EXHIBIT 10.8
STOCK EXCHANGE AGREEMENT
BY AND AMONG
XXXXXXX.XXX, INC.,
TGF TECHNOLOGIES, INC.,
THE TOGETHER FOUNDATION FOR GLOBAL UNITY
N.W.S.T. CORP.,
SWIFT COMPANY LIMITED
AND
XXXX XXXXXXXX
DATED AS OF FEBRUARY 18, 1999
TABLE OF CONTENTS
Page
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ARTICLE I................................................................. 1
DEFINITIONS............................................................... 1
1.1 DEFINITIONS...................................................... 1
ARTICLE II................................................................ 8
THE EXCHANGE OF SHARES.................................................... 8
2.1 BASIC TRANSACTIONS............................................... 8
2.2 TRANSFER CONSIDERATION........................................... 8
2.3 NET WORTH ADJUSTMENT............................................. 9
2.4 RESERVED......................................................... 9
2.5 RESERVED......................................................... 9
2.6 THE CLOSING...................................................... 9
2.7 DELIVERIES AT THE CLOSING........................................ 9
2.8 RESERVED......................................................... 9
2.9 ESCROW ARRANGEMENTS.............................................. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO THE TOGETHER
PARTIES...................................................... 10
3.1 AUTHORIZATION OF TRANSACTION..................................... 10
3.2 NONCONTRAVENTION................................................. 11
3.3 BROKER'S FEES.................................................... 11
3.4 INVESTMENT....................................................... 11
3.5 COMPANY SHARES................................................... 11
3.6 DISCLOSURE....................................................... 11
3.7 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER................. 12
3.8 REGULATION S..................................................... 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY....... 14
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER................. 14
4.2 CAPITALIZATION................................................... 14
4.3 NONCONTRAVENTION................................................. 15
4.4 SUBSIDIARIES..................................................... 15
4.5 FINANCIAL STATEMENTS............................................. 15
4.6 EVENTS SUBSEQUENT TO DECEMBER 31, 1998........................... 16
4.7 UNDISCLOSED LIABILITIES.......................................... 16
4.8 TAX MATTERS...................................................... 17
4.9 TANGIBLE ASSETS.................................................. 18
4.10 OWNED REAL PROPERTY............................................. 18
4.11 INTELLECTUAL PROPERTY......................................... 18
4.12 CONTRACTS..................................................... 19
4.13 NOTES AND ACCOUNTS RECEIVABLE................................. 20
4.14 INSURANCE..................................................... 21
4.15 LITIGATION.................................................... 21
4.16 EMPLOYEES..................................................... 21
4.17 EMPLOYEE BENEFITS............................................. 22
4.18 GUARANTIES.................................................... 22
4.19 LEGAL COMPLIANCE.............................................. 22
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY............... 22
4.21 BROKERS' FEES................................................. 23
4.22 SYSTEMS....................................................... 23
4.23 SUBSCRIBERS................................................... 23
4.24 DISCLOSURE.................................................... 24
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIRER.................. 24
5.1 ORGANIZATION OF THE ACQUIRER.................................. 24
5.2 AUTHORIZATION OF TRANSACTION.................................. 24
5.3 BROKERS' FEES................................................. 24
5.4 ACQUIRER'S CAPITALIZATION..................................... 24
5.5 NONCONTRAVENTION.............................................. 24
5.6 DISCLOSURE.................................................... 25
ARTICLE VI PRE-CLOSING COVENANTS....................................... 25
6.1 GENERAL....................................................... 25
6.2 NOTICES AND CONSENTS.......................................... 25
6.3 OPERATION OF BUSINESS PRIOR TO THE CLOSING DATE............... 25
6.4 PRESERVATION OF BUSINESS...................................... 26
6.5 ACCESS........................................................ 26
6.6 NOTICE OF DEVELOPMENTS........................................ 27
6.7 EXCLUSIVITY................................................... 27
6.8 MAIL SERVER................................................... 27
6.9 RESERVED...................................................... 30
6.10 LANDLORDS' CONSENTS........................................... 27
6.11 RESERVED...................................................... 27
6.12 TAX MATTERS................................................... 27
6.13 MANAGEMENT LETTERS, ETC....................................... 28
ARTICLE VII POST-CLOSING COVENANTS...................................... 28
7.1 GENERAL....................................................... 28
7.2 TRANSITION.................................................... 28
7.3 CONFIDENTIALITY............................................... 28
7.4 COVENANT NOT TO COMPETE....................................... 29
7.5 TAX FREE EXCHANGE INTENT...................................... 29
7.6 BOARD REPRESENTATION........................................... 29
7.7 LICENSE AGREEMENT.............................................. 29
7.8 RELATIONSHIP WITH THE FOUNDATION............................... 29
ARTICLE VIII CONDITIONS TO OBLIGATIONS TO CLOSE........................... 30
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER...................... 30
8.2 CONDITIONS TO OBLIGATIONS OF THE TOGETHER PARTIES.............. 32
ARTICLE IX REMEDIES FOR BREACHES OF THIS AGREEMENT...................... 33
9.1 INDEMNIFICATION OF THE ACQUIRER................................ 33
9.2 DEFENSE OF THIRD PARTY CLAIMS.................................. 34
9.3 PROCEDURE FOR CLAIMS........................................... 35
9.4 TAX AUDITS, ETC................................................ 35
9.5 INDEMNIFICATION OF TOGETHER PARTIES............................ 36
9.6 LIMITS ON INDEMNIFICATION...................................... 36
ARTICLE X TERMINATION.................................................. 37
10.1 TERMINATION OF AGREEMENT....................................... 37
10.2 EFFECT OF TERMINATION.......................................... 38
ARTICLE XI MISCELLANEOUS................................................ 38
11.1 PRESS RELEASES AND ANNOUNCEMENTS............................... 38
11.2 NO THIRD-PARTY BENEFICIARIES................................... 38
11.3 ENTIRE AGREEMENT............................................... 38
11.4 SUCCESSION AND ASSIGNMENT...................................... 38
11.5 FACSIMILE/COUNTERPARTS......................................... 39
11.6 NOTICES........................................................ 39
11.7 DISPUTE RESOLUTIONS............................................ 40
11.8 GOVERNING LAW.................................................. 41
11.9 AMENDMENTS AND WAIVERS......................................... 41
11.10 SEVERABILITY................................................... 41
11.11 EXPENSES....................................................... 42
11.12 CONSTRUCTION................................................... 42
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES.............. 42
11.14 SPECIFIC PERFORMANCE........................................... 42
LIST OF EXHIBITS AND ANNEXES
EXHIBITS
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Exhibit A Form of Escrow Agreement
Exhibit B The Company's Financial Statements
Exhibit C-1 Officer/Together Parties Certificate
Exhibit C-2 Secretary's Certificate
Exhibit D Form of Equity Subscription Agreement
Exhibit E Form of Employment Agreement
Exhibit F Joinder to the Registration Agreement
Exhibit G Form of Opinion of the Together Parties and The Company's Legal
Exhibit H License Agreement
ANNEXES
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Annex I Reserved
Annex II Determination of Stock Portion of Transfer Consideration
Annex III Reserved
Annex IV Acquirer's Capitalization Schedule
Annex V Allocation Summary
Annex VI List of Optionholders
DISCLOSURE SCHEDULES
Schedule 3.7 Officers and Directors of The Foundation and SWIFT
Schedule 4.1 Officers and Directors of the Company and N.W.S.T.
Schedule 4.2 Capitalization
Schedule 4.4 Subsidiaries
Schedule 4.6 Material Events
Schedule 4.7 Material Liabilities
Schedule 4.8 Tax Matters
Schedule 4.11 Intellectual Property
Schedule 4.12 Contracts
Schedule 4.14 Insurance
Schedule 4.15 Litigation
Schedule 4.20 Affiliate Relationships
Schedule 4.21 Brokers' Fees
Schedule 4.22 Systems
Schedule 4.23 Subscribers
The Exhibits and Schedules to this Stock Exchange Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
STOCK EXCHANGE AGREEMENT
This STOCK EXCHANGE AGREEMENT ("AGREEMENT") is entered into as of the
18 day of February, 1999, by and among XXXXXXX.XXX, INC., a Delaware corporation
(the "ACQUIRER"), TGF TECHNOLOGIES, INC., a Vermont corporation (the "COMPANY"),
THE TOGETHER FOUNDATION FOR UNITY, a Delaware Corporation organized under
Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the
"Foundation"), N.W.S.T. Corp., a Delaware corporation ("N.W.S.T.") and SWIFT
COMPANY LIMITED, a British Virgin Islands corporation ("SWIFT") and XXXX
XXXXXXXX DE FONTANULS ("XXXX XXXXXXXX"). The Company, the Foundation, N.W.S.T.,
SWIFT and XXXX XXXXXXXX are referred to herein individually as a "TOGETHER
PARTY" and collectively as the "TOGETHER PARTIES" and the Acquirer and the
Together Parties are referred to herein individually as a "PARTY" and
collectively as the "PARTIES."
RECITALS
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A. The Foundation and N.W.S.T. own all of the outstanding capital
stock of the Company, a corporation engaged in the business of providing
internet access and services, web hosting and other internet related services
and support operating under the name Together Networks (the "BUSINESS").
X. XXXXX is the sole stockholder of N.W.S.T.
C. Xxxx Xxxxxxxx is the sole stockholder of SWIFT
D. This Agreement contemplates transactions in which (1) the
Foundation will exchange all of the capital stock of the Company which it owns
for the Foundation Transfer Consideration (as hereinafter identified), and (2)
SWIFT will exchange all of the capital stock of N.W.S.T. which it owns for the
SWIFT Transfer Consideration (as hereinafter defined).
E. This Agreement further contemplates that the aforementioned
transactions will occur in conjunction with certain related transactions,
consisting of the IPO (as defined hereinafter) and the transfers of certain
other businesses by their owners to the Acquirer (the "RELATED TRANSACTIONS"),
and it is intended that the receipt of Acquirer's Shares (as hereinafter
defined), by SWIFT and shares of Acquirer's Common Stock by the parties involved
in the Related Transactions will be tax-free under Section 351 of the Code (as
defined).
AGREEMENT
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NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
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"ACQUIRER" has the meaning set forth in the preface above.
"ACQUIRER'S COMMON STOCK" means the Acquirer's common stock, par value
$0.001 per share.
"ACQUIRER'S SHARES" means the shares of the Acquirer's Common Stock
which are issued to SWIFT pursuant to this Agreement.
"ADVERSE CONSEQUENCES" means all damages from complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, penalties, fines,
costs, amounts paid in settlement, liabilities, obligations, taxes, liens,
losses, expenses, and fees, including all reasonable attorneys' fees and court
costs.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 (or any similar group defined under a similar provision of state,
local or foreign law).
"ALLOCATION SUMMARY" means the summary of the allocation of the
Transfer Consideration attached hereto as Annex V.
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"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms the reasonable basis for any
specified consequence.
"CASH PORTION OF THE SWIFT TRANSFER CONSIDERATION" has the meaning set
forth in Section 2.2 below.
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"CLOSING" has the meaning set forth in Section 2.6 below.
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"CLOSING DATE" has the meaning set forth in Section 2.6 below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY SHARES" means all outstanding shares of the common stock, no
par value per share, of the Company.
"CONFIDENTIAL INFORMATION" means all confidential information and
trade secrets of the Acquirer or any of the Together Parties, as the case may
be, including, without limitation, the identity, lists or descriptions of any
customers, referral sources or organizations; financial statements, cost reports
or other financial information; contract proposals, or bidding information;
business plans and training and operations methods and manuals; personnel
records; fee structure; and management systems, policies or procedures,
including related forms and manuals; provided, that the Confidential Information
shall not include information which (a) was or becomes
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generally available to the public other than as a result of a disclosure by the
receiving Party, (b) was or becomes available to the receiving Party on a non-
confidential basis from a source other than the Acquirer or its advisors, in a
case in which a Together Party is the receiving Party, or a Together Party or
its advisers, in a case in which the Acquirer is the receiving Party, without
breach of this Agreement provided that such source is not known to such
receiving Party to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to such receiving Party by a
contractual, legal or fiduciary obligation known to such receiving Party, (c)
was within the receiving Party's possession prior to its being furnished to such
receiving Party without breach of this Agreement, provided that the source of
such information was not bound by a confidentiality agreement with the Acquirer
or a Together Party or otherwise prohibited from transmitting the information to
the receiving party by a contractual, legal or fiduciary obligation, (d) which
is required to be and actually is disclosed by operation of law, or (e) relates
generally to the acquisition strategy of "rolling-up" or consolidating an
industry, other than the pricing strategy, revenue and subscriber multiples, and
performance adjustments thereto, used for acquisitions by the Acquirer.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Treas. Reg. (S)1.1502-13.
