and sale of the Shares (the "Closing")
shall be held at the offices of Econophone, Inc., 00 Xxxxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00 a.m. on February 17, 1998. The date
on which the Closing shall occur is hereinafter referred to as the
"Closing Date". At the Closing, (a) Buyer shall deliver to Sellers, by
wire transfer to a bank account or accounts (but in no event more than
two such accounts) designated in writing by Sellers at least two
business days prior to the Closing Date, immediately available funds in
the total amount of US$20,000,000 (the "Initial Consideration"); and
(b) Sellers shall deliver or cause to be delivered to Buyer
certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form for
transfer, with appropriate transfer stamps, if any, affixed.
2.2 At the Closing, Buyer shall also deliver to the escrow agent (the
"Escrow Agent") appointed by the parties pursuant to that separate
agreement dated the same date as this Agreement and in a form mutually
acceptable to Buyer and Sellers (the "Escrow Agreement"), by wire
transfer to the bank account specified in the Escrow Agreement (the
"Escrow Account"), (a) the amount of US$500,000, representing the
unadjusted balance of the purchase price for the Shares (the "Purchase
Balance"); and (b) the amount of US$500,000, representing the
allocation for the non-compete covenant (the "Non-Compete Payments")
(together, the "Escrowed Funds"). It is understood and agreed between
and among the parties that the Escrow Account may be interest-bearing
at the sole option of Sellers, and that funds contained in the Escrow
Account shall be invested pursuant to Sellers' sole instructions.
Notwithstanding the obligations on the part of Buyer to pay the
Purchase Balance and Non-Compete Payments to Sellers under the terms
and conditions of this Agreement, and the obligations of the Escrow
Agent to remit the said Purchase Balance and Non-Compete Payments to
Sellers under the terms and conditions of the Escrow Agreement, all
interest or other investment earnings accrued in the Escrow
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Account shall be for the sole account of Sellers. Amounts on deposit in
the Escrow Account shall secure Sellers' indemnification obligations
hereunder.
2.3 Subject to the terms of the Escrow Agreement, the Purchase Balance and
Non-Compete Payments shall be payable to Sellers from the Escrow
Account as follows:
2.3.1 One-half of the total Purchase Balance (i.e., US$250,000)
plus one-half of the Non-Compete Payments (i.e., US$250,000)
shall be payable to Sellers on the earlier of (a) August 14,
1998, or (b) the date of termination of Sellers' employment
with Buyer pursuant to the terms of the separate employment
agreements defined in subsection 5.1.6 hereof; and
2.3.2 The remainder of the Purchase Balance (i.e., US$250,000) plus
the balance of the Non-Compete Payments (i.e., US$250,000)
shall be payable to Sellers on February 15, 1999.
3. Additional Consideration
3.1 The Purchase Price payable in respect of the Shares shall be increased
by an amount (the "Earn-Out Bonus") which shall consist of two
components, computed monthly: (a) 8.16% of Calling Card EOB (as defined
below), plus (b) 2.4% of Additional EOB (as defined below); provided,
that no single element of Earn-Out Bonus will be calculated on both of
the separate components specified in this Section. The Earn-Out Bonus
shall be payable as set forth herein. For all purposes of this
Agreement, the following definitions shall apply:
3.1.1 "Calling Card EOB" means that amount by which Net Monthly
Revenues ("NMR," defined below) of Calling Card Services
(defined below) shall exceed US$3,500,000;
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3.1.2 "Additional EOB" shall mean the combined NMR of postpaid
"1+", prepaid "1+", fixed termination toll-free "800"/"888",
reroutable toll-free "800"/"888", ITFS, and local access PIN
services generated by the Company after the date of Closing
(collectively, the "Other Services");
3.1.3 "NMR" shall mean the gross monthly revenues of Calling Card
Services or Other Services, as the case may be, generated by
the Company; provided, however, that (a) the parties
expressly acknowledge that, as of the date of this Agreement,
the Buyer does not offer or otherwise furnish all of the
Other Services; and (b) no determination has been made as to
when or whether all of the Other Services might be introduced
by the Buyer;
3.1.4 "Calling Card Services" shall mean the following calling card
products and services only, and no other products or
services: (a) postpaid calling card products and postpaid
calling card services marketed by the Company (excluding
calling card products and services marketed by Buyer
independently of the Company); and (b) prepaid calling card
products and prepaid calling card services marketed by the
Company, but only to the extent such products or services are
provided to persons who initially sought to become customers
of the Company for post-paid calling card products or
services and who were denied credit and offered calling card
service strictly on a prepaid basis.
3.2 The Earn-Out Bonus shall be subject to the following additional terms
and conditions:
3.2.1 The Earn-Out Bonus shall be computed and paid by Econophone
no later than the 10th day following the conclusion of any
billing cycle (currently the 15th day of each calendar month)
with respect to the immediately preceding concluded billing
cycle, and shall be payable with respect to all complete
billing cycles (and on a pro rata basis for any partial
billing cycle) included in the period equal to the
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shorter of (a) the period that both Employment Agreements (as
defined in subsection 5.1.6 below) are in effect, and
(b) twelve months after the closing date (such period, as the
case may be, the "Earn-Out Bonus Period").
3.2.2 Sellers shall have 30 days in which to dispute Econophone's
computation of the Earn-Out Bonus payable with respect to any
billing cycle. The computation and payment shall become final
and binding upon Buyer and Sellers on the 30th day following
delivery thereof, unless Sellers give written notice of their
dispute ("Notice of Dispute") to Buyer prior to such 30th
day. Any Notice of Dispute shall (a) specify in reasonable
detail the nature of any disagreement so asserted; and
(b) relate to disagreements based upon mathematical errors or
based upon Earn-Out Bonus not being calculated in accordance
with this Article. If a Notice of Dispute is received by
Buyer in a timely manner, then Sellers and Buyer shall
undertake to resolve in writing any differences they have
with respect to the matters specified in the Notice of
Dispute; or, if no such resolution can be achieved between
and among the parties, then the dispute shall be submitted
for resolution to the independent accounting firm (the
"Accounting Firm") designated in Section 4.3 below.
Thereafter, the computation and payment shall become final
and binding upon Sellers and Buyer on the earlier of (i) the
date on which the parties agree to a revised version of the
computation; or (ii) the date any disputed matters are
finally resolved in writing by the Accounting Firm. The cost
of any such resolution (including the fees and expenses of
the Accounting Firm and reasonable attorney fees and expenses
of the parties) pursuant to this Section shall be borne by
Buyer and Sellers in inverse proportion as they may prevail
on matters resolved by the Accounting Firm, which
proportionate allocations shall also be determined by the
Accounting Firm at the time the determination of the
Accounting Firm is rendered on the merits of the matters
submitted.
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3.2.3 The Earn-Out Bonus shall be calculated on the NMR of all
business generated by the Company within the United States
only, excluding the NMR of any business with respect to which
Sellers do not exercise management responsibility pursuant to
their respective Employment Agreements. With respect to
foreign revenues, Sellers shall provide Buyer at Closing with
a written listing of all foreign media for which
advertisements for any or all of Calling Card Services or
Other Services are funded wholly by dealers pursuant to
arrangements negotiated by Sellers. Thereafter, for the
remainder of the Earn-Out Bonus Period, to the extent that
any NMR that are foreign revenues are generated from (i) such
dealer-funded advertising, or (ii) customer accounts
generated by those dealers who have arrangements negotiated
by Sellers, an additional Earn-Out Bonus shall be due and
payable on such foreign revenues in accordance with the NMR
formula set forth above. All other foreign revenues that are
not generated as a result of dealers introduced to Buyer by
Sellers shall be excluded from NMR and from consideration for
Earn-Out Bonus, irrespective of whether Buyer, for accounting
purposes or for any other reason of its own administrative
convenience, shall elect to book any or all such revenues
into the Company.
4. Purchase Price Adjustment
4.1 Within 60 days after the Closing Date, Buyer shall prepare and deliver
to Sellers a statement (the "Statement"), certified by an officer of
Buyer, setting forth the Net Operating Accruals (as defined below) as
of the close of business on the Closing Date ("Closing Operating
Accruals"). During the 45-day period following Sellers' receipt of the
Statement, Sellers shall be permitted to review the working papers of
Buyer relating to the Statement. The Statement shall become final and
binding upon Buyer and Sellers on the 45th day following delivery
thereof, unless Sellers give written notice of their disagreement with
the Statement ("Notice of Disagreement") to Buyer prior to such 45th
day.
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4.2 Any Notice of Disagreement shall (a) specify in reasonable detail the
nature of any disagreement so asserted; and (b) relate to disagreements
based upon mathematical errors or based upon Closing Operating Accruals
not being calculated in accordance with this Section. If a Notice of
Disagreement is received by Buyer in a timely manner, then Sellers and
Buyer shall undertake to resolve in writing any differences they have
with respect to the matters specified in the Notice of Disagreement;
or, if no such resolution can be achieved between and among the
parties, then the dispute shall be submitted for resolution to an
independent accounting firm (the "Accounting Firm") in accordance with
the procedure set forth in Section 4.3 below. Thereafter, the Statement
shall become final and binding upon Sellers and Buyer on the earlier of
(A) the date on which the parties agree to a revised version of the
Statement; or (B) the date any disputed matters are finally resolved in
writing by the Accounting Firm.
4.3 During the 45-day period following the delivery of a Notice of
Disagreement, Sellers and Buyer shall seek in good faith to resolve in
writing any differences which they may have with respect to the matters
specified in the Notice of Disagreement. During such period Buyer and
its auditors shall have access to Sellers' working papers (and the
working papers of their auditors) prepared in connection with their
certification of the Notice of Disagreement. At the end of such 45-day
period, Sellers and Buyer shall submit to the Accounting Firm (defined
immediately below) for review and resolution any and all matters which
remain in dispute and which were properly included in the Notice of
Disagreement. The Accounting Firm shall be Deloitte & Touche LLP, or,
if such firm is unable or unwilling to act, such other
nationally-recognized independent public accounting firm as shall be
agreed upon by the parties hereto in writing. Sellers and Buyer agree
to use reasonable efforts to cause the Accounting Firm to render a
decision resolving the matters submitted within 45 days following
submission. Sellers and Buyer agree that judgment may be entered upon
the determination of the Accounting Firm in any court having
jurisdiction over the party against which such determination is to be
enforced. The cost of any such resolution (including the fees and
expenses of the Accounting Firm and
7
reasonable attorney fees and expenses of the parties) pursuant to this
Section shall be borne by Buyer and Sellers in inverse proportion as
they may prevail on matters resolved by the Accounting Firm, which
proportionate allocations shall also be determined by the Accounting
Firm at the time the determination of the Accounting Firm is rendered
on the merits of the matters submitted. The fees and disbursements of
Sellers' independent auditors incurred in connection with their review
of the Statement and certification of any Notice of Disagreement shall
be borne by Sellers, and the fees and disbursements of Buyer's
independent auditors incurred in connection with their review of the
Statement and review of any Notice of Disagreement shall be borne by
Buyer.
4.4 The Purchase Price shall be increased or decreased by the amount of Net
Operating Accruals as of the Closing Date. "Net Operating Accruals"
shall be calculated by fixing the sum of all receivables owed to the
Company as of the Closing Date, and subtracting from that figure the
sum of all liabilities or other amounts owed by the Company, including
any commissions, trade payables, and short-term and long-term debt
obligations; provided, however, that the receivables and payables set
forth on Schedule 4.4 hereto shall be included or excluded from this
calculation as set forth on such Schedule. If Net Operating Accruals is
a positive number (i.e., receivables greater than payables), then the
Purchase Price shall be increased by the amount of Net Operating
Accruals. If Net Operating Accruals is a negative number (i.e.,
receivables less than payables), then the Purchase Price shall be
decreased by the amount of Net Operating Accruals (the Purchase Price
as so increased or decreased shall hereinafter be referred to as the
"Adjusted Purchase Price").
4.5 All calculations required to calculate Net Operating Accruals in the
previous Section shall be made in accordance with generally accepted
accounting principles, whether or not in accordance with the historical
accounting practices of the Company. To the extent generally accepted
accounting principles permit alternate treatments of any item
comprising Net Operating Accruals, the particular treatment used in the
preparation of the Balance Sheet shall also be used in the preparation
of the Statement.
8
4.6 During the period of time from and after the date of delivery of the
Statement to Sellers through the resolution of any adjustment to the
Purchase Price contemplated by this Article, Buyer shall cause the
Company to afford to Sellers and any accountants, counsel or financial
advisers retained by Sellers in connection with any adjustment to the
Purchase Price contemplated by this Article reasonable access during
normal business hours to the Company's books and records to the extent
relevant to the adjustment contemplated by this Article.
4.7 Within 10 business days after the Statement becomes final and binding
on the parties, Buyer shall pay to Sellers the amount of any increase
in the Adjusted Purchase Price, or Sellers shall pay to Buyer the
amount of any decrease in the Adjusted Purchase Price, as the case may
be. Any payment required under this Section shall be by wire transfer
in immediately available funds, together with interest thereon at a
rate equal to the rate of interest from time to time announced publicly
by Citibank, N.A. as its prime rate, calculated on the basis of the
actual number of days elapsed over 365, from the Closing Date to the
date of payment.
5. Conditions to Closing
5.1 Buyer's Obligation. The obligation of Buyer to purchase and pay for
the Shares is subject to the satisfaction (or waiver by Buyer) as of
the Closing of the following conditions:
5.1.1 The representations and warranties of Sellers made in this
Agreement qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct
in all material respects, as of the date hereof and as of the
time of the Closing as though made as of such time, except to
the extent such representations and warranties expressly
relate to an earlier date (in which case such representations
and warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct
in all material respects, on and
9
as of such earlier date). Sellers shall have performed or
complied in all material respects with all obligations and
covenants required by this Agreement to be performed or
complied with by Sellers by the time of the Closing. Sellers
shall have delivered to Buyer a certificate dated the Closing
Date confirming the foregoing.
5.1.2 Buyer shall have received an opinion of Stroock & Stroock &
Xxxxx LLP, counsel to Sellers, dated the Closing Date, in a
form reasonably satisfactory to Buyer.
5.1.3 No statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated,
enforced or issued by any Federal, state, local or foreign
government or any court of competent jurisdiction,
administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a
"Governmental Entity") or other legal restraint or
prohibition preventing the purchase and sale of the Shares
shall be in effect.
5.1.4 There shall not be pending or threatened by any Governmental
Entity or by any other person any suit, action or proceeding
(a) challenging or seeking to restrain or prohibit the
purchase and sale of the Shares or any of the other
transactions contemplated by this Agreement or seeking to
obtain from Buyer or any of its affiliates in connection with
the purchase and sale of the Shares any material damages;
(b) seeking to prohibit or limit the ownership or operation
by Buyer, the Company or any of their respective subsidiaries
of any material portion of the business or assets of Buyer,
the Company or any of their respective affiliates, or to
compel Buyer, the Company or any of their respective
affiliates to dispose of or hold separate any material
portion of the business or assets of Buyer, the Company or
any of their respective affiliates, in each case as a result
of the purchase and sale of the Shares or any of the other
transactions contemplated by
10
this Agreement; (c) seeking to impose limitations on the
ability of Buyer to acquire or hold, or exercise full rights
of ownership of, the Shares, including the right to vote the
Shares on all matters properly presented to the stockholders
of the Company; or (d) seeking to prohibit Buyer or any of
its subsidiaries from effectively controlling in any material
respect the business or operations of the Company or any of
its subsidiaries.
