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VOYAGER NET INC - S-1 - 19990506 - FINANCIAL_DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(In thousands, except per share and other data)
The following tables sets forth selected consolidated financial information
and other data for Voyager.net. The selected consolidated results of operations
and the selected historical consolidated balance sheet data for the years ended
December 31, 1995, 1996, 1997, and 1998 have been derived from the audited
consolidated financial statements of Voyager.net. The selected consolidated
financial information and other data as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited; however, in the opinion of
our management the unaudited data includes all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
information. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999 or any other future period. The pro forma information
and other data for the year ended December 31, 1998 is unaudited. The pro forma
information and other data is not necessarily indicative of the results of
operations that would actually have occurred if the acquired business
transactions included therein had been consummated as of January 1, 1998.
You should read the following selected historical consolidated financial
statements and other data in conjunction with our consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The selected consolidated financial data as of and for the year ended
December 31, 1994 are not presented since we had just begun operations. As of
December 31, 1994, total assets were approximately $140,000 and total revenue
for the year then ended was approximately $20,000.
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Three Months Ended
Years Ended December 31, March 31,
------------------------------------ Pro Forma -------------------
1995 1996 1997 1998 1998 1998 1999
Consolidated Statement
of Operations Data:
Revenues:
Internet access
service............... $ 202 $ 1,707 $ 3,440 $10,589 $ 21,732 $ 1,132 $ 8,405
Other.................. -- -- 14 133 150 3 114
------ ------- ------- ------- -------- -------- ---------
Total revenue.......... 202 1,707 3,454 10,722 21,882 1,135 8,519
------ ------- ------- ------- -------- -------- ---------
Operating expenses:
Internet access service
costs................. 143 1,002 1,318 3,608 8,366 370 2,790
Sales and marketing.... 101 638 1,038 1,987 2,787 181 969
General and
administrative........ 521 1,155 1,462 3,406 5,831 355 2,463
Depreciation and
amortization.......... 128 420 394 3,862 12,404 126 3,527
Compensation charge for
issuance of common
stock and stock
options............... -- -- -- 408 408 -- --
------ ------- ------- ------- -------- -------- ---------
Total operating
expenses.............. 893 3,215 4,212 13,271 29,796 1,032 9,749
------ ------- ------- ------- -------- -------- ---------
Income (loss) from
operations ............ (691) (1,508) (758) (2,549) (7,914) 103 (1,230)
Other income (expense).. 17 10 (62) (912) (2,794) (39) (771)
------ ------- ------- ------- -------- -------- ---------
Net income (loss)....... $ (674) $(1,498) $ (820) $(3,461) $(10,708) $ 64 $ (2,001)
Preferred stock
dividends.............. -- -- (74) (348) (348) (50) (166)
------ ------- ------- ------- -------- -------- ---------
Net income (loss)
applicable to common
stockholders........... $ (674) $(1,498) $ (894) $(3,809) $(11,056) $ 14 $ (2,167)
====== ======= ======= ======= ======== ======== =========
Per Share Data:
Basic and diluted net
loss per share
applicable to common
stockholders........... $(0.09) $ (0.35) $ (0.12) $ (0.27) $ (.78) $ 0.00 $ (0.12)
====== ======= ======= ======= ======== ======== =========
Weighted average common
shares outstanding..... 7,231 4,316 7,160 14,238 14,238 12,096 18,539
Other Data:
Subscribers at end of
period
(approximate).......... 3,000 10,000 17,000 142,000 142,000 19,000 188,000
POPs.................... 5 25 32 138 138 35 146
Other Financial Data:
EBITDA (as defined)..... $ (563) $(1,088) $ (364) $ 1,721 $ 4,899 $ 229 $ 2,297
EBITDA margin........... (278.7)% (63.7)% (10.5)% 16 .1% 22.4% 20.2% 27.0%
Capital Expenditures.... 411 759 661 1,514 2,141 171 1,321
Cash Flow Data:
Cash flow provided by
(used in):
Operating activities.... $ (538) $ (877) $ (398) $ 2,702 $ 5,800 $ 215 $ 3,432
Investing activities.... (408) (759) (574) (34,336) (34,963) (171) (10,692)
Financing activities.... 1,980 583 1,488 33,466 31,189 34 9,336
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $1,055 $ 3 $ 519 $ 2,350 $ 2,350 $ 597 $ 4,427
Working capital......... 917 (275) (1,785) (6,242) (6,242) (1,902) (6,269)
Total assets............ 1,603 1,186 2,101 41,725 41,725 2,297 52,459
Total long-term debt,
notes payable and capi-
tal leases including
current maturities..... 73 871 2,155 33,308 33,308 2,189 43,061
Total stockholders'
equity (deficit)....... 1,350 (148) (539) 1,276 1,276 (475) (725)
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21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Read the following discussion together with the financial statements and
related notes included elsewhere in this prospectus. The results discussed
below are not necessarily indicative of the results to be expected in any
future periods. This discussion contains forward-looking statements based on
current expectations and which involve risks and uncertainties. Actual results
and the timing of certain events may differ significantly from those projected
in such forward-looking statements due to a number of factors, including those
set forth herein, in the section entitled "Risk Factors" and elsewhere in this
prospectus.
General
We are the largest Internet service provider focused on the Midwestern
United States. We incorporated in June 1994 and began offering Internet access
to residential and business customers in Michigan in 1995. From 1995 to 1997,
we focused on building our network infrastructure in Michigan as well as
developing the core competencies to grow our business. We funded the initial
build-out of our network and development of our operations primarily through an
aggregate $2.5 million in debt and equity capital from Horizon Cable I Limited
Partnership, Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership. In 1998, we began pursuing
an acquisition program focused on acquiring regional and local ISPs throughout
the Midwest. This program allowed us to expand into new markets as well as to
increase the utilization of Voyager.net-owned points of presence network
infrastructure and operations. During 1998, we acquired seven ISPs in the
Midwest with approximately 100,000 subscribers, including the acquisition of
EXEC-PC, Inc., a consumer-based ISP located in Milwaukee, Wisconsin with 80,000
subscribers. We funded these acquisitions primarily with $4.8 million of equity
capital raised from private equity investors and through a $40.0 million
revolving credit facility with a group of banks led by Fleet National Bank. The
credit facility was increased to $70.0 million on April 13, 1999. Thus far in
1999, we have acquired an additional four ISPs with 34,400 subscribers in the
aggregate. We currently operate the largest ISP network in the Midwest in terms
of geographic coverage, with approximately 150 Voyager.net-owned points of
presence in Michigan, Wisconsin, Ohio, Illinois and Indiana. Through a
combination of internal growth and acquisitions, we have increased our
subscriber base from approximately 17,000 subscribers at the end of December
1997 to approximately 188,000 subscribers as of March 31, 1999, including
approximately 5,000 Web hosting subscribers and approximately 900 dedicated
access subscribers.
Revenues and Expenses
Our revenues are generally composed of:
. Dial-up Internet access services;
. Dedicated Internet access services; and
. Value-added Web and telecommunications services.
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Dial-up Internet access service revenues consist of monthly, quarterly,
semi-annual and annual prepaid subscriptions for Internet access services. We
offer dial-up Internet access to residential and small- and medium-sized
business customers. Advance collections relating to prepaid subscriptions for
future access services are recorded as deferred revenue when collected and
revenue is recognized ratably over the term of the prepaid subscription.
Subscribers may cancel their subscriptions at any time, in which case we charge
the subscribers for their subscription to the date of cancellation and refund
any remaining amounts prepaid. Cash received from prepaid subscribers is
classified as deferred revenue when received, and no cash reserves are
maintained for potential refund obligations. A majority of our residential
subscribers pay their monthly fee automatically by a pre-authorized monthly
charge to their credit card.
Dedicated Internet access services revenues are offered on a monthly,
yearly, three-year and five-year subscription basis. We offer dedicated
Internet access services using leased dedicated telecommunication lines
primarily to business customers, with DSL and cable modem access offered to
both residential and business customers. The revenue recognition policies and
customer cancellation practices described for the dial-up Internet access
services also apply to the dedicated access services.
We also provide a wide range of value-added Web services such as Web
hosting, domain name registration, customer Web server co-location and e-
commerce. We derive recurring revenue from Web site hosting primarily on a
fixed-rate monthly basis. We charge our co-location customers monthly fees
based on the physical use of our facilities. Other services such as domain name
registration, e-commerce services and other consulting services are typically
offered at a fixed-rate basis or time plus materials basis. We also provide
long distance voice services offered through a reseller relationship with IXC
Communications Services, Inc. Revenue from long-distance service is recognized
as used by the customer. Payments from customers for prepaid calling card
services are recorded as deferred revenue when collected and revenue is
recognized as the prepaid subscription is used.
During 1998, the average monthly rate at which we experienced customer
cancellations and non-renewals of subscriptions, or churn rate, was 2.6%. We
calculate our churn rate by dividing (1) the number of customer cancellations
and non-renewals during the month (excluding cancellations made by new
customers during the first 30 days of service) by (2) the average number of
subscribers during the month. We devote substantial resources to maintain high
quality customer care, and we are continually upgrading and expanding our
network infrastructure to ensure high levels of customer satisfaction. We
believe that our emphasis and focus on customer care has resulted in one of the
lowest churn rates in the industry, and we expect to maintain or improve this
rate by ensuring that customer support and care are always high priorities for
all of our employees.
Our operating costs and expenses include the following:
. Internet access service cost;
. Sales and marketing expenses;
. General and administrative expenses; and
. Depreciation and amortization expenses.
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Internet access service costs includes costs for providing local telephone
lines into each Voyager.net-owned POP, costs associated with leased lines
connecting each POP to our two network operation centers, costs for our
connections from our network operating centers to the Internet, billing and bad
debt expense and other technical related expenses. Telecommunication costs
include the costs of data circuits, dial-in line expenses and connectivity
fees. Billing costs include credit card processing fees, banking fees and
customer billing expenses. Internet access service costs for Web hosting
consists primarily of telecommunication costs. Internet access service costs
for other non-recurring value added services consists of licensing fees and
cost of labor and overhead performing the service. Internet access service
costs for reselling of long distance services consists of third-party wholesale
costs of the products resold. Other technical related expenses primarily
consist of maintenance contracts and domain name registration costs. As we
execute our acquisition strategy in the future, we expect increased Internet
access service costs on an absolute dollar basis, but lower Internet access
service costs on a percentage basis as a result of continued revenue growth,
reduction of redundant costs, consolidation of operations and re-negotiation of
pricing on telecommunication, equipment and other vendor contracts.
Sales and marketing costs consist of salaries and commissions for sales,
marketing and business support personnel, advertising and promotion expenses
and commissions for value added resellers, or VARs. Since 1998, we have
expanded our marketing and sales efforts as we have expanded our geographic
coverage, increased our subscriber base, acquired additional businesses and
introduced new products and services. We expect increases in the absolute
spending for sales and marketing, but we expect these costs to be more than
offset by the increase in customer revenues that will be achieved. We do not
defer any costs associated with obtaining or retaining customers or entering
new markets.
General and administrative, or G&A, expenses consist of compensation costs
for business development, finance, accounting and billing, customer and
technical support and administration personnel and occupancy costs. Since
January 1998, we have hired several members of our senior management. We are
currently seeking to hire additional personnel to support our growth. We expect
cost increases in G&A on an absolute dollar basis as we continue to execute our
acquisition strategy and expand our operations, but we expect these costs to be
more than offset by the increase in customer revenues that will be achieved. On
a monthly per customer basis and as a percentage of revenue, we expect our G&A
expenses to decrease over time.
Depreciation expense is recognized over the estimated useful lives of our
property and equipment ranging from three to ten years on a straight-line
basis. Capital investment typically consists of networking equipment such as
routers, servers, and various internal network components, telecommunications
gear such as access modems, computer equipment and general office equipment
with a useful life in excess of one year. Equipment acquired under a capital
lease is depreciated over the related lease term or the estimated productive
useful life, depending on the criteria met in determining their qualification
as a capital lease. Amortization expense generally consists of the costs
associated with acquiring our customer base, which is amortized using the
straight-line
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method over three years. Additional amortization expenses consist of bank debt
financing fees and miscellaneous costs associated with the development of other
assets such as our proprietary customer care and billing system.
We have historically not paid any income taxes due to our net losses. As of
December 31, 1998, we had deferred tax assets for federal income tax purposes
of approximately $1.5 million, which are primarily related to net operating
loss carryforwards. These deferred tax assets have been offset by recognition
of corresponding valuation allowances. These deferred tax assets expire in the
years 2013 and 2018.
We have historically experienced negative cash flow from operations and have
incurred net losses as a result of our efforts to build our network
infrastructure, develop our management team, provide quality customer care
programs and acquisition-related spending. We had net losses of $1.5 million,
$0.8 million and $3.5 million for the years ended December 31, 1996, 1997 and
1998, respectively, and net income of $64,000 and net loss of $2.0 million for
the three months ended March 31, 1998 and 1999, respectively. At March 31,
1999, we had an accumulated deficit of $8.7 million.
We intend to capitalize on our successful business model to expand our
geographic operations and increase our subscriber base through continued
internal growth as well as through strategic acquisitions. As a result, we
expect that our Internet access service costs, sales and marketing, G&A, and
depreciation and amortization costs will increase on an absolute dollar basis.
However, we expect continued growth in our revenues to result in increased
operating cash flow and EBITDA, both in terms of absolute results and as a
percentage of revenues. Our revenues and EBITDA were $8.5 million and $2.3
million, respectively, for the three months ended March 31, 1999, representing
an EBITDA margin of 27.0%, compared to revenues and EBITDA of $1.1 million and
$229,000, respectively, for the three months ended March 31, 1998, representing
an EBITDA margin of 20.2%. Our ability to generate positive cash flow from
operations and achieve profitability is dependent upon our ability to continue
to grow our revenue base and achieve operating efficiencies.
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Acquisitions
Our acquisition strategy is designed to leverage our existing network and
administrative operations to allow us to enter new markets within the Midwest,
as well as to expand our presence in existing markets, and to realize economies
of scale. Since July 1, 1998 we have acquired eleven ISPs in the Midwest
totaling approximately 135,000 subscribers. Below is a summary of our completed
acquisitions:
Number of
Company Date Location Customers(1)
CDL Corp. 7/1/98 Monroe, MI 550
Internet-Michigan, Inc. 7/1/98 Hastings, MI 1,000
Freeway, Inc. 7/31/98 Petoskey, MI 10,000
EXEC-PC, Inc. 9/23/98 Milwaukee, WI 80,000
Netimation, Inc. 10/2/98 East Lansing, MI 500
NetLink Systems, L.L.C. 10/2/98 Kalamazoo, MI 7,500
Add, Inc. 11/20/98 Waupaca, WI 500
Hoosier On-Line Systems, Inc. 1/15/99 Seymour, IN 8,000
Infinite Systems, Ltd. 2/26/99 Columbus, OH 12,500
Exchange Network Services, Inc. 3/10/99 Cleveland, OH 8,000
StarNet, Inc. 4/23/99 Chicago, IL 5,900
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(1)At the respective date of acquisition.
Our acquisition activity has primarily been financed with $4.8 million of
equity capital from private equity investors and loans from a $40.0 million
revolving credit facility with a group of banks managed by Fleet National Bank.
We increased the overall capacity of our credit facility to $70.0 million on
April 13, 1999.
Voyager.net is currently in various levels of acquisition discussions with a
number of ISPs in targeted markets in the Midwest. However, we cannot assure
you that we will successfully complete any of the acquisitions we are currently
evaluating.
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Results of Operations
The following table sets forth certain consolidated statement of operations
data for the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1998 and 1999 as a percentage of revenue. This information
should be read with our consolidated financial statements and notes included
elsewhere in this prospectus.
Three Months
Year Ended December 31, Ended March 31,
--------------------------- ----------------
1996 1997 1998 1998 1999
(unaudited)
Revenue:
Internet access service..... 100.0% 99.6% 98.8% 99.7% 98.7%
Other....................... -- 0.4 1.2 0.3 1.3
------- ------- ------- ------- -------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- -------
Operating expenses:
Internet access service
costs...................... 58.7 38.2 33.6 32.6 32.7
Sales and marketing......... 37.4 30.0 18.5 15.9 11.4
General and administrative.. 67.6 42.3 31.8 31.3 28.9
Depreciation and
amortization............... 24.6 11.4 36.0 11.1 41.4
Compensation charge for
issuance of common stock
and stock options.......... -- -- 3.8 -- --
------- ------- ------- ------- -------
Total operating expenses.. 188.3 121.9 123.7 90.9 114.4
------- ------- ------- ------- -------
Other income (expense), net... 0.6 (1.8) (8.5) (3.4) (9.1)
------- ------- ------- ------- -------
Net income (loss)......... (87.7)% (23.7)% (32.2)% 5.7% (23.5)%
======= ======= ======= ======= =======
EBITDA Margin............. (63.7)% (10.5)% 16.1% 20.2% 27.0%
======= ======= ======= ======= =======
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Three Months Ended March 31, 1999 Compared to March 31, 1998
Revenues. Total consolidated revenues increased from $1.1 million for the
three months ended March 31, 1998 to $8.5 million for the three months ended
March 31, 1999, representing an increase of 650.6%. The revenue growth was
primarily driven by the increase in our customer base from approximately 19,000
at March 31, 1998 to approximately 188,000 at March 31, 1999. The growth in
customers was primarily the result of our acquisitions. We also experienced
strong internal growth from our effort to provide high quality customer and
technical service and support, geographic expansion in our coverage areas and
low churn rates. In addition, we introduced several new service offerings, such
as DSL and long distance telephone service, which generated additional revenue
from our customer base.
Internet access service costs. Internet access service costs increased from
$370,000 for the three months ended March 31, 1998 to $2.8 million for the
three months ended March 31, 1999. Internet access service costs as a percent
of revenue remained relatively constant at approximately 33.0% due to improved
telecommunication contracts and economies of scale. The increase in absolute
spending for the three months ended March 31, 1999 was driven by a significant
increase in customers and their associated network expenses and an increase in
billing costs. We expect to improve our gross margins in the future as we more
fully integrate our acquired companies and leverage our existing network and
back office infrastructure over a larger customer base.
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Sales and marketing. Sales and marketing expense increased from $181,000 for
the three months ended March 31, 1998 to $1.0 million for the three months
ended March 31, 1999. The increase in spending was attributable to the growth
in our customer base and support functions and the expansion of our geographic
coverage area. As a percentage of revenue, sales and marketing costs decreased
from 15.9% for the three months ended March 31, 1998 to 11.4% for the three
months ended March 31, 1999. The improvement in sales and marketing expenses as
a percentage of revenues reflects lower customer acquisition costs from our
effective customer care and referral programs spread over a larger revenue
base.
General and administrative. General and administrative expenses increased
from $355,000 for the three months ended March 31, 1998 to $2.5 million for the
three months ended March 31, 1999. The absolute increase in spending was due to
the growth of our business and the administrative functions necessary to
support our growth. As a percentage of revenue, general and administrative
costs decreased from 31.3% for the three months ended March 31, 1998 to 28.9%
for the three months ended March 31, 1999. The improvement on a percentage
basis represents leveraging of resources across an increased customer base.
Depreciation and amortization. Depreciation and amortization expense
increased from $126,000 for the three months ended March 31, 1998 to $3.5
million for the three months ended March 31, 1999. This increase was a result
of the amortization of intangible assets related to acquiring our customer base
since March 31, 1998, as well as increased capital spending for expanded
network operations and infrastructure.
Other income (expense), net. Other expenses, net increased from $39,000 for
the three months ended March 31, 1998 to $0.8 million for the three months
ended March 31, 1999. This increase is the result of the higher average balance
on our $40.0 million line-of-credit which was used to fund acquisitions
completed during 1998.
Net income (loss). As a result of the above, we reported net income of
$64,000, or less than $0.01 per share applicable to common stockholders, for
the three months ended March 31, 1998 as compared to net loss of $2.0 million,
or $0.12 per share applicable to common stockholders, for the three months
ended March 31, 1999.
EBITDA. EBITDA increased from $229,000 for the three months ended March 31,
1998 to $2.3 million for the three months ended March 31, 1999. As a percentage
of revenues, EBITDA increased from 20.2% for the three months ended March 31,
1998 to 27.0% for the three months ended March 31, 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Total consolidated revenues increased from $3.5 million for the
year ended December 31, 1997 to $10.7 million for the year ended December 31,
1998, representing an increase of 210.4%. The revenue growth was primarily
driven by the increase in our customer base from approximately 17,000 at
December 31, 1997 to approximately 142,000 at December 31, 1998. The growth in
customers was primarily a result of the seven acquisitions during 1998, which
added approximately 100,000 subscribers to our customer base.
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Internet access service costs. Internet access service costs increased from
$1.3 million for the year ended December 31, 1997 to $3.6 million for the year
ended December 31, 1998. Internet access service costs as a percent of revenue
decreased from 38.2% for the year ended December 31, 1997 to 33.6% for the year
ended December 31, 1998 due to improved telecommunication contracts and
economies of scale. The increase in absolute spending for the year ended
December 31, 1998 was driven by a significant increase in customers and their
associated network expenses and an increase in billing costs.
Sales and marketing. Sales and marketing expense increased from $1.0 million
for the year ended December 31, 1997 to $2.0 million for the year ended
December 31, 1998. The increase in absolute spending was a result of the rapid
growth of our operations and the acquisitions completed during 1998. As a
percentage of revenue, sales and marketing costs decreased from 30.0% for the
year ended December 31, 1997 to 18.5% for the year ended December 31, 1998. The
improvement of sales and marketing expenses as a percentage of revenues
reflects the efficiencies of our marketing programs over a larger customer
base.
General and administrative. General and administrative expenses increased
from $1.5 million for the year ended December 31, 1997 to $3.4 million for the
year ended December 31, 1998. The absolute increase in spending was due to the
increase in support functions and basic infrastructure necessary to support the
expansion of our business and the acquisition activity. As a percentage of
revenue, general and administrative expenses decreased from 42.3% for the year
ended December 31, 1997 to 31.8% for the year ended December 31, 1998. The
improvement on a percentage basis represents efficiencies achieved through the
integration of acquired businesses and leveraging resources across an increased
customer base.
Depreciation and amortization. Depreciation and amortization expense
increased from $394,000 for the year ended December 31, 1997 to $3.9 million
for the year ended December 31, 1998. This increase was a result of the
amortization of intangible assets related to acquiring our customer base since
December 31, 1997, as well as increased capital spending for expanded network
operations and infrastructure.
Non-recurring expenses. We incurred a charge of $408,000 for the year ended
December 31, 1998 related to the issuance of common stock and stock options
during the year ended December 31, 1998. The amount of this charge was based on
the issuance and grant of common stock and options at purchase and exercise
prices below fair market value. We believe these charges to be non-recurring in
nature.