"DISCLOSURE SCHEDULES" means the informational schedules relating to
the Together Parties as attached hereto.
"E&Y" shall mean Ernst & Young, L.L.P.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
Material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section 3.1
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below.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGENT" means First Union National Bank, N.A.
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"ESCROW AGREEMENT" means the Escrow Agreement to be executed by and
among the Together Parties, the Acquirer and the Escrow Agent in the form of
Exhibit A attached hereto.
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"ESCROW PERIOD" has the meaning specified in Section 2.9.
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"ESCROW SUM" has the meaning specified in Section 2.9.
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"FAIR MARKET VALUE" of the Acquirer's Common Stock as of a particular
date means: (a) if traded on an exchange or the over-the-counter market, quoted
on the Nasdaq National Market or otherwise by the Nasdaq Stock Market, Inc. or
reported by the National Quotation Bureau, Inc., then the most recently reported
closing or bid price or (b) otherwise, the price, not less than book value,
determined in good faith and in such a reasonable manner as prescribed by a
majority of the Acquirer's directors who are not officers of the Acquirer.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5 below.
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"FOUNDATION SHARES" means all of the Company Shares owned by the
Foundation.
"FOUNDATION TRANSFER CONSIDERATION" has the meaning set forth in
Section 2.2 below.
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"FUNDED INDEBTEDNESS" means all (a) indebtedness of Company for
borrowed money or other interest-bearing indebtedness, including without
limitation all lines of credit and notes payable; (b) obligations of Company to
pay the deferred purchase or acquisition price for goods or services, other than
trade accounts payable or accrued expenses in the ordinary course of business on
no more than 90 day payment terms; (c) indebtedness of others guaranteed by
Company or secured by an encumbrance on Company's property; (d) indebtedness of
Company under extended credit terms of more than 60 days from vendors to
Company; and (e) transaction costs of Company and/or the Transferor associated
with this Agreement or the transactions contemplated hereby that are paid by
Company; notwithstanding the foregoing, $110,000 of the amount loaned by Xxxx
Xxxxxxxx to the Company, as documented by a Loan Term Sheet dated September 21,
1998, shall not be deemed Funded Indebtedness.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time.
"GROSS REVENUES" means the gross revenue of the Company as normally
calculated on the Financial Statements as calculated in accordance with GAAP on
the accrual basis of accounting.
"INDEMNIFIED PARTIES" has the meaning set forth in Section 9.1 below.
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"INTELLECTUAL PROPERTY" means the following intellectual property of
the Company: all (a) trademarks, service marks, trade dress, logos, trade names,
and corporate names and registrations and
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applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) computer software, data, and
documentation, (d) trade secrets and confidential business information
(including formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists and
information, and (e) copies and tangible embodiments thereof (in whatever form
or medium).
"IPO" means the first underwritten public offering of the Acquirer's
Common Stock pursuant to an effective registration statement under the
Securities Act that will result in an aggregate post-IPO market capitalization
of the Acquirer of at least $100 million (determined by multiplying the
outstanding shares of the Acquirer's Common Stock by the IPO offering price).
"KNOWLEDGE" means, with respect to (a) each of the Together Parties,
information which is actually known by Xxxx Xxxxxxxx, Xxxxx Xxxx, Xxxxxxx
Xxxxxxxx and Xxxxxxx X. Xxxxxxxx and which a prudent person in the position of
such individuals would reasonably be deemed to know, and (b) with respect to the
Acquirer, the knowledge of the executive officers of Acquirer.
"LIABILITY" means any liability, debt, obligation, amount or sum due
(whether known or unknown, whether absolute or contingent, whether liquidated or
unliquidated, and whether due or to become due) including any liability for
Taxes.
"MATERIAL" means, in relation to an event or matter, consequential in
the amount of at least $50,000; provided that the inaccuracy, incorrectness or
falsity of any representation or warranty contained in this Agreement will not
be deemed to be "Material," to cause a "Material" adverse change in or in
respect of, to have a "Material" adverse effect or to cause a Party to be
"Materially" affected unless the loss that may reasonably be expected to occur
as a result thereof to the Party to which such representation or warranty is
made, when taken together with all other losses that may reasonably be expected
to occur to such Party as a result of the inaccuracy, incorrectness or falsity
of all representations and warranties of the Party making such representation or
warranty, would exceed $50,000 in the aggregate or unless such event or matter
constitutes a criminal violation of law by the Party making such representation
or warranty. Notwithstanding the foregoing or any other provision hereof, any
adverse change or adverse effect with respect to the Company which is
experienced generally within the Internet service provider industry (without
regard to America Online, Inc.) shall not be deemed to constitute a Material
adverse change or Material adverse effect with respect to the Company. For
purposes of this definition, the word "loss" shall mean any and all direct or
indirect payments, obligations, assessments, losses, losses of income,
liabilities, costs and expenses paid or incurred, or reasonably likely to be
paid or incurred, or diminution in value or reduction in benefits or rights of
any kind or character (whether or not known or asserted before the date of this
Agreement, fixed or unfixed, conditional or unconditional, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise) that are reasonably likely to occur, including without limitation,
penalties, interest on any amount payable to a third party as a result of the
foregoing, and any reasonable legal or other expenses reasonably expected to be
incurred in connection with defending
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any demands, claims, actions or causes of action that, if adversely determined,
could reasonably be expected to result in losses, and all amounts paid in
settlement of claims or actions; provided, however, that losses shall be net of
any insurance proceeds entitled to be received from a nonaffiliated insurance
company on account of such loss (after taking into account any cost incurred in
obtaining such proceeds or any increases in insurance premiums as a direct
result thereof). Notwithstanding the foregoing, a Subscriber Contract or
Agreement is "Material" if during either calendar year 1998 or calendar year
1999 such Subscriber Contract or Agreement produced or is expected to produce
$25,000 of Gross Revenues, respectively.
"NET WORTH OF THE COMPANY" means the total assets of the Company less
the total liabilities of the Company including any costs of conversion from a
cash basis to an accrual method of accounting, determined in accordance with
GAAP, consistently applied and on the accrual method of accounting. In
calculating the total assets of the Company, no material increase in the
intangible assets of the Company since December 31, 1998 shall be included in
calculating the Net Worth of the Company without the written consent of the
Acquirer. Notwithstanding the foregoing, (i) the cost associated with the mail
server discussed in Section 6.8 below shall be accounted for in the calculation
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of both the assets and liabilities of the Net Worth of the Company and (ii)
$60,000 of the Company's accounting cost as described in Section 11.11 below
shall not accounted for in the calculation of the Net Worth of the Company.
"ORDINARY COURSE OF BUSINESS" means conduct of the Business consistent
with the past practices of the Company.
"N.W.S.T. SHARES" means all of the outstanding shares of capital stock
of N.W.S.T.
"OUTAGE" means any loss of service to any system of the Business,
including but not limited to network access, e-mail, web, news or other
services.
"PARTY" has the meaning set forth in the preface above.
"REGISTRATION AGREEMENT" means that certain Registration Agreement to
be entered into by and among the Acquirer and the stockholders of the Acquirer.
"REGISTRATION STATEMENT" means the Acquirer's registration statement
on Form S-1 filed with the SEC in connection with the IPO.
"RELATED TRANSACTIONS" has the meaning set forth in the Recitals.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"REVENUE RUN RATE" shall mean at any given time the total revenues of
the Company for the three-month period ended December 31, 1998 multiplied by a
factor of four.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITY INTEREST" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and
similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings), (c)
liens arising under workers' compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"STOCK PORTION OF THE N.W.S.T. TRANSFER CONSIDERATION" has the meaning
set forth in Section 2.2 below.
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"SUBSCRIBER" means any customers of the Company who (a) are currently
connected to and receiving internet related services from the Company's Systems;
(b) are being charged or have pre-paid the Company standard rates (which rates
are set forth on Schedule 4.23) pursuant to Company's standard form contracts
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previously provided to the Acquirer; (c) have paid such stated rates in full for
at least one full month; (d) are not two or more months delinquent in the
payment of any invoice from the Company; (e) have not, in the preceding two
months, been given a waiver or forgiveness of service charges; (f) have not
received any inducement to become connected to the Company's Systems or to
receive or pay for services (other than pursuant to the Company's customary
marketing practices); and (g) have not notified the Company of their intention
to cancel service.
"SUBSCRIBER CONTRACT OR AGREEMENT" means any agreement whereby the
Company provides services to a Subscriber.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"SWIFT TRANSFER CONSIDERATION" has the meaning set forth in Section
2.2, below.
"SYSTEMS" means the infrastructure used to provide internet access and
related services, including network components, communications facilities,
servers, services and service platforms (including for e-mail, news, DNS, web,
authentication and other services), power plants, data processing platforms, MIS
systems, office automation systems and internal LAN network management systems.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty or addition thereto.
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"TAX RETURN" means any federal, foreign, state and local governmental
tax return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"TOGETHER PARTIES" has the meaning set forth in the recitals above.
"TRANSFER CONSIDERATION" has the meaning set forth in Section 2.2
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below.
ARTICLE II
THE EXCHANGE OF SHARES
2.1 BASIC TRANSACTIONS. On and subject to the terms and conditions of
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this Agreement, (a) the Acquirer agrees to exchange with the Foundation, and the
Foundation agrees to exchange with the Acquirer, all of the Company Shares held
by it for the Foundation Transfer Consideration specified below in this Section
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2, and (b) the Acquirer agrees to exchange with SWIFT, and SWIFT agrees to
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exchange with the Acquirer, all of the N.W.S.T. Shares, for the SWIFT Transfer
Consideration specified below in this Section 2.
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2.2 TRANSFER CONSIDERATION.
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(A) GENERALLY. The Transfer Consideration exchanged for the
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Foundation Shares and the N.W.S.T. Shares shall be composed of (i) the
Foundation Transfer Consideration, (ii) the Cash Portion of the SWIFT Transfer
Consideration, and (iii) the Stock Portion of the SWIFT Transfer Consideration.
(B) TRANSFER CONSIDERATION; ADJUSTMENTS. The Acquirer agrees to
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pay to the Foundation and SWIFT in the aggregate, the sum of (i) $7,300,000 in
immediately available funds, consisting of $348,000 payable to the Foundation
(subject to adjustment as hereinafter provided, the "Foundation Transfer
Consideration") (ii) $6,952,000 payable to SWIFT (subject to adjustment as
hereinafter provided, the "SWIFT Transfer Consideration") to be adjusted dollar
for dollar downward by (1) the amount of any outstanding Funded Indebtedness as
of Closing, and (2) the Net Worth adjustment, if any, made pursuant to Section
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2.3 below; and (iii) $10,100,000 worth of the Acquirer's Shares, consisting of
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1,010,000 shares of Acquirer's Common Stock (the "STOCK PORTION OF THE TRANSFER
CONSIDERATION"), in exchange for the Foundation Shares and the N.W.S.T. Shares
to be purchased by the Acquirer pursuant to the terms hereof.
(C) ESCROW PAYMENTS. At the Closing, (i) $17,400 of the Foundation
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Transfer Consideration and $347,600 of the Cash Portion of the SWIFT Transfer
Consideration will be paid in immediately available funds by wire transfer to
the Escrow Agent and (ii) five percent (5%) of the Stock Portion of the SWIFT
Transfer Consideration in the form of the Acquirer's Shares valued as of the
Closing Date shall be delivered to the Escrow Agent by the Acquirer to
collectively be held in escrow pursuant to Section 2.9 for satisfaction of the
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Together Parties' indemnification obligations specified in Article IX.
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(D) PAYMENT. The balance of the Foundation Transfer Consideration
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and of the Cash Portion of the SWIFT Transfer Consideration shall be paid by the
Acquirer at the Closing by delivery of immediately available funds by wire
transfer in the percentages set forth on the Allocation Summary. The balance of
the Stock Portion of the SWIFT Transfer Consideration shall be issued by the
Acquirer at the Closing by the delivery of the Acquirer's Shares to SWIFT The
sum of the Foundation Transfer Consideration, the Cash Portion of the SWIFT
Transfer Consideration, and the Stock Portion of the SWIFT Transfer
Consideration shall be referred to as the "TRANSFER CONSIDERATION." Cash by wire
transfer of immediately payable funds will be paid in lieu of any fractional
Acquirer's Shares which would otherwise be issued in accordance with this
Agreement.
2.3 NET WORTH ADJUSTMENT. The Foundation Transfer Consideration and the
--------------------
Cash Portion of the SWIFT Transfer Consideration shall be adjusted downward pro
---
rata on a dollar-for-dollar basis by the amount by which the Net Worth of the
----
Company, determined on the same basis as was used in the preparation of the
balance sheet included in the Company's December 31, 1998 Financial Statements
(the "1998 Balance Sheet"), is less than negative $49,322 as of the Closing
Date. The Net Worth of the Company as of the Closing Date shall be estimated by
the Company in good faith upon the request of the Acquirer prior to the Closing
Date. To the extent the actual Net Worth as of the Closing Date as determined
by E&Y after the Closing Date, determined on the same basis as was used in the
preparation of the 1998 Balance Sheet, is less than the Net Worth estimated by
the Company, the difference shall be refunded to the Acquirer from the Escrow
Sum.