5.1.5 Sellers shall have obtained the written consent of the
landlord of the office premises at 2780 Middle Country Road,
Lake Grove, New York, to assignment of the Company's current
office lease to Buyer without cost or penalty.
5.1.6 Each of Sellers shall have entered into an employment
agreement with Buyer (individually, the "Employment
Agreement" and collectively, the "Employment Agreements")
substantially in the form annexed hereto as Exhibits A-1 and
A-2.
5.1.7 The Escrow Agreement shall have been duly executed by each of
Sellers.
5.1.8 To the extent that any assets are required to be transferred
by Sellers into or out of the Company in order to effectuate
the transactions contemplated hereby, such transfer of assets
is accomplished in a manner reasonably acceptable to Buyer.
5.2 Sellers' Obligation. The obligation of Sellers to sell and deliver the
Shares to Buyer is subject to the satisfaction (or waiver by Sellers)
as of the Closing of the following conditions:
5.2.1 The representations and warranties of Buyer made in this
Agreement qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct
in all material respects, as of the date hereof and as of the
time of the Closing as though made as of such time, except to
the extent such representations
11
and warranties expressly relate to an earlier date (in which
case such representations and warranties qualified as to
materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects,
on and as of such earlier date). Buyer shall have performed
or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or
complied with by Buyer by the time of the Closing. Buyer
shall have delivered to Sellers a certificate dated the
Closing Date and signed by an authorized officer of Buyer
confirming the foregoing.
5.2.2 Sellers shall have received an opinion dated the Closing Date
of Xxxxxx & Fox, counsel to Buyer, in a form reasonably
satisfactory to Sellers.
5.2.3 No statute, rule, regulation, executive order, decree,
temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated,
enforced or issued by any Governmental Entity or other legal
restraint or prohibition preventing the purchase and sale of
the Shares shall be in effect.
5.2.4 There shall not be pending or threatened by any Governmental
Entity or by any other person any suit, action or proceeding
challenging or seeking to restrain or prohibit the purchase
and sale of the Shares or any of the other transactions
contemplated by this Agreement or seeking to obtain from
Sellers or any of its affiliates in connection with the
purchase and sale of the Shares any material damages;
provided, however, that this condition shall be deemed to be
waived by Sellers as to any suit, action or proceeding
(except for any suit, action or proceeding by any
Governmental Entity) if Buyer provides to Sellers
indemnification in form and substance reasonably satisfactory
to Sellers and its counsel with respect to any such suit,
action or proceeding.
5.2.5 The Escrow Agreement shall have been duly executed by Buyer.
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5.2.6 Sellers shall have confirmed the Escrow Agent's receipt of
the Escrowed Funds specified in Section 2.2 hereof,
simultaneously with or prior to the Closing.
5.2.7 All commissions payable by Buyer to Sellers in connection
with the one month period ending January 15, 1998 shall have
been paid at or prior to the Closing (it being agreed by and
among Sellers and Buyer that all commissions payable by Buyer
to Sellers in connection with the period commencing January
16, 1998 and ending at the Closing shall be included in the
calculation of Net Operating Accruals).
5.3 Frustration of Closing Conditions.
5.3.1 Neither Buyer nor Sellers may rely on the failure of any
condition set forth in this Article to be satisfied if such
failure was caused by such party's failure to act in
reasonable good faith or to use its reasonable best efforts
to cause the Closing to occur.
5.3.2 In the event that Buyer shall not consummate the Closing in
accordance with the terms of this Agreement, other than as
the result of the failure of any of the conditions to Closing
set forth in Section 5.1 hereof ("Buyer's Failure To Close"),
then, in addition to all other remedies provided for in this
Agreement, Buyer shall be obligated to pay to Sellers the sum
of $10,000 for each day that the Closing shall be delayed
solely on account of Buyer's Failure To Close.
5.3.3 In the event that Sellers shall not consummate the Closing in
accordance with the terms of this Agreement, other than as
the result of the failure of any of the conditions to Closing
set forth in Section 5.2 hereof ("Sellers' Failure To
Close"), then, in addition to all other remedies provided for
in this Agreement, Sellers jointly and severally shall be
obligated to pay to Buyer the sum of $10,000 for
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each day that the Closing shall be delayed solely on account
of Sellers' Failure To Close.
6. Representations and Warranties of Sellers
Sellers hereby jointly and severally represent and warrant to Buyer as
follows (except with respect to those representations and warranties
contained Sections 6.1, 6.2 and 6.3 which pertain to Sellers
individually rather than specifically to the Company, for which each
Seller represents and warrants severally for himself):
6.1 Authority. Sellers are the sole owners of all the issued and
outstanding shares of capital stock of the Company, and Sellers
together exercise the sole management discretion and authority over the
Company's assets, liabilities and business operations. Each Seller has
all requisite power and authority to enter into this Agreement, the
Escrow Agreement and his respective Employment Agreement, to perform
his respective obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. All corporate acts
and other proceedings required to be taken by Sellers to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by
Sellers and constitutes a legal, valid and binding obligation of
Sellers, enforceable against Sellers in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights in general and by general principles
of equity.
6.2 No Conflicts; Consents.
6.2.1 Except as set forth in Schedule 6.2.1, the execution and
delivery of this Agreement by Sellers do not, and the
consummation of the transactions
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contemplated hereby and compliance with the terms hereof will
not, materially conflict with, or result in any material
violation of or material default (with or without notice or
lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or to increased,
additional, accelerated or guaranteed rights or entitlements
of any person under, or result in the creation of any lien,
claim, encumbrance, security interest, option, charge or
restriction of any kind upon any of the properties or assets
of the Company under, any provision of (a) the Certificate of
Incorporation or By-laws of the Company; (b) any material
note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement or arrangement to
which Sellers, the Company or any Affiliate of either thereof
is a party or by which any of their respective properties or
assets are bound; or (c) any judgment, order or decree, or
statute, law, ordinance, rule or regulation applicable to
Sellers, the Company or any Affiliate of either thereof or
their respective properties or assets.
6.2.2 The total sales and total assets of the Company, each Seller
and Sellers together are less than US$10,000,000 and
therefore, the transactions contemplated hereby are not
subject to filing with the United States Federal Trade
Commission (the "FTC") or the United States Department of
Justice (the "DOJ") pursuant to the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 0000 (xxx "XXX Xxx").
6.2.3 No other consent, approval, license, permit, order or
authorization of, or registration, declaration or filing
with, any Governmental Entity is required to be obtained or
made by or with respect to the Sellers, the Company, or their
respective Affiliates in connection with (i) the execution,
delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby; or
(ii) the conduct by the Company of its business following the
Closing as conducted on the date hereof, other than those
that may be
15
required solely by reason of Buyer's (as opposed to any other
third party's) participation in the transactions contemplated
hereby.
6.3 The Shares. Sellers have good and valid title to the Shares, free and
clear of any liens, claims, encumbrances, security interests, options,
charges and restrictions of any kind. Assuming Buyer has the requisite
power and authority to be the lawful owner of the Shares, upon delivery
to Buyer at the Closing of certificates representing the Shares, duly
endorsed by Sellers for transfer to Buyer, and upon Seller's receipt of
the Initial Consideration, good and valid title to the Shares will pass
to Buyer, free and clear of any liens, claims, encumbrances, security
interests, options, charges and restrictions of any kind, other than
those arising from acts of Buyer or its affiliates. Other than this
Agreement, the Shares are not subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding,
including any such agreement, arrangement, commitment or understanding
restricting or otherwise relating to the voting, dividend rights or
disposition of the Shares.
6.4 Organization and Standing; Books and Records.
6.4.1 The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York.
The Company has full corporate power and authority and
possesses all material governmental franchises, licenses,
permits, authorizations and approvals necessary to enable it
to own, lease or otherwise hold its properties and assets and
to carry on its business as presently conducted. The Company
is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which the conduct
or nature of its business or the ownership, leasing or
holding of its properties makes such qualification necessary,
except such jurisdictions where the failure to be so
qualified or in good standing, individually or in the
aggregate, would not have a material adverse effect on the
business, assets, condition (financial or otherwise),
16
results of operations or prospects of the Company, the value
of the Shares, or on the ability of Sellers to consummate the
transactions contemplated hereby (a "Material Adverse
Effect"). A list of the jurisdictions in which the Company is
so qualified is set forth in Schedule 6.4. Neither the
Company, nor Sellers, nor any of their respective Affiliates
is subject to, bound by or a party to any contract, agreement
or other instrument, or subject to any charter or other
corporate restriction, which has or is reasonably likely to
have, individually or in the aggregate, a Material Adverse
Effect.
6.4.2 Sellers have, prior to the execution of this Agreement, made
available to Buyer true and complete copies of the
Certificate of Incorporation and By-laws, each as amended to
date, of the Company. The stock certificate and transfer
books and the minute books of the Company (which have been
made available for inspection by Buyer prior to the date
hereof) are true, correct and complete.
6.5 Capital Stock of the Company and the Subsidiaries. The authorized
capital stock of the Company consists of 200 shares of Common Stock, no
par value, of which 100 shares, constituting the Shares, are duly
authorized and validly issued and outstanding, fully paid and
nonassessable. Each Seller is the record and beneficial owner of 50
Shares. Except for the Shares, there are no shares of capital stock or
other equity securities of the Company outstanding. The Shares have not
been issued in violation of, and none of the Shares or such shares of
capital stock are subject to, any purchase option, call, right of first
refusal, preemptive, subscription or similar rights under any provision
of applicable law, the Certificate of Incorporation or By-laws of the
Company or the comparable governing instruments of any Affiliate, any
contract, agreement or instrument to which the Sellers, the Company or
any Affiliate is subject, bound or a party or otherwise. There are no
outstanding warrants, options, rights, "phantom" stock rights,
agreements, convertible or exchangeable securities or other commitments
(other than this Agreement) (a) pursuant to which either Seller, the
Company or any Affiliate of either Seller or the Company is or
17
may become obligated to issue, sell, purchase, return or redeem any
shares of capital stock or other securities of the Company; or (b) that
give any person the right to receive any benefits or rights similar to
any rights enjoyed by or accruing to the holders of shares of capital
stock of the Company. Except as set forth in Schedule 6.5, there are no
equity securities of the Company reserved for issuance for any purpose.
Except as set forth in Schedule 6.5, there are no outstanding bonds,
debentures, notes or other indebtedness having the right to vote on any
matters on which stockholders of the Company may vote.
6.6 No Subsidiaries; Equity Interests. The Company does not directly or
indirectly own any capital stock of or other equity interests in any
corporation, partnership or other person. The Company is not a member
of or participant in any partnership, joint venture or similar person.
6.7 Financial Statements; Undisclosed Liabilities.
6.7.1 Schedule 6.7 sets forth (a) the unaudited consolidated
balance sheet of the Company as of December 31, 1997 (the
"Balance Sheet"), and the unaudited consolidated statements
of income and cash flows of the Company for the period ended
December 31, 1997, and (b) the audited consolidated balance
sheets of the Company as of December 31, 1996, and the
audited consolidated statements of income and cash flows of
the Company for the year ended December 31, 1996, together
with the notes to such financial statements (the financial
statements described in clauses (a) and (b) above, together
with the notes to such financial statements, collectively,
the "Financial Statements"). The Financial Statements
referred to in clause (b) above have been prepared in
conformity with generally accepted accounting principles
consistently applied (except in each case as described in the
notes thereto) and on that basis fairly present (subject, in
the case of unaudited statements, to normal, recurring
year-end audit adjustments) the consolidated financial
condition and results of operations of the Company as of
18
the respective dates thereof and for the respective periods
indicated. The Financial Statements referred to in clause (a)
above have been prepared on a cash basis of accounting and on
that basis fairly present (subject to normal, recurring
year-end audit adjustments) the consolidated financial
condition and results of operations of the Company as of the
respective dates thereof and for the respective periods
indicated.
6.7.2 The Company does not have any liabilities or obligations of
any nature (whether accrued, absolute, contingent, unasserted
or otherwise) such as would be required by United States
generally accepted accounting principles to be reflected on a
consolidated balance sheet or in the notes thereto, except
(a) as disclosed, reflected or reserved against in the
Balance Sheet and the notes thereto, (b) for items set forth
in Schedule 6.7, (c) for liabilities and obligations incurred
in the ordinary course of business consistent with past
practice since the date of the Balance Sheet and not in
violation of this Agreement, and (d) for Taxes. This
representation shall not be deemed breached as a result of a
change in law after the Closing Date.
6.8 Sufficiency of Company Assets. The assets owned by the Company
constitute, and, except for the assets set forth on Schedule 6.8 which
shall be transferred to Sellers, on the Closing Date will constitute,
all of the assets or property used or held for use in the Company's
business and, other than dispositions of assets in the ordinary course
of business, include all assets reflected on the Balance Sheet. Upon
consummation of the transactions contemplated hereby, (a) Buyer will
have acquired good and marketable title in and to the shares, free and
clear of all liens except for Permitted Liens, and (b) the Company
shall continue to have good and marketable title in and to, or a valid
leasehold interest in, all such assets or property owned by the Company
that is used or held for use in the Company's business, free and clear
of all liens except for Permitted Liens. Neither the
19
Sellers nor any of their Affiliates (other than the Company) owns any
assets or property that is used or held for use in the Company's
business.
6.9 Taxes.
6.9.1 For purposes of this Agreement, (a) "Tax" or "Taxes" shall
mean all Federal, state, local and foreign taxes and
assessments, including all interest, penalties and additions
imposed with respect to such amounts; (b) "pre-Closing Tax
Period" shall mean all taxable periods ending on or before
the Closing Date and the portion ending on the Closing Date
of any taxable period that includes (but does not end on)
such day; and (c) "Code" shall mean the Internal Revenue Code
of 1986, as amended.
6.9.2 Except as set forth in Schedule 6.9, (a) the Company has
filed or caused to be filed in a timely manner (within any
applicable extension periods) all material Tax returns,
reports and forms required to be filed by the Code or by
applicable state, local or foreign tax laws; (b) all Taxes
shown to be due on such returns, reports and forms have been
timely paid in full or will be timely paid in full by the due
date thereof; and (c) no material tax liens have been filed
and no material claims are being asserted in writing with
respect to any Taxes.
6.9.3 Except as set forth in Schedule 6.9, no property of the
Company is "tax exempt use property" within the meaning of
Section 168(h) of the Code.
6.9.4 Except as set forth in Schedule 6.9, there are no outstanding
agreements or waivers extending the statutory period of
limitation applicable to any material Tax returns required to
be filed with respect to the Company, and the Company has not
requested any extension of time within which to file any
material Tax return, which return has not yet been filed.
20
6.9.5 The Company is not a real property holding company within the
meaning of Section 897 of the Code.
6.9.6 Neither of Sellers is a "foreign person" within the meaning
of Section 1445 of the Code.
6.9.7 The Company has made and the Sellers have consented to a
valid election, which election has not been revoked or
terminated or otherwise become ineffective, under Section
1362(a) of the Code to be taxed as an "S corporation" under
Sections 1361 through 1379 of the Code. The Company has made
and the Sellers have consented to valid elections, which
elections have not been revoked or terminated or otherwise
become ineffective, to be taxed in a comparable fashion under
comparable state, local or foreign Tax law, for the taxable
periods and in all applicable taxing jurisdictions in which
such an election may be made. Except as a set forth in
Schedule 6.9, the Company has not been, nor will be, subject
to any Federal corporate income taxes imposed under Chapter 1
of the Code (other than Code Sections 1374 and 1375 (and
their predecessor Sections under the Internal Revenue Code of
1954, as amended)) or any state, local or foreign income or
franchise Taxes for any period for which it elected to be
taxed as an "S corporation".