Other income (expense), net. Other expenses, net increased from $62,000 for
the year ended December 31, 1997 to $0.9 million for the year ended December
31, 1998. This increase is the result of the higher average balance on our $40
million line-of-credit which was used to fund acquisitions completed during
1998.
Net income (loss). As a result of the above, we reported a net loss of $0.6
million, or $0.12 per share applicable to common stockholders, for the year
ended December 31, 1997 as compared to a net loss of $3.5 million, or $0.27 per
share applicable to common stockholders, for the year ended December 31, 1998.
29
EBITDA. EBITDA increased from ($364,000) for the year ended December 31,
1997 to $1.7 million for the year ended December 31, 1998. As a percentage of
revenues, EBITDA increased from (10.5%) for the year ended December 31, 1997 to
16.1% for the year ended December 31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Total consolidated revenues increased from $1.7 million for the
year ended December 31, 1996 to $3.5 million for the year ended December 31,
1997, representing an increase of 102.5%. The revenue growth was primarily
driven by the increase in our customer base from approximately 10,000 at
December 31, 1996 to approximately 17,000 at December 31, 1997. The growth in
customers was the result of the development of our core Internet access service
business.
Internet access service costs. Internet access service costs increased from
$1.0 million for the year ended December 31, 1996 to $1.3 million for the year
ended December 31, 1997. Internet access service costs as a percent of revenue
decreased from 58.7% for the year ended December 31, 1996 to 38.2% for the year
ended December 31, 1997 due to economies of scale in the increased size of our
operations. The increase in absolute spending for the year ended December 31,
1997 was driven by a significant increase in customers and their associated
network expenses and an increase in billing costs due to rapid customer growth.
Sales and marketing. Sales and marketing expense increased from $0.6 million
for the year ended December 31, 1996 to $1.0 million for the year ended
December 31, 1997. The increase in sales and marketing on an absolute basis was
the result of the subscriber growth during 1997. As a percentage of revenue,
sales and marketing costs decreased from 37.4% for the year ended December 31,
1996 to 30.0% for the year ended December 31, 1997.
General and administrative. General and administrative expenses increased
from $1.2 million for the year ended December 31, 1996 to $1.5 million for the
year ended December 31, 1997. The absolute increase in spending was due to the
increase in administrative functions to support our growing subscriber base. As
a percentage of revenue, general and administrative costs decreased from 67.6%
for the year ended December 31, 1996 to 42.3% for the year ended December 31,
1997.
Depreciation and amortization. Depreciation and amortization expense
decreased from $420,000 for the year ended December 31, 1996 to $394,000 for
the year ended December 31, 1997.
Other income (expense), net. Other income, net decreased from $10,000 for
the year ended December 31, 1996 to ($62,000) for the year ended December 31,
1997.
Net income (loss). As a result of the above, we reported a net loss of $1.5
million, or $0.35 per share applicable to common stockholders, for the year
ended December 31, 1996 as compared to a net loss of $0.8 million, or $0.12 per
share applicable to common stockholders, for the year ended December 31, 1997.
30
EBITDA. EBITDA increased from ($1.1) million for the year ended December 31,
1996 to ($364,000) for the year ended December 31, 1997. As a percentage of
revenues, EBITDA increased from (63.7%) for the year ended December 31, 1996 to
(10.5%) for the year ended December 31, 1997.
Quarterly Results of Operations
The following tables set forth the statement of operations data for the
periods indicated. This information has been derived from our unaudited
consolidated financial statements, which in management's opinion has been
prepared on substantially the same basis as the audited financial statements
and includes all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial condition and results of
operations for these periods. The operating results for any quarter are not
necessarily indicative of results for any future period.
Three Months Ended
--------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
(In thousands, except per share and customer data)
Revenue:
Internet access
service.............. $ 1,132 $ 1,222 $ 2,042 $ 6,193 $ 8,405
Other................. 3 -- 4 126 114
------- ------- ------- ------- -------
Total revenues...... 1,135 1,222 2,046 6,319 8,519
Operating expenses:
Internet access
service costs........ 370 429 818 1,991 2,790
Sales and marketing... 181 224 390 1,192 969
General and
administrative....... 355 466 657 1,928 2,463
Depreciation and
amortization......... 126 143 345 3,248 3,527
Compensation charge
for issuance of
common stock and
stock options........ -- -- 408 -- --
------- ------- ------- ------- -------
Total operating
expenses........... 1,032 1,262 2,618 8,359 9,749
------- ------- ------- ------- -------
Income (loss) from
operations............. 103 (40) (572) (2,040) (1,230)
Other income (expense),
net.................... (39) (38) (96) (739) (771)
------- ------- ------- ------- -------
Net income (loss)....... $ 64 $ (78) $ (668) $(2,779) $(2,001)
Preferred stock
dividends.............. (50) (50) (79) (165) (166)
------- ------- ------- ------- -------
Net income (loss)
applicable to common
stockholders........... $ 14 $ (128) $ (747) $(2,944) $(2,167)
======= ======= ======= ======= =======
Basic earnings net
(loss) per share
applicable to common
stockholders........... $ 0.00 $ (0.01) $ (0.05) $ (0.16) $ (0.12)
Weighted average common
shares outstanding..... 12,096 12,114 14,722 17,912 18,539
EBITDA (as defined)..... 229 103 180 1,209 2,297
Subscribers
(approximate): 19,000 20,000 118,000 142,000 188,000
|
31
Our quarterly operating results have fluctuated and will continue to
fluctuate from period-to-period depending upon certain factors. Factors that
may contribute to the variability of operating results include: the growth
rate of new customers, retention of existing customers, the timing of the
expansion of our operations, the payment of interest related to the fully
utilized revolving credit facility, the introduction of new and enhanced
services by us, competitive pricing pressures, changes in our ability to
negotiate favorable rates for the use of its network infrastructure, customer
demand for Internet services and increased costs for retaining employees.
In view of the significant growth of our operations, management believes
that period-to-period comparisons of its financial results should not be
relied upon as an indication of future performance and that we may experience
in the future significant period-to-period fluctuations in operating results.
We expect to focus in the near term on building and increasing our revenue
base, which will require additional expenses for personnel, marketing, and
network infrastructure that may adversely impact short term operating results.
As a result, there can be no assurance that we will be profitable on a
quarterly basis in the future and management believes that it will incur
losses in at least the near term.
Liquidity and Capital Resources
Our principal capital and liquidity needs historically have related to
funding the cash portion of our acquisitions, our sales and marketing
activities, the development and expansion of our network infrastructure, the
establishment of our customer service and support operations and general
working capital needs. The capital needs of our company were initially met in
1996 and 1997 by loan advances from Horizon Cable I Limited Partnership and
private placements of our securities to our principal stockholders, as further
described below. As we grew our operations during 1998, we received capital
from other sources, including cash provided by operating activities, proceeds
from the issuance of debt and notes payable and through private placements of
our securities, as further described below.
Net cash provided by operating activities was $2.7 million in 1998,
compared to net cash used in operating activities of $398,000 in 1997. The
primary sources of cash from operating activities in 1998 were increases in
deferred revenue of $1.2 million, increases in accounts payable and accrued
expenses of $1.3 million, and $3.9 million in depreciation and amortization.
These sources were partially offset by a $3.5 million net loss and increased
accounts receivable of $0.5 million.
Net cash used in investing activities was $34.3 million in 1998, compared
to net cash used in investing activities of $0.6 million in 1997. Cash used in
investing activities in 1998 consisted of $32.9 million to acquire seven ISP
businesses and $1.5 million for the purchase of capital equipment. Cash used
in investing activities in 1997 primarily relates to the purchase of capital
equipment.
Net cash provided by financing activities was $33.5 million in 1998,
compared to cash provided in financing activities of $1.5 million in 1997. The
primary sources of cash from financing activities in 1998 were net borrowings
of $30.0 million under our revolving
32
credit facility, net proceeds of $2.8 million from the issuance of notes
payable and net proceeds of $2.1 million from the issuance of series A
preferred stock, partially offset by a payment of $1.3 million for bank
financing fees.
In September 1998, we entered into a $40.0 million revolving credit facility
with a bank group led by Fleet National Bank. At March 31, 1999, $39.4 million
was outstanding. On April 13, 1999, we increased our availability under our
credit facility to $70.0 million on similar terms and conditions. Interest is
payable quarterly with the first payment on December 31, 1998. The bank
agreements allow us to elect an interest rate as of any borrowing date of
either the (1) prime rate or (2) LIBOR, plus a margin ranging from 1.5% to 3.5%
depending upon our funded debt to EBITDA ratio. The elected rate as of March
31, 1999 was approximately 8.0%. Automatic and permanent reductions of the
maximum commitments begin September 30, 2000 and continue until maturity.
In September 1998, we issued series A preferred stock and common stock for
gross proceeds of approximately $0.5 million to private investors and
cancellation of outstanding promissory notes. In July 1998, $4.3 million was
raised through the issuance of preferred stock, common stock and promissory
notes to private investors. In 1997, we raised $0.5 million from the issuance
of series A preferred stock to private investors.
As of March 31, 1999, our principal sources of liquidity consisted of $4.4
million of cash and cash equivalents, and approximately $0.6 million of
available credit under our revolving credit facility. In the opinion of
management, we will be able to finance our business as currently conducted and
as currently planned from operating cash flow, current working capital,
available borrowing capacity under our line-of-credit and the net proceeds of
this offering for a period of at least the next twelve months.
Year 2000 Compliance
Introduction. The term "year 2000 issue" is generally used to describe the
various computer and other problems that may result from the improper
processing of dates and date-sensitive calculations as the year 2000 approaches
and is reached. These problems arise from hardware and software unable to
distinguish dates in the "2000s" from dates in the "1900s" and from other
sources such as the use of special codes and conventions in software that use a
date field. These problems could result in a system failure of miscalculations
causing disruptions of operations, including among other things, a temporary
inability to process transactions, send invoices or engage in other normal
business activities. The year 2000 issue may pose additional problems due to
the fact the year 2000 is a leap year and some computers and programs may fail
to recognize the extra day.
Our State of Readiness. We have undertaken a preliminary assessment of our
vulnerability to the year 2000 issue with respect to our software network and
information technology. We based this assessment upon a review of our network
and software, communications with our software vendors, telecommunications
providers and third-party suppliers. As part of that review, we have received
disclosure statements from Oracle, Cisco, Gateway and Sun Microsystems, some of
our principal vendors, certifying that their
33
equipment is ready for the year 2000. Based on this preliminary assessment, we
believe that the year 2000 issue will not have a material adverse effect on our
financial results. We are continuing to assess, however, the potential impact
of the year 2000 issue on our operations. As a result, we have developed and
implemented a year 2000 readiness plan and we are in the process of testing
equipment, and repairing or replacing equipment if necessary, to ensure its
readiness for the year 2000. We will have no control, however, over the year
2000 compliance of third parties.
Cost to Address Year 2000 Issues. Our historical costs to assess our year
2000 readiness have been negligible. We are not currently able to estimate the
final aggregate cost of addressing the year 2000 issue because funds may be
required as a result of future findings. We do not expect these costs to have
an adverse effect on our business and financial results.
Risks Presented by Year 2000 Issues. We are still in the process of
evaluating potential disruptions or complications that might result from year
2000-related problems. Our failure to correct a material year 2000 problem
could result in a complete failure or degradation of the performance of our
network or other systems, including the disruption of operations and normal
business activities. Presently, however, we believe that the most reasonably
likely worst case scenario related to the year 2000 issue is associated with
third-party services and products. Specifically, Voyager.net is heavily
dependent on a significant number of third-party vendors to provide both
network services, telecommunications lines and equipment. A significant year
2000-related disruption of the services provided to us by third-party vendors
could cause customers to consider seeking alternate Internet access providers
or cause an unmanageable burden on customer service and technical support,
which in turn could materially and adversely affect our results of operations,
liquidity and financial condition. We are not presently aware of any vendor-
related year 2000 issue that is likely to result in such a disruption.
Furthermore, Voyager.net's business depends on the continued operation of, and
widespread access to, the Internet. To the extent the year 2000 issue disrupts
the normal operation of the Internet, our results of operations, liquidity and
financial condition could be materially and adversely affected. Although there
is inherent uncertainty in the year 2000 issue, we expect that as we progress
with our year 2000 readiness plan, the level of uncertainty about the impact of
the year 2000 issue on us will be reduced and we should be better positioned to
identify the nature and extent of material risk to us as a result of any year
2000 disruptions.
Our Contingency Plans. We do not have, but we will continue to evaluate the
need for, a contingency plan for business risks that might result from year
2000-related events. As we progress with our year 2000 readiness plan and
identify specific risk areas, we intend to timely implement appropriate
remedial actions and contingency plans.
34
Forward-Looking Statements
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "may," "will," "expect," "anticipate," "believe," "estimate" and
"continue" or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain
projections of our future results of operations or of our financial condition
or state other "forward-looking" information. We believe that it is important
to communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control. The
factors listed in the sections captioned "Risk Factors" as well as any
cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in the "Risk Factors" section and elsewhere in this prospectus
could have a material adverse effect on our business, operating results and
financial condition.
35
BUSINESS
Overview
Voyager.net is the largest Internet service provider focused on the
Midwestern United States. We serve residential and business customers in
markets within our target region which we believe have been historically under-
served by the larger, national ISPs. Our primary service offerings are dial-up
Internet access to residential subscribers and dedicated and dial-up Internet
access to businesses. We also provide a variety of value-added Internet
services such as Web hosting, customer Web server co-location, domain name
registration and e-commerce. In addition, we offer enhanced communications
services such as broadband Internet access services using DSL and cable modems,
and long distance voice services bundled with our Internet access products. We
operate the largest dial-up ISP network in the Midwest in terms of geographic
coverage, with approximately 150 Voyager.net-owned points of presence, or POPs,
in Michigan, Wisconsin, Ohio, Illinois and Indiana.
Industry Background
The Internet has rapidly developed into an integral business and personal
communications tool. Consumers and businesses are demanding solutions which
provide them with the ability to access and utilize the Internet in a fast,
secure and reliable manner. Factors driving the growth in the number of
Internet users and Web sites include the large and growing installed base of
low-cost personal computers, advances in the performance and speed of personal
computers and modems, improvements in network infrastructure, easier access to
the Internet and the increasing importance of the Internet as a communications
and commercial medium. IDC estimates that the number of Internet users in the
United States is expected to increase 27.4% annually from 51.6 million in 1998
to 135.9 million in 2002.
U.S. consumers account for the highest concentration of global Internet
users. According to IDC, the number of household on-line subscriptions is
expected to increase from 29.8 million in 1998 to 67.6 million in 2002. This
implies that the on-line penetration rate for U.S. households will rise from
29.5% in 1998 to 64.0% by 2002. Industry experts expect a substantial share of
the residential growth to be derived from the small office and home office
market. This segment represents heavy users of personal computers and
communications services, resulting in high Internet access service needs.
According to IDC, residential Internet access service revenues will more than
double from $4.7 billion in 1998 to $10.6 billion in 2002.
Businesses have also rapidly established corporate Internet sites and
connectivity as a means to expand customer reach and improve communications
efficiency. Many businesses are utilizing the Internet as a lower cost
alternative to certain traditional telecommunications services. The Strategis
Group estimates that the penetration of U.S. businesses connected to the
Internet will rise from 66% in 1998 to nearly 80% in 2003, resulting in 4.1
million businesses being connected to the Internet by 2003. The number of
individual U.S. corporate users is expected to increase from 34.9 million users
in 1998 to 50.3 million users in 2003. According to IDC, U.S. corporate
Internet access service revenues are expected to more than triple from $2.9
billion in 1998 to $10.1 billion in 2002.
36
The ISP market is highly fragmented. As of the end of 1998, there were over
4,850 ISPs in the U.S., according to Boardwatch Magazine. These Internet
service providers vary widely in their geographic coverage, customer focus and
the nature and the quality of their services. The ISP market is generally
segmented into three broad categories:
. National ISPs are typically full-service providers that offer a broad
range of Internet access and value-added services to businesses;
. Regional ISPs which include the regional telephone operators, competitive
local exchange carriers and Internet access providers, such as
Voyager.net; and
. Local ISPs which are typically closely-held start-ups or small companies
serving a single market.
The vast majority of Internet service providers are small, local operations
with fewer than 10,000 customers each. According to Boardwatch Magazine, there
are approximately 40 national backbone providers and there are approximately
180 national dial-up providers.
Despite the growth in the ISP industry, very few Internet service providers
are profitable. In addition, the dramatic growth of Internet usage and
dependency has prompted customers to demand from their ISPs more enhanced
technology and services and reliable, high speed, quality Internet access.
Thus, ISPs will be faced with expending significant capital resources to
attract and retain subscribers. As a result, the industry is expected to
undergo substantial consolidation over the next few years, particularly among
the local ISPs, who typically lack the financial resources necessary to
continue to compete. We believe that the anticipated growth in Internet use and
the significant number of under-capitalized local ISPs within our region
meeting our acquisition criteria provides us with an excellent opportunity to
extend our scalable business model and become one of the largest Internet
service providers in the U.S.
The Voyager.net Solution
The business model that we have developed has resulted in substantial
revenue growth, reduced customer acquisition costs and significant EBITDA while
maintaining high customer satisfaction. Our business model is based on the
following key principles:
. We control our customer acquisition costs by focusing on markets in the
Midwestern United States, thereby reducing the need for more expensive
broad based marketing campaigns;
. We focus on delivering high quality products and services and superior
customer care which we believe results in significant word of mouth
referrals and customer retention greater than industry average;
. We own and manage 100% of our network equipment and customer care
operations which significantly reduces our telecommunication costs and
provides us with greater control over our network utilization,
efficiency, scalability and quality; and
37
. We realize significant cost savings and economies of scale from our
acquired businesses by eliminating duplicated network infrastructure
and consolidating sales and marketing, network operations, customer
support and back office operations.
The success of our business model is evidenced by a recent industry survey
in which we ranked 10th among all ISPs in the U.S. in terms of access speed
and reliability, customer satisfaction and product offerings.
Our Growth Strategy
Our overall strategy is to continue as the dominant Internet access
provider to residential and business customers in the Midwest. We intend to
continue to capitalize on our scalable business model and strong regional
presence by executing a regional growth strategy through internal growth and
strategic acquisitions.
Internal Growth Strategy. The key principles of our internal growth strategy
are as follows:
. Maintain our superior customer care and service in order to increase
customer referrals and customer retention. Customer care is at the heart
of running an Internet service provider. In general, the ISP industry has
struggled to provide a consistent quality of service. Busy signals and
inattentive customer support staff represent the principal causes for
subscriber cancellations. We believe that we are well-positioned with
established systems, procedures and a core management team and staff to
manage significant growth without sacrificing quality. We have staffed our
two large call centers located in East Lansing, Michigan and New Berlin,
Wisconsin with more than 170 employees, or more than 60% of all
Voyager.net employees. We have complemented our customer service support
by developing a proprietary, Web-based customer care and billing solution.
We believe this system gives us a competitive advantage versus other
Internet service providers and offers the following benefits:
. Easy internal use from any computer connected to the Internet;
. Beginning to end customer service tracking including automated service
rendering and tracking of marketing channels;
. Complete technical support history by account;
. Real-time third-party account creation (order fulfillment);
. Automated billing and creation of new service plans (including usage
based billing);
. Tracking of usage and creation of usage reports;
. Automated marketing reports and information on subscriber churn; and
. Third-party accessibility and controllable levels of customer
interactivity.
As a result of these customer care initiatives, our customer support
telephone hold times are consistently close to two minutes, compared to an
industry average of more than five minutes, and our average monthly
customer churn of 2.6% is significantly less than the industry average.
38
. Continue to invest in our network to provide our subscribers with the most
reliable, high quality, high speed Internet access services at lower costs.
We believe that continually improving our network capacity and speed
increases our customers' satisfaction and decreases subscriber churn and
subscriber acquisition costs. The number of subscribers per phone line, or
contention ratio, is a critical factor in the ISP business, since
overloading and significant busy signals are the primary causes of
subscriber churn. Our goal is zero busy signals. Our network capacity
includes approximately 150 points of presence and approximately 21,000
phone lines equipped with dial-in digital modems for our customers. As a
result, our average ratio of subscribers to dial-in modems, or contention
ratio, is approximately 9:1, significantly better than the industry average
of approximately 13:1. More importantly, we focus on utilization ratios at
each POP to ensure that each dial-in location maintains sufficient phone
lines. We also recently upgraded the speed, capacity and reliability of our
telecommunications infrastructure by leasing lines from multiple incumbent
local exchange carriers, or ILECs, and CLECs. We connect our POPs to our
two main network operating centers in East Lansing, Michigan and New
Berlin, Wisconsin using high speed T-1 or T-3 leased line connections, and
from there we have multiple high-speed T-3 connections to the Internet.
Since we own and manage 100% of all network equipment at our POPs, rather
than lease the equipment from national carriers, we are able to more
efficiently load our customers on to each POP and reduce our
telecommunication cost per customer, the single largest expense for an ISP.
. Continue our highly focused sales and marketing efforts and use of
strategic reseller arrangements. We market our services through a
combination of local, direct advertising and word-of-mouth referrals.
Because we currently focus exclusively on markets in contiguous states in
the Midwest, including numerous small- to medium-sized markets, we can
avoid broad-based and expensive advertising campaigns and have lower
customer acquisition costs than most of our competitors. Our attention to
customer care has fostered brand names within our region leading to
significant customer-to-customer referrals, which account for over 70% of
all new sales. We also benefit from the ease of use of our customer
application and support system. Our customer sign-up process is customer-
friendly and is easily accomplished through our Web site or by calling our
customer support personnel, and, unlike many service providers' sign-up
procedures, a Voyager.net user can be on-line in a matter of minutes. In
addition, we have entered into strategic reseller agreements with several
companies to further market our services within local communities.
. Offer enhanced communications services such as DSL, cable modems and
bundled voice and data services at competitive rates. We presently offer a
broad range of Internet services to residential and business customers such
as dial-up and dedicated access, Web hosting, Web server co-location,
domain name registration and various e-commerce services. We believe,
however, that consumer users, businesses and residential users, including
home office users, are increasingly seeking high-speed, high-capacity
Internet access and a single source for their Internet and
telecommunications needs. To meet these demands, we have begun offering
more enhanced services to our subscribers, such as:
39
. Expanded high speed Internet access through DSL and cable modems;
. Bundled voice and data telecommunications services; and
. Branded Web-TV services for Internet access without a computer.
As part of our goal to offer our subscribers these enhanced services,
we recently filed an application with the State of Wisconsin to obtain
status as a competitive local exchange carrier. As a CLEC, we will gain
access to wholesale telecommunication rates and related network elements
and be able to offer a comprehensive package of bundled voice and data
telecommunications services to our subscribers. We believe that providing
enhanced service product offerings will satisfy this emerging customer
trend of desiring a single source vendor for all telecommunications
services, adding to our competitive strengths and further entrenching us
with an expanding customer base. We anticipate filing for CLEC status in
other states within our region in the future.