2.4 RESERVED.
--------
2.5 RESERVED.
---------
2.6 THE CLOSING. The closing of the transactions contemplated by this
-----------
Agreement (the "CLOSING") shall take place at the offices of Xxxxx & Xxxxxxx,
L.L.P. in Washington, D.C. commencing at 9:00 a.m. local time simultaneously
with the closing of the IPO and the Related Transactions or such other date as
the Acquirer and the Together Parties may mutually determine (the "CLOSING
DATE").
2.7 DELIVERIES AT THE CLOSING. At the Closing, (a) the Together Parties
-------------------------
will deliver to the Acquirer the various certificates, instruments, and
documents referred to in Section 8.1 below, (b) the Acquirer will deliver to the
-----------
Together Parties (as applicable) the various certificates, instruments, and
documents referred to in Section 8.2 below, (c) the Foundation will deliver to
-----------
the Acquirer stock certificates representing all of the Foundation Shares it
owns and SWIFT will deliver to the Acquirer the N.W.S.T. Shares, endorsed in
blank or accompanied by duly executed assignment documents and (d) the Acquirer
will deliver to the Foundation and SWIFT the Transfer Consideration specified in
Section 2.2 above, subject to adjustment after the Closing pursuant to Sections
----------- --------
2.3 above and Section 2.9 below.
--- -----------
2.8 RESERVED.
--------
-9-
2.9 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to be entered
-------------------
into among the Foundation, SWIFT, the Acquirer and the Escrow Agent (i) $365,000
of the Foundation Transfer Consideration and of the Cash Portion of the SWIFT
Transfer Consideration (the "CASH ESCROW") in immediately available funds and
(ii) five percent (5%) of the Stock Portion of the N.W.S.T. Transfer
Consideration in the form of Acquirer's Shares shall be delivered to the Escrow
Agent at Closing. Such monies and securities (which, together with all interest
accrued thereon which may be due to the Party to whom such funds are ultimately
paid in accordance with the terms of the Escrow Agreement, is herein referred to
as the "ESCROW SUM") shall be held pursuant to the terms of the Escrow Agreement
for payment from such Escrow Sum of the amounts, if any, owing by the Together
Parties to the Acquirer pursuant to the indemnification provisions of Article IX
----------
below, together with accrued interest thereon. Pursuant to the terms of the
Escrow Agreement, the Cash Escrow shall be used first, and the Stock Escrow
shall be used second, to satisfy any such owed amounts. At the conclusion of the
period ending on the first anniversary of the Closing Date (such period being
referred to herein as the "ESCROW PERIOD"), such remaining portion of the Escrow
Sum not theretofore paid to the Acquirer in accordance with the terms of the
Escrow Agreement or subject to a pending claim under the Escrow Agreement and
this Agreement shall be disbursed to the Foundation and SWIFT together with
accrued interest thereon. The Foundation, SWIFT and the Acquirer agree that each
will execute and deliver such reasonable instruments and documents as are
furnished by any other Party to enable such furnishing Party to receive those
portions of the Escrow Sum to which the furnishing Party is entitled under the
provisions of the Escrow Agreement and this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
RELATING TO N.W.S.T. AND SWIFT, THE FOUNDATION AND XXXX XXXXXXXX
The Foundation, N.W.S.T., SWIFT and Xxxx Xxxxxxxx jointly and
severally represent and warrant to the Acquirer as follows as of the date of
this Agreement and as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Article III):
-----------
3.1 AUTHORIZATION OF TRANSACTION. Each of N.W.S.T., SWIFT, the Foundation
----------------------------
and Xxxx Xxxxxxxx has full power and authority to execute and deliver this
Agreement and to perform its or her obligations hereunder and this Agreement has
been duly executed and delivered by each of N.W.S.T., SWIFT, the Foundation and
Xxxx Xxxxxxxx. This Agreement constitutes the valid and legally binding
obligation of each of N.W.S.T., SWIFT, the Foundation and Xxxx Xxxxxxxx,
enforceable against it or her in accordance with its terms and conditions,
except that (a) such enforceability may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws, decisions or
equitable principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally or non-
competition arrangements, and to general equity principles, and (b) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought (the terms of clause (a) and (b) are
sometimes collectively referred to as the "EQUITABLE EXCEPTIONS"). N.W.S.T.,
SWIFT, the Foundation and Xxxx Xxxxxxxx need not give any notice to,
-10-
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement (other than as provided for in Article II of this
----------
Agreement).
3.2 NONCONTRAVENTION. Neither the execution and delivery of this
----------------
Agreement by N.W.S.T., SWIFT, the Foundation and Xxxx Xxxxxxxx, nor the
consummation of the transactions contemplated hereby by N.W.S.T., SWIFT, the
Foundation and Xxxx Xxxxxxxx, will (a) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other restriction
of any government, governmental agency, or court to which N.W.S.T., SWIFT, the
Foundation and Xxxx Xxxxxxxx is subject or (b) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
part the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which N.W.S.T., SWIFT,
the Foundation or Xxxx Xxxxxxxx is a party or by which either of them is bound
or to which any of their respective assets is subject.
3.3 BROKER'S FEES. None of N.W.S.T., SWIFT, the Foundation and Xxxx
-------------
Xxxxxxxx has any Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which the Acquirer could become liable or obligated.
3.4 INVESTMENT. Neither of SWIFT nor Xxxx Xxxxxxxx is acquiring the
----------
Acquirer's Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
3.5 COMPANY SHARES. The Foundation and N.W.S.T. hold of record and
--------------
beneficially own the Company Shares in the numbers set forth next to their names
on Schedule 4.2. SWIFT holds of record and beneficially owns the N.W.S.T.
------------
Shares. The Company Shares and the N.W.S.T. Shares are free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws), claims, Taxes, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities, and demands. None of
the Foundation, N.W.S.T., Xxxx Xxxxxxxx and SWIFT is a party to (or have
otherwise waived all rights under) any option, warrant, right, contract, call,
put, or other agreement or commitment providing for the disposition or
acquisition of any capital stock of the Company or N.W.S.T. (other than this
Agreement). None of the Foundation, N.W.S.T., Xxxx Xxxxxxxx and SWIFT is a party
to (or has otherwise terminated) any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Company or
N.W.S.T. Xxxx Xxxxxxxx is the sole stockholder of SWIFT
3.6 DISCLOSURE. To the Knowledge of the Foundation, N.W.S.T., Xxxx
----------
Xxxxxxxx and SWIFT, the representations and warranties contained in this Article
-------
III do not contain any untrue statement of a Material fact or omit to state any
---
Material fact necessary in order to make the statements contained in this
Article III not misleading.
-----------
3.7 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Foundation and
------------------------------------------------
SWIFT are corporations duly organized, validly existing, and in good standing
under the laws of the jurisdictions of their incorporation. The Foundation and
SWIFT are duly authorized to conduct
-11-
business and are in good standing under the laws of all states in which the
nature of their businesses or the ownership or leasing of their properties
requires such qualification. Schedule 3.7 lists the directors and officers of
------------
the Foundation and SWIFT The Foundation and SWIFT have delivered to the Acquirer
correct and complete copies of the charters and bylaws of the Foundation and
SWIFT (as amended to date). The Foundation and SWIFT are not in default under or
in violation of any provision of their charters or bylaws.
3.8 REGULATION S.
-------------
(a) Neither SWIFT nor Xxxx Xxxxxxxx is a U.S. Person as that term is
defined in Regulation S promulgated under the Securities Act ("REGULATION S").
(b) Each of SWIFT and Xxxx Xxxxxxxx is outside the United States as
of the date of the execution and delivery of this Agreement and will be outside
the United States at the time of the closing of the transactions contemplated by
this Agreement; provided, that delivery of the N.W.S.T. Shares to Acquirer and
--------
delivery of the Acquirer's Shares to SWIFT may be effected in the United States
through an agent of SWIFT as long as each of SWIFT and Xxxx Xxxxxxxx is outside
the United States at the time of such deliveries.
(c) Each of SWIFT and Xxxx Xxxxxxxx is acquiring the Acquirer's Shares
for their own account and not for the account or benefit of any U.S. Person and
neither of them is a Distributor as that term is defined in Regulation S; upon
consummation of the transactions contemplated by this Agreement, SWIFT and/or
Xxxx Xxxxxxxx will be the sole beneficial owners of the Acquirer's Shares and
neither of them has pre-arranged any sale with any purchaser or purchasers who
is or are a U.S. Person or U.S. Persons in the United States.
(d) Each of SWIFT and Xxxx Xxxxxxxx is sufficiently experienced in
financial and business matters to be capable of evaluating the merits and risks
of their investments and to make an informed decision relating thereto.
(e) Neither SWIFT nor Xxxx Xxxxxxxx is an underwriter of, or dealer
in, any of the Acquirer's Shares issued hereunder, and neither SWIFT nor Xxxx
Xxxxxxxx is participating, pursuant to a contractual agreement or otherwise, in
the distribution of any of the Acquirer's Shares.
(f) Neither SWIFT nor Xxxx Xxxxxxxx is an affiliate of the Acquirer as
that term is defined in Rule 405 promulgated under the Securities Act.
(g) Each of SWIFT and Xxxx Xxxxxxxx represents and warrants and hereby
agrees that all offers and sales of the Acquirer's Shares shall be made only in
accordance with the provisions of Regulation S, pursuant to registration under
the Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act.
(h) Each of SWIFT and Xxxx Xxxxxxxx represents and warrants and hereby
agrees not to engage in hedging transactions with regard to the Acquirer's
Shares unless in compliance with the Securities Act.
-12-
(i) Each of SWIFT and Xxxx Xxxxxxxx acknowledges that acquisition of
the Acquirer's Shares involves a high degree of risk, and is aware of these
risks and further acknowledges that SWIFT and Xxxx Xxxxxxxx can bear the
economic risk of the acquisition of the Acquirer's Shares, including the total
loss of their investment.
(j) Each of SWIFT and Xxxx Xxxxxxxx understands that the Acquirer's
Shares have not been and will not be registered under the Securities Act and are
being offered and sold to SWIFT in reliance on specific exemptions from the
registration requirements of U.S. securities laws and that the Acquirer is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of S.W.I.F.T and Xxxx Xxxxxxxx
set forth herein in order to determine the applicability of such exemptions and
the suitability of SWIFT and Xxxx Xxxxxxxx to acquire beneficial ownership of
the Acquirer's Shares.
(k) Each of SWIFT and Xxxx Xxxxxxxx understands that, in the view of
the SEC, the statutory basis for the exemption claimed for this transaction
would not be available if the offering of the Acquirer's Shares, including,
without limitation, any series of transactions relating thereto, although in
technical compliance with Regulation S, is part of a plan or scheme to evade the
registration provisions of the Securities Act.
(l) Each of SWIFT and Xxxx Xxxxxxxx expressly acknowledges that, in
accordance with the provisions of Regulation S, the Acquirer is required to
refuse to register any transfer of the Acquirer's Shares not made in accordance
with the provisions of Regulation S, pursuant to an effective registration under
the Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act.
(m) Each of SWIFT and Xxxx Xxxxxxxx acknowledges and hereby agrees
that any certificate or certificates representing the Acquirer's Shares to be
issued to SWIFT hereunder shall bear a legend substantially in the following
form until the first anniversary of the Closing Date:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be encumbered, pledged, hypothecated, sold,
transferred or otherwise disposed of within the United States or
to or for the account or benefit of U.S. Persons except in
accordance with the provisions of Regulation S promulgated under
the Act, pursuant to registration under the Act or pursuant to an
available exemption from registration. The holder may not engage
in any hedging transactions with regard to these securities
unless conducted in compliance with the Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY
AND N.W.S.T.
The Foundation, N.W.S.T., SWIFT and Xxxx Xxxxxxxx jointly and
severally represent and warrant to the Acquirer that, subject to the specific
qualifications and limitations set forth herein, the statements contained in
this Article IV are correct and complete as of the date of this
----------
-13-
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV). Unless otherwise noted, or unless the
----------
context otherwise indicates, all references to the Company in Sections 4.3
------------
through 4.24 below shall also refer to N.W.S.T.
------------
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company and
------------------------------------------------
N.W.S.T. are corporations duly organized, validly existing, and in good standing
under the laws of the jurisdictions of their incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of the
States of New Hampshire and New York, which are the only jurisdictions in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where any failure so to qualify would not
have a Material adverse effect on the Company. N.W.S.T. is duly authorized to
conduct business and is in good standing under the laws of all states in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification. The Company has full corporate power and authority
to carry on the Business and to own and use the properties owned and used by it.