6.9.8 The Company is not and has never been a member of an
affiliated group within the meaning of Section 1504 of the
Code.
6.10 Assets Other than Real Property Interests. The Company has good and
valid title to all assets reflected on the Balance Sheet or thereafter
acquired, except those sold or otherwise disposed of for fair value
since the date of the Balance Sheet in the ordinary course of business
consistent with past practice and not in violation of this Agreement,
in each case free and clear of all mortgages, liens, security interests
or encumbrances of any kind except
21
(a) such as are set forth in Schedule 6.10; (b) mechanics', carriers',
workmen's, repairmen's or other like liens arising or incurred in the
ordinary course of business, liens arising under original purchase
price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business and liens for
Taxes which are not due and payable or which may thereafter be paid
without penalty; (c) mortgages, liens, security interests and
encumbrances which secure debt that is reflected as a liability on the
Balance Sheet and the existence of which is indicated in the notes
thereto; and (d) other imperfections of title or encumbrances, if any,
which do not, individually or in the aggregate, materially impair the
continued use and operation of the assets to which they relate in the
business of the Company, taken as a whole, as presently conducted (the
mortgages, liens, security interests, encumbrances and imperfections of
title described in clauses (b), (c) and (d) above are hereinafter
referred to collectively as "Permitted Liens").
6.10.1 All the material tangible personal property of the Company
has been maintained in all material respects in accordance
with the past practice of the Company and generally accepted
industry practice. Each item of material tangible personal
property of the Company is in all material respects in good
operating condition and repair, ordinary wear and tear
excepted. All leased personal property of the Company is in
all material respects in the condition required of such
property by the terms of the lease applicable thereto during
the term of the lease and upon the expiration thereof.
6.10.2 This Section 6.10 does not relate to real property or
interests in real property, such items being the subject of
Section 6.11.
6.11 Title to Real Property. There are no interests in real property owned
in fee by the Company. Schedule 6.11 sets forth a complete list of all
real property and interests in real property leased by the Company
(individually, a "Company Property") and identifies any material base
leases and reciprocal easement or operating agreements relating
thereto. The
22
Company has good and valid title to the leasehold estates in all
Company Property, in each case free and clear of all mortgages, liens,
security interests, encumbrances, leases, assignments, subleases,
easements, covenants, rights-of-way and other similar restrictions of
any nature whatsoever, except (i) such as are set forth in
Schedule 6.11, (ii) leases, subleases and similar agreements set forth
in Schedule 6.13, (iii) Permitted Liens, (iv) easements, covenants,
rights-of-way and other similar restrictions of record, (v) any
conditions that may be shown by a current, accurate survey or physical
inspection of any Company Property made prior to Closing, and
(vi) (A) zoning, building and other similar restrictions,
(B) mortgages, liens, security interests, encumbrances, easements,
covenants, rights-of-way and other similar restrictions that have been
placed by any developer, landlord or other third party on property over
which the Company has easement rights or on any Company Property and
subordination or similar agreements relating thereto, and
(C) unrecorded easements, covenants, rights-of-way and other similar
restrictions, none of which items set forth in clauses (A), (B) and
(C), individually or in the aggregate, materially impair the continued
use and operation of the property to which they relate in the business
of the Company, taken as a whole, as presently conducted. To the
knowledge of Sellers, the current use by the Company of the plants,
offices and other facilities located on Company Property does not
violate any local zoning or similar land use or government regulations
in any material respect.
6.12 Intellectual Property. Schedule 6.12 sets forth a true and complete
list of all material patents, trademarks (registered or unregistered),
trade names, service marks and copyrights and applications therefor and
other material intellectual property and proprietary rights, whether or
not subject to statutory registration or protection (collectively,
"Intellectual Property"), owned, used, filed by or licensed to the
Company. With respect to registered trademarks, Schedule 6.12 sets
forth a list of all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers.
Except as set forth in Schedule 6.12, the Company owns, and the Company
has the right to use, execute, reproduce, display, perform, modify,
enhance, distribute, prepare derivative works of and
23
sublicense, without payment to any other person, all Intellectual
Property listed in Schedule 6.12 and the consummation of the
transactions contemplated hereby will not conflict with, alter or
impair any such rights. The Company owns and has all rights to
Intellectual Property in all jurisdictions and geographic areas as are
necessary in connection with the business of the Company as presently
conducted and as such business is proposed to be conducted in the most
recent business plan of the Company (the "Business Plan").
6.12.1 Neither the Company nor any of the Subsidiaries has granted
any options, licenses or agreements of any kind relating to
Intellectual Property listed in Schedule 6.12 or the
marketing or distribution thereof. Neither the Company nor
any of the Subsidiaries is bound by or a party to any
options, licenses or agreements of any kind relating to the
Intellectual Property of any other person, except as set
forth in Schedule 6.12 and except for agreements relating to
computer software licensed to the Company in the ordinary
course of business. Subject to the rights of third parties
set forth in Schedule 6.12, all Intellectual Property listed
in Schedule 6.12 is free and clear of the claims of others
and of all liens, security interests and encumbrances
whatsoever. To the knowledge of Sellers and except as
provided in Schedule 6.12, the conduct of the business of the
Company as presently conducted does not, and the conduct of
such business as proposed to be conducted in the Business
Plan will not, violate, conflict with or infringe the
Intellectual Property of any other person. Except as set
forth in Schedule 6.12, (a) no claims are pending or, to the
knowledge of Sellers, threatened, as of the date of this
Agreement, against the Company, including any predecessor or
Affiliate of the Company, by any person with respect to the
ownership, validity, enforceability, effectiveness or use of
any Intellectual Property; and (b) during the past two years,
Sellers and the Company, including any predecessor or
Affiliate of the Company, have not received any
communications alleging that the Company (any
24
predecessor or Affiliate) has violated any rights relating to
Intellectual Property of any person.
6.12.2 All former and current employees, agents, consultants and
independent contractors of the Company or any predecessor or
Affiliate who materially have contributed to or participated
in the conception and development of software or other
Intellectual Property listed in Schedule 6.12 (collectively,
"Personnel"), have executed and delivered to the Company a
proprietary information agreement restricting such person's
right to disclose proprietary information of the Company. All
former and current Personnel either (a) have been party to a
"work-for-hire" arrangement or agreement with the Company, in
accordance with applicable Federal and state law, that has
accorded the Company full, effective, exclusive and original
ownership of all tangible and intangible property thereby
arising; or (b) have executed appropriate instruments of
assignment in favor of the Company as assignee that have
conveyed to the Company full, effective and exclusive
ownership of all tangible and intangible property thereby
arising. No former or current Personnel have any claim
against the Company or any predecessor or Affiliate in
connection with such person's involvement in the conception
and development of any Intellectual Property and no such
claim has been asserted or is threatened. None of the current
officers and employees of the Company or any Affiliate have
any patents issued or applications pending for any device,
process, design or invention of any kind now used or needed
by the Company in the furtherance of its business operations,
which patents or applications have not been assigned to the
Company, with such assignment duly recorded in the United
States Patent Office.
25
6.13 CONTRACTS. Except as set forth in Schedule 6.13, the Company is not a
party to or bound by any:
6.13.1 employment agreement or employment contract that has an
aggregate future liability in excess of $5,000 and is not
terminable by the Company by notice of not more than 60 days
for a cost of less than $5,000;
6.13.2 employee collective bargaining agreement or other contract
with any labor union;
6.13.3 covenant of the Company or any predecessor or Affiliate of the
Company not to compete (other than pursuant to any radius
restriction contained in any lease, reciprocal easement or
development, construction, operating or similar agreement) or
other covenant of the Company restricting the development,
manufacture, marketing or distribution of the products and
services of the Company;
6.13.4 agreement, contract or other arrangement with (a) Sellers or
any Affiliate of Sellers (other than the Company) or (b) any
current or former officer, director or employee of the
Company, any predecessor or Affiliate of the Company, Sellers
or any Affiliate of Sellers;
6.13.5 lease, sublease or similar agreement with any person (other
than the Company) under which the Company is a lessor or
sublessor of, or makes available for use to any person (other
than the Company), (a) any Company Property or (b) any portion
of any premises otherwise occupied by the Company;
6.13.6 lease or similar agreement with any person (other than the
Company) under which (a) the Company is lessee of, or holds or
uses, any machinery, equipment, vehicle or other tangible
personal property owned by any person; or (b) the Company is a
lessor or sublessor of, or makes available for use by any
person, any tangible
26
personal property owned or leased by the Company, in any such
case which has an aggregate future liability or receivable, as
the case may be, in excess of $5,000 and is not terminable by
the Company by notice of not more than 60 days for a cost of
less than $5,000;
6.13.7 (a) continuing contract for the future purchase of materials,
supplies or equipment (other than purchase contracts and
orders for inventory in the ordinary course of business
consistent with past practice); (b) management, service,
consulting or other similar type of contract; or (c)
advertising agreement or arrangement, in any such case which
has an aggregate future liability to any person (other than
the Company) in excess of $5,000 and is not terminable by the
Company by notice of not more than 60 days for a cost of less
than $5,000;
6.13.8 material license, option or other agreement relating in whole
or in part to the Intellectual Property set forth in Schedule
6.12 (including any license or other agreement under which the
Company is license or licensor of any such Intellectual
Property) or to trade secrets, confidential information or
proprietary rights and processes of the Company, any
predecessor or Affiliate of the Company, or any other person;
6.13.9 agreement, contract or other instrument under which the
Company has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any person
(other than the Company) or any other note, bond, debenture or
other evidence of indebtedness issued to any person (other
than the Company);
6.13.10 agreement, contract or other instrument (including so-called
take-or-pay or keepwell agreements) under which (a) any person
(including the Company) has directly or indirectly guaranteed
indebtedness, liabilities or obligations of the
27
Company, or (b) the Company has directly or indirectly
guaranteed indebtedness, liabilities or obligations of any
person (in each case other than endorsements for the purpose
of collection in the ordinary course of business);
6.13.11 agreement, contract or other instrument under which the
Company has, directly or indirectly, made any advance, loan,
extension of credit or capital contribution to, or other
investment in, any person (other than the Company);
6.13.12 mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any
Company Property, which lien or other encumbrance is set forth
in Schedule 6.10 or 6.11;
6.13.13 agreement or instrument providing for indemnification of any
person with respect to liabilities relating to any current or
former business of the Company, or any predecessor or
Affiliate; or
6.13.14 other agreement, contract, lease, license, commitment or
instrument to which the Company is a party or by or to which
it or any of its assets or business is bound or subject which
has an actual or potential aggregate future liability to any
person (other than the Company) in excess of $5,000 and is not
terminable by the Company by notice of not more than 60 days
for a cost of less than $5,000.
6.13.15 Schedule 6.13.15 sets forth a listing of those agreements,
contracts, licenses, commitments or instruments with any
dealer, reseller or agent (individually, a "Dealer Agreement"
and collectively, the "Dealer Agreements") which individually
constitute the 20 largest sources of customer usage xxxxxxxx
for the Company (excluding Buyer as a separate source of gross
revenues for the Company).
28
Sellers have made available to Buyer true, correct and complete copies
of all material contracts listed in Schedules 6.13 and 6.13.15;
provided, however, that with respect to the five largest
revenue-generating Dealer Agreements listed in Schedule 6.13.15 only,
the contracts delivered to Buyer have been redacted, but only to the
extent of the identities of the non-Company parties thereto; and
provided further, however, that with respect to the remaining Dealer
Agreements listed in Schedule 6.13.15, such agreements contain
substantially similar terms to the forms of Dealer Agreements
previously provided to Buyer by Sellers. Except as set forth in
Schedule 6.13, all agreements, contracts, leases, licenses, commitments
or instruments of the Company listed in the Schedules hereto
(collectively, the "Contracts") are valid, binding and in full force
and effect and are enforceable by the Company in accordance with its
terms. Except as set forth in Schedule 6.13, Sellers, the Company,
their predecessors and Affiliates have performed all material
obligations required to be performed by them to date under the
Contracts and they are not (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder and, to the knowledge of Sellers, no other party to any of
the Contracts is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect
thereunder.
6.14 LITIGATION. Schedule 6.14 sets forth a list as of the date of this
Agreement of all pending lawsuits or claims, with respect to which
Sellers, the Company, its predecessors and Affiliates has been
contacted in writing by counsel for the plaintiff or claimant, against
or affecting Sellers, the Company, its predecessors or Affiliates, or
any of their respective properties, assets, operations or businesses
and which (a) relate to or involve more than $5,000, (b) seek any
material injunctive relief, or (c) may give rise to any legal restraint
on or prohibition against the transactions contemplated by this
Agreement. Except as set forth in Schedule 6.14, to the knowledge of
Sellers, there are no unasserted claims of the type that would be
required to be disclosed in Schedule 6.14 which are considered probable
of assertion and which, if asserted, would have at least a reasonable
possibility of an adverse determination. To the knowledge of Sellers,
except as set forth in Schedule 6.14, neither
29
the Company nor any predecessor or Affiliate is a party or subject to
or in default under any judgment, order, injunction or decree of any
Governmental Entity or arbitration tribunal applicable to it or any of
its respective properties, assets, operations or business. Except as
set forth in Schedule 6.14, there is no lawsuit or claim by the Company
pending, or which the Company intends to initiate, against any other
person. Except as set forth in Schedule 6.14, to the knowledge of
Sellers, there is no pending or threatened investigation of or
affecting the Company by any Governmental Entity.
6.15 INSURANCE. Sellers or the Company maintain policies of fire and
casualty, liability and other forms of insurance in such amounts, with
such deductibles and against such risks and losses as are, in Sellers'
judgment, reasonable for the business and assets of the Company. The
insurance policies maintained with respect to the Company and its
assets and properties are listed in Schedule 6.15. All such policies
are in full force and effect, all premiums due and payable thereon have
been paid (other than retroactive or retrospective premium adjustments
that are not yet, but may be, required to be paid with respect to any
period ending prior to the Closing Date), and no notice of cancellation
or termination has been received with respect to any such policy which
has not been replaced on substantially similar terms prior to the date
of such cancellation. To the knowledge of Sellers, the activities and
operations of the Company have been conducted in a manner so as to
conform in all material respects to all applicable provisions of such
insurance policies.
6.16 BENEFIT PLANS.
6.16.1 Schedule 6.16 contains a list of all "employee pension benefit
plans" as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (sometimes
referred to herein as "Pension Plans"); "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA), bonus,
stock option, stock purchase, deferred compensation plans or
arrangements and other employee fringe benefit plans (all the
foregoing being herein called "Benefit
30
Plans") maintained or contributed to by Sellers, the Company
or any predecessor, for the benefit of any officers or
employees of the Company. Sellers have made available to Buyer
true, complete and correct copies of (a) each Benefit Plan
(or, in the case of any unwritten Benefit Plans, descriptions
thereof), (b) the most recent annual report on Form 5500 filed
with the Internal Revenue Service with respect to each Benefit
Plan (if any such report was required), (c) the most recent
summary plan description for each Benefit Plan for which such
a summary plan description is required, and (d) each trust
agreement and group annuity contract relating to any Benefit
Plan.