External Growth Strategy.
Our external growth strategy is to continue to acquire and integrate local
and regional ISPs to increase network utilization and enter new markets. The
key elements of our acquisition strategy are as follows:
. Identify suitable acquisition candidates. Our management conducts an
extensive review of ISPs within our target universe to identify promising
potential acquisition candidates. Desired target characteristics include:
. high customer growth and customer retention rates;
. compatibility of product/service mix;
. cash flow positive operations;
. dominant local market presence;
. identifiable scale efficiencies; and
. expanded contiguous market reach within the Midwest or increased
utilization of existing POPs.
Using this criteria, during the past ten months our acquisition team has
successfully identified and consummated the purchase of eleven ISP
businesses, representing approximately 135,000 subscribers. These
acquisitions have helped us become one of the twenty largest ISPs in the
U.S. in terms of subscribers.
We believe that consolidation in the ISP industry will continue and that
significant opportunities exist for future growth through the acquisition
of ISPs within our region. We have currently identified approximately 50
additional companies in the Midwest with between 5,000 and 20,000
subscribers, representing approximately 500,000 potential subscribers,
which meet our acquisition criteria. We believe that our regional focus,
experienced management team and proven integration plan provides us with a
competitive advantage over national ISPs and other consolidators and allows
us to more efficiently integrate the acquired businesses. By acquiring
businesses within
40
one region, we also are able to leverage our existing network and
administrative operations while gaining a foothold in markets within the
region, thereby achieving significant economies of scale.
. Manage the acquisition process. Our acquisition team is an important
element of this acquisition strategy. We have a dedicated acquisition team
whose responsibility is to manage the acquisition process, including the
identification, selection and integration of the acquired business. Our
acquisition team is continually evaluating acquisition opportunities, and
has developed strong relationships with Midwest ISP operators and mergers
and acquisitions professionals. Our acquisition team also works closely
with our sales and marketing, network engineering and executive management
teams to identify potential cost savings and synergies for each acquisition
candidate and to develop a detailed acquisition and integration plan.
. Integrate the acquired businesses. We also have developed a detailed
integration plan for our acquired companies which focuses on reducing
redundant costs and consolidating operations within a short time after
closing. The first step of our integration process is to assume control of
all the financial operations as of the date of acquisition to ensure strict
financial controls over cash and financial reporting. We also centralize
all of the accounting and related financial functions at our main office in
East Lansing and incorporate the acquired subscriber accounts into our
customer care and billing system to take advantage of the functionality and
scalability of our systems. Once the acquired company's systems are
transferred, we then consolidate all of the customer support and network
operations into our two call centers in East Lansing, Michigan and New
Berlin, Wisconsin, thus eliminating various offices, personnel and their
related costs. The final component of our integration process is to
capitalize on our scale economies. We eliminate duplicate network costs and
bandwidth to the Internet, thereby significantly reducing costs. We also
realize cost savings by re-negotiating more favorable pricing on
telecommunication lines and equipment purchases. Our scale allows us to
demand better pricing from other third-party vendors as well. Our
successful integration of the acquired companies and the realization of the
scale economies relating to our acquisitions has contributed to the
increase in our EBITDA margins since 1998.
Voyager.net Service Offerings
Internet Access Services. We offer a full range of dial-up Internet access
services to residential subscribers and dedicated and dial-up Internet access
to business customers. By selecting between the various types of access
services and pricing plans available, subscribers can select services that fit
their specific needs.
. Dial-up access. Our residential access services are designed to provide
our subscribers with reliable Internet access through a dial-up modem. Our
dial-up Internet access service includes:
. local access numbers;
. personal Web space;
. multiple e-mail accounts;
41
. toll-free customer support;
. light usage plans; and
. Internet chat and news groups.
The price plans for our dial-up access services range from $9.95 to
$19.95 per month. We also offer prepaid plans for quarterly, semi-annual
and annual access. A majority of our residential subscribers pay their
monthly fee automatically by a pre-authorized monthly charge to their
credit card.
. Dedicated access. We offer dedicated connectivity to both business and
residential subscribers via 56 Kbps to T-1 dedicated access, integrated
services digital network lines and frame relay communications services for
those customers requiring greater speed and reliability. The price plans
for dedicated access services range from $30 to $1,000 per month.
. Cable modems. Through a reseller arrangement with Millennium Digital Media
Systems, L.L.C., we offer broadband Internet access in certain locations
through cable modems and provide the technical and billing support to this
fast-growing segment of the Internet access business. The retail price for
the cable modem service is $49.90 per month for residential customers and
$79.95 per month for business customers, including the modem for 500 Kbps
two-way access.
. DSL. Through various reseller arrangements with CLECs, we offer high-speed
access using DSL to both residential and business customers in selective
areas. The retail price for this service ranges from $90 to $225 per month
depending upon the speed of the service. We currently offer DSL access at
speeds of 384 Kbps, 768 Kbps, and 1.5 Mbps.
. Set-top television access. We have begun offering in certain markets
Internet access via alternative mediums, such as set-top television boxes
that seek to provide customers with basic Internet and connectivity service
that complements traditional PC-based access.
Web Services. Our Web services help organizations and individuals implement
their Web site goals. We offer various Web hosting and other services that
enable customers to establish a Web site presence without maintaining their own
Web servers and high speed connectivity to the Internet.
. Web hosting. Our Web hosting service includes state-of-the-art Web servers,
high speed connections to the Internet at our network operations centers,
or NOCs, domain name registration, Web page design, development,
maintenance and traffic reporting and consulting services. We currently
have over 5,000 Web hosting subscribers. The price plans for our Web
services range from $25 to $100 per month.
. Co-location. We offer co-location services for customers who prefer to own
and have physical access to their servers but require the reliability,
security and performance of our on-site facilities. Our co-location
customers house their equipment at our secure NOCs and receive direct high
speed connections to the Internet.
. E-commerce. We recently introduced our electronic commerce solution for
business customers through an agreement with INEX, which allows businesses
to create and operate an on-line "storefront" within minutes and sell
merchandise over
42
the Internet. Our e-commerce services include secure on-line payment
processing services, technical support and additional e-mail accounts.
. Local content. We offer our subscribers customized, local, community-
specific content, such as weather, sports and news, through relationships
with national providers of local content, such as Snap.com! and Planet
Direct as well as various local providers.
Other Services and Offerings. We also offer other enhanced communications
services to meet the one-stop shopping demands of residential and business
customers.
. Virtual Private Networks. Our custom VPN solutions enable our customers to
deploy tailored, IP-based mission-critical business applications for
internal enterprise, business-to-business and business-to-customer data
communications on our network while also affording high-speed access to the
Internet. We offer our customers a secure network on which to communicate
and access information between an organization's geographically dispersed
locations, collaborate with external groups or individuals, including
customers, suppliers, and other business partners and use the Web to access
information on the Internet and communicate with other Web users.
. Long distance and other telecommunications. We currently resell long
distance telecommunications services provided by IXC Communications
Services, Inc. that include inter-lata, intra-lata, 800 service, calling
cards and prepaid cards to our Internet customers through our VoyagerLink
operations. We currently offer this interstate and intrastate long-distance
service to our customers at 9 cents per minute, with no set-up or monthly
charges. We also have begun offering bundled voice and data services to
customers who seek Internet access and telecommunications services from a
single service. We also recently filed an application with the state of
Wisconsin to obtain status as a CLEC, and we anticipate making similar
applications in other states within our region.
Sales and Marketing
Marketing. Our marketing philosophy is based on the belief that a consumer's
selection of an Internet service provider is often strongly influenced by a
personal referral. Accordingly, we believe that the high customer satisfaction
of our subscriber base has led to significant word-of-mouth referrals. Our
referral incentive program awards subscribers one month of free service for
every customer which joins Voyager.net from their recommendation. As a result,
over 70% of our new sign-ups come from existing subscriber referrals. Our
proprietary customer care and billing system automatically tracks and credits
the subscriber's account, thus providing us with valuable marketing information
and flexibility with this program. We also market our services through
strategic relationships with value added resellers in the local communities,
such as computer stores, trade associations, unions, Web development companies,
LAN administrators and other retail stores which represent and promote us on a
commission basis. These relationships are a significant source of new
customers. In addition, we offer free Internet training classes within our
markets to cultivate interest in the Internet and increase brand recognition.
We do not use mass marketing media as a major source of acquiring new
customers, but instead believe that by providing superior customer service and
developing strong relationships within local communities, particularly in
small- and
43
medium-sized markets, we can continue to grow organically at rates greater than
the industry average with very low subscriber acquisition costs.
Web-based Marketing. We maintain a Web site (www.voyager.net) that provides
Internet users with the opportunity to learn about us and enroll in one of our
Internet access service plans. Upon viewing information on our services,
potential customers can either subscribe online or contact a customer support
employee for enrollment. Customers who sign-up on-line or through our 800
number have their accounts created instantly and are thus able to use their
accounts within minutes of account activation.
Free CDs and Diskettes. Upon the request of prospective customers, we
distribute free software via CD and diskettes that contain both the Netscape
browser software for Win95, Windows 3.1 and Macintosh as well as Microsoft's
Internet Explorer 4.0. The software is configured to facilitate installation
and connection to a point of presence. Individuals receiving the CD or
diskettes have the opportunity to obtain the free browser software contained on
the CD by opening an account with us, either online or via a toll-free
telephone number. New customers can be on-line in a matter of minutes after
opening an account on-line or by calling our toll-free telephone number.
Business Sales and Support. We have a business sales and support team
dedicated to selling and providing customized support to our growing small- and
medium-sized business customers. Our business teams include well-trained
support personnel that are available 24 hours a day, seven days a week. The
business teams are located throughout our target region. This strong local
presence allows us to meet face-to-face with our business customers to evaluate
their needs and respond with customized solutions. Our locally-based sales and
support teams are supported by additional network engineers at our headquarters
for trouble-shooting on specific problems.
Customer Service and Technical Support
We believe that customer care and support has been critical in our success
in retaining and attracting subscribers. We provide our customer service and
technical support through our two large call centers located in East Lansing,
Michigan and New Berlin, Wisconsin. We provide 100% of our customer care
internally, and do not outsource any customer operations to third party
providers. We have staffed these call centers with over 170 employees, or more
than 60% of our workforce, and representatives are available 24 hours a day,
seven days a week to field customer questions and inquiries. These two centers
are fully-integrated so that both centers can handle calls from subscribers
located anywhere within our region. This interoperability allows us to more
efficiently handle support calls, thereby reducing telephone hold times. We
recently upgraded our phone system that intelligently routes calls, tracks
important call-in data, automatically answers certain questions and moves
customers quickly through the call-in process. Our comprehensive staff training
program and incentive compensation program linked to customer satisfaction has
led to significant improvements in the time required to move our subscribers
through the various calling queues. In addition to using our call centers,
subscribers can also e-mail questions directly to our technical support staff,
as well as find solutions on-line through the use of the tutorials found at our
Web site. Our free Internet training and
44
educational classes within our markets also allow our customers and potential
subscribers to ask questions about the Internet and our services.
Network and Technology
We operate the largest dial-up ISP network in the Midwest in terms of
geographic coverage, with approximately 150 Voyager.net-owned points of
presence in Michigan, Indiana, Illinois, Ohio and Wisconsin.
Network Infrastructure. Our network infrastructure and related systems are
designed to provide fast, reliable, high quality Internet access services,
including dedicated access. We designed and built our network to specifically
service Internet (data) traffic. The network is comprised primarily of the
latest Cisco Systems' routing and switching equipment, which provides a common
platform for increased flexibility and maintenance while allowing for the use
of advanced routing protocols to quickly and dependably deliver customer
traffic. Our network POPs are linked by T-1, multiple T-1 or DS-3 capacity
connections, which are scalable up to OC-48, if necessary. In addition, we have
two NOCs to oversee traffic flows and general network operations, as opposed to
a single network operating center as found in many national networks, which
helps create redundancy and ensures a secure and reliable network. We are
continuously improving our network infrastructure and connectivity costs
through our relationships with ILECs such as Ameritech Corporation and GTE
Corporation as well as with CLECs such as Brooks Fiber (MCI WorldCom), Phone
Michigan (McLeod), Time Warner, Coast to Coast and Focal Communications.
Our POPs are linked to regional network nodes, or hubs, which for us happen
to be the two NOCs. These network nodes are linked to the Internet by fiber
optic connections and employ asynchronous transfer mode, or ATM, frame relay
and other methods of handling traffic efficiently. Interlinked nodes allow
Internet users to access sites located on other network nodes. In the event
that one of our subscribers wishes to access a Web site that is located on
another service provider's network, data is directed to a network access point
where information sharing is conducted under arrangements known as peering. The
flow of information across a network access point allows information to be
downloaded from one service provider's network to a subscriber on another
service provider's network.
Points of Presence. Our approximately 150 dial-in points of presence
primarily utilize digital access servers manufactured by 3Com Corporation and
Lucent Technologies, Inc. These servers allow for a variety of customer
connections from standard dial-up (up to 56k V.90) to integrated digital
services network and T-1 access speeds. Our entire network has been
reconfigured to include redundant data circuits which will automatically route
customer traffic in the event of a failure. Our network topology offers high
levels of performance and security. Through various relationships with CLECs,
we have been able to reduce the overall number of points of presence by
consolidating several of them into "SuperPOPs" with expanded calling areas. The
SuperPOP allows us to consolidate our equipment into one large modem bank and
eliminate various telecommunication links from our POPs back to the network
operating center, thereby creating enhanced network reliability and reducing
telecommunication costs. We have
45
aggressively worked with our providers to create additional SuperPOPs and we
will continue to explore opportunities to create additional SuperPOPs in the
future.
Network Operation Centers. We have two main NOCs, in East Lansing, Michigan
and New Berlin, Wisconsin. These two hubs house all of our internal network
equipment (servers, routers, mail, hosting, disk arrays, etc.) as well as our
main routing equipment and connection to the Internet. The two hubs have
recently been interconnected to provide redundancy and to insure the highest
quality network. The hubs are monitored on a 24 hours per day, seven days per
week basis in order to provide the highest level of network performance.
Peering Relationships. Peering is the act of exchanging data across
networks, typically at specific, discrete locations. By allowing separate
networks to exchange data, users on a particular Internet service provider's
network are able to access information and communicate with users on another
provider's network. Many formal peering points exist where several dozen ISPs
and other providers exchange data, including network access points. Internet
service providers can also run connections to peer with several different
providers (known as multihoming). Multihoming allows an ISP to provide better
service, as inbound and outbound data can go over different routes if a
particular network is overloaded. We have multihoming relationships at multiple
points with several different organizations, including Verio, Inc. in Ann
Arbor, Michigan, NAP.net in Chicago, and MCI and Savvis in Kalamazoo, Michigan,
thereby building in network redundancy that allows for better connectivity for
its customers.
Integrating Acquired Networks. As we continue to play a leading role in
consolidating the Internet service provider industry, one of our most important
tasks is to configure the acquired equipment and network into our regional IP
network. We will continue to gain scale economies by eliminating redundant and
expensive Internet connectivity and better utilizing our current
infrastructure. Our integration plan calls for connecting the acquired points
of presence directly to our network at the most cost effective point and
eliminating duplicate Internet telecommunication costs. We typically connect
within three to six months after the acquisition so as to allow for a prompt
yet smooth integration of the acquired networks and to reduce service
disruptions.
Competition
The Internet services market is extremely competitive and highly fragmented.
We face competition from numerous types of providers in our five state region
and anticipate that competition will only intensify in the future as the ISP
industry consolidates. We believe that the primary competitive factors
determining success as an Internet service provider are:
. Accessibility and performance of service;
. Quality customer support;
. Price;
. Access speed;
46
. Brand awareness;
. Ease of use; and
. Scope of geographic coverage.
We believe that we have competed favorably based on these factors,
particularly due to:
. Regionally focused operating strategy;
. Superior customer care and service;
. High performance of Voyager.net-owned network facilities; and
. Competitive, multi-tiered pricing policy.
Our current competitors include many large companies that have substantially
greater market presence, brand name recognition and financial resources than
us. Some of our local or regional competitors may also enjoy greater
recognition within a particular community. We currently compete, or expect to
compete, with the following types of companies:
. Established on-line information service providers, which provide basic
Internet access as well as proprietary information not available
through public Internet access, such as America Online, Inc.;
. National ISPs, including EarthLink Network, Inc. and MindSpring
Enterprises, Inc.;
. Numerous regional and local Internet service providers, some of which
have significant market share in their particular market area;
. Providers of Web hosting, co-location and other Internet-based
business services, such as Verio, Inc.;
. Computer hardware and software and other technology companies that
provide Internet connectivity with their products, including IBM and
Microsoft Corporation;
. National long distance carriers such as AT&T Corporation, MCI WorldCom
and Sprint Corporation;
. Regional Bell operating companies and local telephone companies;
. Cable operators, including Tele-Communications, Inc. and Time Warner
Cable; and
. Nonprofit or educational ISPs.
Many of the major cable companies have announced that they are exploring the
possibility of offering Internet connectivity, relying on the viability of
cable modems and economical upgrades to their networks. Cable companies,
however, are faced with large-scale upgrades of their existing plant equipment
and infrastructure in order to support connections to the Internet backbone via
high-speed cable access devices. We believe that there is a trend toward
horizontal integration through acquisitions or joint ventures between cable
companies and telecommunications carriers. The acquisition of Tele-
47
Communications, Inc. by AT&T Corporation is indicative of this trend. Other
alternative service companies have also announced plans to enter the Internet
connectivity market with various wireless terrestrial and satellite-based
service technologies. In addition, several CLECs have launched national or
regional DSL programs providing high speed Internet access using the existing
copper telephone infrastructure. Several of these CLECs have announced
strategic alliances with local ISPs to provide broadband Internet access. We
also believe that manufacturers of computer hardware and software products,
media and telecommunications companies and others will continue to enter the
Internet services market, which will intensify competition. Any of these
developments could materially and adversely affect our business, operating
results and financial condition.
Government Regulation
The Federal Communications Commission, or FCC, exercises jurisdiction over
all facilities of, and services offered by, telecommunications carriers to the
extent that they involve the provision, origination or termination of
jurisdictional interstate or international communications. Some state
regulatory commissions retain jurisdiction over the same facilities and
services to the extent they involve origination or termination of
jurisdictional intrastate communications. In addition, as a result of the
passage of the Telecommunications Act of 1996, state and federal regulators
share responsibility for implementing and enforcing the domestic pro-
competitive policies of the Act. In particular, state regulatory commissions
have substantial oversight over the provision of interconnection and non-
discriminatory network access by ILECs. Municipal authorities generally have
some jurisdiction over access to rights of way, franchises, zoning and other
matters of local concern.
Internet operations are currently not subject to direct regulation by the
FCC or any other governmental agency (other than regulations applicable to
businesses generally). Due to the increasingly widespread use of the Internet,
however, it is possible that additional laws and regulations may be adopted.
The FCC continues to review its regulatory position on the usage of the
basic network and communications facilities by ISPs. Even though the FCC
determined in April 1998 that ISPs should not be treated as telecommunications
carriers and therefore not regulated, it is expected that future Internet
service provider regulatory status will continue to be uncertain. Indeed, in
that report, the FCC concluded that certain services offered over the Internet,
such as phone-to-phone IP telephony, may be functionally indistinguishable from
traditional telecommunications service offerings and their non-regulated status
may have to be re-examined. Although the FCC has thus far decided not to allow
local telephone companies to impose per minute access charges on ISPs, and that
decision has been upheld by the reviewing court, further regulatory and
legislative consideration of this issue is likely.
To the extent that an end user's call to an Internet access provider is
local rather than long distance, the local telephone company that serves the
ISP may be entitled to reciprocal compensation from the end user's local
telephone company. Reciprocal compensation is a reimbursement from one local
telephone company to a second one for
48
handling calls that originate with the first local telephone company and
terminate with the second one. To the extent that a call from an end user to an
ISP is considered intrastate, the local telephone company serving an ISP would
be entitled to reciprocal compensation. This payment of reciprocal compensation
reduces the local telephone company's costs and ultimately reduces the ISP's
costs. The FCC recently determined that most, but not all, traffic to an
Internet access provider is interstate in nature rather than local. This
determination could potentially eliminate the payment of reciprocal
compensation to the local telephone company, which ultimately may increase our
costs. The FCC has yet to rule on the specific issue of reciprocal compensation
and ISP traffic and has currently left individual state regulators to determine
whether reciprocal compensation should be paid. These individual state
decisions may affect our costs.
We have filed for authorization as a competitive local exchange carrier with
the State of Wisconsin and we anticipate that we will seek CLEC status in other
states in the future. To the extent we conduct business as a CLEC, the
telecommunications services that we provide will be subject to federal, state
and local regulation, which may include tariff and price listing requirements
and state certification proceedings. State regulatory authorities exercise
jurisdiction over intrastate services. Local authorities may also have
regulatory power over certain aspects of our CLEC operations. In addition,
pursuant to the Telecommunications Act of 1996, the FCC is required to
establish a subsidy mechanism for universal telephone service to which our
competitive local exchange carrier services will be required to contribute
based on telecommunications revenues. The Act also requires CLECs to make their
services available for resale by other carriers, to interconnect their networks
and ensure they interoperate and provide non-discriminatory rights-of-way,
offer reciprocal compensation for termination of locate traffic, and provide
dialing parity and local telephone number portability. The Act also further
reserves the right for individual states to impose additional state
regulations, including subsidies, which are consistent with the Act. We are
unable to predict how the State of Wisconsin and the other states in which we
become certified as a CLEC in the future, if any, will regulate our services.
By providing interstate, intrastate and international services as a
competitive local exchange carrier, we would generally be subject to tariff or
price list filing requirements pursuant to which we would be required to
publicly disclose, or in some instances obtain approval of, the terms,
conditions and prices for telecommunications services prior to or soon after
offering such services. In addition, individual states in which we may conduct
activities as a CLEC may subject us to state certification proceedings and
intrastate and local tariff regulations. These certifications generally require
a showing that the carrier has adequate financial, managerial and technical
resources to offer the proposed services consistent with the public interest.
While unusual, challenges to these tariffs and certification proceedings by
third parties could cause us to incur substantial legal and administrative
expenses. Many states also impose additional regulatory requirements, such as
minimum service quality reporting and customer service requirements and uniform
local exchange carrier accounting requirements. In addition, some state
statutes provide that changes in the ownership of a competitive local exchange
carrier's outstanding voting securities may require prior approval of the state
public utility commission. In fact, certain
49
jurisdictions may require an investor who acquires as little as 10% of a
competitive local exchange carrier's voting securities to obtain prior approval
for such acquisition because such ownership interest might be deemed to
constitute an indirect controlling interest in the carrier. See "Risk Factors--
State and Federal Government Regulation Could Require Us to Change Our
Business."