Schedule 4.1 lists the directors and officers of the Company and N.W.S.T. The
------------
Company and N.W.S.T. have delivered to the Acquirer correct and complete copies
of the charters and bylaws of the Company and N.W.S.T. (as amended to date). The
minute books containing the records of meetings and/or resolutions of the
stockholders, the board of directors, and any committees of the board of
directors, the stock certificate books and the stock record books of the Company
and N.W.S.T. are correct and complete in all Material respects. The Company and
N.W.S.T. are not in default under or in violation of any provision of their
charters or bylaws.
4.2 CAPITALIZATION.
--------------
(a) THE COMPANY. The entire authorized capital stock of the Company
-----------
consists of 1,000 shares of common stock authorized, no par value, of which 100
shares are issued and outstanding, none are subject to issuance pursuant to
vested options, none are subject to issuance pursuant to unvested options and
none are reserved for issuance pursuant to future option grants. The issued and
outstanding shares of, and the holders of record of, the capital stock of the
Company are set forth on Schedule 4.2 attached hereto. All of the issued and
------------
outstanding Company Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the Foundation and N.W.S.T.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, or other agreements or
commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition, or acquisition of any of its
capital stock. There are no outstanding or authorized options, stock
appreciation, phantom stock, or similar rights with respect to the Company.
There are no voting trusts, proxies, or any other agreements or understandings
with respect to the voting of the capital stock of the Company.
(b) N.W.S.T. The entire authorized capital stock of N.W.S.T. consists of
--------
1,500 shares of common stock authorized, $1.00 par value, of which 1,000 shares
are issued and outstanding, none are subject to issuance pursuant to vested
options, none are subject to issuance pursuant to unvested options and none are
reserved for issuance pursuant to future option grants. The issued
-14-
and outstanding shares of, and the holders of record of, the capital stock of
N.W.S.T. are set forth on Schedule 4.2 attached hereto. All of the issued and
------------
outstanding shares of N.W.S.T. have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by SWIFT There are no
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which the N.W.S.T. is a party or which are binding upon N.W.S.T. providing for
the issuance, disposition, or acquisition of any of its capital stock. There are
no outstanding or authorized options, stock appreciation, phantom stock, or
similar rights with respect to N.W.S.T. There are no voting trusts, proxies, or
any other agreements or understandings with respect to the voting of the capital
stock of N.W.S.T.
4.3 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any statute, regulation, rule, judgment, order, decree, stipulation,
injunction, charge, or other restriction of any government, governmental agency,
or court to which the Company is subject or any provision of the charter or
bylaws of the Company, except to the extent any such violation does not or could
not reasonably be expected to result in a Material adverse effect on the
Company, or (b) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which the Company is a party or by which it is
bound or to which any of its assets are subject (or result in the imposition of
any Security Interest upon any of its assets), except where any of the foregoing
does not or could not reasonably be expected to have an adverse effect. The
Company does not need to give any notice to, make any filing with, nor obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement.
4.4 SUBSIDIARIES. The Company has no Subsidiaries other than the
------------
parent/subsidiary relationship between N.W.S.T. and the TGF Technologies, Inc.,
other than S.G.I. Corp.
4.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the Company's
-------------------- ---------
financial statements (collectively the "FINANCIAL STATEMENTS") for its three
most recent fiscal years. The Financial Statements have been prepared in
accordance with standards described on Exhibit B applied on a consistent basis
---------
throughout the periods covered thereby, fairly present the financial condition
of the Company as of such dates, and are consistent with the books and records
of the Company (which books and records are correct and complete) in all
Material respects.
4.6 EVENTS SUBSEQUENT TO DECEMBER 31, 1998. Since December 31, 1998,
--------------------------------------
there has not been any Material adverse change in the assets, Liabilities,
business, financial condition, operations, results of operations, or future
prospects of the Company. Without limiting the generality of the foregoing
since that date, except as set forth on Schedule 4.6 :
------------
(A) The Company has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
-15-
(B) The Company has not entered into any Material contract, lease,
sublease, license or sublicense (or series or related contracts, leases,
subleases, licenses and sublicenses) outside the ordinary course of business;
(C) The Company has not made any capital expenditure (or series of
related capital expenditures) involving more than $200,000 in the aggregate, or
outside the Ordinary Course of Business;
(D) The Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of any
existing such contract or agreement with any of its full-time staff employees
other than in the Ordinary Course of Business;
(E) The Company has not granted any dividends or any increase outside
the Ordinary Course of Business in the base compensation of any of its
directors, officers, and employees, nor has the Company made any payments or
promises or commitments to make any other payments (other than salary and
reimbursement of customary expenses) to any of such Persons, including without
limitation bonuses other than in the Ordinary Course of Business; and
(F) The Company has not adopted any (i) bonus, (ii) profit-sharing,
(iii) incentive compensation, (iv) pension, (v) retirement, (vi) medical,
hospitalization, life, or other insurance, (vii) severance or (viii) other plan,
contract or commitment for any of its directors, officers, and employees, or
modified or terminated any existing plan, contract or commitment.
4.7 UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.7, the
----------------------- ------------
Company does not have any Liability (and, to its Knowledge, there is no valid
Basis for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against the Company giving rise to any
Liability) which is individually in excess of $25,000, except for (a)
Liabilities set forth on the face of the 1998 Balance Sheet, and (b) Liabilities
which have arisen after the December 31, 1998 in the Ordinary Course of Business
(none of which relates to any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out of any charge, complaint, action,
suit, proceedings, hearing, investigation, claim, or demand).
4.8 TAX MATTERS. Except as set forth on Schedule 4.8:
----------- ------------
(A) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All Taxes
the Company (whether or not shown on any Tax Return) based on operations through
December 31, 1998 and due and payable as of the date hereof have been paid or
accrued on the 1998 Balance Sheet. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim has ever
been made by any taxing authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of the Company that arose
in connection with any failure (or alleged failure) to pay any Tax, other than
for Taxes that are not yet due which are accrued for since December 31, 1998.
-16-
(B) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party and the Company has
properly reflected the status of all employees and independent contractors in
connection therewith as required by applicable Tax law and the Fair Labor
Standards Act of 1938, as amended, and the rules and regulations promulgated
thereunder.
(C) The Company has not received any notice that any taxing authority
intends to assess any additional Taxes for any period for which Tax Returns have
been filed, and none of the Together Parties, no officer of the Company and no
employee of the Company with responsibility for Tax matters has Knowledge of any
valid Basis upon which a claim for such additional Taxes could validly be made.
There is no dispute or claim concerning any Tax Liability of the Company either
(i) claimed or raised by any authority in writing or (ii) as to which any of the
Together Parties or any of the officers of the Company or employees responsible
for Tax matters of the Company has Knowledge based upon personal contact with
any agent of such authority. Schedule 4.8 lists all federal, state, local, and
------------
foreign income Tax Returns filed with respect to the Company for taxable periods
ended on or after December 31, 1995, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Company has delivered to the Acquirer correct and complete copies of
all federal income Tax Returns filed, examination reports received, assessed
against or agreed to, by the Company since December 31, 1995. The Company has
not waived any statute of limitations in respect of Taxes which waiver is
currently in effect. The Company is not a party to any "closing agreement," as
described in Section 7121 of the Code or any corresponding provision of state or
local Tax law, and there are no Tax rulings or requests for Tax rulings with
respect to the Company.
(D) The Company has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. The Company has not made any payments, is
not obligated to make any payments, and is not a party to any agreement that
could obligate it to make any payments that, under any circumstances, will not
be deductible to the Company under Code Sec. 280G. The Company is not and has
never been a United States real property holding corporation within the meaning
of Code Sec. 897(c)(2). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6662. The
Company is not a party to any Tax allocation or sharing agreement. The Company
has never been (nor has any Liability for unpaid Taxes because it once was) a
member of an Affiliated Group filing a consolidated federal income Tax Return
and has never incurred any Liability for the Taxes of any Person under Treas.
Reg. (S)1.1502-6 (or any similar provision of state, local, or foreign law). The
Company has never incurred any Liability for the Taxes of any Person as a
transferee or successor, by contract, or otherwise.
4.9 TANGIBLE ASSETS. The Company owns or leases substantially all
---------------
tangible assets necessary for the conduct of the Business as presently
conducted; notwithstanding the foregoing, the Parties acknowledge that the
Company's mail server is currently operating slightly beyond capacity. To the
Knowledge of the Together Parties, each such tangible asset of the Company is
free from Material defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), and is suitable for the purposes for
which it presently is used.
-17-
4.10 NO OWNED REAL PROPERTY. The Company does not own nor does it have any
----------------------
interest in any real property or improvements thereon (other than the leases
disclosed in Schedule 4.12, and the leasehold improvements relating to the same)
-------------
nor does the Company have any options, agreements or contracts under which it
has the right or obligation to acquire any interest in any real property or
improvements.
4.11 INTELLECTUAL PROPERTY.
---------------------
(A) Attached hereto as Schedule 4.11 is a list and brief description
-------------
of all Intellectual Property owned or utilized by the Company, other than
standard off-the-shelf software used by the Company. The Company has furnished
the Acquirer with copies of all license agreements to which the Company is a
party, either as licenser or licensee, with respect to any Intellectual
Property. Except as set forth on Schedule 4.11, to the Knowledge of the Together
-------------
Parties, the Company has good title to or the right to use all the Intellectual
Property necessary for the conduct of the Business, as presently conducted or
currently proposed to be conducted and the Company is not infringing on any
Intellectual Property right of others, and the Together Parties have no
Knowledge of any infringement by others of any such rights owned by the Company.
(B) Except as set forth on Schedule 4.11, to the knowledge of the
-------------
Together Parties, all licenses set forth on Schedule 4.11 are valid and binding
-------------
obligations of the Company, and to the Knowledge of the Together Parties, of the
other parties thereto, and enforceable against the Company and, to the Knowledge
of the Together Parties, the other parties thereto, in accordance with their
respective terms, except for the Equitable Exceptions, except where any failure
would not have a Material adverse effect on the Company.
(C) Except as set forth on Schedule 4.11, the Company has taken all
--------------
commercially reasonable measures to protect and maintain the rights of the
Company in its Intellectual Property. Each piece of Intellectual Property used
by the Company is used with the authorization of every other claimant thereto
and the execution, delivery and performance of this Agreement will not impair
such use, except where any failure would not have a Material adverse effect on
the Company.
(D) The Company has also delivered to the Acquirer correct and
complete samples or copies of all trademarks, service marks, trade names,
copyrights, patents, registrations and, as relate to the foregoing,
applications, licenses, agreements, and permissions (as amended to date) held by
the Company, and have made available to the Acquirer correct and complete copies
of all other written documentation evidencing ownership and prosecution (if
applicable) of each such item. Except as set forth on Schedule 4.11, to the
-------------
Knowledge of the Together Parties with respect to each item of Intellectual
Property used in, or otherwise necessary for the conduct of, the Business as
heretofore conducted: (i) the identified owner possesses all right, title, and
interest in and to the item; (ii) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge; (iii) no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, to the Knowledge of any of the Together Parties (and employees of
the Company with responsibility for Intellectual Property matters) of the
Company, is threatened which challenges the legality, validity, enforceability,
use, or ownership of the item; and (iv) the Company
-18-
has not agreed to indemnify any person or entity for or against any
interference, infringement, misappropriation, or other conflict with respect to
the item, except where any failure would not have a Material adverse effect on
the Company.
(E) To the Knowledge of the Together Parties, none of the Material
computer software, computer firmware, computer hardware (whether general or
special purpose), and other similar or related items of automated, computerized,
and/or software system(s) that are used or relied on by the Company in the
conduct of its business will in any Material respect malfunction, cease to
function, generate incorrect data, or produce incorrect results when processing,
providing, and/or receiving (i) date-related data into and between the twentieth
and twenty-first centuries and (ii) date-related data in connection with any
valid date in the twentieth and twenty-first centuries through the year 2030.
4.12 CONTRACTS. Except as disclosed on Schedule 4.12, the Company is not a
--------- -------------
party to or bound by, and none of the assets of the Company are covered by or
subject to the following contracts, agreements, Subscriber Contracts or
Agreements (whether written or oral):
(A) any written agreement (or group of related written agreements)
for the lease of real or personal property from or to third parties providing
for lease payments in excess of $25,000 per annum;
(B) any Material equipment or supplier agreement;
(C) any written agreement (or group of related written agreement)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $25,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(D) any Material Subscriber contract;
(E) any formal or informal partnering arrangement with any merchant
or service or Web content provider;
(F) any agreement with any local exchange carrier, competitive local
exchange carrier, competitive access provider or other telecommunications
carrier;
(G) any peering, transit or other agreement with any Internet service
provider, online company or similar entity; or
(H) any written arrangement requiring confidentiality or
noncompetition other than the confidentiality agreement between Company and the
Acquirer dated January 28, 1999, (the "Confidentiality Agreement") and
agreements with customers, employees or subcontractors in the Ordinary Course of
Business;
-19-
(I) any other written arrangement (or group of related written
arrangements) either involving more than $25,000 per annum or not entered into
in the Ordinary Course of Business.