6.16.2 Each Benefit Plan has been administered in all material
respects in accordance with its terms. The Company and all the
Benefit Plans are in compliance in all material respects with
the applicable provisions of ERISA and the Code. Except as set
forth in Schedule 6.16, all material reports, returns and
similar documents with respect to the Benefit Plans required
to be filed with any Governmental Entity or distributed to any
Benefit Plan participant have been duly and timely filed or
distributed. Except as set forth in Schedule 6.16, there are
no lawsuits, actions, termination proceedings or other
proceedings pending, or, to the knowledge of Sellers,
threatened against or involving any Benefit Plan and, to the
knowledge of Sellers, there are no investigations by any
Governmental Entity or other claims (except claims for
benefits payable in the normal operation of the Benefit Plans)
pending or threatened against or involving any Benefit Plan or
asserting any rights to benefits under any Benefit Plan.
6.16.3 Except as set forth in Schedule 6.16, (a) all contributions
to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the Benefit Plans and,
when applicable, Section 302 of ERISA or Section 412 of the
Code, have been timely made; (b) there has been no application
for or waiver of the minimum funding standards imposed by
Section 412 of the Code with respect
31
to any Pension Plan; and (c) no Pension Plan has an
"accumulated funding deficiency" within the meaning of Section
412(a) of the Code as of the most recent plan year. All such
contributions to, and payments from, the Benefit Plans, except
those payments to be made from a trust qualified under Section
401(a) of the Code, for any period ending before the Closing
Date that are not yet, but will be, required to be made, will
be properly accrued and reflected in the Statement in
accordance with generally accepted accounting principles.
6.16.4 Except as set forth in Schedule 6.16, all Pension Plans have
been the subject of determination letters from the Internal
Revenue Service to the effect that such Pension Plans are
qualified and exempt from Federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the knowledge of
Sellers, has revocation been threatened, nor has any such
Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect
that would adversely affect its qualification or materially
increase its cost.
6.16.5 No "prohibited transaction" (as defined in Section 4975 of the
Code or Section 406 of ERISA) has occurred that involves the
assets of any Benefit Plan and that could subject the Company
or any of their employees, or, to the knowledge of Sellers, a
trustee, administrator or other fiduciary of any trusts
created under any Benefit Plan to the tax or penalty on
prohibited transactions imposed by Section 4975 of ERISA or
the sanctions imposed under Title I of ERISA. Except as set
forth in Schedule 6.16, none of the Pension Plans has been
terminated nor have there been any "reportable events" (as
defined in Section 4043 of ERISA and the regulations
thereunder) with respect thereto. Neither Sellers nor any
trustee, administrator or other fiduciary of any Benefit Plan
nor any agent of any of the foregoing has engaged in any
transaction or acted
32
or failed to act in a manner that could subject the Company to
any liability for breach of fiduciary duty under ERISA or any
other applicable law.
6.16.6 With respect to any Pension Plan subject to Title IV of ERISA
(including, for the purposes of this subsection and the
following subsection, any Pension Plan maintained or
contributed to by Sellers or any other person under common
control with Sellers), Sellers have not incurred any liability
to such Pension Plan or to the Pension Benefit Guaranty
Corporation, other than for the payment of premiums, all of
which have been paid when due. Sellers have made available to
Buyer the most recent actuarial report or valuation with
respect to each Pension Plan that is a "defined benefit
pension plan" (as defined in Section 3(35) of ERISA). The
information supplied to the actuary by Sellers for use in
preparing such reports and valuations was complete and
accurate and Sellers have no reason to believe that the
conclusions expressed in such reports and valuations are
incorrect.
6.16.7 Except as set forth in Schedule 6.16, as of the most recent
valuation date for each Pension Plan that is a defined benefit
pension plan, there was not any amount of "unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA)
under such Pension Plan and, to the knowledge of Sellers,
there are no facts or circumstances that would materially
change the funded status of any such Pension Plan.
6.16.8 Except as set forth in Schedule 6.16, at no time within the
five years preceding the Closing Date have Sellers, the
Company or any predecessor or Affiliate been required to
contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) for the benefit of any officers or
employees of the Company or any predecessor or Affiliate; nor
have Sellers, the Company or any predecessor or Affiliate
incurred any withdrawal liability, within the meaning of
Section 4201 of ERISA, with respect to any such multiemployer
plan, which
33
liability has not been fully paid as of the date hereof; or
announced an intention to withdraw, but not yet completed such
withdrawal, from any such multiemployer plan. If Sellers or
the Company were to make a complete withdrawal from each such
multiemployer plan, within the meaning of Section 4203 of
ERISA, the withdrawal liability would not exceed $10,000 in
the aggregate.
6.16.9 With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 6.16, (a) no
such Benefit Plan is unfunded or funded through a welfare
benefits fund, as such term is defined in Section 419(e) of
the Code; (b) each such Benefit Plan that is a group health
plan, as such term is defined in Section 5000(b)(1) of the
Code, complies in all material respects with the applicable
requirements of Section 4980B(f) of the Code; and (c) each
such Benefit Plan (including any such plan covering retirees
or other former employees) may be amended or terminated
without material liability to the Company on or at any time
after the Closing Date.
6.16.10 Except as set forth in Schedule 6.16, neither the Company nor
any predecessor or Affiliate has any current or projected
liability or contingent obligation in respect of medical or
other benefits for retired or former employees of the Company
or any predecessor.
6.16.11 Except as set forth in Schedule 6.16, no employee or former
employee of the Company or any predecessor or Affiliate will
become entitled to any bonus, retirement, severance, job
security or similar benefit or any enhanced benefit solely as
a result of the transactions contemplated hereby.
6.17 ABSENCE OF CHANGES OR EVENTS. Except as set forth in Schedule 6.17,
since the date of the Balance Sheet, there has not been any material
adverse change in the business, assets,
34
condition (financial or otherwise) or results of operations of the
Company. Except as set forth in Schedule 6.17, since the date of the
Balance Sheet, Sellers have caused the business of the Company to be
conducted in the ordinary course and in substantially the same manner
as previously conducted.
6.18 COMPLIANCE WITH APPLICABLE LAWS.
6.18.1 Except as previously disclosed by Sellers to Buyer in writing,
to the knowledge of Sellers, the Company is in compliance in
all material respects with all applicable statutes, laws,
ordinances, rules, orders and regulations of any Governmental
Entity ("Applicable Laws"), including those relating to
occupational health and safety. Except as set forth in
Schedule 6.18, none of Sellers, the Company, or any
predecessor or Affiliate of Sellers or the Company has
received any written communication during the past two years
from a Governmental Entity that alleges that the Company is
not in compliance in any material respect with any Applicable
Laws. This subsection does not relate to matters with respect
to Taxes or to environmental matters, which are the subject of
the following subsection.
6.18.2 Except as set forth in Schedule 6.18, (a) neither Seller, the
Company, nor any predecessor or Affiliate of Sellers or the
Company has received any oral or written communication from a
Governmental Entity that alleges that the Company or any
predecessor or Affiliate is not in compliance in any material
respect with any Environmental Laws; (b) the Company holds,
and is in compliance with, all permits, licenses and
governmental authorizations required for the Company to
conduct its business under the Environmental Laws, and is in
compliance with all Environmental Laws; (c) Sellers, after
inquiry, have no knowledge of any environmental reports other
than those set forth in Schedule 6.18; and (d) neither
Sellers, the Company, nor any predecessor or Affiliate has
entered into or agreed
35
to any court decree or order and none of the foregoing are
subject to any judgment, decree or order relating to
compliance with any Environmental Law or to investigation or
cleanup of contaminants under any Environmental Law. As used
in this Agreement, the term "Environmental Laws" means any and
all applicable treaties, laws, regulations, enforceable
requirements, binding determinations, orders, decrees,
judgments, injunctions, permits, approvals, authorizations,
licenses, variances, permissions, notices or binding
agreements issued, promulgated or entered into by any
Governmental Entity, relating to the environment, preservation
or reclamation of natural resources, or to the management,
release or threatened release of contaminants or noxious odor,
including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. Sections 9601 et seq., the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977, 33
U.S.C. Sections 1251 et seq., Clean Air Act of 1970, as
amended, 42 U.S.C. Sections 7401 et seq., the Toxic Substances
Control Act of 1976, 15 U.S.C. Sections 2601 et seq., the
Occupational Safety and Health Act of 1970, as amended, 29
U.S.C. Sections 651 et seq., the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001
et seq., the Safe Drinking Water Act of 1974, as amended, 42
U.S.C. Sections 300(f) et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Sections 1801 et seq., and any
similar or implementing state or local law, and all amendments
or regulations promulgated thereunder.
6.19 EMPLOYEE AND LABOR MATTERS.
6.19.1 Except as set forth in Schedule 6.19, (a) there is, and during
the past two years there has been, no labor strike, dispute,
work stoppage or lockout pending, or, to the knowledge of
Sellers, threatened, against or affecting the Company or any
predecessor or Affiliate; (b) to the knowledge of Sellers, no
union organizational
36
campaign is in progress with respect to the employees of the
Company and no question concerning representation exists
respecting such employees; (c) the Company is not engaged in
any unfair labor practice; (d) there is no unfair labor
practice charge or complaint against the Company or any
predecessor or Affiliate pending, or, to the knowledge of
Sellers, threatened, before the National Labor Relations
Board; (e) there are no pending, or, to the knowledge of
Sellers, threatened, union grievances against the Company or
any predecessor or Affiliate as to which there is a reasonable
possibility of adverse determination and that, if so
determined, individually or in the aggregate, would have a
Material Adverse Effect; (f) there are no pending, or, to the
knowledge of Sellers, threatened, charges against the Company,
any predecessor or Affiliate of the Company, or any current or
former employee of the Company before the Equal Employment
Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment
practices; and (g) neither Seller, the Company, nor any
predecessor or Affiliate of the Company has received notice
during the past two years of the intent of any Governmental
Entity responsible for the enforcement of labor or employment
laws to conduct an investigation of or affecting the Company
or any predecessor or Affiliate of the Company and, to the
knowledge of Sellers, no such investigation is in progress.
6.19.2 No officer or director of the Company or any predecessor or
Affiliate of the Company is, and, to the knowledge of Sellers,
no other employee of the Company is, a party to or bound by
any contract, license, covenant or agreement of any nature, or
subject to any judgment, decree or order of any Governmental
Entity, that may (a) interfere with the use of such person's
best efforts to promote the interests of the Company, (b)
conflict with the business of the Company or the transactions
contemplated hereby, or (c) have a Material Adverse Effect. To
the knowledge of Sellers, no activity of any employee of the
Company or any
37
predecessor or Affiliate as or while an employee of the
Company or any predecessor or Affiliate of the Company has
caused a violation of any employment contract, confidentiality
agreement, patent disclosure agreement, or other contract or
agreement. To the knowledge of Sellers, neither the execution
and delivery of this Agreement, nor the conduct of the
business of the Company by the employees of the Company, will
conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract,
covenant or instrument under which any such employees are now
obligated.
6.20 Accounts Receivable; Inventories of Promotional Materials and
Calling Cards.
6.20.1 All accounts receivable of the Company, whether reflected on
the Balance Sheet or subsequently created, have arisen from
bona fide transactions in the ordinary course of business. To
the knowledge of Sellers, all such accounts receivable are
good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for doubtful accounts
reflected on the Balance Sheet. The Company has good and
marketable title to its accounts receivable, free and clear of
all liens, except as set forth in Schedule 6.20. Since the
date of the Balance Sheet, there have not been any write-offs
as uncollectible of any notes or accounts receivable of the
Company, except for immaterial write-offs in the ordinary
course of business and consistent with past practice.
6.20.2 To the knowledge of Sellers, the inventories of promotional
materials, calling cards and any other products distributed to
customers, dealers or agents of the Company (the
"Inventories"), whether reflected on the Balance Sheet or
subsequently acquired, are generally of a quality and quantity
usable and consistent in all material respects with past
practice in the ordinary course of business. To the extent
material, the Inventories are reflected on the Balance Sheet
and in the books and records in accordance with generally
accepted accounting
38
principles applied on a basis consistent with past practice
(except as described in the notes to the Balance Sheet).
6.21 LICENSES; PERMITS. Schedule 6.21 sets forth a true and complete list
of all material licenses, permits and authorizations issued or granted
to the Company or any predecessor by Governmental Entities which are
necessary or desirable for the conduct of the business of the Company.
Except as set forth in Schedule 6.21, all such licenses, permits and
authorizations are validly held by the Company; the Company has
complied in all material respects with all terms and conditions
thereof; and the same will not be subject to suspension, modification,
revocation or non-renewal as a result of the execution and delivery of
this Agreement or the consummation of the transactions contemplated
hereby. All such licenses, permits and authorizations which are held in
the name of any employee, officer, director, stockholder, agent or
otherwise on behalf of the Company shall be deemed included under this
warranty.
6.22 ACCOUNTS; SAFE DEPOSIT BOXES; POWERS OF ATTORNEY; OFFICERS AND
DIRECTORS. Schedule 6.22 sets forth (a) a true and correct list of all
bank and savings accounts, certificates of deposit and safe deposit
boxes of the Company and those persons authorized to sign thereon; (b)
true and correct copies of all corporate borrowing, depository and
transfer resolutions and those persons entitled to act thereunder; (c)
a true and correct list of all powers of attorney granted by the
Company and those persons authorized to act thereunder; and (d) a true
and correct list of all officers and directors of the Company.
6.23 TRANSACTIONS WITH AFFILIATES. Except as set forth in Schedule 6.23,
none of the agreements, contracts or other arrangements set forth in
Schedule 6.13 between the Company or any predecessor, on the one hand,
and Sellers or any Affiliate of either Seller (other than the Company),
on the other hand, will continue in effect subsequent to the Closing.
Except as set forth in Schedule 6.23, after the Closing neither Sellers
nor any Affiliate of either Seller will have any interest in any
property (real or personal, tangible or intangible) or contract
39
used in or pertaining to the business of the Company. Except as set
forth in Schedule 6.23 and as permitted by Section 7.6 hereof and the
Employment Agreements, after the Closing neither Sellers nor any
Affiliate will have any direct or indirect ownership interest in any
entity in which the Company has any direct or indirect ownership
interest or with which the Company competes or has a business
relationship. Except as set forth in Schedule 6.23 or pursuant to the
Employment Agreements, neither Seller provides services to the Company.
6.24 CORPORATE NAME. Except as set forth in Schedule 6.24, the Company (a)
has the right to use its name as the name of a corporation in any
jurisdiction in which the Company does business; and (b) has not
received any notice of conflict during the past two years with respect
to the rights of others regarding the corporate names of the Company.
Except as set forth in Schedule 6.24, to the knowledge of Sellers, no
person is presently authorized by Sellers, the Company or any
predecessor or Affiliate to use the name of the Company. Sellers have
previously made available to Buyer copies of any documents in the
possession of Sellers granting any authorizations of the type referred
to in the previous sentence.
6.25 EFFECT OF TRANSACTION. Except as set forth in Schedule 6.25, no
creditor, employee, client, customer or other person having a material
business relationship with the Company has informed Sellers, the
Company or any predecessor or Affiliate of the Company that such person
intends to change such relationship because of the purchase and sale of
the Shares or the consummation of any other transaction contemplated
hereby.