Intellectual Property
We have developed and acquired certain proprietary rights for which we have
sought and will continue to seek federal, state and local protection. We rely
on a combination of copyright, trademark and trade secret laws to protect our
proprietary rights, particularly related to our names and logos. "Voyager.net"
and our associated logo are names and marks which belong to Voyager.net. In
addition, we have registered VoyagerLink and several other names, marks and
logos, and have additional registrations pending for names and marks, under
which we do business at local levels within our region. An integral part of our
successful business strategy is our proprietary Web-based customer care and
billing system. We are exploring whether to seek patent protection with respect
to this customer care system and will act accordingly. We have each of our
employees sign an inventions agreement pursuant to which they agree that any
intellectual property rights developed while in our employment belong to
Voyager.net. We cannot assure you that the steps taken by us to protect our
proprietary rights will be adequate to prevent misappropriation of our
technology or that third parties, including competitors, will not independently
develop technologies that are substantially equivalent or superior to our
proprietary technology.
In connection with the delivery of our access and other services, we rely on
the use of products of software manufacturers that we bundle in our software
for users with personal computers operating on the Windows or Macintosh
platforms. While certain of the applications included in our start-up kit for
access services subscribers are shareware that we have obtained permission to
distribute or that are otherwise in the public domain and freely distributable,
certain other applications included in the start-up kit have been licensed
where necessary. We currently intend to maintain or negotiate renewals of all
existing software licenses and authorizations as necessary, although we cannot
be certain that such renewals will be available to us on acceptable terms, if
at all. We may also enter into licensing arrangements in the future for other
applications.
Employees
As of March 31, 1999, we had 278 employees, including 235 full-time
employees and 43 regular part-time employees. We are not a party to any
collective bargaining agreements covering any of our employees, have never
experienced any material labor disruption and are unaware of any current
efforts or plans to organize our employees. We consider our relationships with
our employees to be good.
50
Facilities
We lease each of our office locations. Our leases cover in the aggregate
approximately 47,000 square feet of space. We have two primary lease locations
which serve as our NOCs: East Lansing, Michigan, which is also our corporate
headquarters, with approximately 11,265 square feet, which lease expires in
2007; and New Berlin, Wisconsin, where we lease space at four locations
covering in the aggregate approximately 25,000 square feet under long term
leases. We also lease space, typically less than 50 square feet per location,
to house our network equipment at each of our POPs. We do not own any real
estate. We believe that our current facilities are suitable and adequate for
our business and, upon expiration of our leases, we do not anticipate any
significant difficulty in obtaining renewals or alternative space in our
desired markets.
Legal Proceedings
We have been, from time to time, involved in various litigation matters
arising in the ordinary course of business. We are not involved currently in
any pending legal proceedings that either individually or taken as a whole,
will have a material adverse effect on our business, financial condition and
results of operations.
51
MANAGEMENT
Executive Officers, Key Employees and Directors
Our executive officers, key employees and directors, their positions and
their ages as of March 31, 1999, are as follows:
Name Age Position
---- --- --------
Christopher Torto(1)...... 34 President, Chief Executive Officer and Vice
Chairman of the Board of Directors
Dennis Stepaniak.......... 41 Chief Financial Officer, Senior Vice President
and Treasurer
Osvaldo deFaria........... 35 Chief Operating Officer
Christopher Michaels...... 32 Chief Technology Officer
Michael Williams.......... 35 Vice President--Sales
David Shires.............. 36 Vice President--Business Development
Joan Holda................ 43 Vice President--Human Resources
Glenn Friedly(1).......... 50 Chairman of the Board of Directors
John Hayes(1)(2).......... 35 Director
Christopher Gaffney(1).... 36 Director
David Dietz(1)(2)......... 49 Director and Secretary
|
(1)Member of the compensation committee
(2)Member of the audit committee
Christopher Torto. Mr. Torto has served as Chief Executive Officer since
February 1998, and has served as President and Vice Chairman of the board of
directors since March 1999. From December 1995 to January 1998, Mr. Torto was
the President and Chief Executive Officer of Horizon Cablevision do Brasil, a
start-up cable television venture in Brazil. From 1992 to 1995, Mr. Torto
served as General Manager of Gtech do Brasil, a Brazilian subsidiary of GTech
Corporation. Mr. Torto received his Bachelor of Science degree in Finance from
the University of Maine and a Master of Business Administration degree from the
Harvard Graduate School of Business Administration.
Dennis Stepaniak. Mr. Stepaniak has been Senior Vice President, Chief
Financial Officer and Treasurer since March 1999. From 1995 to February 1999 he
served as Vice President of Finance and Chief Financial Officer for UMI, Inc.,
a database publishing company and wholly owned subsidiary of Bell & Howell
Corporation. From 1984 to 1995, he held various financial positions with UMI,
including Controller, Director of Financial Planning, and financial analyst.
Mr. Stepaniak received a degree in Finance and Economics from Alma College and
a Master of Business Administration degree from Eastern Michigan University.
Osvaldo deFaria. Mr. deFaria has served as Chief Operating Officer since
January 1999. Prior to that, Mr. deFaria spent the last 13 years at AT&T
Corporation in various management positions including Director of Internet
Telephony, Director of Consumer Marketing, Director of AT&T Puerto Rico, and
various other sales and marketing positions. Mr. deFaria received his Bachelor
of Science degree in Business Administration from the University of Maine and a
Master of Business Administration degree from Farleigh Dickinson University.
Mr. deFaria has also attended Harvard Business School's executive education
program.
52
Christopher Michaels. Mr. Michaels has served as Chief Technology Officer
since October 1998. Mr. Michaels was the co-founder of NetLink Systems, L.L.C.,
a regional Internet service provider based in Kalamazoo, Michigan, and served
as President from May 1995 to October 1998. From June 1991 to May 1995, Mr.
Michaels was a senior research engineer at Automotive Diagnostics, an
automotive test equipment company. Mr. Michaels received Bachelor of Science
degrees in Mathematics, Physics and Computer Science from Western Michigan
University.
Michael Williams. Mr. Williams has served as Vice President-Sales since
January 1999. From January 1998 to January 1999, Mr. Williams served in various
senior management positions at Voyager.net. From October 1997 to January 1998,
Mr. Williams was the Chief Financial Officer of Horizon Cablevision. From March
1994 to September 1997, he served as the Director of Finance for the Great
Lakes area of Nextel Communications, where he was responsible for the financial
management of wireless communications deployment, accounting functions and
financial planning and analysis. Mr. Williams received his Bachelor of Science
degree in Economics from the University of Wisconsin--Madison.
David Shires. Mr. Shires has served as Vice President-Business Development
since October 1998, and is responsible for leading all of the acquisition
efforts of Voyager.net. Mr. Shires was a co-founder of NetLink Systems, L.L.C.,
a regional Internet service provider based in Kalamazoo, Michigan, and served
as Vice President from May 1995 to October 1998. From March 1991 to March 1995,
he was a software engineer at Automotive Diagnostics, an automotive test
equipment company. Mr. Shires received his Bachelor's degree in Robotic
Engineering from Lake Superior State College and a Master of Business
Administration from Western Michigan University.
Joan Holda. Ms. Holda has served as Vice President-Human Resources since
July 1998. From 1986 to June 1998, she served as Director of Training and Human
Resources at Quality Dairy Company, a 700-employee retail and manufacturing
facility. Ms. Holda received a Bachelor of Science degree in Merchandising and
Management and a Masters in Labor and Industrial Relations from Michigan State
University. She received her certification as a Senior Professional in Human
Resources in 1997.
Glenn Friedly. Mr. Friedly is founder and Chairman of the Board of
Voyager.net. From 1983 to April 1999, Mr. Friedly was President of Horizon
Cablevision, a leading cable operator in Michigan. From 1972 to 1980, Mr.
Friedly worked for the State of Michigan, including as Executive Assistant to
Governor William G. Milliken. Mr. Friedly is the past President of the Michigan
Cable Television Association and has served on boards of the National Cable
Television Cooperative Association and on the Small Cable Business Association.
Mr. Friedly has been a member of the Michigan State Bar since 1980.
John Hayes. Mr. Hayes has served as director of Voyager.net since July 1995.
Mr. Hayes is a managing partner of Great Hill Partners, L.L.C., a private
equity firm. Mr. Hayes has been associated with Media/Communications Partners,
a private equity firm, since 1989 and has served as a partner since 1993. Mr.
Hayes serves as Chairman of
53
Horizon Telecom International, L.L.C., a cable television operator focused on
developing cable television systems in Brazil, and of Amstar Entertainment,
L.L.C., a movie theater developer. Mr. Hayes also serves as a director of
Language for Industry Worldwide, Inc., a consolidator of business translation
services companies, and Teltrust, Inc., a telecommunications services provider.
Christopher Gaffney. Mr. Gaffney has served as a director of Voyager.net
since December 1998. Mr. Gaffney is a managing partner of Great Hill Partners,
L.L.C., a private equity firm. Mr. Gaffney has been associated with
Media/Communications Partners, a private equity firm, since 1986 and has served
as a partner since 1992. Mr. Gaffney also serves as Chairman of the Board of
Adams Business Media, Inc., a business-to-business publishing company, and also
as a director of Medical World Communications, Inc., a provider of professional
continuing education programs and supplemental educational materials, Marks-
Ferber Communications, Inc., a community newspaper publisher, Sunburst Radio
L.L.C., a radio broadcaster, Tarver Holdings, Inc., a computer services
company, and several other privately held companies.
David Dietz. Mr. Dietz has served as a director and the Secretary of
Voyager.net since March 1999. Mr. Dietz, or a professional corporation owned by
Mr. Dietz, has been a partner of Goodwin, Procter & Hoar LLP and its
predecessor firm since 1984. Mr. Dietz is also a director of High Liner Foods
(USA), Incorporated and The Andover Companies, as well as several other
privately held companies.
Board Composition
The number of our directors is currently fixed at five. Following this
offering, our board of directors will be divided into three classes, each of
whose members will serve for a staggered three-year term. Our board of
directors will consist of two Class I directors, Christopher Torto and
Christopher Gaffney, two Class II directors, Glenn Friedly and David Dietz, and
one Class III director, John Hayes. At each annual meeting of stockholders, a
class of directors will be elected for a three-year term to succeed the
directors of the same class whose terms are then expiring. The terms of the
Class I directors, Class II directors and Class III directors expire upon the
election and qualification of successor director at the annual meeting of
stockholders to be held during the calendar year 2000, 2001 and 2002,
respectively.
Each officer serves under his employment agreement with us and at the
discretion of our board of directors. See "--Employment Agreements." There are
no family relationships among any of our directors or executive officers.
Committees of the Board of Directors
Audit Committee. The audit committee is responsible for recommending to the
board of directors the engagement of our outside auditors and reviewing our
accounting controls and the results and scope of audits and other services
provided by our auditors. The members of the audit committee are John Hayes and
David Dietz.
54
Option Committee. Under our 1998 Stock Option and Incentive Plan, the board
of directors may designate a committee of two independent directors to
administer the 1998 Stock Option and Incentive Plan. No option committee has
been appointed and the 1998 Stock Option and Incentive Plan is currently
administered by the full board of directors. See "--1998 Stock Option and
Incentive Plan."
Compensation Committee. The compensation committee is responsible for
reviewing and approving the amount and type of consideration to be paid to
senior management. The members of the compensation committee are Christopher
Torto, Glenn Friedly, John Hayes, Christopher Gaffney and David Dietz.
Other Committees. The board of directors may, in its discretion, establish,
from time to time, other committees to facilitate the management of our
business.
Director Compensation
Directors who are employees receive no additional compensation for their
services as directors. Non-employee directors do not currently receive a fee
for their service as directors, although the board of directors may in the
future determine to pay such a fee. Non-employee directors are also eligible to
participate in the 1998 Stock Option and Incentive Plan at the discretion of
the full board of directors.
55
Executive Compensation
The following table sets forth in summary form the compensation that was
paid to our Chief Executive Officer and the other most highly compensated
executive officers whose aggregate compensation exceeded $100,000 in the year
ended December 31, 1998 (the "Named Executive Officers"). No other executive
officer currently employed by us earned total compensation in excess of
$100,000 in 1998.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------------ ---------------------------------------
Number
of Securities
Other Underlying Restricted All
Annual Options Stock Other
Name Salary Bonus Compensation Granted Awards Compensation
Christopher P.
Torto(1)............... $ 59,900 $100,000 $ -- -- $280,000(4) $1,735(5)
President and Chief
Executive Officer
Michael Williams(2)..... 118,000 23,350 -- (3) -- 3,350(6)
Vice President--Sales
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(1) Mr. Torto became our Chief Executive Officer in February 1998. In February
1998, Mr. Torto entered into an employment agreement with us, which
agreement was amended in April 1999. Under the employment agreement, Mr.
Torto is entitled to receive an annual base salary of $225,000 and is
eligible to receive an annual bonus in an amount equal to 40% of his annual
base salary. See "--Employment Agreements."
(2) Mr. Williams became our Vice President-Sales in January 1999. Before that,
Mr. Williams served in various other senior management positions. In
January 1998, Mr. Williams entered into an employment agreement with us.
Under the employment agreement, Mr. Williams is entitled to receive an
annual base salary of $120,000 and is eligible to receive an annual bonus
in an amount equal to 20% of his annual base salary. See "--Employment
Agreements."
(3) Does not include options to purchase shares of common stock which were
cancelled pursuant to an agreement with Mr. Williams.
(4) Represents the fair market value of shares of restricted common stock
purchased by Mr. Torto in 1998, less the aggregate purchase price for such
shares of common stock paid by Mr. Torto. Prior to this offering, there was
no public market for our common stock and, therefore, we did not have a
fair market value of our common stock as of December 31, 1998. Of the
shares of restricted common stock purchased by Mr. Torto, shares of
restricted common stock are fully vested and shares vest on December
31, 1999. Vesting of these shares of common stock will be accelerated upon
closing of this offering.
(5) Includes the cost of term life insurance which was paid by Voyager.net.
(6) Includes a matching contribution under our 401(k) plan and the cost of term
life insurance which was paid by Voyager.net.
56
Option Grants in Last Fiscal Year
The following table sets forth information regarding stock options granted
during 1998 to our Named Executive Officers. The exercise price per share of
each option is equal to the fair market value of the common stock as of the
grant date as determined by the board of directors.
The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates compounded annually as established in
regulations of the SEC. The potential realizable value of the options to Mr.
Williams using an assumed initial public offering price of $ per share is
$ at an assumed 5% appreciation rate and $ at an assumed 10% appreciation
rate. The potential realizable value is not intended to predict future
appreciation of the price of our common stock. The values shown do not
consider nontransferability, vesting or termination of the options upon
termination of employee's employment relationship with us.
Option Grants In Last Fiscal Year
Individual Grants
-----------------------------------------------
Potential
Realizable
Value at
Assumed
Annual
Rates of
Stock Price
Number of Percent of Total Appreciation
Securities Options for Option
Underlying Granted to Exercise Term
Options Employees in or Base Expiration -------------
Name Granted Fiscal Year(1) Price Date 5% 10%
Christopher Torto....... -- -- $ -- --
Michael Williams(2)..... -- 80.65% $ 9/23/08
|
(1) Based on an aggregate of options granted in 1998.
(2) Mr. Williams' options are fully vested and exercisable as of the date
hereof until the expiration date. These options were granted on September
23, 1998.
Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning the number and value
of unexercised options to purchase common stock held by the Named Executive
Officers. There was no public trading market for our common stock as of
December 31, 1998. Accordingly, the values of the unexercised in-the-money
options have been calculated on the basis of an assumed initial public
offering price of $ per share, less the applicable exercise price multiplied
by the number of shares acquired on exercise. Neither of the Named Executive
Officers exercised any stock options in 1998.
57
Fiscal Year and Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-The-Money Options
End at Fiscal Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Christopher Torto........... -- -- $ -- $ --
Michael Williams............
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1998 Stock Option and Incentive Plan
Our board of directors and stockholders adopted the 1998 Stock Option and
Incentive Plan in September 1998. In April 1999, the 1998 Stock Option Plan
was amended to increase the number of shares of common stock and other awards
available under the plan. The 1998 Stock Option and Incentive Plan permits us
to:
. grant incentive stock options;
. grant non-qualified stock options;
. grant stock appreciation rights;
. issue or sell common stock with vesting or other restrictions, or without
restrictions;
. grant rights to receive common stock in the future with or without
vesting;
. grant common stock upon the attainment of specified performance goals;
and
. grant dividend rights in respect of common stock.
These grants may be made to our officers, employees, directors,
consultants, advisors and other key persons of Voyager.net. The 1998 Stock
Option and Incentive Plan allows for the issuance of up to shares of common
stock and other awards.
Of the shares reserved for issuance under the 1998 Stock Option and
Incentive Plan:
. an aggregate of shares of restricted common stock were sold to Mr.
Torto on September 23, 1998 and October 2, 1998 at a per share
purchase price of $ , all of which shares of common stock will be
fully vested upon the closing of this offering;
. an aggregate of shares of restricted common stock were sold to Mr.
Shires on October 2, 1998 at a per share purchase price of $ , all of
which shares of common stock will be fully vested upon the closing of
this offering;
. an aggregate of shares of restricted common stock were sold to Mr.
Michaels on October 2, 1998 at a per share purchase price of $ , all
of which shares of common stock will be fully vested upon the closing
of this offering;
. an aggregate of shares of restricted common stock were sold to Mr.
deFaria on January 11, 1999 at a per share purchase price of $ , all
of which shares of common stock will be fully vested upon the closing
of this offering;
. an aggregate of shares of restricted common stock were sold to Mr.
Friedly on January 11, 1999 at a per share purchase price of $ , all
of which shares of common stock will be fully vested upon the closing
of this offering;
58
. shares are subject to outstanding options to purchase common stock
granted on September 23, 1998 to Mr. Williams, with a per share
exercise price of $ , all of which options are fully vested;
. shares are subject to outstanding options to purchase common stock
granted on September 23, 1998 to several of our other key employees,
with a per share exercise price of $ , all of which options are fully
vested; and
. shares are subject to outstanding options to purchase common stock
granted on January 1, 1999 to several of our key employees, with a per
share exercise price of $ , which options vest in four equal
installments on the next four anniversaries of the grant date.
Upon consummation of this offering, we will grant options to purchase an
aggregate shares of common stock to our employees. The exercise price for
these options will be the initial public offering price of the common stock.
All of these options will vest in four equal annual installments on each of the
first four anniversaries of the date of this offering. Messrs. Friedly,
deFaria, Michaels and Stepaniak will be granted options to purchase , ,
and shares of common stock, respectively.
The 1998 Stock Option and Incentive Plan is administered by our board of
directors or a committee designated by our board of directors consisting solely
of two or more independent directors. Subject to the provisions of the 1998
Stock Option and Incentive Plan, the board or the committee may select the
individuals eligible to receive awards, determine the terms and conditions of
the awards granted, accelerate the vesting schedule of any award and generally
administer and interpret the plan.
The exercise price of options granted under the 1998 Stock Option and
Incentive Plan is determined by the committee. Under present law, incentive
stock options and options intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code of 1986 may not be granted at
an exercise price less than the fair market value of the common stock on the
date of grant, or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the
voting power. Non-qualified stock options may be granted at prices which are
less than the fair market value of the underlying shares on the date granted.
Options are typically subject to vesting schedules, terminate ten years from
the date of grant and may be exercised for specified periods after to the
termination of the optionee's employment or other service relationship with us.
Upon the exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the committee or, in the sole discretion of the committee, by delivery of
shares of common stock that have been owned by the optionee free of
restrictions for at least six months. The exercise price may also be delivered
to us (a) by the optionee in the form of a promissory note if the loan of these
funds to the optionee has been authorized by the board of directors and the
optionee pays so much of the exercise price as represents the par value of the
common stock acquired in a form other than a promissory note and (b) by a
broker under irrevocable instructions to the broker selling the underlying
shares from the optionee.
59
In the event of a merger, reorganization or consolidation, the sale of all
or substantially all of our assets or all of our outstanding capital stock or a
liquidation or other similar transaction, all outstanding awards issued under
the 1998 Stock Option and Incentive Plan provides for whether unvested awards
will become fully vested and exercisable upon the closing of the transaction.
The 1998 Stock Option and Incentive Plan and all awards issued under the plan
will terminate upon any of the transactions described above, unless Voyager.net
and the other parties to the transactions have agreed otherwise. All
participants under the 1998 Stock Option and Incentive Plan will be permitted
to exercise for a period of 30 days before any termination all awards held by
them which are then exercisable or will become exercisable upon the closing of
the transaction.
Employment Agreements
We have entered into the following agreements with our senior management:
. In February 1998, we entered into (i) an employment agreement and (ii)
an agreement regarding inventions, non-competition and confidentiality
with Christopher Torto. The employment agreement, which was amended in
April 1999, provides for (a) an annual base salary of $225,000, (b) an
annual bonus of 40% of base salary, (c) an employment term ending on
April 30, 2002 with potential one-year renewals thereafter, subject to
earlier termination by either party, and (d) the continuation of base
salary and benefit payments for one year after termination of
employment in the event we elect to terminate Mr. Torto without cause
(as defined in the agreement) or Mr. Torto terminates employment as a
result of a default by us under the agreement. Mr. Torto's non-
competition agreement prohibits him from competing with us until the
first anniversary of the date of his termination of employment with
us.
. In January 1998, we entered into (i) an employment agreement and (ii)
an agreement regarding inventions, non-competition and confidentiality
with Michael Williams. The employment agreement provides for (a) an
annual base salary of $120,000, (b) an annual bonus of 20% of base
salary, (c) an at-will employment term, and (d) the continuation of
base salary and benefit payments for one year after termination of
employment in the event we elect to terminate Mr. Williams without
cause (as defined in the agreement). Mr. Williams' non-competition
agreement prohibits him from competing with us until the first
anniversary of the date of his termination of employment with us.
. In October 1998, we entered into (i) an employment agreement and (ii)
an employee non-competition agreement with David Shires. The
employment agreement provides for (a) an annual base salary of
$90,000, (b) an annual bonus of 20% of base salary, (c) an employment
term ending on October 2, 2000, with potential one-year renewals
thereafter, subject to earlier termination by either party, and (d)
the continuation of base salary and benefit payments for up to one
year after termination of employment in the event we elect to
terminate Mr. Shires without cause (as defined in the agreement) or if
Mr. Shires terminates employment as a result of a default by us under
his agreement. Mr. Shires' non-competition agreement prohibits him
from competing with us until the first anniversary of the date of his
termination of employment with us.