The Company has delivered to the Acquirer or made available for review by the
Acquirer a correct and complete copy of each written arrangement listed on
Schedule 4.12 (as amended to date). With respect to each written arrangement so
-------------
listed and assuming Material performance by the other parties thereto: (a) the
written arrangement is legal, valid, binding, enforceable, and in full force and
effect, subject to Equitable Exceptions; (b) the written arrangement will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms immediately following the Closing, subject to Equitable
Exceptions; (c) the Company is not, nor to the Knowledge of the Together Parties
is any other party to such agreements, in breach or default, and no event has
occurred which to the Knowledge of the Together Parties with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration, under the written arrangement; and (d) the Company has not, nor
to the Knowledge of the Together Parties has any other party, repudiated any
provision of the written arrangement. Except as set forth on Schedule 4.12, the
Company is not a party to any oral contract, agreement or other arrangement
which, if reduced to written form, would be required to be listed in Schedule
--------
4.12 under the terms of this Section 4.12. No unfilled Subscriber Contract or
---- ------------
Agreement obligating the Company to perform services will result in a loss to
the Company upon completion of performance. Except as set forth on Schedule
--------
4.12, the Company has not been notified that any of its Subscribers intend
----
either to dispute charges in an aggregate amount exceeding $5,000 under or to
terminate early a Material Subscriber Contract or Agreement.
4.13 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
-----------------------------
the Company are reflected properly on its books and records, are valid
receivables and, to the Knowledge of the Together Parties are subject to no
setoffs or counterclaims, are presently current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the 1998 Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company.
4.14 INSURANCE.
---------
(A) Schedule 4.14 sets forth the following information with respect
-------------
to each insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which the Company has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past two (2) years: the name
address and telephone number of the agent; the name of the insurer, the name of
the policyholder, and the name of each covered insured; the policy number and
the period of coverage; the scope and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; and a
description of any material retroactive premium adjustments or other loss
sharing arrangements.
-20-
(B) With respect to each insurance policy listed on Schedule 4.14 and
-------------
assuming the Material performance of the other parties thereto: (i) the policy
is legal, valid, binding, and enforceable and in full force and effect; (ii) the
policy will continue to be legal, valid, binding, and enforceable and in full
force and effect on identical terms immediately following the Closing Date;
(iii) the Company is not in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default or
permit termination, modification, or acceleration under the policy; and (iv) the
Company has not and to the Knowledge of the Together Parties and the Company, no
other party to the policy has repudiated any provision thereof. The Company has
been covered during the past three (3) years by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. Except as set forth in Schedule 4.14, the Company
-------------
currently has no and has never had any self-insurance arrangements.
4.15 LITIGATION. Schedule 4.15 sets forth each instance in which the
---------- -------------
Company (a) is subject to any unsatisfied judgment, order, decree, stipulation,
injunction, or charge or (b) is a party or, to the Knowledge of the Together
Parties, is threatened to be made a party to any charge, complaint, action,
suit, proceeding, hearing, or investigation of or in any court or quasi-judicial
or administrative agency of any federal, state, local, or foreign jurisdiction
or before any arbitrator. Except as specifically described on Schedule 4.15, no
-------------
matter listed thereon could reasonably be expected, individually, to result in a
Material adverse effect on the Company. None of the Together Parties has any
reason to believe that any such charge, complaint, action, suit, proceeding,
hearing, or investigation having a valid Basis for recovery from or sanction of
the Company may be brought or threatened against the Company.
4.16 EMPLOYEES. To the Knowledge of the Together Parties, no non-clerical
---------
employee or any full-time group of employees has any plans to terminate
employment with the Company, and the Company has not committed any unfair labor
practice.
4.17 EMPLOYEE BENEFITS. Except as set forth on Schedule 4.17, the Company
----------------- -------------
has no Employee Benefit Plans that the Company maintains or to which the Company
contributes for the benefit of any current or former employee of the Company,
and the Company has never been a party to any Employee Benefit Plan.
4.18 GUARANTIES. The Company is not a guarantor nor, to the Knowledge of
----------
the Together Parties, is it otherwise liable for any Liability or obligation
(including indebtedness) of any other person other than such potential
liabilities to which the Company is subject based on the acts or omissions of
its employees, subcontractors and other agents performing services for the
Company in the Ordinary Course of Business (of which the Company has no
Knowledge of any claim for actual liability therefor).
4.19 LEGAL COMPLIANCE. To the Knowledge of the Together Parties, except as
----------------
listed on Schedule 4.8 or Schedule 4.19 or would not, individually or in the
------------ -------------
aggregate, have a Material adverse effect on the Company:
-21-
(A) the Company has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign governments (and
all agencies thereof), including without limitation, all environmental and
employee health and safety laws. No charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against the Company which is currently pending and alleges any failure to comply
with any such law or regulation.
(B) the Company has complied with all applicable laws (including
rules and regulations thereunder) relating to the employment of labor employee
civil rights, hiring of or otherwise engaging non-United States citizens to
perform services, and equal employment opportunities.
(C) the Company has not made or agreed to make any contribution,
payment, or gift of funds or property to any governmental official, employee, or
agent where either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or foreign jurisdiction;
(D) the Company has filed in a timely manner all reports, documents,
and other materials it was required to file (and the information contained
therein was correct and complete in all respects) under all applicable laws
(including rules and regulations thereunder).
(E) the Company has possession of all records and documents it was
required to retain under all applicable laws (including rules and regulations
thereunder).
4.20 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Except as set forth
-----------------------------------------------
on Schedule 4.20, none of the other Together Parties or any of their Affiliates
-------------
has been involved in any business arrangement or relationship with the Company
within the past twelve (12) months other than service relationships in the
Ordinary Course of Business, and neither the Together Parties nor their
Affiliates owns any material property or right, tangible or intangible, which is
used in the business of the Company.
4.21 BROKERS' FEES. The Company does not have any Liability or obligation
-------------
to pay any fees or commissions to any broker, finder, or similar representative
with respect to the transactions contemplated by this Agreement.
4.22 SYSTEMS. To the Knowledge of the Together Parties, except as set
-------
forth on Schedule 4.22 and with such other exceptions as will not, individually
-------------
or in the aggregate, have a Material adverse effect on the Company, (i) all of
the Systems services and platform servers are running, or peaking, at no higher
than 90% of capacity, (ii) all of the Systems services that under standard
industry practice would be so replicated are replicated in a redundant manner
across available platform servers, (iii) all remote physical points of presence
("POPS") are secure, conform to equipment manufacturers' recommended
environmental parameters, and contain an uninterrupted power supply with a
battery back-up of at least [60] minutes, (iv) the ratio of Subscribers to
modems does not exceed 10:1 at any of the POPs, (v) the configuration diagrams
provided to the Acquirer reasonably represent the redundant network facilities
between major backbone locations, and between remote physical POPs and major
network concentration points,
-22-
(vi) the existing power plant at the Company's main location is equipped with an
uninterrupted power supply with a battery back-up of at least [30] minutes,
(vii) except in Glens Falls, New York, and Waitsfield, Vermont all deployed
dial-in modem, modem shelf and corresponding technology conform to applicable
industry standards necessary to support Subscriber traffic at a rate of 56Kbps
or above, (viii) all Systems owned, leased by, or licensed to or by the Company,
which will be in use by the Company after February 28, 1999, are, or are in the
process of being made to be year 2000 compliant, (ix) the Company utilizes a
DHCP, or other dynamic, IP address allocation scheme that conforms to industry
standards, and (x) the Company has access to the quantity of IP addresses
sufficient to support the Company's Subscriber base as currently existing.
4.23 SUBSCRIBERS. Schedule 4.23 sets forth (a) the number or Subscribers
----------- -------------
served by the Company by type of business (i.e., segregated by the following
categories, if applicable to the Company: (i) dial-up, (ii) dedicated access,
(iii) web hosting, and (iv) other businesses) as of December 31, 1998 and the
Company's standard rates for such Subscribers for each type of business; (b) for
the period commencing January 1, 1997 through December 31, 1998, the Company's
monthly churn rate (consisting of (i) cancellations of month-to-month service
and/or long-term subscription or service contracts prior to expiration (ii)
terminations of any such contracts, and (iii) non-renewal of any such contracts
upon expiration) by business type during each full calendar month prior to the
date hereof; and (c) as of December 31, 1998, detail as to the amount of prepaid
subscription or service contracts and the amount of unearned revenue for all
Subscriber contracts with a remaining term of (i) less than or equal to 90 days,
(ii) greater than 90 days and less than or equal to one year, (iii) greater than
one year and less than or equal to two years, (iv) greater than two years and
less than or equal to three years and (v) greater than three years.
4.24 DISCLOSURE. To the Knowledge of the Together Parties, the
----------
representations and warranties contained in this Article IV as amended, modified
----------
and/or supplemented by the Disclosure Schedules do not contain any untrue
statement of a Material fact or omit to state any Material fact necessary in
order to make the statements and information contained in this Article IV not
----------
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIRER
The Acquirer represents and warrants to the Together Parties the
statements contained in this Article V are correct and complete as of the date
---------
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article V):
---------
5.1 ORGANIZATION OF THE ACQUIRER. The Acquirer is a corporation duly
----------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
5.2 AUTHORIZATION OF TRANSACTION. The Acquirer has full power and
----------------------------
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by
-23-
the Acquirer. This Agreement constitutes the valid and legally binding
obligation of the Acquirer, enforceable in accordance with its terms and
conditions except for Equitable Exceptions. The Acquirer does not need to give
any notice to, make any filing with, nor obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement (other than as provided for in
Article II of this Agreement).
----------
5.3 BROKERS' FEES. The Acquirer has no Liability nor obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Together Parties could
become liable or obligated.
5.4 ACQUIRER'S CAPITALIZATION. As of the date of this Agreement, the
-------------------------
authorized capital stock of the Acquirer consists of (a) 100,000,000 shares of
common stock, and (b) 10,000,000 shares of preferred stock. The issued and
outstanding shares of and the holders of record of the Acquirer's Common Stock
are as set forth in Annex IV, and as of the date hereof, there are no issued and
--------
outstanding shares of preferred stock. All of the Acquirer's issued and
outstanding common stock have been duly authorized, are validly issued, fully
paid, and nonassessable.
5.5 NONCONTRAVENTION. Neither the execution and the delivery of this
----------------
Agreement by Acquirer, nor the consummation of the transactions contemplated
hereby by the Acquirer, will (a) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, change, or other restriction
of any government, governmental agency, or court to which the Acquirer is
subject or (b) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any part the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest, or
other agreement to which the Acquirer is a party or by which it is bound or to
which any of its assets are subject.
5.6 DISCLOSURE. To the Knowledge of the Acquirer, the representations and
----------
warranties contained in this Article V do not contain any untrue statement of a
---------
fact or omit to state any Material fact necessary in order to make the
statements in Article V not misleading.
---------
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing or the earlier termination of this Agreement:
6.1 GENERAL. Each of the Parties will use its reasonable efforts to take
-------
all action and to do all things necessary, proper, or advisable to consummate
and make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Article IX below).
----------
-24-
6.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to
--------------------
third-parties, and will use best efforts to obtain third-party consents, that
the other Party may reasonably request in connection with matters disclosed or
required to be disclosed on the Disclosure Schedules. Each of the Parties will
take any additional action (and N.W.S.T. and SWIFT will cause the Company to
take any additional action) that may be necessary, proper, or advisable in
connection with any other notices to, filings with, and authorizations,
consents, and approvals of governments, governmental agencies, and third parties
that he, she or it may be required to give, make, or obtain.
6.3 OPERATION OF BUSINESS PRIOR TO THE CLOSING DATE. Except as
-----------------------------------------------
contemplated hereby, or as may be incidental to or in furtherance of the
transactions contemplated hereby, or as may have been set forth herein or in the
Disclosure Schedules, the Company will not (and N.W.S.T., SWIFT and Xxxx
Xxxxxxxx will not cause or permit the Company to) engage in any practice, take
any action, embark on any course of inaction, or enter into any transaction
outside the Ordinary Course of Business other than as described in Section 6.11.