6.26 DISCLOSURE. No representation or warranty of Sellers contained in this
Agreement, and no statement contained in any document, certificate or
Schedule furnished or to be furnished by or on behalf of Sellers to
Buyer or any of its representatives pursuant to this Agreement,
contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary, in light of
the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading or necessary in
40
order to fully and fairly provide the information required to be
provided in any such document, certificate or Schedule.
6.27 SUPPLIERS. Except as set forth in Schedule 6.27, between the date of
the Balance Sheet and the date of this Agreement, neither the Company
nor any predecessor has entered into or made any contract or commitment
for the purchase of merchandise or services other than in the ordinary
course of business consistent with past practice. Except for the
suppliers named in Schedule 6.27, neither the Company nor any
predecessor has any supplier (other than the Company) from whom it
purchased more than 5% of the merchandise or services which it
purchased during its most recent full fiscal year. Except as set forth
in Schedule 6.27, since the date of the Balance Sheet, there has not
been (a) any material adverse change in the business relationship of
the Company with any supplier of merchandise or services named in
Schedule 6.27, or (b) any change in any material term (including credit
terms) of the supply agreements or related arrangements with any such
supplier.
6.28 CUSTOMERS. Except for the customers named in Schedule 6.28, neither
the Company nor any predecessor has any customer to whom it made more
than 5% of its sales during its most recent full fiscal year. Except as
set forth in Schedule 6.28, since the date of the Balance Sheet, there
has not been (a) any material adverse change in the business
relationship of the Company with any customer named in Schedule 6.28,
or (b) any change in any material term (including credit terms) of the
sales agreements or related agreements with any such customer. During
the past two years, neither the Company nor any predecessor or
Affiliate of the Company has received any customer complaints
concerning its products and services, nor have they had any of their
products returned or services canceled by a purchaser thereof, other
than complaints, returns and cancellations in the ordinary course of
business which have not, and are not likely to have, individually or in
the aggregate, a Material Adverse Effect.
41
6.29 PRIVATE OFFERING. Neither Sellers, nor any predecessor or Affiliate of
the Company, nor anyone acting on its or their behalf has issued, sold
or offered any security of the Company to any person under
circumstances that would cause the issuance and sale of the Shares, as
contemplated by this Agreement, to be subject to the registration
requirements of the Securities Act of 1933, as amended (the "Securities
Act"). Neither Sellers, nor any predecessor or Affiliate of the
Company, nor anyone acting on its or their behalf will offer the Shares
or any part thereof or any similar securities for issuance or sale to,
or solicit any offer to acquire any of the same from, anyone so as to
make the issuance and sale of the Shares subject to the registration
requirements of Section 5 of the Securities Act. Assuming the
representations of Buyer contained in Section 8.3 hereof are true and
correct, the issuance, sale and delivery of the Shares hereunder are
exempt from the registration and prospectus delivery requirements of
the Securities Act.
7. COVENANTS OF SELLERS
Sellers covenant and agree as follows:
7.1 CONFIDENTIALITY. Sellers shall keep confidential, and cause its
Affiliates and instruct its and their officers, directors, employees
and advisors to keep confidential, all information relating to the
Company and their business, except as required by law or administrative
process and except for information which is available to the public on
the Closing Date, or thereafter becomes available to the public other
than as a result of a breach of this Section 7.1. The covenant set
forth in this Section 7.1 shall terminate 5 years after the Closing
Date.
7.2 INSURANCE. As of the Closing, Sellers shall assign to Buyer and to the
Company any and all assignable rights which Sellers may have under such
insurance policies covering claims relating to the period on or prior
to the Closing Date. Any and all additional insurance policies not
listed in Schedule 6.15 which are maintained with respect to the
Company and
42
its assets and properties are owned and maintained by Sellers and its
Affiliates (other than the Company). Neither Buyer nor the Company will
have any rights under any such additional insurance policies from and
after the Closing Date.
7.3 ASSIGNMENT OF CONFIDENTIALITY AGREEMENTS. On the Closing Date, Sellers
shall assign to Buyer their rights under all confidentiality agreements
entered into by Sellers with any person in connection with the proposed
sale of the Company to the extent such rights relate to the Company.
Copies of such confidentiality agreements shall be provided to Buyer on
the Closing Date.
7.4 RESIGNATIONS. On the Closing Date, Sellers shall cause to be delivered
to Buyer duly signed resignations (from the applicable board of
directors), effective immediately after the Closing, of all directors
of the Company, and shall take such other action as is necessary to
accomplish the foregoing.
7.5 SUPPLEMENTAL DISCLOSURE.
7.5.1 Sellers shall have the continuing obligation until the Closing
promptly to supplement or amend the Schedules hereto with
respect to any matter hereafter arising or discovered which,
if existing or known at the date of this Agreement, would have
been required to be set forth or described in such Schedules;
provided, however, that no supplement or amendment to such
Schedules shall have any effect for purposes of determining
whether any person is entitled to indemnification pursuant to
Section 13.
7.5.2 Sellers shall promptly notify Buyer of, and furnish Buyer any
information it may reasonably request with respect to, the
occurrence to Sellers' knowledge of any event or condition or
the existence to Sellers' knowledge of any fact
43
that would cause any of the conditions to Buyer's obligation
to consummate the purchase and sale of the Shares not to be
fulfilled.
7.6 NON-COMPETITION AND PERMITTED COMPETITION.
7.6.1 Each of Sellers shall become employed by Buyer pursuant to the
Employment Agreements, effective as of the Closing Date. The
initial term of the Employment Agreements shall be one year,
subject to early termination as provided therein. During the
respective terms of their Employment Agreements, the Sellers
shall be permitted to continue to operate their existing
businesses known as National Business Society, Inc.,
IntelliChoice, Inc. and Telecom Solutions, Inc., and, through
those companies or other companies established by Sellers, to
offer all telecommunications products and services, including
calling cards, at such prices as Sellers may determine;
provided, however, that the gross xxxxxxxx attributable to
calling card products and services generated by all such
companies shall not be permitted to exceed the sum of
US$60,000 per month in the aggregate (all of the foregoing
terms and conditions of this subsection 7.6.1 referred to
hereafter as "the Permitted Competition Carve-out"). All
amounts payable to Sellers with respect to any such gross
xxxxxxxx in excess of $60,000 per month shall be immediately
payable to Buyer. For the duration of the Employment
Agreements, Sellers shall submit, within 15 days of the end of
each calendar month, a written statement executed by each of
Sellers, certifying the compliance of each of Sellers with the
terms and conditions of this subsection 7.6.1 (the "Compliance
Certificate"). At the request of Buyer, Sellers shall permit
the Accounting Firm designated in Section 4.3 hereof to review
Sellers' books and records on a confidential basis, solely to
confirm to Buyer the completeness and accuracy of the
Compliance Certificate and Sellers' compliance with this
subsection. Buyer shall pay all costs and expenses of the
Accounting Firm in connection with any review pursuant to this
subsection 7.6.1.
44
7.6.2 From and after the expiration or termination of their
respective Employment Agreements and continuing for a period
of 2 years following such expiration or termination, each of
the Sellers shall be free to engage in any aspect of the
telecommunications business in addition to the Permitted
Competition Carve-out, provided, however, that any calling
card products or calling card services, other than the
Permitted Competition Carve-out, shall be ancillary to the
other products and services offered by any business with which
either Seller is affiliated or by which either Seller is
employed, and calling card products and calling card services
shall not be the primary focus of the business of Sellers or
either of them. For purposes of this Section 7.6.2, the term
"ancillary" shall mean: (a) that the calling card products and
services are offered at the rate of not less than twenty-five
cents ($0.25) per minute for domestic calls within the United
States, or at any rate for international calls; and (b) that
such products and services do not constitute more than 15% of
the total minutes billed in the aggregate by all such
businesses for all telecommunications services; and (c) that
no advertising shall be permitted for any such business in
which the offer of a calling card product or service is the
primary focus of such advertisement. Any amounts received in
violation of this Section shall become immediately payable to
Buyer.
7.6.3 For the duration of their respective Employment Agreements and
continuing for a period of 5 years following the termination
or expiration thereof, each Seller shall be prohibited from
approaching or soliciting, either directly or through
third-party agents or dealers, any customers of the Company or
of Buyer of whom Sellers have actual knowledge (other than
customers who can be demonstrated by written records to be
customers of National Business Society, Inc., IntelliChoice,
Inc. or Telecom Solutions, Inc. for purposes of the Permitted
Competition Carve-out). The foregoing restriction applies to
customers of Buyer prior to Closing, customers of the Company
as of the date of Closing, and new customers of either the
Company or Buyer who are signed at any time after the Closing
and prior to
45
the termination or expiration of the applicable Employment
Agreement. The covenant in this Section 7.6.3 applies to
Calling Card Services and Other Services; provided, however,
that it shall not be a violation of this covenant for Sellers
or any of their Affiliates to conduct mass market
solicitations of prospective telecommunications customers
which are not targeted specifically at customers of the
Company or Buyer, and which mass market solicitations are not
conducted for the sole or primary purpose of inducing
customers of the Company or Buyer to switch telecommunications
service providers.
7.6.4 For the duration of their respective Employment Agreements and
continuing for a period of 2 years following the termination
or expiration thereof and subject to the additional
limitations set forth in subsections 7.6.1 or 7.6.2, as
applicable, (a) with respect to the dealers or agents listed
on Schedule 6.13.15 hereof that are not listed on Schedule
7.6.4, each Seller shall be prohibited from approaching,
soliciting or contracting with, either directly or indirectly,
such dealers or agents; (b) with respect to the dealers or
agents listed on Schedule 7.6.4, Sellers shall in no way be
prohibited from approaching, soliciting or contracting with,
either directly or indirectly, such dealers or agents, except
as otherwise explicitly provided in such Schedule; and (c)
with respect to all other dealers or agents, Sellers shall in
no way be prohibited from contracting with such dealers or
agents, provided, however, that Sellers shall be prohibited
from specifically targeting or otherwise directly approaching
such dealers or agents.
7.6.5 For the duration of their respective Employment Agreements and
continuing for a period of 2 years following the termination
or expiration thereof, each Seller shall be prohibited from
directly or indirectly owning, managing, operating, joining,
controlling or participating in the ownership, management,
operation or control of, or being connected as a developer of,
consultant with respect to, or director, officer, employee,
partner, lender or otherwise with, any profit or non-
46
profit business or organization which, directly or indirectly,
offers or otherwise markets any calling card product or
service, whether on a stand-alone basis or bundled with other
telecommunications services, except as specifically permitted
under subsections 7.6.1 and 7.6.2 hereof. The foregoing
provisions of this subsection 7.6.5 shall not prohibit the
ownership by either Seller of 5% or less of any class of
securities of a company which is publicly traded on a national
securities exchange or over-the-counter on the NASDAQ System
or otherwise.
7.6.6 For the duration of their respective Employment Agreements and
continuing for a period of 2 years following the termination
or expiration thereof, each Seller shall be prohibited from
directly or indirectly approaching, soliciting, raiding,
enticing or inducing any person who is an employee of Buyer
during the term of Sellers' employment to become employed by
either Seller or any other person or entity with which either
of them might become affiliated after the term of employment;
provided however, that the provisions of this Section shall
not apply with respect to any person who was not induced to
leave the employ of the Company or Buyer, directly or
indirectly, by or with the cooperation of either Seller; and
7.6.7 For the duration of their respective Employment Agreements and
continuing for a period of 5 years following the termination
or expiration thereof, each Seller shall be prohibited from
any direct or indirect use or disclosure of confidential or
proprietary business information of Buyer, including, but not
limited to customer lists, marketing plans, product offerings,
pricing structures, business retention, and business expansion
plans. Upon the termination or expiration of their respective
Employment Agreements, each Seller shall deliver to Buyer all
copies of any such confidential or proprietary information
then in such Seller's possession or control.
47
7.6.8 Notwithstanding any other term, condition or provision of this
Agreement to the contrary, in the event of any breach or
threatened breach of any of the provisions of this Section
7.6, Buyer shall have the right and remedy to have such
provision specifically enforced by any court having
jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to
Buyer and that money damages will not provide an adequate
remedy to Buyer. Nothing in this subsection shall be construed
to limit the right of Buyer to collect money damages in the
event of a breach of any of the provisions of this Section 7.6.
7.7 CERTAIN LICENSES AND PERMITS. Sellers covenant that all licenses,
permits and authorizations which are held in the name of either Seller
or any employee, officer, director, stockholder, agent or otherwise on
behalf of the Company shall be duly and validly transferred to the
Company without consideration prior to the Closing, and that the
warranties, representations, covenants and conditions contained in this
Agreement shall apply to the same as if held by the Company as of the
date hereof.
7.8 ORDINARY CONDUCT; OTHER TRANSACTIONS
7.8.1 Except as expressly permitted by the terms of this Agreement,
from the date hereof to the Closing, Sellers shall cause the
business of the Company to be conducted in the ordinary course
in substantially the same manner as presently conducted
(including with respect to advertising, promotions, capital
expenditures and inventory levels), and shall make all
reasonable efforts consistent with past practices to preserve
their and the Company's relationships with customers, dealers,
agents, suppliers and others with whom the Company deals.
Sellers shall not, and shall not permit the Company to, take
any action that would, or that could reasonably be expected
to, result in any of the conditions to the purchase and sale
of the Shares set forth in Section 5.1 not being satisfied. In
addition, except as
48
otherwise expressly permitted by the terms of this Agreement,
Sellers shall not permit the Company to do any of the
following without the prior written consent of Buyer:
7.8.1.1 amend its Certificate of Incorporation or By-laws;
7.8.1.2 redeem or otherwise acquire any shares of its capital stock or
issue any capital stock or any option, warrant or right
relating thereto or any securities convertible into or
exchangeable for any shares of capital stock;
7.8.1.3 adopt or amend in any material respect any Benefit Plan or
collective bargaining agreement, except as required by law;
7.8.1.4 grant to any executive officer or employee any increase in
compensation or benefits, except in the ordinary course of
business consistent with past practice or as may be required
under existing agreements and except for any increases for
which the Company shall not be obligated following the Closing;
7.8.1.5 incur or assume any liabilities, obligations or indebtedness
for borrowed money or guarantee any such liabilities,
obligations or indebtedness, other than in the ordinary course
of business consistent with past practice; provided that in no
event shall the Company incur, assume or guarantee any
long-term indebtedness for borrowed money;
7.8.1.6 permit, allow or suffer any of its assets to become subjected
to any mortgage, lien, security interest, encumbrance,
easement, covenant, right-of-way or other similar restriction
of any nature whatsoever;
7.8.1.7 cancel any material indebtedness (individually or in the
aggregate) or waive any claims or rights of substantial value;
49
7.8.1.8 pay, loan or advance any amount to, or sell, transfer or lease
any of its assets to, or enter into any agreement or
arrangement with, Sellers or any of their affiliates (other
than the Company);
7.8.1.9 make any change in any method of accounting or accounting
practice or policy other than those required by United States
generally accepted accounting principles;
7.8.1.10 acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or
other business organization or division thereof or otherwise
acquire any assets (other than inventory) which are material,
individually or in the aggregate, to the Company;
7.8.1.11 make or incur any capital expenditure that is not currently
approved in writing or budgeted and which, individually, is in
excess of $5,000, except in the ordinary course of business
consistent with past practice;
7.8.1.12 sell, lease or otherwise dispose of any of its assets which
are material, individually or in the aggregate, to the
Company, except in the ordinary course of business consistent
with past practice;
7.8.1.13 enter into any lease of real property, except any renewals of
existing leases in the ordinary course of business with
respect to which Buyer shall have the right to participate;
50
7.8.1.14 modify, amend, terminate or permit the lapse of any lease of,
or other material agreement relating to, real property
(except modifications or amendments associated with renewals
of existing leases in the ordinary course of business with
respect to which Buyer shall have the right to participate);
or
7.8.1.15 agree, whether in writing or otherwise, to do any of the
foregoing.