60
. In October 1998, we entered into (i) an employment agreement and (ii)
an employee non-competition agreement with Christopher Michaels. In
April 1999, we amended each of those agreements. The employment
agreement provides for (a) an annual base salary of $190,000, (b) an
annual bonus of 40% of base salary, (c) an employment term ending on
October 2, 2000, with potential one-year renewals thereafter, subject
to earlier termination by either party, and (d) the continuation of
base salary and benefit payments for one year after termination of
employment in the event we elect to terminate Mr. Michaels without
cause (as defined in the agreement) or if Mr. Michaels terminates
employment as a result of a default by us under his agreement. Mr.
Michaels' non-competition agreement prohibits him from competing with
us until the first anniversary of the date of his termination of
employment with us.
. In November 1998, we entered into (i) an employment agreement and (ii)
an agreement regarding inventions, non-competition and confidentiality
with Osvaldo deFaria, effective January 1999. The employment agreement
provides for (a) an annual base salary of $200,000, (b) an annual
bonus of 40% of base salary, (c) an employment term ending on January
11, 2002, with potential one-year renewals thereafter, subject to
earlier termination by either party, and (d) the continuation of base
salary and benefit payments for one year after termination of
employment in the event we elect to terminate Mr. deFaria without
cause (as defined in the agreement) or Mr. deFaria terminates
employment as a result of a default by us under the agreement. Mr.
deFaria's non-competition agreement prohibits him from competing with
us until the first anniversary of the date of his termination of
employment with us.
. In March 1999, we entered into (i) an employment agreement and (ii) an
agreement regarding inventions, non-competition and confidentiality
with Dennis Stepaniak. The employment agreement provides for (a) an
annual base salary of $190,000, (b) annual bonus of 40% of annual base
salary, (c) an employment term ending on March 18, 2003, with
potential one-year renewals thereafter, subject to earlier termination
by either party, and (d) the continuation of base salary and benefit
payments for one year after termination of employment in the event we
elect to terminate Mr. Stepaniak without cause (as defined in the
agreement) or Mr. Stepaniak terminates employment as a result of a
default by us under the agreement. Mr. Stepaniak's non-competition
agreement prohibits him from competing with us until the first
anniversary of the date of his termination of employment with us.
Compensation Committee Interlocks and Insider Participation
Prior to March 31, 1999, we did not have a compensation committee and our
executive compensation decisions were made by our entire board of directors.
Since March 31, 1999, all executive compensation decisions have been made by
the compensation committee. The compensation committee currently consists of
Messrs. Torto, Friedly, Hayes, Gaffney and Dietz. The compensation committee
reviews and makes recommendations to our board of directors regarding
compensation of senior
61
management and other key employees other than Mr. Torto. The members of the
compensation committee other than Mr. Torto will review and recommend all
executive compensation arrangements with respect to Mr. Torto.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
In July 1998, we sold an aggregate shares of common stock and an
aggregate 15,000 shares of series A preferred stock to Media/Communications
Partners II Limited Partnership and Media/Communications Investors Limited
Partnership for aggregate consideration of $1.5 million. In connection with
this sale, we also issued demand promissory notes in the original principal
amount of $2.8 million in the aggregate to these investors.
In September 1998, Voyager.net entered into a series of transactions in
connection with our reorganization into a Delaware corporation, including:
. Entering into a stock exchange agreement with Voyager Information
Networks, Inc. and all of its stockholders whereby we exchanged an
aggregate shares of common stock and an aggregate 42,424 shares of
series A preferred stock for all of the outstanding capital stock of
Voyager. We intend to use part of the proceeds that we receive from
this offering to redeem all of the outstanding shares of our series A
preferred stock, plus accrued dividends thereon.
. Entering into a stock purchase agreement with Media/Communications
Partners II Limited Partnership, Media/Communications Investors
Limited Partnership, Glenn Friedly, Alan Baird and Michael Heinze
whereby we sold an aggregate shares of common stock and an
aggregate 33,657 shares of series A preferred stock to the investors
at an aggregate purchase price of $0.5 million in cash and
cancellation of promissory notes in the principal amount of $2.8
million, plus accrued interest of $32,526. Under the stock purchase
agreement, certain investors received demand and "piggyback"
registration rights, participation rights with respect to our future
equity issuances and the right to nominate two individuals to our
board of directors. Mr. Hayes and Mr. Gaffney, who are associated with
Great Hill Partners, L.L.C., are members of our Board of Directors.
Upon the closing of this offering, the participation rights and the
nomination rights will terminate in accordance with their terms.
. Entering into a stockholders' agreement with each of our stockholders,
whereby the stockholders agreed to certain restrictions on the
transferability of their shares of common stock. Upon the closing of
this offering, the stockholders' agreement will terminate in
accordance with its terms.
. Issuing an amended and restated promissory note in favor of Horizon
Cable I Limited Partnership in the principal amount of approximately
$2.1 million. Messrs. Friedly, Baird and Heinze were principals and
executive officers of Horizon Cable, and Media/Communications Partners
II Limited Partnership and Media/Communications Investors Limited
Partnership were investors in Horizon Cable.
62
In January 1999, we sold shares of restricted common stock to Mr.
deFaria, our Chief Operating Officer. In connection with this sale, Mr. deFaria
issued a promissory note to us in the principal amount of $1.8 million with
interest accruing thereon at 5% annually. The note matures and all principal
and interest is due on January 11, 2003. The note is secured by a pledge of
shares of common stock and is a recourse obligation of Mr. deFaria in the
amount of 25% of the outstanding principal and 100% of the accrued interest.
In January 1999, we sold shares of restricted common stock to Mr.
Friedly, the Chairman of the Board of Directors and one of our principal
stockholders. In connection with this sale, Mr. Friedly issued a promissory
note to us in the principal amount of $4.2 million with interest accruing
thereon at 5% annually. The note matures and all principal and interest is due
on January 11, 2003. The note is secured by a pledge of shares of common
stock and is a recourse obligation of Mr. Friedly in the amount of 25% of the
outstanding principal and 100% of the accrued interest.
In April 1999, Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership agreed to purchase
additional equity securities of Voyager.net for an aggregate purchase price of
$5 million. The investors have until November 1, 1999 to purchase these shares.
The commitment to purchase the securities, and the obligations of the parties
thereunder, terminates upon the closing of this offering.
In 1998, we entered into a consulting arrangement with Mr. Friedly, pursuant
to which Mr. Friedly receives $75,000 per year.
In 1998, we entered into a reseller agreement with Horizon Cablevision, Inc.
relating to the reselling of Internet access services using cable modems on
Horizon's cable television systems. Mr. Friedly is the President, and Messrs.
Friedly, Baird and Heinze are principals, of Horizon. This agreement has been
terminated.
In March 1999, we entered into a software license agreement with Horizon
Telecom International, L.L.C., whereby we granted Horizon Telecom International
a non-exclusive license to use our customer care/billing software. Messrs.
Friedly and Torto, as well as investment funds managed by Great Hill Partners,
L.L.C., of which Messrs. Hayes and Gaffney are managing partners, are investors
in Horizon Telecom International and Messrs. Friedly and Torto each serves as
the vice chairman of Horizon Telecom International.
In April 1999, we made a loan of approximately $500,000 to Mr. Torto, our
President and Chief Executive Officer, which is payable over three years and
accrues interest at 5% per year. The loan is unsecured and we have full
recourse against Mr. Torto.
In May 1999, we sold an aggregate 6,667 shares of series A preferred stock
to Messrs. Friedly, Baird and Heinze pursuant to the exercise of an option to
purchase shares of series A preferred stock in the stock purchase agreement,
for an aggregate purchase price of approximately $667,000.
63
Since January 1998, we have retained Goodwin, Procter & Hoar LLP for certain
legal services. Mr. Dietz, a director and secretary of Voyager.net, is the sole
shareholder of David F. Dietz, P.C., which is a partner in Goodwin, Procter &
Hoar LLP.
We believe that all of the transactions identified above were conducted on
terms no less favorable to Voyager.net than could have been obtained from
unaffiliated third parties. We have adopted an insider trading policy in
connection with this offering. In the future, all transactions between any of
our officers and directors and us will require the approval of the
disinterested members of our board of directors and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
64
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of March 31, 1999 and as adjusted to reflect the
sale of the common stock offered hereby, by:
. all persons known by us to own beneficially 5% or more of the common
stock;
. each of our directors;
. the Chief Executive Officer and the other Named Executive Officers;
. each of the selling stockholders; and
. all directors and Named Executive Officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the stockholder. The address of the Media/Communications Partners Group is
75 State Street, Suite 2500, Boston, MA 02109. The address of Messrs. Hayes and
Gaffney is c/o Great Hill Partners, L.L.C., One Liberty Square, Boston, MA
02109. The address of Mr. Dietz is c/o Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, MA 02109. The address of all other listed stockholders is c/o
Voyager.net, Inc., 4660 South Hagadorn Road, Suite 320, East Lansing, MI 48823.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
any shares as to which the individual or entity has the right to acquire
beneficial ownership within 60 days after March 31, 1999 through the exercise
of any stock option or other right as of March 31, 1999, a total of shares
of common stock were either outstanding or subject to options, warrants or
other convertible securities that are exercisable or that will become
exercisable within 60 days of the estimated effective date of this offering.
The inclusion in this prospectus of such shares, however, does not constitute
an admission that the named stockholder is a direct or indirect beneficial
owner of such shares. The applicable percentage of "beneficial ownership" after
the offering is based upon shares of common stock outstanding.
Shares Owned
Shares Owned After the Offering
Prior to the Offering (1)
------------------------ Shares ---------------------
Name of Beneficial Owners Number Percent Offered Number Percent
------------------------- ---------- ----------- ------- --------- ---------
Entities affiliated with
Media/Communications
Partners (2)........... % %
Glenn R. Friedly........
Michael L. Heinze.......
Alan R. Baird...........
Christopher P. Torto
(3)....................
Michael Williams (4)....
John G. Hayes (5).......
Christopher Gaffney
(5)....................
David F. Dietz (6)......
All executive officers
and directors, as a
group (8 persons (7))..
|
65
* Represents less than 1% of the outstanding shares of common stock
(1) Assumes the underwriters do not elect to exercise the over-allotment option
to purchase an additional shares of common stock.
(2) Represents shares of common stock owned by investment funds affiliated with
Media/Communications Partners which are managed by Great Hill Partners,
L.L.C., of which Mr. Hayes and Mr. Gaffney are managing partners,
including:
. shares of common stock owned by Media/Communications Partners II
Limited Partnership; and
. shares of common stock owned by Media/Communications Investors
Limited Partnership.
(3) Represents shares of restricted common stock held by Mr. Torto, all of
which shares will be vested upon consummation of this offering.
(4) Includes shares of common stock which may be acquired upon exercise of
stock options that are currently exercisable.
(5) Includes (i) shares of common stock held by Media/Communications
Partners II Limited Partnership and (ii) shares of common stock held by
Media/Communications Investors Limited Partnership. Messrs. Gaffney and
Hayes are members of the general partner of each of these funds. Each of
Messrs. Gaffney and Hayes disclaims beneficial ownership of shares held by
these funds, except to the extent of their respective pecuniary interest
therein.
(6) Includes shares of common stock which is held by Media/Communications
Investors Limited Partnership of which Mr. Dietz is a limited partner. Mr.
Dietz disclaims beneficial ownership of these shares of common stock except
to the extent of his pecuniary interest therein.
(7) Includes shares of common stock which may be acquired upon exercise of
stock options that are currently exercisable.
66
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
There are currently shares of common stock and 82,748 shares of series A
preferred stock issued and outstanding. At and subject to the closing of this
offering, all of the outstanding shares of series A preferred stock will be
redeemed by Voyager.net.
Following the offering, our authorized capital stock will consist of
shares of common stock, of which will be issued and outstanding; and
5,000,000 shares of undesignated preferred stock authorized and issuable in one
or more series designated by our board of directors, of which no shares will be
issued and outstanding.
Common Stock
Voting Rights. The holders of our common stock have one vote per share.
Holders of our common stock are not entitled to vote cumulatively for the
election of directors. Generally, all matters to be voted on by stockholders
must be approved by a majority, or, in the case of election of directors, by a
plurality, of the votes entitled to be cast at a meeting at which a quorum is
present by all shares of common stock present in person or represented by
proxy, voting together as a single class, subject to any voting rights granted
to holders of any then outstanding preferred stock. Except as otherwise
provided by law, amendments to our certificate of incorporation, which will be
effective upon consummation of this offering must be approved by a majority of
the voting power of the common stock.
Dividends. Holders of common stock will share ratably in any dividends
declared by our board of directors, subject to the preferential rights of any
preferred stock then outstanding. Dividends consisting of shares of common
stock may be paid to holders of shares of common stock.
Other Rights. In the event of any merger or consolidation of Voyager.net
with or into another company as a result of which shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property, including cash, all holders of common stock will be entitled to
receive the same kind and amount, on a per share of common stock basis, of such
shares of stock and other securities and property, including cash. On
liquidation, dissolution or winding up of Voyager.net, all holders of common
stock are entitled to share ratably in any assets available for distribution to
holders of shares of common stock. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock may
be issued from time to time in one or more series. Our board of directors is
authorized to fix the voting rights, if any, designations, powers, preferences,
qualifications, limitations and restrictions thereof, applicable to the shares
of each series. Our board of directors may, without stockholder approval, issue
preferred stock with voting and other rights that could
67
adversely affect the voting power and other rights of the holders of the common
stock and could have anti-takeover effects. We have no present plans to issue
any shares of preferred stock. The ability of our board of directors to issue
preferred stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control of Voyager.net or the removal of
existing management.
Registration Rights
Under the terms of the stock purchase agreement entered into on September
23, 1998, Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership, who in the aggregate hold
percent of the outstanding shares of common stock as of this offering, may
demand that we file a registration statement for the registration of all or any
portion of their shares under the Securities Act. We are not required to effect
more than a total of one of these demand registrations.
After the closing of this offering, those stockholders also will be entitled
to unlimited piggyback registration rights in connection with any registration
by us of securities for our own account or the account of other stockholders.
If we propose to register any shares of common stock under the Securities Act,
we are required to give those stockholders notice of the registration and to
include their shares in the registration statement. At any time after we become
eligible to file a registration statement on Form S-3, these stockholders may
require us to file an unlimited number of registration statements on Form S-3
under the Securities Act with respect to their shares of common stock, so long
as the aggregate dollar amount of the shares of common stock to be registered
exceeds $250,000.
The registration rights of these stockholders will terminate when the shares
held by them may be sold under Rule 144 under the Securities Act. We are
generally required to bear all of the expenses of all demand and piggyback
registrations, except underwriting discounts and commissions. We also have
agreed to indemnify those stockholders under the terms of the stock purchase
agreement.
Indemnification Matters
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director
has breached his or her duty of loyalty, failed to act in good faith, engaged
in intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained in improper personal benefit. This provision does not alter a
director's liability under the federal securities laws and does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty. Our by-laws provide that directors and officers shall
be, and in the discretion of our board of directors, non-officer employees may
be, indemnified by Voyager.net to the fullest extent authorized by Delaware
law, as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
Voyager.net. Our by-laws also provide for the advancement of expenses to
directors and,
68
in the discretion of our Board of Directors, officers and non-officer
employees. Our by-laws also provide that the right of directors and officers to
indemnification shall be a contract right and shall not be exclusive of any
other right now possessed or hereafter acquired under any by-law, agreement,
vote of stockholders or otherwise. We also have directors' and officers'
insurance against certain liabilities and have entered into indemnification
agreements with each of our directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Voyager.net as
described above, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. At present, there is no
pending material litigation or proceeding involving any director, officer,
employee or agent of Voyager.net in which indemnification will be required or
permitted.
Amendment of the Certificate of Incorporation
Any amendment to our certificate of incorporation must first be approved by
a majority of our board of directors and thereafter approved by a majority, and
in some instances, 66 2/3%, of the total votes eligible to be cast by holders
of voting stock with respect to such amendment.
By-law Provisions
Our by-laws provide that a special meeting of stockholders may be called
only by the President or our board of directors unless otherwise required by
law. Our by-laws provide that only those matters included in the notice of the
special meeting may be considered or acted upon at that special meeting unless
otherwise provided by law. In addition, our by-laws include advance notice and
informational requirements and time limitations on any director nomination or
any new proposal which a stockholder wishes to make at an annual meeting of
stockholders.
Ability to Adopt Stockholder Rights Plan
Our board of directors may in the future resolve to issue shares of
preferred stock or rights to acquire such shares to implement a stockholder
rights plan. A stockholder rights plan typically creates voting or other
impediments to discourage persons seeking to gain control of Voyager.net by
means of a merger, tender offer, proxy contest or otherwise if our board of
directors determines that such change in control is not in the best interests
of Voyager.net and our stockholders. Our board of directors has no present
intention of adopting a stockholder rights plan and is not aware of any attempt
to effect a change of control of Voyager.net.
69
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain circumstances,
with an "interested stockholder" for a period of three years after the date
such person became an "interested stockholder" unless:
. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved
the business combination;
. upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares
held by directors who are also officers of the corporation and shares
held by employee stock plans; or
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the
interested stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three
years, owned, 15% or more of a corporation's outstanding voting stock. The term
"business combination" includes mergers, asset sales and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contains any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "VOYN."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be State Street
Bank and Trust Company.
70
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock prevailing from time to time. Nonetheless,
substantial sales of common stock in the public market following this offering,
or the perception that such sales could occur, could lower the market price of
our common stock or make it difficult for us to raise additional equity capital
in the future.
Following this offering, there will be shares of our common stock
outstanding. Of these shares, the shares which are being sold in this
offering generally will be freely transferable without restriction or further
registration under the Securities Act, except that any shares held by our
"affiliates" as is defined in Rule 144 under the Securities Act may be sold
only in compliance with the limitations described below. The remaining
shares of common stock which will be outstanding after the offering will be
"restricted securities" as defined in Rule 144, and may be sold in the future
without registration under the Securities Act subject to compliance with the
provisions of Rule 144 or any other applicable exemption under the Securities
Act. In connection with this offering, our existing officers, directors,
stockholders and optionholders, who hold all of the currently outstanding
shares of common stock and will own an aggregate of shares of common stock
after this offering, have agreed with the underwriters that, subject to
exceptions, they will not sell or dispose of any of their shares for 180 days
after the date of this prospectus. Donaldson, Lufkin & Jenrette Securities
Corporation may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to such restrictions. Subject to these
lock-up agreements, the shares of common stock outstanding upon the closing of
the offering will be available for sale in the public market as follows:
Approximate
Number of Shares Description
---------------- -------------------------------------------------------------
After the date of this prospectus, freely tradeable shares
sold in the offering.
After 180 days from the date of this prospectus, the lock-up
is released and these shares are saleable under Rule 144
(subject, in some cases, to volume limitations), Rule 144(k),
or under a registration statement to register for resale
shares of common stock issued upon the exercise of stock
options.
|
In general, under Rule 144, as currently in effect, a person or persons
whose shares are required to be aggregated, including an affiliate of ours, and
who has beneficially owned shares for at least one year is entitled to sell,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, which is expected to be approximately
shares upon the completion of this offering, or the average weekly trading
volume of the common stock during the calendar weeks preceding the date on
which notice of such sale is filed, subject to certain restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least
71
two years would be entitled to sell such shares under Rule 144(k) without
regard to the requirements described above. To the extent that shares were
acquired from an affiliate of ours, such person's holding period for the
purpose of effecting a sale under Rule 144 commences on the date of transfer
from the affiliate.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except
we may issue, and grant options to purchase, shares of common stock under the
1998 Stock Option and Incentive Plan. See "Risk Factors--The future sale of
shares of our common stock could adversely affect the market price of our
common stock."
Following the offering, under specified circumstances and subject to
customary conditions, Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership will have the right with
respect to shares of common stock, subject to the 180-day lock-up
arrangement described above, to require us to register their shares of common
stock under the Securities Act, and they will have rights to participate in any
future registration of securities by us.
72
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
the underwriters named below, who are represented by Donaldson, Lufkin &
Jenrette Securities Corporation, First Union Capital Markets Corp. and CIBC
World Markets Corp., have severally agreed to purchase from us and the selling
stockholders the number of shares of common stock opposite their respective
names below.
Number of Shares
----------------
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation............
First Union Capital Markets Corp. .............................
CIBC World Markets Corp........................................
---
Total......................................................
===
|
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of shares included in this
offering are subject to approval of certain legal matters and to certain other
conditions. The underwriters are obligated to purchase and accept delivery of
all the shares, other than those shares covered by the over-allotment option
described below, if they purchase any of the shares.
The underwriters propose to initially offer some of the shares directly to
the public at the initial public offering price on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share on sales to other dealers. After the initial public
offering of the shares to the public, the representatives may change the public
offering price and such concessions. The underwriters do not intend to confirm
sales to any account over which they exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
The following table shows the underwriting fees we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock.
Paid by
Voyager.net
-----------------
No Full
Exercise Exercise
-------- --------
Per share..................................................... $ $
Total......................................................... $ $
|
We will pay the offering expenses, estimated to be $ .
Voyager.net and the selling stockholders have granted to the underwriters an
option, exercisable for 30 days after the date of this prospectus, to purchase
up to additional shares at the initial
73
public offering price less the underwriting fees. The underwriters may exercise
such option only to cover over-allotments, if any, made in connection with this
offering. To the extent that the underwriters exercise this option, each
underwriter will become obligated, subject to certain conditions, to purchase a
number of additional shares approximately proportionate to that underwriter's
initial purchase commitment.
Voyager.net and the selling stockholders have severally agreed to indemnify
the underwriters against certain civil liabilities, including liabilities under
the Securities Act, or to contribute to payments that the underwriters may be
required to make in respect any of those liabilities.
We, our executive officers and directors, and substantially all of our
stockholders have agreed, for a period of 180 days from the date of this
prospectus, not to, without the prior written consent of Donaldson, Lufkin &
Jenrette: (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock; or (2)
enter into any swap or other arrangement that transfer all or a portion of the
economic consequences associated with the ownership of any common stock,
regardless of whether any of the transactions described in clause (1) or (2) is
to be settled by the delivery of common stock, or such other securities, in
cash or otherwise. In addition, during this period, we have agreed not to file
any registration statement with respect to, and each of our executive officers
and directors and a significant majority of our stockholders have agreed not to
make any demand for, or exercise any right with respect to, the registration of
any shares of common stock or any securites convertible into or exercisable or
exchangeable for common stock (other than a registration statement registering
options or shares granted under a stock option plan) without the prior written
consent of Donaldson, Lufkin & Jenrette.
Prior to this offering, there was no established trading market for our
common stock. The initial public offering price for our common stock will be
determined by negotiation among us and the representatives of the underwriters.
The factors to be considered in determining the initial public offering price
include the history of and the prospects for the industry in which we compete,
the ability of our management, our past and present operations, our prospects
for future earnings, the general condition of the securities markets at the
time of this offering and the recent market prices of securities of generally
comparable companies.