------------
All references to the Company contained in this Section 6.3 shall also refer to
N.W.S.T. Without limiting the generality of the foregoing, from the date hereof
to the Closing Date:
(A) the Company will not adopt or propose any change in its
certificate of incorporation or bylaws;
(B) the Company will not merge or consolidate with any other Person
or acquire a material amount of assets of any other Person;
(C) the Company will not sell, lease, license or otherwise dispose of
any material assets or property except (i) pursuant to existing contracts or
commitments and (ii) in the ordinary course of business;
(D) except as otherwise provided for in this Agreement, the Company
will not issue, sell, purchase, repurchase, redeem or otherwise acquire any
Company securities;
(E) except with the prior written consent of the Acquirer, the
Company shall not make any Tax election that would have an adverse effect on the
Company;
(F) the Company will timely file all Tax Returns due on or before the
Closing Date and pay (or reserve for) all Taxes due and payable with respect to
periods;
(G) the Company will not do any of the items described in Section
-------
4.6; and
(H) the Company will not agree or commitment to do any of the
foregoing.
6.4 PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may be
------------------------
incidental to or in furtherance of the transactions contemplated hereby, or as
may have been set forth herein or in the Schedules, N.W.S.T., SWIFT and Xxxx
Xxxxxxxx will cause the Company to use reasonable commercial efforts to keep its
business and properties substantially intact,
-25-
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensers, suppliers, Subscribers, any other
customers, and employees.
6.5 ACCESS.
------
(A) Only in the event that neither the Acquirer nor the Together
Parties exercise their right to terminate this Agreement as provided in Article
-------
X herein, the Together Parties will cause the Company to permit the Acquirer's
-
representatives access at reasonable times by advance arrangement, and in a
manner so as not to interfere with the normal business operations of the
Company, to the headquarters of the Company and to all books, records,
contracts, Tax records, and documents of or pertaining to the Company; provided,
however, that the Acquirer shall direct all requests for information and
material only through Xxxx Xxxxxxxx or her designee in writing or the Together
Parties' legal counsel, unless otherwise agreed to by the Acquirer and Xxxx
Xxxxxxxx in writing.
(B) The Acquirer shall proceed to arrange in writing with Xxxx
Xxxxxxxx or her designee or the Together Parties' legal counsel a mutually
agreeable time and place at which the Acquirer may conduct interviews with key
employees and/or customers of the Company mutually agreed to in writing by the
Acquirer and Xxxx Xxxxxxxx or her designee or the Together Parties' legal
counsel.
6.6 NOTICE OF DEVELOPMENTS. The Company and N.W.S.T. will give prompt
----------------------
written notice to the Acquirer of any Material development adversely affecting
the assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company and N.W.S.T. including but not
limited to (a) any development affecting the ability of the Company and N.W.S.T.
to consummate the transactions contemplated by this Agreement, (b) any Outage
affecting more than 1% of all Subscribers lasting for 3 hours or more or (c) any
loss of any Material Subscriber or any Material equipment or other supplier to
the Company. No disclosure by any Party pursuant to this Section 6.6 shall be
-----------
deemed to amend or supplement the Disclosure Schedules or to prevent or cure any
misrepresentation, breach of warranty, and/or breach of covenant.
6.7 EXCLUSIVITY. Until the earlier of termination of this Agreement in
-----------
accordance with Article X or June 30, 1999, the Together Parties will not (a)
solicit, initiate, or encourage the submission of any proposal or offer from any
person relating to any (i) liquidation, dissolution, or recapitalization, (ii)
merger or consolidation, (iii) acquisition or purchase of securities or assets
or (iv) similar transaction or business combination involving the Company, or
(b) participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. The Together Parties will notify the Acquirer immediately if any
entity or person makes any such proposal, offer, inquiry, or contact with
respect to any of the foregoing and will provide the identity of such entity or
person as well as any other relevant details regarding the contact.
6.8 MAIL SERVER. The Company shall use commercially reasonable efforts to
-----------
install a new mailer server.
-26-
6.9 RESERVED.
---------
6.10 LANDLORD'S CONSENTS. The Company shall use all commercially
-------------------
reasonable efforts on or before the Closing Date to obtain from its landlord
(unless not specifically required under the pertinent premises lease) written
consent to the assignment of the Company's lease being assumed by the Acquirer,
which assignment is deemed to have resulted from the transactions contemplated
by this Agreement.
6.11 RESERVED.
---------
6.12 TAX MATTERS.
------------
(A) TAX RETURNS. The Company and N.W.S.T. shall, and N.W.S.T., SWIFT
-----------
and Xxxx Xxxxxxxx shall cause the Company to, file with the appropriate
governmental authorities all Tax returns required to be filed by it for any
taxable period ending prior to the Closing Date and the Company shall remit any
Taxes due and payable in respect of such Tax returns. In addition, the Company
shall cause E&Y to prepare a short period tax return for Company covering the
period January 1, 1998 through the Closing Date. The cost of preparation of such
short period tax return shall be paid by SWIFT.
(B) INDEMNITY. The Together Parties (other than the Company and
---------
N.W.S.T.) shall be liable for, and shall indemnify and hold Acquirer, the
Company and N.W.S.T. harmless against, any Taxes or other costs attributable to
a failure on the part of any of the such other Together Parties to take all
actions required of them under this Section 6.12 for periods prior to the
------------
Closing Date.
6.13 MANAGEMENT LETTERS, ETC. The Together Parties and any of the officers
-----------------------
or directors of the Company, in their capacities as officers and directors of
the Company, shall provide all management letters, reports or representations
reasonably requested by such auditors in connection with such audits, and in
connection with audits of the Company for the years ended December 31, 1998,
December 31, 1997 and December 31, 1996.
ARTICLE VII
POST-CLOSING COVENANTS
7.1 GENERAL. In case at any time after the Closing any further action is
-------
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties and Xxxxxxxx will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Article IX below). The Together Parties acknowledge and agree that from and
----------
after the Closing the Acquirer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to the
Company; provided that the Together Parties may retain any originals (and shall
in such case furnish copies) or copies of the foregoing as shall be necessary to
comply with applicable tax and other laws, regulations and ordinances.
-27-
7.2 TRANSITION. The Together Parties will not take any action that
----------
primarily is designed or intended to have the effect of discouraging any lessor,
licenser, subscriber, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the Closing
for a period of twenty-four (24) months thereafter as it maintained with the
Company prior to the Closing.
7.3 CONFIDENTIALITY. The Company, N.W.S.T. and the Acquirer, on the one
---------------
hand, and the Together Parties, on the other hand, shall, and shall cause their
subsidiaries, affiliates, officers, directors, employees, accountants, counsel,
financial advisors and other representatives and agents, to treat and hold as
such all of the Confidential Information regarding the other Parties, refrain
from disclosing or using any of such Confidential Information except in
connection with this Agreement and the transactions contemplated hereby for a
period of two (2) years from the date hereof, and except as otherwise permitted
hereunder or as may be required by law, deliver promptly to the Acquirer or
destroy, at the request and option of the Acquirer, all tangible embodiments
(and all copies) of the Confidential Information regarding the other Parties
which are in the possession of the Company or any of the Together Parties. In
the event that any of the Together Parties, other than the Company or N.W.S.T.
after the Closing Date, or the Acquirer is requested or required (by request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar legal process) to disclose any Confidential
Information, the Company, N.W.S.T. and the Acquirer, on the one hand, or the
Together Parties, on the other hand, will notify the other Parties promptly of
the request or requirement so that the other Parties may seek an appropriate
protective order or waive compliance with the provisions of this Section 7.3.
-----------
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Company, N.W.S.T. and the Acquirer, on the one hand, or any Together Parties
other than the Company and N.W.S.T., or the Acquirer is compelled to disclose
any Confidential Information or else stand liable for contempt, then the
Company, N.W.S.T. and the Acquirer, on the one hand, or such Together Parties,
other than the Company and N.W.S.T. after the Closing Date, or the Acquirer may
disclose such Confidential Information; provided, however, that it or they shall
use its or their reasonable efforts to obtain, at the reasonable request of the
other Parties, an order or other assurance that confidential treatment will be
accorded to such portion of such Confidential Information required to be
disclosed as the other Parties shall reasonably designate.
7.4 COVENANT NOT TO COMPETE. For a period of three (3) years from and
-----------------------
after the Closing Date, Together Parties other than the Company and N.W.S.T.
will not, directly or indirectly, as principal, agent, trustee or through the
agency of any corporation, partnership, association or agent or agency, (i) own,
manage, control, participate in, consult with, render services for, or in any
manner engage in any activity or business competing with the Company in the
State of Vermont, (ii) service or solicit from the Company any Subscriber or
other customer of the Company, (iii) request or advise any Subscriber or other
customer of the Company to withdraw, curtail or cancel such subscriber's or
others customer's business with the Company, or (iv) solicit for employment any
person employed by the Company at any time within the two (2) year period
immediately preceding such solicitation; provided, however, that no owner of
less than five percent (5%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of that
corporation's businesses. For purposes
-28-
of this Agreement, the Parties have agreed to allocate $50,000 of the Transfer
Consideration to the covenant not to compete contained in this Section 7.4.
-----------
7.5 TAX FREE EXCHANGE INTENT. The Parties agree that this transaction
------------------------
will occur in conjunction with the Related Transactions, and the Parties intend
that the receipt of the Acquirer's Shares by SWIFT and by the parties involved
in the Related Transactions will be tax-free under Section 351 of the Code.
7.6 BOARD REPRESENTATION. The Acquirer agrees to use its best efforts to
--------------------
elect or appoint Xxxx Xxxxxxxx to the Board of Directors of Acquirer for a
period of not less than three years commencing on the Closing Date.
7.7 LICENSE AGREEMENT. The Company will enter into a license agreement
-----------------
with the Foundation substantially in the form of Exhibit H attached hereto.
----------
7.8 RELATIONSHIP WITH THE FOUNDATION. The Company, N.W.S.T. and the
--------------------------------
Foundation shall use their reasonable best efforts to terminate their
relationships described in Sections 2 and 4 of Schedule 4.20 of this Agreement.
---------------- -------------
ARTICLE VIII
CONDITIONS TO OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO OBLIGATIONS OF THE ACQUIRER. The obligation of the
-----------------------------------------
Acquirer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction or waiver of the following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Together Parties set forth in Articles III and IV above
shall be true and correct in all material respects at and as of the Closing Date
and the Together Parties shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(B) CONSENTS. The Together Parties will have procured all third party
--------
consents and given all notices required in connection with this Agreement and
the transactions contemplated hereby, including without limitation all action
necessary in connection with and/or the receipt of any notices to, filings with,
and authorizations, consents and approvals of governments, governmental
agencies, and third parties as set forth herein or in the Disclosure Schedules;
(C) RESIGNATIONS. The Acquirer shall have received the resignations,
------------
effective as of the Closing, of each director of the Company and N.W.S.T. prior
to the Closing.
(D) DOCUMENTS TO BE DELIVERED BY THE TOGETHER PARTIES. The following
-------------------------------------------------
documents shall be delivered at Closing by the Together Parties:
(i) Certificates. The Together Parties shall have delivered to
------------
the Acquirer Officers' Certificates and Secretary's Certificates substantially
in the forms of the certificates respectively attached as Exhibit C-1 and C-2
----------- ---
hereto.
-29-
(ii) Escrow Agreement. The Acquirer shall have received from the
----------------
Foundation and SWIFT an executed Escrow Agreement substantially in the form and
substance set forth as Exhibit A attached hereto.
---------
(iii) Employment Agreements. The Acquirer shall have received
---------------------
from Xxxxx Xxxx, Xxxxxx X. Xxxxxxxx and Xxxxxxx Xxxxxxxx executed employment
agreements substantially in the form and substance attached hereto as Exhibit E.
---------
(iv) Registration Agreement Joinder. The Acquirer shall have
------------------------------
received from SWIFT an executed joinder to the Registration Agreement
substantially in the form and substance set forth as Exhibit F attached hereto;
---------
(v) Subscription Agreement Joinder. SWIFT shall have caused the
------------------------------
executed and delivered to the Acquirer an Equity Subscription Agreement
substantially in the form of Exhibit D hereto;
---------
(vi) Opinion of Counsel. The Acquirer shall have received from
------------------
the Together Parties and the Company opinion of counsel substantially in the
form and substance set forth as Exhibit G hereto.