7.8.2 From the date of this Agreement to the Closing, none of Sellers, the
Company, or any other Affiliate of Sellers or the Company shall, nor
shall any of them permit any of their respective officers, directors,
stockholders or other representatives to, directly or indirectly,
encourage, solicit, initiate or participate in discussions or
negotiations with, or provide any information or assistance to, any
person or group (other than Buyer and its representatives) concerning
any merger, sale of securities, sale of substantial assets or similar
transaction involving the Company. Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director, stockholder or other
representative of the Company or any other Affiliate of Sellers or the
Company, whether or not such person is purporting to act on behalf of
Sellers, the Company, any other Affiliate of Sellers or otherwise,
shall be deemed to be a breach of this subsection by Sellers. In the
event that Sellers, the Company or any other Affiliate of Sellers or
the Company receives a proposal relating to any such transaction,
Seller shall promptly notify Buyer of such proposal.
7.8.3 Notwithstanding any other term, condition or provision of this
Agreement to the contrary, in the event of any breach or threatened
breach of any of the provisions of this Section 7.8, Buyer shall have
the right and remedy to have such provision specifically enforced by
any court having jurisdiction, it being acknowledged and agreed that
any such breach or threatened breach will cause irreparable injury to
51
Buyer and that money damages will not provide an adequate remedy to
Buyer. Nothing in this subsection shall be construed to limit the
right of Buyer to collect money damages in the event of a breach
of any of the provisions of this Section 7.8.
8. Representations and Warranties of Buyer
Buyer hereby represents and warrants to Sellers as follows:
8.1 Authority. Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. Buyer has all
requisite corporate power and authority to enter into this Agreement,
the Escrow Agreement and the Employment Agreements, to perform its
obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. All corporate acts and
other proceedings required to be taken by Buyer to authorize the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by
Buyer and constitutes a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
8.2 No Conflicts; Consents. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby
and compliance with the terms hereof shall not, conflict with, or
result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material
benefit under, or to increased, additional, accelerated or guaranteed
rights or entitlements of any person under, or result in the creation
of any lien, claim, encumbrance, security interest, option, charge or
restriction of any kind upon any of the properties or assets of Buyer
or any subsidiary of Buyer under, any provision of (a) the Certificate
of Incorporation or By-laws of Buyer or
52
the comparable governing instruments of any subsidiary of Buyer; (b)
any material note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement or arrangement to which Buyer or
any subsidiary of Buyer is a party or by which any of their respective
properties or assets are bound; or (c) any judgment, order, or decree,
or material statute, law, ordinance, rule or regulation applicable to
Buyer or any subsidiary of Buyer or their respective properties or
assets, other than, in the case of clauses (b) and (c) above, any such
items that, individually or in the aggregate, would not have a material
adverse effect on the ability of Buyer to consummate the transactions
contemplated hereby. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with
respect to Buyer or any of its subsidiaries or their respective
affiliates in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated
hereby, other than (i) compliance with and filings under Section 13(a)
or 15(d), as the case may be, of the Exchange Act; and (ii) those that
may be required solely by reason of Sellers' (as opposed to any other
third party's) participation in the transactions contemplated hereby.
8.3 Securities Act. The Shares purchased by Buyer pursuant to this
Agreement are being acquired for investment only and not with a view to
any public distribution thereof, and Buyer shall not offer to sell or
otherwise dispose of the Shares so acquired by it in violation of any
of the registration requirements of the Securities Act.
8.4 Actions and Proceedings, etc. There are no (a) outstanding judgments,
orders, injunctions or decrees of any Governmental Entity or
arbitration tribunal against Buyer or any of its affiliates; (b)
lawsuits, actions or proceedings pending or, to the knowledge of Buyer,
threatened against Buyer or any of its affiliates; or (c)
investigations by any Governmental Entity which are, to the knowledge
of Buyer, pending or threatened against Buyer or any of its affiliates,
and which, in the case of each of clauses (a), (b) and (c), have a
material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
53
9. Covenants of Buyer
Buyer covenants and agrees as follows:
9.1 Confidentiality. Buyer acknowledges that the information being
provided to it in connection with the purchase and sale of the Shares
and the consummation of the other transactions contemplated hereby is
subject tothe terms of a confidentiality agreement between Buyer and
the Company (the "Confidentiality Agreement"), the terms of which are
incorporated herein by reference. Effective upon, and only upon, the
Closing, the Confidentiality Agreement shall terminate. Notwithstanding
anything herein to the contrary, Buyer shall not disclose the amount of
Purchase Price to any third party, except as may be required by
applicable law or the rules and regulations of any United States or
foreign securities exchange; provided that Sellers acknowledge at the
time of execution of this Agreement that Buyer will disclose the amount
of Purchase Price in accordance with the rules and regulations of the
United States Securities and Exchange Commission.
9.2 No Additional Representations. Buyer acknowledges that none of
Sellers, the Company, or any other person has made any representation
or warranty, expressed or implied, as to the accuracy or completeness
of any information regarding the Company furnished or made available to
Buyer and its representatives, except as expressly set forth in this
Agreement or the Schedules hereto, and none of Sellers, the Company, or
any other person shall have or be subject to any liability to Buyer or
any other person resulting from the distribution to Buyer, or Buyer's
use of, any such information.
9.3 Supplemental Disclosure. Buyer shall promptly notify Sellers of, and
furnish Sellers any information it may reasonably request with respect
to, the occurrence to Buyer's knowledge of any event or condition or
the existence to Buyer's knowledge of any fact that would cause any of
the conditions to Sellers' obligation to consummate the purchase and
sale of the Shares not to be fulfilled.
54
10. Mutual Covenants
Each of Sellers and Buyer covenants and agrees as follows:
10.1 Cooperation. In addition to any separate undertakings of Buyer and
Sellers in the Employment Agreements, Buyer and Sellers shall cooperate
with each other, and shall cause their officers, employees, agents,
auditors and representatives to cooperate with each other, for a period
of 180 days after the Closing to ensure the orderly transition of the
Company from Sellers to Buyer and to minimize any disruption to the
respective businesses of Sellers, Buyer or the Company that might
result from the transactions contemplated hereby. After the Closing,
upon reasonable written notice, Buyer and Sellers shall furnish or
cause to be furnished to each other and their employees, counsel,
auditors and representatives, access, during normal business hours, to
such information and assistance relating to the Company as is
reasonably necessary for financial reporting and accounting matters,
the preparation and filing of any tax returns, reports or forms or the
defense of any tax claim or assessment. Each party shall reimburse the
other for reasonable out-of-pocket costs and expenses incurred in
assisting the other pursuant to this Section. Neither party shall be
required by this Section to take any action that would unreasonably
interfere with the conduct of its business or unreasonably disrupt its
normal operations (or, in the case of Buyer, the business or operations
of the Company).
10.2 Publicity. Sellers and Buyer agree that, from the date hereof through
the Closing Date, no public release or announcement concerning the
transactions contemplated hereby shall be issued by either party
without the prior consent of the other party (which consent shall not
unreasonably be withheld), except as such release or announcement by
Buyer may be required by law or the rules or regulations of any United
States or foreign securities exchange; provided, however, that Buyer
may make internal announcements to its employees regarding the
transactions contemplated hereby, and provided further, however, that
Sellers, solely with the participation and prior consent of Buyer, may
inform the
55
Company's dealers, agents and vendors of such proposed transactions in
order to promote a smooth transfer of the Company to Buyer.
10.3 Records. On the Closing Date, Sellers shall deliver or cause to be
delivered to Buyer all original agreements, documents, books, records
and files, including records and files stored on computer disks or
tapes or any other storage medium (collectively, "Records"), if any, in
the possession of Sellers relating to the business and operations of
the Company, subject to the following exceptions:
10.3.1 Buyer recognizes that certain Records may contain incidental
information relating to the Company or may relate primarily to
Affiliates of Sellers other than the Company , and that Sellers
may retain such Records and shall provide copies of the relevant
portions thereof to Buyer;
10.3.2 Sellers may retain all Records prepared in connection with the
sale of the Shares, including bids received from other parties
and analyses relating to the Company; and
10.3.3 Sellers may retain any tax returns, reports or forms, and Buyer
shall be provided with copies of such returns, reports or forms
only to the extent that they relate to the Company's separate
returns or separate tax liability.
11. Employee and Related Matters
11.1 Continuation of Comparable Benefit Plans. For not less than 1 year
following the Closing Date, Buyer shall maintain, or shall cause the
Company to maintain, compensation and employee benefit plans and
arrangements (other than any plans and arrangements based on equity
securities or any equivalent thereof) for employees of the Company
that, in the aggregate, are substantially comparable to those provided
pursuant to the compensation
56
and employee benefit plans and arrangements in effect on the date
hereof as set forth in Schedule 6.16. Notwithstanding the above, Buyer
shall have the right (a) following the Closing Date, to transfer, to
one or more employee benefit plans maintained by Buyer which are, in
the aggregate, substantially comparable to the plans of the Company,
any employee of the Company or any Subsidiary who becomes an employee
of Buyer or any of its other Affiliates; and (b) in the good faith
exercise of its managerial discretion, to make changes or cause changes
to be made in compensation, benefits and other terms of employment and
to terminate the employment ofany employee.
12. Further Assurances
12.1 From time to time, as and when requested by either party hereto, the
other party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take, or cause
to be taken, all such further or other actions as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
13. Indemnification
13.1 Tax Indemnification.
13.1.1 Sellers jointly and severally shall indemnify Buyer and its
Affiliates (including the Company) and each of their
respective officers, directors, employees, stockholders,
agents and representatives and hold them harmless from (a)
all liability for Taxes of the Company for the Pre-Closing
Tax Period; (b) all liability for Taxes resulting from the
Section 338(g) (if applicable) and 338(h)(10) elections (or
any comparable elections under state or local Tax law)
contemplated by Section 14.1 of this Agreement, and (c) all
liability for reasonable legal fees and expenses for any item
attributable to any item in clauses (a) or (b) above.
57
Notwithstanding the foregoing, Sellers shall not indemnify
and hold harmless Buyer and its affiliates, and each of their
respective officers, directors, employees and agents, from
any liability for Taxes attributable to any action taken
after the Closing by Buyer, any of its affiliates
(including the Company or any of the Subsidiaries), or any
transferee of Buyer or any of its affiliates (other than any
such action expressly required by applicable law or by this
Agreement) (a "Buyer Tax Act") or attributable to a breach by
Buyer of its obligations under this Agreement.
13.1.2 Buyer shall, and shall cause the Company to, indemnify
Sellers and its affiliates and each of their respective
officers, directors, employees, stockholders, agents and
representatives and hold them harmless from (a) all liability
for Taxes of the Company for any taxable period ending after
the Closing Date (except to the extent such taxable period
began before the Closing Date, in which case Buyer's
indemnity will cover only that portion of any such Taxes that
are not for the Pre-Closing Tax Period); (b) all liability
for Taxes attributable to a Buyer Tax Act or to a breach by
Buyer of its obligations under this Agreement; (c) Taxes
payable by Sellers solely as a result of the Sellers making
the elections referred to in Section 14.1 (to the extent that
such Taxes exceed the Taxes otherwise payable by Sellers if
such election had not been made); and (d) all liability for
reasonable legal fees and expenses attributable to any item
in clause (a), (b) or (c) above.
13.1.3 In the case of any taxable period that includes (but does not
end on) the Closing Date (a "Straddle Period"):
13.1.3.1 real, personal and intangible property Taxes
("property Taxes") of the Company for the
Pre-Closing Tax Period shall be equal to the amount
of such property Taxes for the entire Straddle
Period multiplied by a fraction, the numerator of
which is the number of days during the
58
Straddle Period that are in the Pre-Closing Tax
Period and the denominator of which is the number
of days in the Straddle Period; and
13.1.3.2 the Taxes of the Company (other than property
Taxes) for the Pre-Closing Tax Period shall be
computed as if such taxable period ended as of
the close of business on the Closing Date.
13.1.4 Sellers' indemnity obligation in respect of Taxes for a
Straddle Period shall initially be effected by its payment
to Buyer of the excess of (x) such Taxes for the Pre-Closing
Tax Period over (y) the amount of such Taxes paid by Sellers
or any of its Affiliates (other than the Company) at any
time, plus the amount of such Taxes paid by the Company on
or prior to the Closing Date. Sellers shall initially pay
such excess to Buyer within 30 days after the return, report
or form with respect to the final liability for such Taxes is
required to be filed (or, if later, is actually filed). If
the amount of such Taxes paid by Sellers or any of its
Affiliates (other than the Company) at any time plus the
amount of such Taxes paid by the Company on or prior to the
Closing Date exceeds the amount payable by Sellers pursuant
to the preceding sentence, Buyer shall pay to Sellers the
amount of such excess (a) in the case of property Taxes, at
the Closing (the "Closing Tax Adjustment Amount") and (b) in
all other cases, within 30 days after the return, report or
form with respect to the final liability for such Taxes is
required to be filed. The payments to be made pursuant to
this subsection by Sellers or Buyer with respect to a
Straddle Period shall be appropriately adjusted to reflect
any final determination (which shall include the execution
of Form 870-AD or successor form) with respect to Straddle
Period Taxes.
13.2 Other Indemnification by Sellers.
59
13.2.1 Sellers jointly and severally shall indemnify Buyer, its
Affiliates (including the Company) and each of their
respective officers, directors, employees, stockholders,
agents and representatives against and hold them harmless
from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by
any such indemnified party (other than any relating to Taxes,
for which indemnification provisions are set forth in Section
13.1) arising from, relating to or otherwise in respect of
(a) any breach of any representation or warranty of Sellers
which survives the Closing and which is contained in this
Agreement or in any certificate delivered pursuant hereto;
and (b) any breach of any covenant of Sellers contained in
this Agreement; provided, however, that each of Sellers only
shall be severally liable with respect to indemnification for
breaches of those representations and warranties contained
Sections 6.1, 6.2 and 6.3 which pertain to Sellers
individually rather than specifically to the Company; and
provided further, however, that Sellers shall not have any
liability under this Section 13.2 to the extent the
liability or obligation arises as a result of any action
taken or omitted to be taken by Buyer or any of its
Affiliates after the Closing.
13.2.2 Buyer acknowledges and agrees that, other than the
representations and warranties of Sellers specifically
contained in this Agreement, there are no representations or
warranties of Sellers either expressed or implied with
respect to the transactions contemplated hereby, the Company
or its assets, liabilities and business.
13.2.3 Buyer further acknowledges and agrees that, should the
Closing occur, its sole and exclusive remedy with respect to
any and all claims relating to this Agreement, the
transactions contemplated hereby, the Company and its assets,
liabilities and business (other than claims of, or causes of
action arising from, fraud) shall be pursuant to the
indemnification provisions set forth in this Section 13. In
furtherance of the foregoing, Buyer hereby waives, from
and after the Closing, to
60
the extent permitted under applicable law, any and all rights,
claims and causes of action (other than claims of, or causes
of action arising from, fraud) that Buyer or the Company may
have against Sellers and its Affiliates arising under or
based upon any Federal, state, local or foreign statute, law,
ordinance, rule or regulation or otherwise (except pursuant
to the indemnification provisions set forth in this Section
13).