Persons who receive this prospectus are advised to inform themselves about
and to observe any restrictions relating to the offering of our common stock
and the distribution of this prospectus. This prospectus is not an offer to
sell or a solicitation of an offer to buy any shares of our common stock
included in this offering in any jurisdiction where that would not be permitted
or legal.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition,
74
the underwriters may bid for and purchase shares of our common stock in the
open market to cover syndicate short positions or to stabilize the price of our
common stock. These activities may stabilize or maintain the market price of
our common stock above independent market levels. The underwriters are not
required to engage in these activities and may end any of these activities at
any time.
The underwriters have reserved for sale up to shares of common stock
for sale at the initial public offering price to persons, at our request,
associated with Voyager.net. The number of shares available for sale to the
general public will be reduced to the extent any reserved shares are purchased.
Any reserved shares not so purchased will be offered by the underwriters on the
same basis as the other shares offered hereby.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "VOYN".
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Voyager.net by Goodwin, Procter & Hoar llp, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered hereby
will be passed upon for the underwriters by Hale and Dorr LLP, Boston,
Massachusetts.
EXPERTS
Our audited financial statements as of December 31, 1997 and 1998, and for
each of the three years in the period ended December 31, 1998 included in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their reports appearing in this prospectus, and have
been so included in reliance upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-1 (including the exhibits and schedules
thereto) under the Securities Act and the rules and regulations thereunder, for
the registration of the common stock offered hereby. This prospectus is part of
the registration statement. This prospectus does not contain all the
information included in the registration statement because we have omitted
certain parts of the registration statement as permitted by the SEC rules and
regulations. For further information about us and our common stock, you should
refer to the registration statement. Statements contained in this prospectus as
to any contract, agreement or other document referred to are not necessarily
complete. Where the contract or other document is an exhibit to the
registration statement, each statement is qualified by the provisions of that
exhibit.
75
The registration statement can be inspected and copied at the public
reference facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the SEC at 1-
800-SEC-0330 for further information about the operation of the public
reference rooms. Copies of all or any portion of the registration statement can
be obtained from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
registration statement is publicly available through the SEC's site on the
Internet's World Wide Web, located at http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can also request copies of these
documents, for a copying fee, by writing to the SEC. We intend to furnish to
our stockholders annual reports containing audited financial statements for
each fiscal year.
76
VOYAGER.NET, INC.
INDEX TO FINANCIAL STATEMENTS
Pages
Voyager.net, Inc. - Consolidated Financial Statements:
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999.............................................................. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998 and for the Quarter Ended March 31, 1999.......... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998 and the Quarter Ended March 31,
1999.................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998 and the Quarter Ended March 31, 1999.............. F-6
Notes to Consolidated Financial Statements............................. F-7
Pro Forma Condensed Consolidated Financial Statements (Unaudited):
Pro Forma Condensed Consolidated Statements of Operations for the Year
Ended December 31, 1998 (Unaudited)................................... F-18
Notes to Pro Forma Condensed Consolidated Financial Statements
(Unaudited)........................................................... F-19
Freeway, Inc. - Financial Statements:
Report of Independent Accountants...................................... F-20
Balance Sheets as of December 31, 1997 and July 31, 1998............... F-21
Statements of Income for the Year Ended December 31, 1997 and for the
Seven Months Ended July 31, 1998...................................... F-22
Statements of Stockholders' Equity for the Year Ended December 31, 1997
and for the Seven Months Ended July 31, 1998.......................... F-23
Statements of Cash Flows for the Year Ended December 31, 1997 and for
the Seven Months Ended July 31, 1998.................................. F-24
Notes to Financial Statements.......................................... F-25
EXEC-PC, Inc. - Financial Statements:
Report of Independent Accountants...................................... F-26
Balance Sheets as of December 31, 1997 and September 22, 1998.......... F-27
Statements of Income for the Year Ended December 31, 1997 and for the
Period From January 1, 1998 through September 22, 1998................ F-28
Statements of Stockholders' Deficit for the Year Ended December 31,
1997 and for the Period From January 1, 1998 through September 22,
1998.................................................................. F-29
Statements of Cash Flows for the Year Ended December 31, 1997 and for
the Period From January 1, 1998 through September 22, 1998............ F-30
Notes to Financial Statements.......................................... F-31
NetLink Systems, L.L.C. - Financial Statements:
Report of Independent Accountants...................................... F-34
Balance Sheet as of December 31, 1997 and September 30, 1998........... F-35
Statement of Income and Members' Equity for the Year Ended December 31,
1997 and the Nine Months Ended September 30, 1998..................... F-36
Statement of Cash Flows for the Year Ended December 31, 1997 and the
Nine Months Ended September 30, 1998.................................. F-37
Notes to Financial Statements.......................................... F-38
|
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of Voyager.net, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows, present fairly, in all material respects, the financial position of
Voyager.net, Inc. (the "Company") and subsidiaries at December 31, 1997 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
March 5, 1999, except for Note 17, for which the date is April 23, 1999
F-2
VOYAGER.NET, INC.
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
------------------------ 1999
1997 1998 (unaudited)
Assets
Current assets:
Cash and cash equivalents.............. $ 518,791 $ 2,350,292 $ 4,426,518
Accounts receivable, less allowance for
doubtful
accounts of $40,000, $99,000 and
$134,000 in 1997, 1998 and 1999,
respectively.......................... 196,955 950,381 1,812,496
Prepaid and other assets............... 24,969 154,059 303,204
----------- ----------- -----------
Total current assets................. 740,715 3,454,732 6,542,218
Property and equipment, net............. 1,256,753 9,528,372 12,064,932
Intangible assets, net.................. 103,529 28,741,650 33,852,138
----------- ----------- -----------
Total assets......................... $ 2,100,997 $41,724,754 $52,459,288
=========== =========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of obligations under
capital leases........................ $ 43,978 $ 303,562 $ 391,667
Notes payable, related party........... 1,996,014 2,252,713 2,296,525
Accounts payable....................... 125,620 659,351 1,620,772
Other liabilities...................... 165,779 855,727 1,128,370
Deferred revenue....................... 194,273 5,625,627 7,373,988
----------- ----------- -----------
Total current liabilities............ 2,525,664 9,696,980 12,811,322
Commitments and contingencies........... -- -- --
Obligations under capital leases........ 114,646 751,613 972,823
Long-term debt.......................... -- 30,000,000 39,400,000
Stockholders' equity (deficit):
Preferred stock, Series A, 8%
cumulative, non-
voting, $.01 par value, $100
redemption value:
authorized 40,000 shares in 1997, and
100,000 shares in 1998 and 1999;
issued and outstanding, 25,000 shares
in 1997 and 82,748 shares in 1998 and
1999 (includes 6,667 shares subject to
purchase that have not been issued)... 2,500,000 8,274,819 8,274,819
Common stock, $.0001 par value:
authorized 60,000,000 shares in 1997
and 25,000,000 shares in 1998 and
1999; issued and outstanding,
11,994,320 shares in 1997 and
17,916,380 in 1998 and 18,916,380 in
1999.................................. 1,200 1,792 1,892
Additional paid-in capital.............. 3,292 413,168 6,413,068
Receivable for preferred and common
stock.................................. -- (666,700) (6,666,700)
Accumulated deficit..................... (3,043,805) (6,746,918) (8,747,936)
----------- ----------- -----------
Total stockholders' equity
(deficit)........................... (539,313) 1,276,161 (724,857)
Total liabilities and stockholders'
equity.............................. $ 2,100,997 $41,724,754 $52,459,288
=========== =========== ===========
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Years Ended December 31, March 31,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
(unaudited)
Revenue:
Internet access
service............... $ 1,707,499 $3,440,212 $10,588,963 $ 1,131,774 $ 8,405,202
Other.................. -- 14,063 133,199 3,470 114,024
----------- ---------- ----------- ----------- -----------
Total revenue........... 1,707,499 3,454,275 10,722,162 1,135,244 8,519,226
----------- ---------- ----------- ----------- -----------
Operating expenses:
Internet access service
costs................. 1,002,431 1,318,163 3,607,665 370,353 2,789,676
Sales and marketing.... 638,446 1,038,459 1,987,113 180,582 969,031
General and
administrative........ 1,154,815 1,461,720 3,405,870 355,438 2,463,200
Depreciation and
amortization.......... 420,315 394,385 3,862,041 126,005 3,526,824
Compensation charge for
issuance of common
stock and stock
options............... -- -- 408,407 -- --
----------- ---------- ----------- ----------- -----------
Total operating ex-
penses................. 3,216,007 4,212,727 13,271,096 1,032,378 9,748,731
----------- ---------- ----------- ----------- -----------
Income (loss) from oper-
ations before other
income (expense)....... (1,508,508) (758,452) (2,548,934) 102,866 (1,229,505)
Other income (expense):
Interest income........ 17,298 11,312 30,987 5,792 26,773
Interest expense....... (7,010) (72,932) (942,766) (44,833) (798,286)
----------- ---------- ----------- ----------- -----------
Total other income (ex-
pense)................. 10,288 (61,620) (911,779) (39,041) (771,513)
----------- ---------- ----------- ----------- -----------
Net income (loss)....... (1,498,220) (820,072) (3,460,713) 63,825 (2,001,018)
Preferred stock divi-
dends.................. -- (73,456) (348,494) (50,000) (165,496)
----------- ---------- ----------- ----------- -----------
Net income (loss) appli-
cable to common
stockholders........... $(1,498,220) $ (893,528) $(3,809,207) $ 13,825 $(2,166,514)
=========== ========== =========== =========== ===========
Per Share Data:
Basic and diluted net
loss per share applica-
ble to common stock-
holders................ $ (0.35) $ (0.12) $ (0.27) $ 0.00 $ (0.12)
=========== ========== =========== =========== ===========
Weighted average common
shares outstanding:
Basic and diluted....... 4,316,000 7,160,080 14,238,296 12,095,704 18,538,602
=========== ========== =========== =========== ===========
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Receivable Total
For Stockholders'
Preferred Stock Common Stock Additional Preferred Equity
----------------- ------------------ Paid-in and Common Accumulated (Deficit)
Shares Amount Shares Amount Capital Stock Deficit
Balance at January 1,
1996.................... 20,000 $2,000,000 4,316,000 $ 432 $ 44,374 $ (695,076) $ 1,349,730
Net loss................ -- -- -- -- -- (1,498,220) (1,498,220)
------ ---------- ---------- ------ ---------- ----------- -----------
Balance at December 31,
1996................... 20,000 2,000,000 4,316,000 432 44,374 (2,193,296) (148,490)
Redemption of common
stock................... -- -- (1,888,000) (189) (44,374) (30,437) (75,000)
Issuance of common
stock................... -- -- 9,566,320 957 3,292 -- 4,249
Issuance of preferred
stock................... 5,000 500,000 -- -- -- -- 500,000
Net loss................ -- -- -- -- -- (820,072) (820,072)
------ ---------- ---------- ------ ---------- ----------- -----------
Balance at December 31,
1997................... 25,000 2,500,000 11,994,320 1,200 3,292 (3,043,805) (539,313)
Conversion of notes pay-
able to preferred stock
and
issuance of preferred
and common stock........ 40,324 4,032,419 360,000 36 144 $ (666,700) -- 3,365,899
Issuance of preferred
and common stock........ 15,000 1,500,000 3,762,060 376 1,505 -- -- 1,501,881
Conversion of preferred
dividends to preferred
stock................... 2,424 242,400 -- -- -- -- (242,400) --
Issuance of common stock
and options............. -- -- 1,800,000 180 408,227 -- -- 408,407
Net loss................ -- -- -- -- -- -- (3,460,713) (3,460,713)
------ ---------- ---------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1998................... 82,748 8,274,819 17,916,380 1,792 413,168 (666,700) (6,746,918) 1,276,161
Issuance of common
stock................... 1,000,000 100 5,999,900 (6,000,000) -- --
Net loss................ -- -- -- -- -- -- (2,001,018) (2,001,018)
------ ---------- ---------- ------ ---------- ----------- ----------- -----------
Balance at March 31,
1999 (unaudited)....... 82,748 $8,274,819 18,916,380 $1,892 $6,413,068 $(6,666,700) $(8,747,936) $ (724,857)
====== ========== ========== ====== ========== =========== =========== ===========
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
VOYAGER.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
Years Ended December 31, March 31,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
(unaudited)
Cash flows from
operating activities
Net income (loss)...... $(1,498,220) $ (820,072) $(3,460,713) $ 63,825 $ (2,001,018)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.......... 420,315 394,385 3,862,041 126,005 3,526,824
(Gain) loss on sale of
equipment............. -- (7,071) 5,952 -- --
Compensation charge for
issuance of common
stock shares and
options............... -- -- 408,407 -- --
Changes in assets and
liabilities excluding
effects of business
combinations:
Accounts receivable... (131,048) (28,199) (513,909) 9,815 (475,909)
Prepaids and other
assets............... 48,842 (24,251) (104,990) (83,400) (47,308)
Accounts payable...... 188,898 (237,551) 512,591 36,944 961,421
Accrued expenses...... 92,675 137,486 831,577 (35,422) 302,869
Deferred revenue...... 1,902 187,203 1,160,698 97,005 1,165,556
----------- ---------- ----------- --------- ------------
Net cash provided by
(used in) operating
activities............. (876,636) (398,070) 2,701,654 214,772 3,432,435
Cash flows from
investing activities
Business acquisition
costs, net of cash
acquired.............. -- -- (32,850,289) -- (9,371,427)
Purchase of property
and equipment......... (759,119) (661,312) (1,514,323) (170,840) (1,320,563)
Proceeds from the sale
of equipment.......... -- 87,282 28,248 -- --
----------- ---------- ----------- --------- ------------
Net cash used in invest-
ing activities......... (759,119) (574,030) (34,336,364) (170,840) (10,691,990)
Cash flows from
financing activities
Payments on capital
leases................ (20,373) (54,216) (54,565) (15,938) (64,219)
Advances from related
party................. 603,806 1,127,777 4,047 49,921 --
Payment to related
party................. -- (15,000) (25,521) -- --
Payment of bank
financing fees........ -- -- (1,325,530) -- --
Proceeds from issuance
of debt............... -- -- 30,000,000 -- 9,400,000
Proceeds from notes
payable issuance...... -- -- 2,800,000 -- --
Proceeds from common
stock issuance........ -- 4,249 2,061 -- --
Proceeds from preferred
stock issuance........ -- 500,000 2,065,719 -- --
Redemption of common
stock................. -- (75,000) -- -- --
----------- ---------- ----------- --------- ------------
Net cash provided by fi-
nancing activities..... 583,433 1,487,810 33,466,211 33,983 9,335,781
----------- ---------- ----------- --------- ------------
Net increase (decrease)
in cash and cash
equivalents............ (1,052,322) 515,710 1,831,501 77,915 2,076,226
Cash and cash
equivalents at
beginning of period.... 1,055,403 3,081 518,791 518,791 2,350,292
----------- ---------- ----------- --------- ------------
Cash and cash
equivalents at end of
period................. $ 3,081 $ 518,791 $ 2,350,292 $ 596,706 $ 4,426,518
=========== ========== =========== ========= ============
|
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization and Basis of Presentation
Voyager.net, Inc. (the "Company") owns 100% of Voyager Information Networks,
Inc., which was incorporated in the State of Michigan in 1994. Voyager.net was
incorporated in 1998 in the State of Delaware under the name Voyager Holdings,
Inc. The Company's name was changed to Voyager.net, Inc. on April 29, 1999. The
Company provides full service access to the Internet for corporate and
residential users in Michigan, Illinois, Indiana, Ohio and Wisconsin.
Revenue Recognition
The Company recognizes revenue when Internet access services are provided.
Internet access service plans range from one month to one year. Advance
collections relating to future access services are recorded as deferred revenue
and recognized as revenue when earned.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Equipment acquired under
capital leases is depreciated over the related lease terms or the estimated
productive useful lives, depending on the criteria met in determining the
qualification as a capital lease. Costs of repair and maintenance are charged
to expense as incurred.
Intangible Assets
Intangible assets consist primarily of the cost of the acquired customer
base. The acquired customer base is amortized using the straight-line method
over 3 years based on the estimated customer churn rate. Bank financing fees,
included in intangible assets, are being amortized on a straight-line basis
over the term of the related debt. Other intangible assets are amortized over a
10 year period. Impairments, if any, are measured based upon discounted cash
flow analyses and are recognized in operating results in the period in which
the impairment in value is determined.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense of
approximately $151,000, $372,000 and $185,000 was charged to operations in
1996, 1997 and 1998, respectively.
F-7
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial Instruments
The Company's financial instruments, as defined by SFAS No. 107 Disclosures
About Fair Value of Financial Instruments, consist of cash, notes payable and
long-term debt. The Company's estimate of the fair value of these financial
instruments approximates their carrying amounts at December 31, 1997 and 1998.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the year. Deferred tax liabilities or
assets are recognized for the estimated future tax effects of temporary
differences between book and tax accounting.
Interim Financial Information
The consolidated financial statements of the Company as of March 31, 1999
and for the three months ended March 31, 1999 and 1998 are unaudited. All
adjustments (consisting only of normal recurring adjustments) have been made,
which in the opinion of management, are necessary for a fair presentation.
Results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999 or for any other future period.
2. Business Combinations:
In 1998, the Company acquired certain assets used in connection with the
Internet access service business of seven entities as described below:
July 1, 1998, the Company purchased assets from CDL Corp. for
approximately $69,000, of which approximately $55,500 was remitted to CDL
Corp. and the remainder was deposited in an escrow account. Approximately
$68,000 was allocated to the acquired customer base cost as a result of
this transaction.
July 1, 1998, the Company purchased assets from Internet-Michigan, Inc.
for approximately $203,000. Approximately $202,000 was allocated to the
acquired customer base cost as a result of this transaction.
July 31, 1998, the Company purchased assets from Freeway, Inc. for
approximately $3,991,000, of which approximately $3,586,000 was remitted to
Freeway, Inc. and the remainder was deposited in an escrow account.
Approximately $3,074,000 was allocated to the acquired customer base cost
as a result of this transaction.
F-8
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
September 23, 1998, the Company purchased assets from EXEC-PC, Inc. for
approximately $23,983,000, of which $22,733,000 was paid to EXEC-PC, Inc.,
including approximately $3,827,000 for payment of certain liabilities with
the remainder deposited in an escrow account. Approximately $21,992,000 was
allocated to the acquired customer base cost as a result of this
transaction.
October 2, 1998, the Company purchased assets from Netimation, Inc. for
approximately $258,000 of which $233,000 was remitted to Netimation, Inc.,
including approximately $6,000 for payment of certain liabilities with the
remainder deposited in an escrow account. Approximately $260,000 was
allocated to the acquired customer base cost as a result of this
transaction.
October 2, 1998, the Company purchased assets from NetLink Systems,
L.L.C. for approximately $3,363,000, of which approximately $3,003,000 was
remitted to NetLink Systems, L.L.C. and the remainder was deposited in an
escrow account. Approximately $3,197,000 was allocated to the acquired
customer base cost as a result of this transaction.
November 20, 1998, the Company purchased assets from Add, Inc. for
approximately $41,000, of which approximately $6,800 was remitted to Add,
Inc. and the remainder is payable over five months. Approximately $6,000
was allocated to the acquired customer base cost as a result of this
transaction.
The above acquisitions were accounted for as purchases and, accordingly, the
purchase prices were allocated to assets acquired and liabilities assumed based
upon their estimated fair values at the dates of acquisition. For those
businesses acquired, the results of operations are included in the Company's
consolidated statement of operations from the dates of acquisitions.
The unaudited pro forma combined historical results, as if the Freeway,
Inc., EXEC-PC, Inc. and NetLink Systems, L.L.C. had been acquired at the
beginning of fiscal 1997 and 1998, respectively, are included in the table
below. The pro forma combined historical results for CDL Corp., Internet-
Michigan, Inc., Netimation, Inc. and Add, Inc. were not deemed to be material
and are not included for 1997 and 1998. Additionally, the unaudited pro forma
combined historical results of Hoosier On-Line Services, Inc., Infinite
Systems, Ltd., and Exchange Network Services, Inc. are included in the three
months ended March 31, 1999 as if they had been acquired January 1, 1999.
(in thousands except per share data)
Three Months
Years Ended December 31, Ended
-------------------------- March 31,
1997 1998 1999
(unaudited) (unaudited)
Revenue............................. $ 14,120 $ 21,882 $ 9,369
Net loss............................ $ (12,590) $ (10,708) $(2,386)
Basic loss per share................ $ (1.76) $ (0.78) $ (0.14)
|
F-9
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma results above include amortization of intangibles and interest
expense on debt assumed issued to finance the acquisitions. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisitions had been completed as of the beginning of each of the fiscal
periods presented, nor are they necessarily indicative of future consolidated
results.
3. Property and Equipment:
Cost of property and equipment and depreciable lives are summarized as
follows:
Depreciable
1997 1998 Life-Years
Computer equipment........ $1,551,099 $8,461,789 5
Office equipment.......... 25,052 230,009 7
Furniture and fixtures.... 76,238 96,559 5-7
Software.................. 157,260 389,863 3-5
Equipment acquired under
capital lease............ 251,355 1,178,525 5
Vehicles.................. -- 32,807 5
Building improvements..... -- 860,526 7-10
---------- ----------
2,061,004 11,250,078
Less accumulated
depreciation............ (804,251) (1,721,706)
---------- ----------
Property and equipment,
net.................... $1,256,753 $9,528,372
========== ==========
|
Depreciation expense of approximately $238,000, $393,000 and $842,000 was
charged to operations in 1996, 1997 and 1998, respectively.
4. Intangible Assets:
Intangible assets consist of the following:
Years Ended December Three Months
31, Ended
--------------------- March 31,
1997 1998 1999
(unaudited)
Acquired customer base.................. $ 25,775 $30,127,837 $37,897,134
Bank financing fees..................... -- 1,348,182 1,348,182
Other................................... 108,124 237,658 286,980
-------- ----------- -----------
133,899 31,713,677 39,532,296
Less accumulated amortization........... (30,370) (2,972,027) (5,680,158)
-------- ----------- -----------
Intangible assets, net.................. $103,529 $28,741,650 $33,852,138
======== =========== ===========
|
5. Capital Leases:
The Company leases computer equipment under capital leases expiring in
various years through the year 2002. The assets under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The net book value of these assets as of December 31,
1998 is $982,822. Depreciation of assets under capital leases is included in
depreciation expense.
F-10
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under capital leases as of December 31, 1998
are as follows:
1999............................................................. $ 395,315
2000............................................................. 380,723
2001............................................................. 349,608
2002............................................................. 123,907
----------
Total minimum lease payments..................................... 1,249,553
Less amount representing interest................................ (194,378)
----------
Present value of net minimum lease payments...................... $1,055,175
==========
|
6. Related Party Transactions:
The notes payable, related party, represent principal and interest payable
on demand to Horizon Cable I Limited Partnership, an entity under common
management. Interest on the notes is at rates of 10.5 percent in 1997 and of
8.0 and 8.5 percent in 1998. Interest has not been paid through December 31,
1998 on these notes.