---------
(E) FINANCIAL CONDITION. Each of the following shall be true and
-------------------
complete as of the Closing Date:
(i) the Acquirer shall be reasonably satisfied that the Net
Worth of the Company on the Closing Date equaled or exceeded negative $49,322 or
an appropriate adjustment shall have been made to the Transfer Consideration as
provided in Section 2.3
-----------
(ii) the Together Parties shall have used commercially
reasonable efforts to cause liens and Security Interests securing debts of the
Company and N.W.S.T. which have been paid in full prior to or at the Closing to
have been fully released of record to the reasonable satisfaction of the
Acquirer and all Uniform Commercial Code financing statements covering such paid
debts shall have been terminated;
(iii) no unsatisfied liens for the failure to pay Taxes of any
nature whatsoever shall exist against the Company or N.W.S.T., or against or in
any way affecting the Company Shares or shares of N.W.S.T.;
(iv) all of the Company's and N.W.S.T.'s officers, directors
and/or key employees shall have repaid in full all debts and other obligations,
if any, owed to the Company and N.W.S.T.;
(v) the Company, Xxxx Xxxxxxxx and Acquirer will terminate the
loan described in the definition of Funded Indebtedness, Acquirer shall repay
Xxxx Xxxxxxxx the outstanding amount due under such Loan Term Sheet, and all
security interests pursuant to such Loan Term Sheet shall be terminated.
-30-
(F) MATERIAL ADVERSE CHANGE. No Material adverse change with respect
-----------------------
to the Company amounting to $50,000 or more or Materially adversely affecting
the ability of the Company to conduct the Business after the Closing as
conducted prior to the Closing shall have occurred;
(G) IPO. The Acquirer has received from the Company the Financial
---
Statements and such Financial Statements must, in the opinion of the Acquirer's
independent public accountants, be suitable or readily adaptable for
incorporation in the Registration Statement, and any prospectus and annual and
periodic reports to be filed by the Acquirer with the SEC relating to the IPO
and the Registration Statement shall have become effective and there shall be no
other impediments to the closing of the IPO not resulting from a breach by the
Acquirer of its obligations hereunder or under the Related Transactions
documentation; and
(H) DELIVERED SHARES. The Foundation and SWIFT shall deliver the
----------------
certificates representing the Foundation Shares and the N.W.S.T. Shares
respectively owned by them to the Acquirer, and the acquisition by the Acquirer
of the Company Shares so transferred by the Foundation and those owned by
N.W.S.T. (the N.W.S.T. shares being all of the outstanding capital stock of
N.W.S.T. to be purchased by the Acquirer hereunder) shall represent one hundred
percent (100%) of the issued and outstanding capital stock of the Company and
all of such Company Shares shall be free and clear of any Security Interests or
other liens, claims or encumbrances of any nature whatsoever.
(I) DUE DILIGENCE COMPLETED. The Acquirer shall be satisfied in its
-----------------------
sole discretion with the results of its continuing legal, financial and business
due diligence investigation of the Company, all of which shall be final and
completed to the Acquirer's satisfaction prior to Closing.
(J) TAX RETURNS. The Company and N.W.S.T. shall use their reasonable
-----------
best efforts to have filed their 1996 and 1997 federal and state tax returns in
a manner satisfactory to the Acquirer.
The Acquirer may waive any condition specified in this Section 8.1 if
-----------
it executes a writing so stating at or prior to the Closing.
8.2 CONDITIONS TO OBLIGATIONS OF THE TOGETHER PARTIES. The obligations of
-------------------------------------------------
the Together Parties to consummate the transactions to be performed by them in
connection with the Closing are subject to satisfaction or waiver of the
following conditions:
(A) COVENANTS, REPRESENTATIONS AND WARRANTIES. The representations
-----------------------------------------
and warranties of the Acquirer set forth in Article V above shall be true and
---------
correct in all material respects at and as of the Closing Date and the Acquirer
shall have performed and complied with all of its covenants hereunder required
to be performed and complied with by it at or prior to the Closing in all
material respects through the Closing;
(B) CONSENTS. The Acquirer will have procured all third party
--------
consents needed by the Acquirer and given all notices required in connection
with this Agreement and the
-31-
transactions contemplated hereby, including without limitation all action
necessary in connection with and/or the receipt of any notices to, filings with,
and authorizations, consents and approvals of governments, governmental
agencies, and third parties as set forth herein or in the Disclosure Schedules
including any filing required under the Xxxx-Xxxxx-Xxxxxx Act;
(C) MINIMUM IPO PRICE. The Registration Statement shall have become
-----------------
effective and there shall be no other impediments to the closing of the IPO.
(D) DOCUMENTS TO BE DELIVERED BY THE ACQUIRER. The following
-----------------------------------------
documents shall be delivered at the Closing by Acquirer.
(i) Certificates. The Acquirer shall have delivered to the
------------
Together Parties an Officer's Certificate substantially in the form attached as
Exhibit C-1 hereto.
-----------
(ii) Escrow Agreement. The Foundation and SWIFT shall have
----------------
received from the Acquirer an executed Escrow Agreement substantially in the
form and substance set forth as Exhibit A attached hereto.
---------
(iii) Subscription Agreement Joinder. The Acquirer shall execute
------------------------------
and deliver an Equity Subscription Agreement substantially in the form of
Exhibit D hereto, with SWIFT
---------
(iv) Employment Agreement. Xxxxx Xxxx, Xxxxxx X. Xxxxxxxx and
---------------------
Xxxxxxx Xxxxxxxx shall have received from the Company an executed employment
Agreement, substantially in the form and substance attached hereto as Exhibit E;
---------
(v) Registration Agreement Joinder. SWIFT shall have received
------------------------------
from the Acquirer an executed joinder to the Registration Agreement
substantially in the form and substance set forth as Exhibit F attached hereto;
---------
and
(vi) Options. The Acquirer shall have issued options for the
-------
purchase of shares of the Acquirer's Common Stock to those certain non-
stockholder management and employees of the Company and in the amounts and on
the terms set forth on Annex VI hereto.
--------
(e) RECEIPT OF TRANSFER CONSIDERATION. The Foundation and SWIFT shall
---------------------------------
receive the Transfer Consideration at the Closing in accordance with Section 2
---------
above.
(f) LOAN TERM SHEET. The Company, Xxxx Xxxxxxxx and Acquirer will
---------------
terminate the loan described in the definition of Funded Indebtedness, Acquirer
shall repay Xxxx Xxxxxxxx the outstanding amount due under such Loan Term Sheet,
and all security interests pursuant to such Loan Term Sheet shall be terminated.
The Together Parties may waive any condition specified in this Section
-------
8.2 if they execute a writing so stating at or prior to the Closing.
---
-32-
ARTICLE IX
REMEDIES FOR BREACHES OF THIS AGREEMENT
9.1 INDEMNIFICATION OF THE ACQUIRER Except as provided in and subject to
-------------------------------
Section 9.6, the Together Parties (other than the Company and N.W.S.T.) agree to
-----------
indemnify and hold harmless the Acquirer, each officer and director of the
Acquirer and any successor thereof (collectively, the "INDEMNIFIED PARTIES")
from and against any and all Adverse Consequences, which any of the Indemnified
Parties may sustain, or to which any of the Indemnified Parties may be
subjected, arising out of (a) any misrepresentation, breach or default by the
Together Parties (other than by the Company or N.W.S.T. after the Closing) of or
under any of the representations, warranties, covenants, agreements or other
provisions of this Agreement or any agreement or document executed in connection
herewith and (b) such other Together Parties' tortious acts or omissions to act
prior to Closing for which the Company did not carry liability insurance for
itself as the insured party sufficient to satisfy such claim or liability,
whether or not such acts or omissions to act result in a breach or violation of
any representation or warranty.
9.2 DEFENSE OF THIRD PARTY CLAIMS. If any legal proceeding shall be
-----------------------------
instituted, or any claim or demand made, by any third party against any
Indemnified Parties in respect of which such other Together Parties may be
liable hereunder (and such determination shall be made without regard to the
limitations set forth in Section 9.6), such Indemnified Party shall give prompt
-----------
written notice thereof to such other Together Parties and, except as otherwise
provided in Section 9.4 below, such other Together Parties shall have the right
-----------
to defend any litigation, action, suit, demand, or claim for which such
Indemnified Party may seek indemnification with counsel satisfactory to such
other Together Parties; provided, however, that such other Together Parties may
not settle any such litigation, action, suit, demand, or claim without the prior
written consent of the Acquirer, which shall not be unreasonably withheld.
Notwithstanding the foregoing, if in the reasonable judgment of the Acquirer,
such litigation, action, suit, demand or claim, or the resolution thereof, would
have a (a) Material adverse effect on the Acquirer or the Company or (b) such
other Together Parties have a conflict of interest in defending such action on
Acquirer's or the Company's behalf, at the Acquirer's election, the Acquirer may
defend itself and in either of such instances such other Together Parties shall
be liable for all expenses reasonably incurred in connection therewith
(including, without limitation, settlement payments and reasonable attorney's
fees); provided, however, that the Acquirer may not settle any such litigation,
action, suit, demand, or claim without the prior written consent of such other
Together Parties, which shall not be unreasonably withheld. If neither (a) nor
(b) are applicable but the Acquirer desires to participate in the defense of an
action such other Together Parties are defending because in the Acquirer's
reasonable judgment the outcome of such action could have an ongoing effect on
the Acquirer (or its successors), the Acquirer may participate but at its own
expense. In the event such other Together Parties fail or refuse to defend any
legal proceeding they are required to defend under this Article IX within a
----------
reasonable length of time, the Indemnified Parties shall be entitled to assume
the defense thereof, and such other Together Parties shall be liable to repay
the Indemnified Parties for all expenses reasonably incurred in connection with
said defense (including, without limitation, settlement payments and reasonable
attorney's fees). If such other Together Parties do not or refuse to assume the
defense of any litigation, action, suit, demand, or claim in any legal
proceeding they are required to defend
-33-
under this Article IX, the Indemnified Parties shall have the absolute right, at
----------
such other Together Parties' expense, to control the defense of and to settle,
in their sole discretion and without the consent of such other Together Parties,
such litigation, action, suit, demand, or claim, but such other Together Parties
shall be entitled, at their own expense, to participate in such litigation,
action, suit, demand, or claim, and if such other Together Parties elect to
participate in such litigation the Indemnified Parties shall consult with such
other Together Parties prior to settling such litigation. The Party controlling
any defense pursuant to this Section 9.2 shall deliver, or cause to be delivered
-----------
to the other Party, copies of all correspondence, pleadings, motions, briefs
appeals or other written statements relating to or submitted in connection with
the defense of any such litigation, action, suit, demand, or claim, and timely
notices of any hearing or other court proceeding relating to such litigation,
action, suit, demand, or claim.
9.3 PROCEDURE FOR CLAIMS.
--------------------
(A) ESCROW CLAIMS. If any claim for indemnification is made by an
-------------
Indemnified Party pursuant to this Article IX prior to the expiration of the
----------
Escrow Period, such Indemnified Party shall first apply to the Escrow Agent for
reimbursement of such claim in accordance with the provisions of the Escrow
Agreement; provided, however, the Escrow Sum is not intended to be an exclusive
remedy in the event the Acquirer has indemnification claims hereunder which
exceed such amount. Once the Cash Escrow sum has been fully depleted to satisfy
claims pursuant to Section 9.1, SWIFT shall have the option to satisfy such
-----------
Together Parties' obligation to the Acquirer by surrendering to the Acquirer
that portion of the Stock Portion of the SWIFT Transfer Consideration required
to fund such other Together Parties' indemnification obligation (with such
surrendered Acquirer's Shares valued at the Fair Market Value of such shares).
(B) OTHER CLAIMS. If pursuant to this Article IX any claim for
------------ ----------
indemnification is made by an Indemnified Party, within the period allotted
therefor as provided in Section 9.6 but after the Escrow Sum has been completely
-----------
paid out (the "CLAIMANT"), shall send written notice to the other person (by
certified mail, return receipt requested or by personal service as provided in
Section 11.7 hereof) setting forth in reasonable detail a description of the
------------
facts upon which the claim is based and a reasonable estimate of the amount of
the claim (a "CLAIM", with the notice thereof referred to as the "CLAIM
NOTICE"). The person against whom the Claim is brought (the "RESPONDENT") shall
have fifteen (15) calendar days from receipt of the Claim Notice to respond to
such Claim. Such response shall be in writing and shall (i) set forth in
reasonable detail the Respondent's objection to the Claim and the basis for such
objection, or (ii) the efforts undertaken or to be undertaken by the Respondent
to cure the Claim. In the event the Respondent fails to respond to the Claim
Notice in the manner set forth above within such 15-day period, the Respondent
shall be deemed to have conceded the Claim in full. In the event the Parties
are unable to resolve the Claim within thirty (30) calendar days from the date
of receipt of the Claim Notice, the Claim shall be submitted to arbitration in
accordance with Section 11.8 below.