13.3 Other Indemnification by Buyer. Buyer shall, and shall cause the
Company to, indemnify Sellers, their Affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives against and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees
and expenses) suffered or incurred by any such indemnified party (other
than any relating to Taxes, for which indemnification provisions are
set forth in Section 13.1) arising from, relating to or otherwise in
respect of a) any breach of any representation or warranty of Buyer
which survives the Closing contained in this Agreement or in any
certificate delivered pursuant hereto; (b) any breach of any covenant
of Buyer contained in this Agreement or the Employment Agreements; (c)
any guarantee or obligation to assure performance given or made by
Sellers or an Affiliate of Sellers with respect to obligations of the
Company set forth in clause (d) below; (d) all obligations and
liabilities of the Company, including any such obligations or
liabilities contained in the Contracts or any agreement, lease,
license, permit, plan or commitment that, because it fails to meet the
relevant threshold amount or term, is not included within the
definition of Contracts, or the Benefit Plans set forth in Schedule
6.16 or any plan, fund, program, policy, contract or arrangement
described in Section 6.16 but not required to be set forth in Schedule
6.16 (collectively, the "Plans") (in each case other than items which
Sellers have expressly agreed to pay or perform pursuant to this
Agreement or for which indemnification is provided under Section 13.2);
and (e) any claims made by Xxxxxx Xxxxxx or his Affiliates, but only to
the extent such claims arise under or in connection with the ordinary
course operation of the Company's business;
61
provided, however, that Buyer shall not have any liability under
clauses (a) and (b) above for any breach if Sellers had knowledge of
such breach at the time of the Closing.
13.4 Losses Net of Insurance, etc. The amount of any loss, liability, claim,
damage, expense or Tax for which indemnification is provided under this
Section 13 shall be net of any amounts recovered or recoverable by the
indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax (collectively, a "Loss") and
shall be (a) increased to take account of any net Tax cost incurred by
the indemnified party arising from the receipt of indemnity payments
hereunder (grossed up for such increase); and (b) reduced to take
account of any net Tax benefit realized by the indemnified party
arising from the incurrence or payment of any such Loss. In computing
the amount of any such Tax cost or Tax benefit, the indemnified party
shall be deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the
receipt of any indemnity payment hereunder or the incurrence or payment
of any indemnified Loss. Any indemnification payment hereunder shall
initially be made without regard to this paragraph and shall be
increased or reduced to reflect any such net Tax cost (including
gross-up) or net Tax benefit only after the indemnified party has
actually realized such cost or benefit. For purposes of this Agreement,
an indemnified party shall be deemed to have "actually realized" a net
Tax cost or a net Tax benefit to the extent that, and at such time as,
the amount of Taxes payable by such indemnified party is increased
above or reduced below, as the case may be, the amount of Taxes that
such indemnified party would be required to pay but for the receipt of
the indemnity payment or the incurrence or payment of such Loss, as the
case may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the
execution of Form 870-AD or successor form) with respect to the
indemnified party's liability for Taxes, and payments between Sellers
and Buyer to reflect such adjustment shall be made if necessary. Any
indemnity payment under this Agreement shall be treated as an
adjustment to the Purchase Price for Tax purposes, unless a final
determination (which shall include the execution of a Form 870-AD or
successor form)
62
with respect to the indemnified party or any of its Affiliates causes
any such payment not to be treated as an adjustment to the Purchase
Price for United States Federal income Tax purposes.
13.5 Termination of Indemnification. The obligations to indemnify and hold
harmless a party hereto (a) pursuant to Section 13.1, shall terminate
at the time the applicable statutes of limitations with respect to the
Tax liabilities in question expire (giving effect to any extension
thereof); (b) pursuant to clause (a) of Section 13.2.1 and clause (a)
of Section 13.3, shall terminate when the applicable representation or
warranty terminates pursuant to Section 17; and (c) pursuant to the
other clauses of Sections 13.2 and 13.3 shall not terminate; provided,
however, that as to clauses (a) and (b) of this Section 13.5, such
obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which the person to be indemnified or the
related party thereto shall have, before the expiration of the
applicable period, previously made a claim by delivering a notice of
such claim (stating in reasonable detail the basis of such claim) to
the indemnifying party.
13.6 Procedures Relating to Indemnification (Other than under Section 13.1).
13.6.1 In order for a party (the "indemnified party") to be entitled
to any indemnification provided for under this Agreement
(other than under Section 13.1) in respect of, arising out of
or involving a claim or demand made by any person against the
indemnified party (a "Third Party Claim"), such indemnified
party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim within 10
business days after receipt by such indemnified party of
written notice of the Third Party Claim; provided, however,
that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party
shall not be liable for any expenses incurred during the
period in which the indemnified party failed to give such
notice).
63
Thereafter, the indemnified party shall deliver to the
indemnifying party, within 5 business days after the
indemnified party's receipt thereof, copies of all notices
and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
13.6.2 If a Third Party Claim is made against an indemnified party,
the indemnifying party shall be entitled to participate in
the defense thereof and, if it so chooses and acknowledges
its obligation to indemnify the indemnified party therefor,
to assume the defense thereof with counsel selected by the
indemnifying party; provided that such counsel is not
reasonably objected to by the indemnified party. Should the
indemnifying party so elect to assume the defense of a Third
Party Claim, the indemnifying party shall not be liable to
the indemnified party for legal expenses subsequently
incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such
defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel (not
reasonably objected to by the indemnifying party), at its own
expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying
party shall control such defense. The indemnifying party
shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the
indemnifying party has failed to assume the defense thereof
(other than during the period prior to the time the
indemnified party shall have given notice of the Third Party
Claim as provided above).
13.6.3 If the indemnifying party so elects to assume the defense of
any Third Party Claim, all of the indemnified parties shall
cooperate with the indemnifying party in the defense or
prosecution thereof. Such cooperation shall include the
retention and (upon the indemnifying party's request) the
provision to the indemnifying party of records and
information which are reasonably relevant to such Third
64
Party Claim, and making employees available on a mutually
convenient basis to provide additional information and
explanation of any material provided hereunder. Whether or
not the indemnifying party shall have assumed the defense of
a Third Party Claim, the indemnified party shall not admit
any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the indemnifying
party's prior written consent (which consent shall not
unreasonably be withheld). If the indemnifying party shall
have assumed the defense of a Third Party Claim, the
indemnified party shall agree to any settlement, compromise
or discharge of a Third Party Claim which the indemnifying
party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in
connection with such Third Party Claim, which releases the
indemnifying party completely in connection with such Third
Party Claim and which would not otherwise adversely affect
the indemnified party.
13.6.4 Notwithstanding the foregoing, the indemnifying party shall
not be entitled to assume the defense of any Third Party
Claim (and shall be liable for the reasonable fees and
expenses of counsel incurred by the indemnified party in
defending such Third Party Claim) if the Third Party Claim
seeks an order, injunction or other equitable relief or
relief for other than money damages against the indemnified
party which the indemnified party reasonably determines,
after conferring with its outside counsel, cannot be
separated from any related claim for money damages. If such
equitable relief or other relief portion of the Third Party
Claim can be so separated from that for money damages, the
indemnifying party shall be entitled to assume the defense of
the portion relating to money damages. The indemnification
required by Sections 13.2 and 13.3 shall be made by periodic
payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred. All
claims under Sections 13.2 and 13.3 other than Third Party
Claims
65
shall be governed by Section 13.7. All Tax Claims (as defined
in Section 13.8) shall be governed by Section 13.8.
13.7 Other Claims. In the event any indemnified party should have a claim
against any indemnifying party under Sections 13.2 or 13.3 that does
not involve a Third Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the
indemnifying party. The failure by any indemnified party so to notify
the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to such indemnified party under
Sections 13.2 or 13.3, except to the extent that the indemnifying party
demonstrates that it has been materially prejudiced by such failure. If
the indemnifying party does not notify the indemnified party within 10
calendar days following its receipt of such notice that the
indemnifying party disputes its liability to the indemnified party
under Sections 13.2 or 13.3, such claim specified by the indemnified
party in such notice shall be conclusively deemed a liability of the
indemnifying party under Sections 13.2 or 13.3 and the indemnifying
party shall pay the amount of such liability to the indemnified party
on demand or, in the case of any notice in which the amount of the
claim (or any portion thereof) is estimated, on such later date when
the amount of such claim (or such portion thereof) becomes finally
determined. If the indemnifying party has timely disputed its liability
with respect to such claim, as provided above, the indemnifying party
and the indemnified party shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations,
such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction.
13.8 Procedures Relating to Indemnification of Tax Claims.
13.8.1 If a claim shall be made by any taxing authority, which, if
successful, might result in an indemnity payment to Buyer,
one of its Affiliates or any of their respective officers,
directors, employees, stockholders, agents or representatives
pursuant to
66
Section 13.1, Buyer shall promptly notify Sellers in
writing of such claim (a "Tax Claim"). If notice of a Tax
Claim is not given to Sellers within a sufficient period of
time to allow Sellers to effectively contest such Tax Claim,
or in reasonable detail to apprise Sellers of the nature of
the Tax Claim, in each case taking into account the facts and
circumstances with respect to such Tax Claim, Sellers shall
not be liable to Buyer, any of its affiliates or any of their
respective officers, directors, employees, stockholders,
agents or representatives to the extent that Sellers'
position is actually prejudiced as a result thereof.
13.8.2 If a Tax Claim shall be made by any taxing authority, which,
if successful, might result in an indemnity payment by Buyer
to Sellers or to any of Sellers' Affiliates or any of their
respective officers, directors, employees, stockholders,
agents or representatives pursuant to Section 13.1, Sellers
shall promptly notify Buyer in writing of such claim. If
notice of a Tax Claim is not given to Buyer within a
sufficient period of time to allow Buyer to effectively
contest such Tax Claim, or in reasonable detail to apprise
Buyer of the nature of the Tax Claim, in each case taking
into account the facts and circumstances with respect to such
Tax Claim, Buyer shall not be liable to Sellers, any of their
Affiliates or any of their respective officers, directors,
employees, stockholders, agents or representatives to the
extent that Buyer's position is actually prejudiced as a
result thereof.
13.8.3 With respect to any Tax Claim (other than a Tax Claim
relating solely to Taxes of the Company for a Straddle Period
or a Tax Claim for which Buyer is required to provide
indemnity pursuant to Section 13.8.2), Sellers shall control
all proceedings taken in connection with such Tax Claim
(including selection of counsel) and, without limiting the
foregoing, may in Sellers' sole discretion pursue or forego
any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto,
and may, in Sellers' sole discretion, either pay the Tax
claimed and xxx for a refund where applicable law permits
such refund suits or contest the Tax Claim in any permissible
manner.
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Sellers and Buyer shall jointly control all proceedings taken
in connection with any Tax Claim relating solely to Taxes of
the Company for a Straddle Period. Buyer shall have the
right, but not the responsibility, to control all proceedings
taken in connection with any Tax Claim for which Buyer is
required to provide indemnity pursuant to Section 13.8.2.
13.8.5 Buyer, the Company, and each of their respective Affiliates
shall cooperate with Sellers in contesting any Tax Claim,
which cooperation shall include, without limitation, the
retention and (upon Sellers' request) the provision to
Sellers of records and information which are reasonably
relevant to such Tax Claim, and making employees available on
a mutually convenient basis to provide additional information
or explanation of any material provided hereunder or to
testify at proceedings relating to such Tax Claim.
13.8.5 In no case shall Buyer, the Company, or any of their
respective officers, directors, employees, stockholders,
agents or representatives settle or otherwise compromise any
Tax Claim without Sellers' prior written consent. Neither
party shall settle a Tax Claim relating solely to Taxes of
the Company for a Straddle Period without the other party's
prior written consent.
13.9 Mitigation. Buyer and Sellers shall cooperate with each other with
respect to resolving any claim or liability with respect to which one
party is obligated to indemnify the other party hereunder, including by
making commercially reasonably efforts to mitigate or resolve any such
claim or liability; provided that such party shall not be required to
make such efforts if they would be detrimental in any material respect
to such party. In the event that Buyer or Sellers shall fail to make
such commercially reasonably efforts to mitigate or resolve any claim
or liability, then (unless the proviso to the foregoing covenant shall
be applicable) notwithstanding anything else to the contrary contained
herein, the other party shall not be required to indemnify any person
for any loss, liability, claim, damage
68
or expense that could reasonably be expected to have been avoided if
Buyer or Sellers, as the case may be, had made such efforts.
13.10 Limitation of Liability. The obligations and liabilities of Sellers
for indemnification under this Agreement shall be subject to the
following limitations:
13.10.1 Buyer's right to indemnification shall be limited to a
maximum recovery from Sellers of an amount equal to the
Purchase Price, and Buyer agrees that this amount shall
constitute Buyer's sole and exclusive remedy with respect to
any loss, liability, claim, damage or expense (including,
without limitation, any liability for Taxes) suffered or
incurred by Buyer (collectively, "Buyer's Losses").
13.10.2 No indemnification shall be required to be made by Sellers
under this Article 13 unless the aggregate amount of Buyer's
Losses exceeds an amount equal to $100,000, and then only to
the extent of such excess.
13.10.3 If, on the Closing Date, Buyer has knowledge of the untruth,
inaccuracy or breach of any representation or warranty by
Sellers (jointly or severally) contained in, or Sellers'
(joint or several) breach of or failure to comply with any
covenant or obligations under, this Agreement or any
other document to be delivered in connection with the
transactions contemplated hereby, then any liability,
obligation, claim, loss, cost, damage and expense,
including attorneys' fees and disbursements, arising out of
or resulting therefrom shall not be included as part of
Buyer's Losses and Seller shall have no obligation to
indemnify Buyer therefor.
13.11 Exclusive Remedy. Except for the remedies provided in Sections 7.6 and
7.8 for Sellers' breach of the terms and conditions contained therein,
the parties hereto agree that the remedies provided by this Article 13
shall be the exclusive remedy under this Agreement.
69
13.12 Exclusion of Certain Damages. Notwithstanding any other provision
hereof, in no event shall Sellers be liable for or obligated to
indemnify Buyer from and against any consequential, indirect or
special damages, including, without limitation, lost profits, business
interruption and loss of business opportunities or goodwill. This
exclusion of any such consequential, indirect or special damages shall
apply whether the action in which recovery of damages is sought is
based on contract, tort (including sole, concurrent or other
negligence or strict liability), statute or otherwise. To the extent
permitted by law, any statutory remedies which are inconsistent with
this Section 13.12 are waived.
14. Tax Matters
14.1 If Buyer so elects, (a) Sellers and Buyer shall join in timely making
an election under Section 338(h)(10) of the Code (and any comparable
election under state or local Tax law) with respect thereto; and
(b) Sellers and Buyer shall cooperate in the completion and timely
filing of such elections in accordance with the provisions of
Temporary Regulation Section 1.338(h)(10)-1T (or any comparable
provisions of state or local Tax law) or any successor provision.
Sellers and Buyer agree that the fair market value of the assets of
the Company are as set forth in Schedule 14.1. Neither Sellers nor
Buyer (nor any of their respective affiliates) shall take any position
on any Tax return or with any taxing authority that is inconsistent
with the agreed fair market values set forth in Schedule 14.1.