On July 31, 1998, the Company's majority stockholder issued $2,800,000 in
notes payable at interest of 8 percent per annum. These notes, along with
$32,526 of accrued interest and cash in the amount of $533,333, were converted
into 33,657 shares of preferred stock for $100 per share and 360,000 shares of
common stock for $1,881.
7. Other Liabilities:
Other liabilities consist of the following:
1997 1998
Accrued payroll and related expenses...................... $ 94,129 $272,654
Accrued expenses.......................................... -- 465,732
Other..................................................... 71,650 117,341
-------- --------
$165,779 $855,727
======== ========
|
8. Debt:
In 1998, the Company entered into a $40,000,000 revolving credit facility
with a bank group which matures September 30, 2004. At December 31, 1998,
$30,000,000 was outstanding under the credit facility. Interest is payable
quarterly beginning December 31, 1998 through maturity. The revolving credit
facility agreement allows the Company to elect an interest rate as of any
borrowing date based on either the (1) prime rate, or (2) LIBOR, plus a margin
ranging from 1.5% to 3.5% depending upon funded debt to EBITDA. The elected
rate as of December 31, 1998 is approximately 8.5%. Commitment fees on the
unused credit facility are 0.5%. Automatic and permanent reductions of the
maximum commitments begin September 30, 2000 and continue until maturity. Based
on the balance as of December 31, 1998, the scheduled permanent reductions of
long-term debt are as follows:
F-11
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Year
1999.................................. $ --
2000.................................. 1,000,000
2001.................................. 4,000,000
2002.................................. 8,000,000
2003.................................. 12,000,000
Thereafter............................ 5,000,000
-----------
$30,000,000
===========
|
The revolving credit facility is collateralized by all of the Company's
tangible and intangible personal property and fixtures as well as substantially
all of the issued and outstanding equity securities of the Company.
The revolving credit facility is subject to an agreement that contains,
among other provisions, certain financial covenants. These financial covenants
include maintenance of a minimum fixed charges ratio, a total interest coverage
ratio, and a leverage ratio.
Additional Financing (Unaudited)
On April 13, 1999, the Company increased its revolving available credit
facility with its bank group to $70,000,000. The credit facility matures on
March 31, 2005.
9. Income Taxes:
The Company's effective tax rate varies from the statutory rate as follows:
1997 1998
Statutory rate................................................. 35.0% 35.0%
Effect of graduated tax rate................................... (1.0) (1.0)
Change in valuation allowance.................................. (34.0) (34.0)
----- -----
0.0% 0.0%
===== =====
|
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109 and accordingly a valuation allowance for the entire
deferred tax asset amount has been recorded. The components of the net deferred
tax asset (liability) and the related valuation allowance are as follows:
1997 1998
Net operating loss carryforward.................... $ 1,055,000 $ 1,462,000
Intangible assets.................................. -- 755,000
Other.............................................. 18,000 13,000
----------- -----------
Deferred tax assets................................ 1,073,000 2,230,000
----------- -----------
Valuation allowance................................ (1,073,000) (2,230,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
|
Deferred tax assets, primarily attributable to net operating loss ("NOL")
carryforwards, expiring in years 2013 through 2018, totaled $3,102,000 and
$4,300,000 at December 31, 1997 and 1998, respectively.
F-12
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Retirement Savings Plan:
In 1997, the Company established a retirement savings 401(k) plan for all
employees. The Company can make discretionary matching contributions to the
plan. Contributions to the plan totaled $7,300 and $14,789 in 1997 and 1998,
respectively.
11. Equity Transactions:
On September 23, 1998, the Company exchanged $2,800,000 notes payable to its
majority stockholders along with $32,566 in accrued interest and $533,513 in
cash for 33,657 shares of preferred stock at $100 per share and 360,000 shares
of common stock. Also, the Company agreed to the sale of 6,667 shares of
preferred stock at $100 per share to certain investors for which payment on
such shares in the amount of $666,700 is due by May 7, 1999. If payment is not
received for such shares, the majority stockholder has the option to purchase
these shares. Also on September 23, 1998, the Company converted accumulated
preferred stock dividends in the amount of $242,400 through September 23, 1998
into 2,424 shares of preferred stock at $100 per share.
On July 6, 1998, the Board of Directors authorized a 20-for-1 stock split on
the common stock, and on August 22, 1997, the Board of Directors authorized a
100-for-1 stock split on the common stock. The stock splits were applied
retroactively and, accordingly, all share data has been restated to reflect
these splits.
In the event of liquidation of the Company, the holders of outstanding
Series A Preferred Stock shall be entitled to receive a distribution of $100
per share plus all accumulated and unpaid dividends. Dividends accumulated and
unpaid related to the preferred stock as of December 31, 1998 were
approximately $180,000.
Additional Equity Transactions (Unaudited):
On January 11, 1999, the Company issued to members of management 1,000,000
shares of common stock at $6.00 per share in exchange for promissory notes
payable in the aggregate amount of $6,000,000 which notes are due January 11,
2003 and have an interest rate of 5% per annum compounded annually. The per
share price was based on an appraisal performed by an independent valuation
firm.
12. Stock-Based Compensation Plan:
During the year, the 1998 Stock Option and Incentive Plan the ("Plan") was
established. The Plan provides for the ability to issue Stock Options (either
Incentive Stock Options or Non-Qualified Stock Options), Stock Appreciation
Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights. As of December
31, 1998, there were 3,884,000 shares of common stock authorized for issuance
under the Plan. At December 31, 1998, 1,464,000 shares are available for
issuance under the Plan.
The Plan provides for the granting of options to officers, employees,
consultants, members of the Board of Directors and other key persons for
purchase of the Company's
F-13
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common shares. The Plan is administered by the Board of Directors. No option
can be for a term of more than ten years from the grant date. The option price
and the vesting provisions are determined by the Board of Directors at the time
of the grant.
Stock option activity under the Plan during the year ended December 31, 1998
is as follows:
Weighted-
Number Average
Of Exercise
Options Price
Outstanding at December 31, 1997........................... -- --
Granted.................................................... 620,000 $.0005
Exercised, forfeited and expired........................... -- --
------- ------
Outstanding at December 31, 1998........................... 620,000 $.0005
======= ======
Exercisable at December 31, 1998........................... 470,000 $.0005
======= ======
|
On September 23, 1998, the Company granted 620,000 options to purchase
common stock to certain members of management. At the grant date, 470,000
options were fully vested; the remaining 150,000 options become fully vested on
January 15, 1999. The fair value at the date of grant was $.20 per share based
on an appraisal performed by an independent valuation firm of the underlying
common stock. The weighted-average remaining contractual life of the options
outstanding at December 31, 1998 is in approximately 10 years. The Company
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations, in accounting for its stock
options issued to employees. Accordingly, the Company recorded compensation
cost of approximately $120,000 for the year ended December 31, 1998.
Under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
(or vesting) period. Under SFAS 123, the Company's net loss and loss per share
for the year ended December 31, 1998, would have been adjusted to the pro forma
amounts indicated in the following table:
Net loss applicable to common
stockholders:
As reported........................... $3,809,207
Pro forma............................. $3,909,240
Loss per share:
As reported:
Basic and diluted.................... $ .27
Pro forma:
Basic and diluted.................... $ .28
|
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk free rate of 4.6 percent; no expected dividend; expected life of 4 years
and volatility assumption of 75%.
F-14
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On September 23, 1998, the Company issued 1,800,000 shares of restricted
common stock to certain members of management for a nominal amount; 400,000 of
which are subject to certain vesting provisions through October 2002. The fair
value at the issuance date was $.20 per share based on an appraisal performed
by an independent valuation firm. Accordingly, the Company recorded
compensation expense of approximately $288,000 for the year ended December 31,
1998.
13. Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
Years Ended December 31, March 31,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
Net income (loss)....... $(1,498,220) $ (820,072) $(3,460,713) $ 63,825 $(2,001,018)
Less: Preferred stock
dividends.............. -- (73,456) (348,494) (50,000) (165,496)
----------- ---------- ----------- ----------- -----------
Net income (loss)
applicable to common
stockholders........... (1,498,220) (893,528) (3,809,207) 13,825 (2,166,514)
----------- ---------- ----------- ----------- -----------
Basic weighted average
shares................. 4,316,000 7,160,080 14,238,296 12,095,704 18,538,602
----------- ---------- ----------- ----------- -----------
Basic loss per share.... $ (.35) $ (.12) $ (.27) $ -- $ (.12)
=========== ========== =========== =========== ===========
|
The impact of dilutive shares is not significant.
F-15
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Supplemental Disclosure of Cash Flow Information:
The following is the supplemental cash flow information for all periods
presented:
Three Months Ended
Years Ended December 31, March 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
(unaudited)
Cash paid during the
period for interest..... $7,010 $ 7,604 $ 632,027 $59,981 $ 1,097,716
Noncash financing and
investing activities:
In connection with the
acquisitions described
in Notes 2 and 17, lia-
bilities were assumed
as
follows:
Fair value of assets
acquired............... $ 37,890,628 $ 9,967,818
Business acquisition
costs, net of cash
acquired............... (32,850,289) (9,371,427)
------------ -----------
Liabilities assumed...... $ 5,040,339 $ 596,391
============ ===========
Acquisition of equipment
through capital lease... -- $159,974 $ 951,117 -- $ 373,534
Conversion of note pay-
able and accumulated
dividends to preferred
stock................... -- -- $ 3,042,400 -- --
Issuance of compensatory
common stock and
options................. -- -- $ 408,407 -- --
Issuance of common stock
in exchange for
promissory notes........ -- -- -- -- $ 6,000,000
|
15. Commitments and Contingencies:
The Company leases office facilities under operating lease agreements that
expire in the years 2000, 2006 and 2007. The following is a schedule of future
minimum rental payments under these leases:
1999................................... $ 318,390
2000................................... 236,052
2001................................... 212,715
2002................................... 219,106
2003................................... 225,681
Thereafter............................. 1,101,424
----------
$2,313,368
==========
|
In addition to these office leases, the Company also leases point of
presence locations under lease terms of less than one year.
Rent expense under all operating leases of approximately $52,000, $103,000
and $190,000 was charged to operations in 1996, 1997 and 1998, respectively.
16. Segment Reporting:
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which requires certain information to
be reported about operating segments consistent with management's internal
view of the Company.
The Company has a single operating segment, Internet access services. The
Company has no organizational structure dictated by product lines, geography
or customer type.
F-16
VOYAGER.NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales are derived from one service line, Internet access service, and are
residential and business customers in the Midwestern United States. The
Company evaluates performance based on profit or loss from operations before
interest, income taxes, depreciation and amortization.
17. Subsequent Events:
Acquisitions:
On January 15, 1999, the Company purchased assets of Hoosier On-Line
Systems, Inc. for approximately $2,347,000, of which approximately $2,197,000
was remitted to Hoosier On-Line Systems, Inc. and the remainder was deposited
in an escrow account. Approximately $2,030,000 was allocated to the acquired
customer base cost as a result of this transaction.
On February 24, 1999, the Company purchased assets of Infinite Systems,
Ltd. for approximately $3,100,000, of which approximately $2,766,000 was
remitted to Infinite Systems, Ltd. and the remainder was deposited in an
escrow account. Approximately $2,538,000 was allocated to the acquired
customer base cost as a result of this transaction.
On March 10, 1999, the Company purchased assets of Exchange Network
Services, Inc. for approximately $3,250,000, of which approximately $3,005,000
was remitted to Exchange Network Services, Inc. and the remainder was
deposited in an escrow account. Approximately $2,803,000 was allocated to the
acquired customer base cost as a result of this transaction.
On April 23, 1999, the Company acquired certain subscribers of StarNet,
Inc. for approximately $1,835,000, of which $1,635,000 was remitted to
StarNet, Inc. and the remainder was deposited in an escrow account.
Approximately $2,000,000 was allocated to the acquired customer base cost as a
result of this transaction.
Employee Stock Option Plan (Unaudited):
Concurrent with the Company's initial public offering of securities, the
Company anticipates that it will grant to employees options to purchase common
stock under its stock option plan. Options will be granted at the initial
public offering price and will be granted based on a formula of years of
service, level of compensation and other factors.
On May 3, 1999, the Company received $666,700 for its preferred stock
subscription.
F-17
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
During the period from July 1, 1998 through December 31, 1998, Voyager.net
(the "Company") completed seven business acquisitions, whereby the Company
acquired certain assets and customer bases used in connection with the Internet
access service business. These acquisitions were accounted for using the
purchase method of accounting. Accordingly, the purchase prices were allocated
to assets acquired and liabilities assumed based upon their estimated fair
values at the dates of acquisitions. See Management's Discussion and Analysis
of Financial Condition and Results of Operations for a summary of the acquired
entities.
The unaudited pro forma condensed consolidated statement of operations for
the year ended December 31, 1998 assumes that the acquisitions in fiscal 1998
had occurred on January 1, 1998. The unaudited pro forma condensed consolidated
statement of operations is not necessarily indicative of the results of
operations that would actually have occurred if the transactions had been
consummated as of January 1, 1998 and is not intended to indicate the expected
results for any future period. These statements should be read in conjunction
with the historical consolidated financial statements and related notes of
Voyager.net, and certain acquired businesses, included herein.
F-18
VOYAGER.NET, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the year ended December 31, 1998
Preacquisition Results
---------------------------------
NetLink
Voyager.net, Freeway, ExecPC, Systems,
Inc. Inc. Inc. L.L.C. Adjustments Total
Revenue:
Internet access
service............... $10,588,963 $1,049,380 $8,652,989 $1,441,020 $ 21,732,352
Other.................. 133,199 -- 15,855 1,080 150,134
----------- ---------- ---------- ---------- ------------
Total revenue......... 10,722,162 1,049,380 8,668,844 1,442,100 21,882,486
----------- ---------- ---------- ---------- ------------
Internet access service
costs.................. 3,607,665 411,816 3,493,066 853,582 8,366,129
Sales and marketing..... 1,987,113 155,947 574,078 69,645 2,786,783
General and
administrative......... 3,405,870 286,498 1,773,757 364,591 5,830,716
Depreciation and
amortization........... 3,862,041 56,744 1,151,960 73,808 $ 7,259,355 A 12,403,908
Compensation charge for
issuance of common
stock and options...... 408,407 -- -- -- -- 408,407
----------- ---------- ---------- ---------- ----------- ------------
Total operating
expenses............... 13,271,096 911,005 6,992,861 1,361,626 7,259,355 29,795,943
----------- ---------- ---------- ---------- ----------- ------------
Total operating income
(loss)................. (2,548,934) 138,375 1,675,983 80,474 (7,259,355) (7,913,457)
Interest income
(expense).............. (911,779) (41,626) (12,073) (1,828,432)B (2,793,910)
----------- ---------- ---------- ---------- ----------- ------------
Net income (loss)....... (3,460,713) 138,375 1,634,357 68,401 (9,087,787) (10,707,367)
Preferred stock
dividends.............. (348,494) -- -- -- -- (348,494)
----------- ---------- ---------- ---------- ----------- ------------
Net income (loss)
applicable to common
stockholders........... $(3,809,207) $ 138,375 $1,634,357 $ 68,401 $(9,087,787) $(11,055,861)
=========== ========== ========== ========== =========== ============
EBITDA (1).............. $ 1,721,514 $ 195,119 $2,827,943 $ 154,282 -- $ 4,898,858
=========== ========== ========== ========== =========== ============
Basic and diluted
earnings per share..... $ (.78)
============
Basic weighted average
shares (in thousands).. 14,238,296
============
|
(1) EBITDA represents earnings before interest, taxes, and depreciation, and
amortization and non-recurring, non-cash compensation charges. EBITDA is
provided because it is a measure commonly used by investors to analyze and
compare companies on the basis of operating performance. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be construed as a substitute for operating
income, net income or cash flows from operating activities for purposes of
analyzing our operating performance, financial position and cash flows.
EBITDA, as calculated by Voyager.net, is not necessarily comparable with
similarly titled measures for other companies.
F-19
VOYAGER.NET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A.Acquired customer bases were a result of the acquisitions in 1998 and are
amortized over a three-year period. Additional amortization expense of
approximately $7.2 million would have been recorded if these acquisitions
had occurred on January 1, 1998. Total amounts allocated to acquired
customer base and other costs were $30,102,062 which were included in
"acquired customer base".
B.Voyager.net utilized $30,000,000 of its revolving credit facility to complete
the acquisitions in 1998. This adjustment reflects interest expense on that
borrowing assuming a rate of 8.5 percent, which was the rate used at
December 31, 1998.
The following table illustrates the net cash borrowed from the revolving
credit facility as of the end of the year to fund the 1998 acquisitions.
Business acquisition costs, net of cash acquired............. $(32,850,289)
Purchase of property and equipment........................... (1,514,323)
Payment of bank financing fees............................... (1,325,530)
Proceeds from notes payable issuance......................... 2,800,000
Proceeds from preferred stock issuance....................... 2,065,719
Other cash used.............................................. 824,423
------------
Net cash borrowed from revolving credit facility........... $(30,000,000)
============
|
F-20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholder's (deficit) equity and cash flows, present fairly,
in all material respects, the financial position of Freeway, Inc. (the
"Company") at December 31, 1997 and at July 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1997 and for the
seven months ended July 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 28, 1999
F-21
FREEWAY, INC.
BALANCE SHEETS
December 31, July 31,
Assets 1997 1998
Current assets:
Cash and cash equivalents............................... $ 329 $ 9,585
Accounts receivable, less allowance for doubtful
accounts of $11,000 and $35,000 in 1997 and 1998,
respectively........................................... 194,216 212,134
Prepaid and other assets................................ 900 2,100
-------- --------
Total current assets..................................... 195,445 223,819
Computer equipment, net.................................. 245,242 321,058
-------- --------
Total assets............................................. $440,687 $544,877
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft.......................................... $ 24,956 $ --
Accounts payable........................................ 25,034 13,774
Accrued payroll and related expenses.................... 16,161 21,209
Deferred revenue........................................ 20,522 17,505
Stockholder loans....................................... 190,965 190,965
-------- --------
Total current liabilities................................ 277,638 243,453
Stockholders' equity:
Common stock............................................ 1,000 1,000
Retained earnings....................................... 162,049 300,424
-------- --------
Total stockholders' equity............................... 163,049 301,424
-------- --------
Total liabilities and stockholders' equity............... $440,687 $544,877
======== ========
|
The accompanying notes are an integral part of the financial statements.
F-22
FREEWAY, INC.
STATEMENTS OF INCOME
Seven
months
Year ended ended
December 31, July 31,
1997 1998
Revenue, Internet access service....................... $1,163,019 $1,049,380
---------- ----------
Operating expenses:
Internet access service costs......................... 523,566 411,816
Sales and marketing................................... 153,542 155,947
General and administrative............................ 302,435 286,498
Depreciation and amortization......................... 75,982 56,744
---------- ----------
Total operating expenses............................... 1,055,525 911,005
---------- ----------
Income from operations before interest expense......... 107,494 138,375
---------- ----------
Interest expense....................................... 630 --
---------- ----------
Net income............................................. $ 106,864 $ 138,375
========== ==========
|
The accompanying notes are an integral part of the financial statements.
F-23
FREEWAY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------- Retained
Shares Amount Earnings Total
Balances at January 1, 1997.................... 1,000 $1,000 $ 55,185 $ 56,185
Net income.................................... 106,864 106,864
----- ------ -------- --------
Balances at December 31, 1997.................. 1,000 1,000 162,049 163,049
Net income.................................... 138,375 138,375
----- ------ -------- --------
Balances at July 31, 1998...................... 1,000 $1,000 $300,424 $301,424
===== ====== ======== ========
|
The accompanying notes are an integral part of the financial statements.
F-24
FREEWAY, INC.
STATEMENTS OF CASH FLOWS
Seven
Months
Year ended ended
December 31, July 31,
1997 1998
Cash flows from operating activities
Net income............................................ $ 106,864 $ 138,375
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 75,982 56,744
Changes in assets and liabilities
Accounts receivable................................. (77,035) (17,918)
Prepaids and other assets........................... 50 (1,200)
Accounts payable.................................... (24,251) (11,260)
Accrued expenses.................................... (781) 5,048
Deferred revenue.................................... 8,059 (3,017)
--------- ---------
Net cash provided by operating activities.............. 88,888 166,772
Cash flows from investing activities
Purchase of property and equipment.................... (200,656) (132,560)
--------- ---------
Net cash used in investing activities.................. (200,656) (132,560)
Cash flows from financing activities
Proceeds from stockholder loans....................... 62,378 --
Cash overdraft, net................................... 24,956 (24,956)
--------- ---------
Net cash provided by (used in) financing activities.... 87,334 (24,956)
--------- ---------
Net (decrease) increase in cash and cash equivalents... (24,434) 9,256
Cash and cash equivalents at beginning of period....... 24,763 329
--------- ---------
Cash and cash equivalents at end of period............. $ 329 $ 9,585
========= =========
Supplemental disclosure of cash flow information
Interest paid.......................................... $ 630 $ --
========= =========
|
The accompanying notes are an integral part of the financial statements.
F-25
FREEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization and Basis of Presentation
Freeway, Inc. ("the Company") provides full service access to the Internet
for corporate and individual users in Michigan.
Revenue Recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as deferred
revenue and recognized as revenue when earned.
Cash Equivalents
The Company considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Costs of repair and
maintenance are charged to expense as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense of
approximately $13,000, $34,000, and $26,000 was charged to operations in 1996,
1997 and 1998, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
The Company is taxed as an S-Corporation. Accordingly, the stockholders of
the Company are subject to federal income taxes rather than the Company.
2. Property and Equipment:
Cost of property and equipment and depreciable lives are summarized as
follows:
Depreciable
1997 1998 Life-Years
Computer equipment......................... $ 357,036 $ 489,595 5
Less accumulated depreciation............. (111,794) (168,537)
--------- ---------
Computer equipment, net.................. $ 245,242 $ 321,058
========= =========
|
F-26
FREEWAY, INC.
NOTES TO FINANCIAL STATEMENTS--(continued)
Depreciation expense of approximately $76,000 and $57,000 was charged to
operations in 1997 and 1998, respectively.
3. Operating Leases:
The Company also leases point of presence locations under lease terms of
less than one year.
Rent expense under all operating leases of approximately $10,000 and $8,000
was charged to operations in 1997 and 1998, respectively.
4. Stockholder loans:
The stockholder loans are interest free and payable upon demand.