-------------
9.4 TAX AUDITS, ETC. In the event of an audit of a Tax Return of the
---------------
Company with respect to which an Indemnified Party might be entitled to
indemnification pursuant to this Article IX, the Acquirer shall have the right
----------
to control any and all such audits which may result
-34-
in the assessment of additional Taxes against the Company and any and all
subsequent proceedings in connection therewith, including appeals (subject to
the prior written consent of the Together Parties other than the Company and
N.W.S.T., which shall not unreasonably be withheld and subject to the right of
such other Together Parties to have their accountants and attorneys consult with
the Acquirer on such audits or procedures at such other Together Parties'
expense); provided, however, that such other Together Parties and the Acquirer
shall jointly control, and shall cooperate with each other in connection with,
any and all such audits which may result in the assessment of additional Taxes
against both such other Together Parties and the Company. Such Together Parties
other than the Company and N.W.S.T. shall cooperate fully in all matters
relating to any such audit or other Tax proceeding (including according access
to all records pertaining thereto), and will execute and file any and all
consents, powers of attorney, and other documents as shall be reasonably
necessary in connection therewith. If additional Taxes are payable by the
Company as a result of any such audit or other proceeding, such other Together
Parties shall be responsible for and shall promptly pay all Taxes, interest, and
penalties for which any of the Indemnified Parties shall be entitled to
indemnification.
9.5 INDEMNIFICATION OF TOGETHER PARTIES. The Acquirer and the Together
-----------------------------------
Parties, other than SWIFT, Xxxx Xxxxxxxx and the Foundation, agree to indemnify
and hold harmless such other Together Parties and each officer, director,
stockholder or affiliate of such other Together Parties, from and against any
Adverse Consequence arising out of any misrepresentation, breach or default by
the Acquirer of or under any of the covenants, agreements or other provisions of
this Agreement or any agreement or document executed in connection herewith in
accordance with the procedures set forth in this Article IX; provided that for
----------
purposes of interpreting procedures required by the preceding clauses of this
Section 9.5 "Indemnified Parties" shall mean such other Together Parties and
"such other Together Parties" or "SWIFT" shall mean the Acquirer.
9.6 LIMITS ON INDEMNIFICATION. All Adverse Consequences for which
-------------------------
indemnification is sought by any Party hereunder shall be net of any insurance
proceeds received by such Party with respect to such claim (less the present
value of any premium increases occurring as a result of such claim). Except for
any claims for breach of the representations, warranties and covenants of the
Together Parties other than the Company and N.W.S.T. under Sections 4.8, 4.19,
------------ ----
and 4.21 hereof (for which indemnification claims must be made prior to the
----
expiration of the applicable statute of limitations plus sixty (60) days and if
so made, such claims shall continue after such date until finally resolved and
made) and Sections 3.5 and 4.2 hereof (pursuant to which the right to make
------------ ---
claims for indemnification under this Article IX shall survive the Closing Date
----------
indefinitely), the right to make claims for indemnification provided under this
Article IX shall expire on the first anniversary of the Closing Date (except for
----------
claims made prior to such date which shall continue after such date until
finally resolved). The Together Parties other than the Company and N.W.S.T.
shall not be obligated to pay any amounts for indemnification under this Article
-------
IX until the aggregate Adverse Consequences for which indemnification sought by
--
the Acquirer Indemnified Party/Parties related to the Acquirer hereunder exceeds
$50,000, whereupon SWIFT and Xxxx Xxxxxxxx shall be liable for all amounts for
which indemnification may be sought in excess of $50,000 of such Adverse
Consequences up to a maximum indemnification equal to the Transfer
Consideration; provided, however, that
-35-
notwithstanding the foregoing, such $50,000 indemnity obligation threshold shall
not apply to any penalties, damages, fines or other costs associated with the
Company's and N.W.S.T.'s failure to file their 1996 and 1997 federal and state
tax returns on time and Acquirer shall be entitled to a full indemnity for such
penalties, damages, fines or other costs. The Acquirer shall not be obligated to
pay any amounts for indemnification under this Article IX until the aggregate
----------
indemnification obligation sought by such other Together Parties hereunder
exceeds $50,000, whereupon the Acquirer shall be liable for all amounts for
which indemnification may be sought in excess of $50,000 of such Adverse
Consequences. For purposes of Section 9.1 or Section 9.5, any requirement in any
----------- -----------
representation or warranty that an event or fact be Material or have a Material
adverse effect, as appropriate, in order for such event or fact to constitute a
misrepresentation or breach of such representation or warranty shall be ignored.
Notwithstanding the foregoing, in no event shall the aggregate liability of any
individual Together Party to the Acquirer or the Acquirer to any of the Together
Parties exceed the Transfer Consideration received by such Together Party;
provided, however, that the aggregate liability of Xxxx Xxxxxxxx shall be
equivalent to the Transfer Consideration received by SWIFT However, nothing in
this Article IX shall limit the Acquirer or such other Together Parties in
exercising or securing any remedies provided by applicable statutory or common
law with respect to the conduct of the other in connection with this Agreement
or in the amount of damages that it can recover from the other in the event that
a Party successfully proves intentional fraud or intentional fraudulent conduct
in connection with this Agreement. The amount of all Adverse Consequences for
which indemnification is received from the Foundation and/or SWIFT shall be
deemed to be a reduction of the Transfer Consideration paid by Acquirer under
this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement as
------------------------
provided below:
(A) the Acquirer and the Together Parties may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(B) the Acquirer may terminate this Agreement by giving written
notice to the Together Parties at any time prior to the Closing in the event the
Together Parties are in breach of any representation, warranty, or covenant
contained in this Agreement which has had or is reasonably foreseeable as having
a Material adverse effect on the Company of the magnitude set forth in Section
-------
8.1(f) and such breach has not been cured within ten (10) days of written notice
------
thereof. The Together Parties may terminate this Agreement by giving written
notice to the Acquirer at any time prior to the Closing in the event the
Acquirer is in breach of any representation, warranty, or covenant contained in
this Agreement in any Material respect and such breach has not been cured within
ten (10) days of written notice thereof;
(C) this Agreement will terminate if the Closing shall not have
occurred on or before March 31, 1999; provided, however, that in the event
Acquirer has filed a registration agreement with the SEC and either (i)
Acquirer's lead underwriter informs Acquirer that a public
-36-
offering of stock is not advisable or (ii) the registration statement has not
been declared effective but Acquirer is using reasonable efforts to have the
registration statement declared effective, this Agreement shall terminate on
June 30, 1999; provided, however, that in the event this Agreement is extended
to a date after March 31, 1999, the Foundation Transfer Consideration, the Cash
Portion of the SWIFT Transfer Consideration, after accounting for the
adjustments described in Section 2.2(b)(i), and the Stock Portion of the
Transfer Consideration SWIFT will each be increased by three (3) percent.
(D) Nothing contained in this Section 10.1 shall alter, affect,
------------
modify or restrict any Parties' rights to rely on and/or seek indemnification
for a breach of any of the representations and warranties and/or conditions or
covenants of any of the Parties contained in this Agreement, subject to Section
--------
10.1(d).
-------
10.2 EFFECT OF TERMINATION. If either the Acquirer or the Together Parties
---------------------
terminate this Agreement pursuant to Section 10.1 above, all obligations of the
------------
Parties hereunder shall terminate without any Liability of any Party to any
other Party.
ARTICLE XI
MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be required by
--------------------------------
applicable securities laws or stock exchange requirements, no Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement prior to, at or about the Closing without the prior written approval
of the Acquirer and the Together Parties, which written approval will not be
unreasonably withheld by each party; provided, however, that any Party may make
any public disclosure it believes in good faith, with the advice of counsel, is
required by law or regulation (in which case the disclosing Party will advise
the other Parties prior to making the disclosure).
11.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
11.3 ENTIRE AGREEMENT. This Agreement (including the documents referred to
----------------
herein) and the Confidentiality Agreement constitute the entire agreement among
the Parties and supersede any prior or contemporaneous understandings,
agreements, or representations by or among the Parties, written or oral, that
may have related in any way to the subject matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the Acquirer and the Together Parties; provided, however, that the Acquirer
may assign (i) any or all of its rights and interests hereunder to a wholly-
owned Subsidiary of the Acquirer (in any or all of which cases the Acquirer
nonetheless shall remain liable and responsible for the performance of all of
its respective obligations hereunder) or (ii) any or all of rights of the
Agreement to any lender providing debt financing to the Acquirer or its
Affiliates.
-37-
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party can be
seen, and such execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any Party hereto, all parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction hereof.
11.6 NOTICES. All notices or other communications hereunder will be in
-------
writing and shall be delivered by hand, facsimile or sent, postage prepaid, by
registered or certified mail or reputable overnight courier service (and shall
be deemed given when so delivered by hand or facsimile, or, if mailed, five days
after mailing (one business day in the case of overnight courier)) addressed to
the intended recipient as set forth below:
If to TGF Technologies, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: President
Tel: (000)000-0000
Fax: (000)000-0000
If to the Foundation:
Together Foundation
00 X. 00/xx/ Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx Xxxxxxxx
Tel: (000)000-0000
Fax: (000)000-0000
If to N.W.S.T. or SWIFT:
SWIFT
c/o Trident Trust Company (B.V.I) Limited
X.X. Xxx 000, Xxxx Xxxx
Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
Attn: Managing Director
-38-
with a copy in each of the foregoing cases to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn.: Xxxxxxx X. Xxxxx
Tel: (000)000-0000
Fax: (000)000-0000
If to the Acquirer:
XxxXxxx.xxx, Inc.
c/o Unison Partners
00 Xxxxxxxxx Xxxx
Xxxxxxxxxxx, XX 00000
Attn.: Xxxxxxx X. Xxxxx
Tel: (000)000-0000
Fax: (000)000-0000
with a copy to:
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxxxxxxx Xxxxxx, XX
Xxxxxxxxxx, X.X. 00000
Attn.: X. Xxxxx Xxxx and
Xxxxxxxxxxx X. Xxxxx
Tel: (000)000-0000
Fax: (000)000-0000
Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
11.7 DISPUTE RESOLUTIONS. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN
-------------------
ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING FROM
OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED
INDEMNIFICATION CLAIM MADE PURSUANT TO THIS ARTICLE XI. THE PARTIES FURTHER
AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE
MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO
ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION
PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY
MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION
CONTAINING A
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STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN
(14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR.
AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL PREPARE AND
SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE HALF OF THE
APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT AGREE UPON A
NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR
ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST
ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE
FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR
FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE
PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN THE WASHINGTON, D.C.
METROPOLITAN AREA, AT A PLACE DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES
HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS
INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO
INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY
PREVAILS. WITHOUT LIMITING SECTION 11.14, THE ARBITRATOR MAY INCLUDE EQUITABLE
RELIEF. ANY ARBITRATION AWARDED SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT
CONTAINING A SUMMARY OF THE ISSUES IN CONTROVERSY, A DESCRIPTION OF THE AWARD,
AND AN EXPLANATION OF THE REASONS FOR THE AWARD.
11.8 GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY
-------------
AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
11.9 AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Acquirer and the Together Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
11.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
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11.11 EXPENSES. Each of the Parties will bear its own costs and expenses
--------
(including legal fees and expenses and investment banking fees) incurred in
connection with this Agreement and the transactions contemplated hereby. Such
expenses described in this Section 11.11 will not be paid by the Company;
--------------
provided, however, that upon consummation of the IPO, the Company shall only be
responsible for paying its accounting expenses incurred as a direct result of
its preparation of audits for fiscal years 1996 and 1998 to the extent such
accounting expenses exceed $60,000; such initial $60,000 of accounting expenses
shall be paid by Acquirer at Closing.
11.12 CONSTRUCTION. The language used in this Agreement will be deemed to
------------
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant relating to the same subject
matter as any other representation, warranty or covenant (regardless of the
relative levels of specificity) which the Party has not breached, it shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
11.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
11.14 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
--------------------
that the other Parties would be damaged substantially, immediately and
irreparably and that monetary damages may not be readily determinable in the
cases of any breach of a representation or warranty contained herein in the
event any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled in such circumstances to
an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter, in
addition to any other remedy to which they may be entitled, at law or in equity.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
ACQUIRER:
XXXXXXX.XXX, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------
Xxxxxxx X. Xxxxx
President
THE COMPANY
TGF TECHNOLOGIES, INC.
By: /s/ Xxxx Xxxxxxxx
------------------------------
Name: Xxxx Xxxxxxxx
Title: President, CEO
N.W.S.T.:
N.W.S.T. CORP.
By: /s/ Xxxx Xxxxxxxx
------------------------------
Name: Xxxx Xxxxxxxx
Title: President
SWIFT:
SWIFT COMPANY LIMITED
By: /s/ Xxxx Xxxxxxxx
------------------------------
Name: Xxxx Xxxxxxxx
Title: Chairman & CEO
FOUNDATION:
THE TOGETHER FOUNDATION FOR GLOBAL UNITY
By: /s/ Xxxx Xxxxxxxx
-------------------------------
Name: Xxxx Xxxxxxxx
Title: President
XXXX XXXXXXXX
/s/ Xxxx Xxxxxxxx
------------------------------------
Xxxx Xxxxxxxx
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