14.2 For any taxable period of the Company that includes (but does not end
on) the Closing Date, Buyer shall timely prepare and file with the
appropriate authorities all Tax returns, reports and forms required to
be filed and shall pay all Taxes due with respect to such returns,
reports and forms; provided that Sellers shall reimburse Buyer (in
accordance with the procedures set forth in Section 13.1) for any
amount owed by Sellers pursuant to Section 13.1 with respect to the
taxable periods covered by such returns, reports
or forms. For any taxable period of the Company that ends on or before
the Closing Date, Sellers shall timely prepare and file with the
appropriate authorities all Tax returns, reports
70
and forms required to be filed, and shall pay all Taxes due with
respect to such returns, reports and forms. Buyer and Sellers agree
to cause the Company to file all Tax returns, reports and forms for
the period including the Closing Date on the basis that the relevant
taxable period ended as of the close of business on the Closing Date,
unless the relevant taxing authority will not accept a return, report
or form filed on that basis.
14.3 Sellers, the Company, and Buyer shall reasonably cooperate, and shall
cause their respective Affiliates, officers, employees, agents,
auditors and representatives reasonably to cooperate, in preparing and
filing all returns, reports and forms relating to Taxes, including
maintaining and making available to each other all records necessary
in connection with Taxes and in resolving all disputes and audits with
respect to all taxable periods relating to Taxes. Buyer and Sellers
recognize that Sellers and their Affiliates will need access, from
time to time, after the Closing Date, to certain accounting and Tax
records and information held by the Company to the extent such
records and information pertain to events occurring prior to the
Closing Date; therefore, Buyer agrees, and agrees to cause the
Company, (a) to use its best efforts to properly retain and maintain
such records until such time as Sellers agree that such retention and
maintenance is no longer necessary; and (b) to allow Sellers and their
agents and representatives (and agents or representatives of any of
their Affiliates), at times and dates mutually acceptable to the
parties, to inspect, review and make copies of such records as Sellers
may deem necessary or appropriate from time to time, such activities
to be conducted during normal business hours and at Sellers' expense.
14.4 Any refunds or credits of Taxes of the Company for any taxable period
ending on or before the Closing Date shall be for the account of
Sellers. Any refunds or credits of Taxes of the Company for any
taxable period beginning after the Closing Date shall be for the
account of the Buyer. Any refunds or credits of Taxes of the Company
for any Straddle Period shall be equitably apportioned between Sellers
and Buyer. Buyer shall, if Sellers so request and at Sellers' expense,
cause the Company to file for and obtain any refunds or credits to
which Sellers are entitled under this Section. Buyer shall permit
Sellers to control the prosecution of any such refund claim and, where
deemed appropriate by Sellers, shall
71
cause the Company to authorize by appropriate powers of attorney such
persons as Sellers shall designate to represent the Company with
respect to such refund claim. Buyer shall cause the Company to forward
to Sellers any such refund within 10 days after the refund is received
(or reimburse Sellers for any such credit within 10 days after the
credit is allowed or applied against other Tax liability); provided,
however, that any such amounts payable to Sellers shall be net of any
Tax cost or benefit to Buyer or the Company, as the case may be,
attributable to the receipt of such refund and/or the payment of such
amounts to Sellers. Sellers and Buyer shall treat any payments under
the preceding sentence that Sellers shall receive pursuant to this as
an adjustment to the Purchase Price, unless a final determination
(which shall include the execution of a Form 870-AD or successor form)
with respect to the Buyer or any of its affiliates causes any such
payment not to be treated as an adjustment to the Purchase Price for
United Stated Federal income Tax purposes. Notwithstanding the
foregoing, the control of the prosecution of a claim for refund of
Taxes paid pursuant to a deficiency assessed subsequent to the Closing
Date as a result of an audit shall be governed by the provisions of
Section 13.8. In the event that any federal or state authority takes
an action that results in the disallowance of deductions taken into
account when calculating the Company's income which was included by
the Sellers in their individual taxable incomes, and the effect of
such disallowance is to permit the Company or Buyer to deduct from its
gross income the amount of such disallowed deduction for a tax period
ending after the Closing Date, the Company or Buyer shall pay to
Sellers the amount of any tax benefit actually obtained by Buyer as a
result of Buyer taking any deduction arising in respect of such
disallowed deduction taken by Sellers, provided, however, that Buyer
shall have no obligation under this clause for the actual amount of
any additional Taxes, interest or penalties owed or paid by Sellers
resulting from such disallowance, except to the extent explicitly set
forth herein.
14.5 Sellers shall be responsible for filing any amended consolidated,
combined or unitary Tax returns for taxable years ending on or prior
to the Closing Date which are required as a result of examination
adjustments made by the Internal Revenue Service or by the applicable
state, local or foreign taxing authorities for such taxable years as
finally
72
determined. For those jurisdictions in which separate Tax returns are
filed by the Company, any required amended returns resulting from such
examination adjustments, as finally determined, shall be prepared by
Sellers and furnished to the Company or such Subsidiary, as the case
may be, for approval (which approval shall not unreasonably be
withheld), signature and filing at least 30 days prior to the due date
for filing such returns.
14.6 All transfer, documentary, sales, use, registration and other such
Taxes (including all applicable real estate transfer or gains Taxes)
and related fees (including any penalties, interest and additions to
Tax) incurred in connection with this Agreement and the transactions
contemplated hereby (other than stock transfer Taxes) shall be paid by
Buyer, and Sellers and Buyer shall cooperate in timely making all
filings, returns, reports and forms as may be required to comply with
the provisions of such Tax laws. Sellers shall pay any stock transfer
Taxes due as a result of the sale of the Shares.
14.7 On the Closing Date, Buyer shall cause the Company to conduct its
business in the ordinary course in substantially the same manner as
presently conducted and on the Closing Date shall not permit the
Company to effect any extraordinary transactions (other than any such
transactions expressly required by applicable law or by this
Agreement) that could result in Tax liability to the Company in excess
of Tax liability associated with the conduct of its business in the
ordinary course.
14.8 Sellers shall cause the provisions of any Tax sharing agreement
between Sellers and any of its Affiliates (other than the Company) to
be terminated on or before the Closing Date.
15. Assignment
15.1 This Agreement and the rights and obligations hereunder shall not be
assignable or transferable by Buyer or Sellers (including by operation
of law in connection with a merger, or sale of substantially all the
assets, of Buyer or Sellers) without the prior written consent of the
other party hereto; provided, however, that Buyer may assign its right
to
73
purchase the Shares hereunder to an Affiliate of Buyer without the
prior written consent of Sellers; and provided further, however, that
no assignment shall limit or affect the assignor's obligations
hereunder. Any attempted assignment in violation of this Section shall
be void.
16. No Third-Party Beneficiaries
16.1 Except as provided in Section 11.1 and Article 13, this Agreement is
for the sole benefit of the parties hereto and their permitted assigns
and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
17. Survival of Representations
17.1 The representations and warranties in this Agreement and in any
certificate delivered pursuant hereto (in each case other than the
representations and warranties relating to Taxes) shall survive the
Closing solely for purposes of Sections 13.2 and 13.3 and shall
terminate at the close of business one year following the Closing
Date.
18. Expenses
18.1 Except as provided in Section 18.2 hereof, whether or not the
transactions contemplated hereby are consummated, and except as
otherwise specifically provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring
such costs or expenses.
18.2 In the event that the Closing does not occur and the transactions
contemplated hereby are not consummated for any reason other than
Sellers' refusal to close, Buyer shall pay to the Company the actual
costs of the financial audit conducted in connection herewith.
74
19. Attorney Fees
19.1 A party in breach of this Agreement shall, on demand, indemnify and
hold harmless the other party for and against all reasonable
out-of-pocket expenses, including legal fees, incurred by such other
party by reason of the enforcement and protection of its rights under
this Agreement. The payment of such expenses is in addition to any
other relief to which such other party may be entitled.
20. Amendments
20.1 No amendment, modification or waiver in respect of this Agreement
shall be effective unless it shall be in writing and signed by both
parties hereto.
21. Notices
21.1 All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent,
postage prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so delivered
by hand, or if mailed, three days after mailing (one business day in
the case of express mail or overnight courier service), as follows:
21.1.1 if to Buyer:
Econophone, Inc.
00 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx, Xx., Esq.
75
with a copy to:
Xxxxxx & Fox
00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxx, Esq.
21.1.2 if to Sellers:
Xxxxxxx Xxxxxx
0 Xxxxxx Xxxx
Xx. Xxxxx, XX 00000
and
Xxxxxx Xxxxxx
00 Xxxx Xxxxx Xxxx
Xxxxx 000
Xxxxxxxx, XX 00000
with a copy to:
Stroock & Stroock & Xxxxx LLP
000 Xxxxxx Xxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxxxxx, Esq.
22. Interpretation; Exhibits and Schedules; Certain Definitions
76
22.1 The headings contained in this Agreement, in any Exhibit or Schedule
hereto and in the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All Exhibits and Schedules annexed
hereto or referred to herein are hereby incorporated in and made a
part of this Agreement as if set forth in full herein. Any capitalized
terms used in any Schedule or Exhibit but not otherwise defined
therein, shall have the meaning as defined in this Agreement.
22.2 For all purposes hereof:
22.2.1 "Affiliate" means (a) any Person (as defined below),
corporation or business entity of which securities or other
ownership interests representing fifty percent (50%) or more of
the equity or fifty percent (50%) or more of the ordinary
voting power or fifty percent (50%) or more of the general
partnership interests are, at the time such determination is
being made, owned, Controlled (as defined below) or held,
directly or indirectly, by such corporation or business entity;
or (b) any other Person, corporation or business entity which,
at the time such determination is being made, is Controlling,
Controlled by or under common Control with, such corporation or
business entity. For purposes of this definition, "Control,"
whether used as a noun or verb, refers to the possession,
direct or indirect, of the power to direct, or cause the
direction of, the management or policies of any corporation or
business entity, whether through the ownership of voting
securities, by contract or otherwise;
22.2.2 "including" means including, without limitation;
22.2.3 "knowledge" of Sellers means the knowledge of Xxxxxxx Xxxxxx or
Xxxxxx Xxxxxx;
77
22.2.4 "knowledge" of Buyer means the knowledge of Xxxxxx Xxxx, Xxxx
Xxxx, Xxx Xxxxxxxxxx or Xxxxx Xxxxxx; and
22.2.5 "Person" means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, Governmental
Entity or other entity.
23. Counterparts
23.1 This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each
of the parties and delivered to the other party.
24. Entire Agreement
24.1 This Agreement, the Escrow Agreement, the Employment Agreements and the
Confidentiality Agreement contain the entire agreement and
understanding between the parties hereto with respect to the subject
matter hereof and supersede all prior agreements and understandings
relating to such subject matter. The parties agree that the certain
Authorized Representative Agreement entered into between Econophone,
Inc. and National Business Society, Inc. on the 17th day of March,
1996, is terminated effective upon the Closing. Neither party shall be
liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject
matter except as specifically set forth herein or in the Escrow
Agreement, Employment Agreements, or Confidentiality Agreement.
25. Fees
25.1 Each party hereto hereby represents and warrants to the other that it
has not dealt with any brokers or finders in connection with this
Agreement or the transactions contemplated
78
hereby, and that no broker or finder is entitled to any brokerage fee,
finder's fee or commission in respect hereof and thereof.
26. Severability
26.1 If any provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to any
person or circumstance shall be held invalid, illegal or unenforceable
in any respect by a court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such
provision to any other persons or circumstances.
27. Consent to Jurisdiction
27.1 To the extent that any claim or controversy arising out of this
Agreement or any transaction contemplated hereby shall not be
arbitrable in accordance with Article 29 hereof, each of Buyer and
Sellers irrevocably submits to the exclusive jurisdiction of (a) the
Supreme Court of the State of New York, New York County, and (b) the
United States District Court for the Southern District of New York, for
the purposes of any suit, action or other proceeding arising out of
this Agreement or any transaction contemplated hereby. Each of Buyer
and Sellers agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the Southern
District of New York or, if such suit, action or other proceeding may
not be brought in such court for jurisdictional reasons, in the Supreme
Court of the State of New York, New York County. Each of Buyer and
Sellers further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set
forth above shall be effective service of process for any action, suit
or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction in this Article. Each of Buyer and Sellers
irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (i) the Supreme Court of the
State of New York, New York County, or (ii) the United
00
Xxxxxx Xxxxxxxx Xxxxx for the Southern District of New York, and hereby
further irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
Each of Buyer and Sellers irrevocably and unconditionally waives trial
by jury in any action or proceeding arising under this Agreement or the
transactions contemplated hereby.
28. Governing Law
28.1 This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements
made and to be performed entirely within such State, without regard to
the conflicts of law principles of such State.
29. Arbitration
29.1 Any controversy, dispute or claim arising out of, in connection with,
or in relation to the interpretation, performance, non-performance,
validity or breach of this Agreement or otherwise arising out of, or in
any way related to, this Agreement, including any claim based on
contract, tort, statute or constitution, shall be determined, except as
otherwise provided in Section 4.3 hereof, at the request of any party,
by arbitration conducted in New York City, before and in accordance
with the then-existing Rules for Commercial Arbitration of the American
Arbitration Association (the "Rules"), and any judgment or award
rendered by the arbitrator shall be final, binding and unappealable,
and judgment may be entered by any state or Federal court having
jurisdiction thereof. The pre-trial discovery procedures of the
then-existing Federal Rules of Civil Procedure and the then-existing
Rules 46 and 47 of the Civil Rules for the United States District Court
for the Southern District of New York shall apply to any arbitration
pursuant to this Section 29. Any controversy concerning whether a
dispute is an arbitrable dispute, whether arbitration has been waived,
whether an assignee of this Agreement is bound to arbitrate, or as to
the interpretation or enforceability of this Section 29 shall be
determined by the arbitrator. The
80
arbitrator shall be an individual who has had substantial professional
experience with regard to the telecommunications business. The parties
intend that the provisions to arbitrate set forth in this Section 29 be
valid, enforceable and irrevocable. The designation of a situs or a
governing law for this Agreement or the arbitration shall not be deemed
an election to preclude application of the Federal Arbitration Act, if
it would be applicable. In his or her award, the arbitrator shall
allocate, in his or her discretion, among the parties to the
arbitration all costs of the arbitration, including the fees and
expenses of the arbitrator and reasonable attorneys' fees, costs and
expert witness expenses of the parties. The undersigned agree to comply
with any award made in any such arbitration proceedings that has become
final in accordance with the Rules and agree to the entry of a judgment
in any jurisdiction upon any award rendered in such proceedings
becoming final under the Rules. The arbitrator shall be entitled, if
appropriate, to award any remedy in such proceedings, including
monetary damages, specific performance and all other forms of legal and
equitable relief, including punitive damages. The provisions of this
Section 29 shall not apply to any arbitration between the parties
conducted by the Accounting Firm pursuant to Section 4.3.
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IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first written above.
SELLERS: BUYER:
ECONOPHONE, INC.
/s/ XXXXXXX XXXXXX By: /s/ XXXXXX XXXX
_____________________________ ____________________________
XXXXXXX XXXXXX
Name: Xxxxxx Xxxx
__________________________
/s/ XXXXXX XXXXXX Title: Chief Executive Officer
_____________________________ _________________________
XXXXXX XXXXXX
By: /s/ XXXX X. XXXX
_____________________________
Name: Xxxx X. Xxxx
__________________________
Title: President and Chief
Operating Officer
82