F-27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholder's equity (deficit) and cash flows, present fairly,
in all material respects, the financial position of EXEC-PC, Inc. (the
"Company") at December 31, 1997 and September 22, 1998 and the results of its
operations and its cash flows for the year ended December 31, 1997 and for the
period ended September 22, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 28, 1999
F-28
EXEC-PC, INC.
BALANCE SHEETS
December 31, September 22,
1997 1998
Assets
Current assets:
Cash............................................... $ 248,268 $ 461,924
Accounts receivable, less allowance for doubtful
accounts of $37,900 and $53,900 in 1997 and 1998,
respectively...................................... 63,400 52,022
Prepaid and other assets........................... 7,460 50,351
----------- ----------
Total current assets.............................. 319,128 564,297
Property and equipment, net......................... 2,464,138 3,925,550
Intangible assets, net.............................. 355,158 327,358
----------- ----------
Total assets........................................ $ 3,138,424 $4,817,205
=========== ==========
Liabilities and Stockholder's Deficit
Current liabilities:
Current portion of obligations under capital
leases............................................ $ 1,083,144 $1,238,844
Note payable, bank................................. 295,000 145,000
Accounts payable................................... 257,980 305,951
Accrued payroll and related expenses............... 165,100 132,606
Deferred revenue................................... 3,353,920 3,353,387
----------- ----------
Total current liabilities........................... 5,155,144 5,175,788
Obligations under capital leases.................... 253,483 1,414,602
Long-term debt...................................... 212,418 117,177
Stockholder's deficit:
Common stock....................................... 100 100
Paid-in capital.................................... 169,783 169,783
Accumulated deficit................................ (2,652,504) (2,060,245)
----------- ----------
Total stockholder's deficit......................... (2,482,621) (1,890,362)
----------- ----------
Total liabilities and stockholder's deficit......... $ 3,138,424 $4,817,205
=========== ==========
|
The accompanying notes are an integral part of the financial statements.
F-29
EXEC-PC, INC.
STATEMENTS OF INCOME
Year ended Period ended
December 31, September 22,
1997 1998
Revenue:
Internet access service........................... $8,029,414 $8,652,989
Other............................................. 73,740 15,855
---------- ----------
Total revenue.................................... 8,103,154 8,668,844
---------- ----------
Operating expenses:
Internet access service costs..................... 2,846,798 3,493,066
Sales and marketing............................... 660,898 574,078
General and administrative........................ 2,676,032 1,773,757
Depreciation and amortization..................... 1,274,787 1,151,960
---------- ----------
Total operating expenses......................... 7,458,515 6,992,861
---------- ----------
Income from operations before other income
(expense)......................................... 644,639 1,675,983
---------- ----------
Other income (expense):
Interest income................................... 1,910 95
Interest expense.................................. (80,309) (71,742)
Gain (loss) on sale of assets..................... (222,458) 30,021
---------- ----------
Total other (expense).............................. (300,857) (41,626)
---------- ----------
Net income......................................... $ 343,782 $1,634,357
========== ==========
|
The accompanying notes are an integral part of the financial statements.
F-30
EXEC-PC, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
Common Stock
------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance at December 31,
1996........................ 100 $100 $169,783 $(2,195,786) $(2,025,903)
Dividends................... -- -- -- (800,500) (800,500)
Net income.................. -- -- -- 343,782 343,782
--- ---- -------- ----------- -----------
Balance at December 31,
1997........................ 100 100 169,783 (2,652,504) (2,482,621)
Dividends................... -- -- -- (1,042,098) (1,042,098)
Net income.................. -- -- -- 1,634,357 1,634,357
--- ---- -------- ----------- -----------
Balance at September 22,
1998........................ 100 $100 $169,783 $(2,060,245) $(1,890,362)
=== ==== ======== =========== ===========
|
The accompanying notes are an integral part of the financial statements.
F-31
EXEC-PC, INC.
STATEMENTS OF CASH FLOWS
Year ended Period ended
December 31, September 22,
1997 1998
Cash flows from operating activities
Net income........................................ $ 343,782 $ 1,634,357
Adjustments to reconcile net loss to net cash
Provided by operating activities:
Depreciation and amortization.................... 1,274,787 1,151,960
(Gain) loss on (sale) disposal of equipment...... 222,458 (30,021)
Changes in assets and liabilities:
Accounts receivable............................. 30,400 11,378
Prepaids and other assets....................... 12,435 (42,891)
Accounts payable................................ 64,495 47,971
Accrued expenses................................ 75,133 (32,494)
Deferred revenue................................ 697,801 (533)
----------- -----------
Net cash provided by operating activities.......... 2,721,291 2,739,727
Cash flows from investing activities
Purchase of property and equipment................ (1,143,349) (465,299)
Proceeds from the sale of equipment............... 58,960 --
Payment for purchase of a business................ (370,600) --
----------- -----------
Net cash used in investing activities.............. (1,454,989) (465,299)
Cash flows from financing activities
Payments on capital leases........................ (347,107) (773,433)
Advances from related party....................... 431,963 --
Payments to related party......................... (431,963) --
Payment on notes payable.......................... (249,819) (245,241)
Proceeds from notes payable issuance.............. 300,000 --
Dividends......................................... (800,500) (1,042,098)
----------- -----------
Net cash used in financing activities.............. (1,097,426) (2,060,772)
----------- -----------
Net increase in cash and cash equivalents.......... 168,876 213,656
Cash and cash equivalents at beginning of period... 79,392 248,268
----------- -----------
Cash and cash equivalents at end of period......... $ 248,268 $ 461,924
=========== ===========
Supplemental disclosure of cash flow information
Interest paid...................................... $ 80,309 $ 71,742
=========== ===========
|
The accompanying notes are an integral part of the financial statements.
F-32
EXEC-PC, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization and Basis of Presentation
EXEC-PC, Inc. (the "Company") provides full service access to the Internet
for corporate and individual users in Illinois and Wisconsin.
Revenue Recognition
The Company recognizes revenue when internet access services are provided.
Advance collections relating to future access services are recorded as deferred
revenue and recognized as revenue when earned.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Equipment acquired under
capital leases are depreciated over their related lease terms or their
estimated productive useful lives, depending on the criteria met in determining
their qualification as a capital lease. Costs of repair and maintenance are
charged to expense as incurred.
Advertising Costs
Advertising costs are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Intangible Assets
Goodwill, representing the excess cost over net assets of an acquired
company, is amortized using the straight-line method over 10 years. The
carrying value of goodwill will be periodically reviewed to determine if an
impairment has occurred.
F-33
EXEC-PC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Property and Equipment:
Cost of property and equipment and depreciable lives are summarized as
follows:
Depreciable
1997 1998 Life-Years
Computer equipment................... $ 862,695 $ 865,782 3
Office equipment..................... 105,903 144,969 5-7
Furniture and fixtures............... 113,974 124,873 7
Software............................. 97,729 99,183 3
Equipment acquired under capital
lease............................... 1,710,400 3,800,652 3-5
Vehicles............................. 21,882 24,094 5
Building improvements................ 811,444 882,768 7
----------- -----------
3,724,027 5,942,321
Less accumulated depreciation....... (1,259,889) (2,016,771)
----------- -----------
Property and equipment, net........ $ 2,464,138 $ 3,925,550
=========== ===========
|
Depreciation expense of approximately $1,259,000 and $1,124,000 was charged
to operations in 1997 and 1998, respectively.
3. Intangible Assets:
Intangible assets consist of the following:
1997 1998
Goodwill................................................. $370,600 $370,600
Less accumulated amortization............................ (15,442) (43,242)
-------- --------
Intangible assets, net.................................. $355,158 $327,358
======== ========
|
4. Capital Leases:
The Company leases computer equipment under capital leases expiring in
various years through the year 2001. The assets under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The net book value of these assets as of September 22,
1998 is $3,084,907. Depreciation of assets under capital leases is included in
depreciation expense.
Future minimum lease payments under capital leases as of September 22, 1998
are as follows:
1999............................................................ $ 1,329,600
2000............................................................ 1,131,942
2001............................................................ 391,552
2002............................................................ 4,506
-----------
Total minimum lease payments.................................... 2,857,600
Less amount representing interest............................... (204,154)
-----------
Present value of net minimum lease payments..................... 2,653,446
Less current maturities......................................... (1,238,844)
-----------
Long-term portion............................................... $ 1,414,602
===========
|
F-34
EXEC-PC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company also leases office facilities under operating lease agreements
that expire in the years 2006 and 2007. The following is a schedule of future
minimum rental payments under these leases as of September 22, 1998:
1999.............................................................. $ 199,050
2000.............................................................. 205,021
2001.............................................................. 211,172
2002.............................................................. 217,507
2003.............................................................. 224,033
Thereafter........................................................ 932,125
----------
$1,988,908
==========
|
In addition to these office leases, the Company also leases point of
presence locations under lease terms of less than one year.
Rent expense under the above operating leases was approximately $203,000 and
$165,000 was charged to operations in 1997 and 1998, respectively.
5. Long-Term Debt:
Long-term debt consists of the following:
1997 1998
Note payable to bank, original amount $446,635 due in
monthly principal and interest payments of $14,171
through May 1, 2000, interest due monthly at 8.6% per
annum on the unpaid principal balance................ $ 357,418 $ 262,177
Note payable, StarNet, Inc. (Five Star Telecom),
original amount $300,000, due in monthly principal
payments of $30,000 through May 31, 1998, non-
interest bearing..................................... 150,000 --
--------- ---------
507,418 262,177
Less current maturities............................... (295,000) (145,000)
--------- ---------
Long-term debt........................................ $ 212,418 $ 117,177
========= =========
|
Maturities of principal payments of long-term debt are as follows:
1999................................................................ $145,000
2000................................................................ 117,177
--------
$262,177
========
|
6. Related Party Transactions:
In 1997, the Company borrowed a total of approximately $432,000 from an
officer of the Company at an interest rate of ten percent. The entire amount
borrowed was repaid by December 31, 1997. Interest expense on the note payable
in 1997 was approximately $13,000.
F-35
EXEC-PC, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Acquisition:
During 1997, the Company acquired StarNet, Inc. for $370,600. The
transaction was accounted as a purchase and goodwill in the amount of $370,600
was recognized. The purchase price consisted of cash in the amount of $70,600
and a $300,000 note payable (see Note 5).
F-36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and the Stockholders of
Voyager.net, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholder's equity (deficit) and cash flows, present fairly,
in all material respects, the financial position of NetLink Systems, L.L.C.
(the "Company") at December 31, 1997 and September 30, 1998 and the results of
its operations and its cash flows for the year ended December 31, 1997 and the
nine months ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
April 28, 1999
F-37
NETLINK SYSTEMS, L.L.C.
BALANCE SHEETS
December 31, September 30,
1997 1998
Assets
Current assets:
Cash............................................... $ 55,407 $ 26,070
Accounts receivable, less allowance for doubtful
accounts of $10,000 and $45,000 in 1997 and 1998,
respectively...................................... 28,528 66,547
Prepaid and other assets........................... 4,500 3,300
-------- --------
Total current assets................................ 88,435 95,917
Property and equipment, net......................... 383,577 338,711
-------- --------
Total assets........................................ $472,012 $434,628
======== ========
Liabilities and Members' Equity
Current liabilities:
Line of credit..................................... $149,237 $167,747
Current portion of note payable.................... 1,586 10,587
Accounts payable................................... 102,697 72,554
Other liabilities.................................. 25,591 23,138
Deferred revenue................................... -- 119,166
-------- --------
Total current liabilities........................... 279,111 393,192
Note payable........................................ 26,691 --
Members' equity..................................... 166,210 41,436
-------- --------
Total liabilities and members' equity............... $472,012 $434,628
======== ========
|
The accompanying notes are an integral part of the financial statements.
F-38
NETLINK SYSTEMS, L.L.C.
STATEMENTS OF INCOME AND MEMBERS' EQUITY
Nine months
Year ended ended
December 31, September 30,
1997 1998
Revenue:
Internet access service........................... $1,399,514 $1,441,020
Other............................................. 258 1,080
---------- ----------
Total revenue...................................... 1,399,772 1,442,100
---------- ----------
Operating expenses:
Internet access service costs..................... 702,888 853,582
Sales and marketing............................... 34,990 69,645
General and administrative........................ 260,516 364,591
Depreciation and amortization..................... 41,540 73,808
---------- ----------
Total operating expenses........................... 1,039,934 1,361,626
---------- ----------
Income from operations before other income
(expense)......................................... 359,838 80,474
---------- ----------
Other income (expense):
Interest income................................... 296 758
Interest expense.................................. (9,422) (12,831)
---------- ----------
Total other income (expense)....................... (9,126) (12,073)
---------- ----------
Net income......................................... 350,712 68,401
Members' equity, beginning of year................. 57,217 166,210
Distribution to members............................ (241,719) (193,175)
---------- ----------
Members' equity, end of year....................... $ 166,210 $ 41,436
========== ==========
|
The accompanying notes are an integral part of the financial statements.
F-39
NETLINK SYSTEMS, L.L.C.
STATEMENTS OF CASH FLOWS
Year ended Nine months
December 31, September 30,
1997 1998
Cash Flows From Operating Activities:
Net income......................................... $ 350,712 $ 68,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 41,540 73,808
Changes in assets and liabilities:
Accounts receivable.............................. 23,718 (38,019)
Prepaids and other assets........................ (1,500) 1,200
Accounts payable................................. 29,937 (30,143)
Accrued expenses................................. (5,197) (2,453)
Deferred revenue................................. -- 119,166
--------- ---------
Net cash provided by operating activities......... . 439,210 191,960
Cash Flows From Investing Activities:
Purchase of property and equipment................. (279,672) (28,942)
--------- ---------
Net cash used in investing activities............... (279,672) (28,942)
Cash Flows Provided By Financing Activities:
Payment on line of credit.......................... (26,805) (48,490)
Proceeds from line of credit....................... 176,042 67,000
Payment on note payable............................ (25,023) (17,690)
Distributions to members........................... (241,719) (193,175)
--------- ---------
Net cash used in financing activities............... (117,505) (192,355)
--------- ---------
Net increase (decrease) in cash..................... 42,033 (29,337)
Cash at beginning of period......................... 13,374 55,407
--------- ---------
Cash at end of period............................... $ 55,407 $ 26,070
========= =========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ 9,422 $ 12,831
========= =========
|
The accompanying notes are an integral part of the financial statements.
F-40
NETLINK SYSTEMS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization and Basis of Presentation
NetLink Systems, L.L.C. (the "Company") provides full service access to the
Internet for corporate and individual users in Michigan.
Revenue Recognition
The Company recognizes revenue when Internet access services are provided.
Advance collections relating to future access services are recorded as deferred
revenue and recognized as revenue when earned.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method. Costs of repair and
maintenance are charged to expense as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company is classified as a limited liability corporation for federal
income tax purposes. Accordingly, no provisions for income taxes are required
as income or losses generated flow to the individual members.
2. Property and Equipment:
Cost of property and equipment and depreciable lives are summarized as
follows:
Depreciable
1997 1998 Life-Years
Computer equipment........................... $446,722 $473,171 5
Furniture and fixtures....................... 21,415 21,415 7
-------- --------
468,137 494,586
Less accumulated depreciation............... (84,560) (155,875)
-------- --------
Property and equipment, net................ $383,577 $338,711
======== ========
|
Depreciation expense of approximately $42,000 and $74,000 was charged to
operations in 1997 and 1998, respectively.
F-41
NETLINK SYSTEMS, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Other Liabilities:
Other liabilities consist of the following:
1997 1998
Accrued payroll and related expenses........................ $19,091 $10,302
Accrued expenses............................................ 6,500 12,836
------- -------
$25,591 $23,138
======= =======
|
4. Operating Leases:
The Company leases office space and communication services under operating
leases expiring in various years through 2001.
Minimum future rental payments under noncancellable operating leases as
follows:
1998
1999............................................................... $ 47,040
2000............................................................... 45,920
2001............................................................... 40,260
--------
Total minimum future rental payments............................... $133,220
========
|
Rent expense under the above operating leases was approximately $56,000 and
$45,000 in 1997 and 1998, respectively.
5. Line of Credit:
In 1997, the Company entered into a $250,000 revolving term loan with a bank
which matures July 10, 2000, bearing interest at the bank's prime rate plus
.25%. The rate at September 30, 1998 is 8.5%. Borrowings are collateralized by
substantially all of the Company's assets and the limited personal guarantees
of the members. At December 31, 1997 and September 30, 1998, $149,237 and
$167,747, respectively, was outstanding under the credit facility.
6. Long-Term Debt:
At December 31, 1996, the Company entered into an agreement to purchase a
member's equity. Under the terms of the agreement, the Company is to pay the
former member $46,300 in full consideration for a note payable and accrued
interest of $27,627 and a return of capital in the amount of $18,673. The full
consideration to be paid consists of a $10,300 cash payment and an unsecured
note in the amount of $36,000. The unsecured note bearing interest at 7 percent
is payable in monthly installments of $1,093, including interest, through July
1999.
F-42
, 1999
[LOGO]
Shares of Common Stock
PROSPECTUS
Donaldson, Lufkin & Jenrette
First Union Capital Markets Corp.
CIBC World Markets
DLJdirect Inc.
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in the prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of
Voyager.net have not changed since the date hereof.
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver
a prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and
commissions):
Nature of Expense Amount
----------------- -------
SEC Registration Fee................................................ $31,970
NASD Filing Fee..................................................... 12,000
Nasdaq National Market Listing Fee.................................. *
Accounting Fees and Expenses........................................ *
Legal Fees and Expenses............................................. *
Directors' and Officers' Insurance.................................. *
Printing Expenses................................................... *
Blue Sky Qualification Fees and Expenses............................ *
Transfer Agent's Fee................................................ *
Miscellaneous....................................................... *
-------
TOTAL............................................................. $
=======
|
The amounts set forth above, except for the Securities and Exchange
Commission, NASD Regulation, Inc. and Nasdaq National Market fees, are in each
case estimated.
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our second amended and restated certificate of incorporation
provides that no director of Voyager.net be personally liable to Voyager.net,
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to Voyager.net or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) in respect of unlawful dividend payments or stock redemptions or
repurchases, or (4) for any transaction from which the director derived an
improper personal benefit. In addition, our first amended and restated
certificate of incorporation provides that if the Delaware General Corporation
Law is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by Voyager.net of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of the registrant if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of Voyager.net, and, with respect to criminal actions or proceedings,
if such person had no reasonable cause to believe his or her conduct was
unlawful.
We have also entered into indemnification agreements with each of our
directors. These agreements provide that we indemnify each of our directors to
the fullest extent permitted under law and our by-laws, and provide for the
advancement of expenses to each director. We have also obtained directors' and
officers' insurance against certain liabilities.
II-1
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by Voyager.net during the past three years.
Also included is the consideration, if any, received by Voyager.net for the
shares. There was no public offering in any transaction and we believe that
each transaction was exempt from the registration requirements of the
Securities Act of 1933, as amended, by reason of Section 4(2) thereof, based
on the private nature of the transactions and the financial sophistication of
the purchasers, all of whom had access to complete information concerning
Voyager.net and acquired the securities for investment and not with a view to
the distribution thereof. In addition, we believe that the transactions
described below with respect to issuances and option grants to our employees
and consultants were exempt from the registration requirements of said Act by
reason of Rule 701 promulgated thereunder. The share numbers and per share
values set forth below do not give effect to the -for-1 stock split effected
in connection with this offering. The share numbers and per share values set
forth below with respect to Voyager Information Networks, Inc. do not give
effect to the 20-for-1 stock split effected in September 1998.
. On August 7, 1997, Voyager sold an aggregate 25,000 shares of series A
preferred stock and 424,900 shares of common stock for an aggregate
purchase price of $504,249 and 2,696 shares of preferred shares to
Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership, respectively
. On August 7, 1997, Voyager sold an aggregate 53,416 shares of restricted
common stock under its 1997 Stock Option and Incentive Plan, including
sales of 41,568, 5,924 and 5,924 shares to Messrs. Friedly, Baird and
Heinze, respectively, for aggregate consideration of $415.68, $59.24 and
$59.24, respectively
. On January 15, 1998, Voyager sold 6,003 shares of restricted common stock
to Alan Baird, a consultant to Voyager, under its 1997 Stock Option and
Incentive Plan for aggregate consideration of $60.03
. On January 15, 1998, Voyager granted options to purchase an aggregate
91,984 shares of common stock at a per share exercise price of $.01 to
certain of its employees, including options to purchase 67,984 shares of
common stock to Mr. Williams, pursuant to its 1997 Stock Option and
Incentive Plan
. On February 20, 1998, Voyager granted Mr. Torto options to purchase 67,984
shares of common stock at a per share exercise price of $.01 pursuant to
its 1997 Stock Option and Incentive Plan
. On July 31, 1998, Voyager sold an aggregate 15,000 shares of series A
preferred stock and an aggregate 182,100 shares of common stock, and issued
demand promissory notes in the aggregate principal amount of $2,800,000,
for an aggregate purchase price of $4,301,821 to Media/Communications
Partners II Limited Partnership and Media/Communications Investors Limited
Partnership
. On September 23, 1998, we granted options to purchase an aggregate
1,520,000 shares of our common stock at a per share exercise price of
$.0005 to certain of our employees pursuant to our 1998 Stock Option and
Incentive Plan, including options to purchase 1,400,000 shares of common
stock to Mr. Williams
. On September 23, 1998, we sold an aggregate 33,657 shares of series A
preferred stock and an aggregate 360,000 shares of common stock to
Media/Communications Partners II Limited Partnership and
Media/Communications Investors Limited Partnership for an aggregate
purchase price of $533,513 in cash and cancellation of demand promissory
notes in the aggregate principal amount, plus interest, of $2,832,526
. On September 23, 1998, we sold 1,400,000 shares of restricted common stock
to Mr. Torto under our 1998 Stock Option and Incentive Plan for aggregate
consideration of $700
. On October 2, 1998, we sold an aggregate 400,000 shares of restricted
common stock for an aggregate purchase price of $200 under the 1998 Stock
Option and Incentive Plan, including sales of 200,000, 100,000 and 100,000
shares to Messrs. Torto, Shires and Michaels, respectively, for aggregate
consideration of $100, $50 and $50, respectively
II-2
. On January 1, 1999, we granted options to purchase an aggregate 135,000
shares of common stock at a per share exercise price of $6.00 to certain of
our employees pursuant to our 1998 Stock Option and Incentive Plan
. On January 11, 1999, we sold 300,000 shares of restricted common stock to
Mr. deFaria under our 1998 Stock Option and Incentive Plan for aggregate
consideration of $1.8 million
. On January 11, 1999, we sold 700,000 shares of restricted common stock to
Mr. Friedly under our 1998 Stock Option and Incentive Plan for aggregate
consideration of $4.2 million
. On May 3, 1999, we sold an aggregate 6,667 shares of series A preferred
stock for an aggregate $666,700, including 5,147, 740, and 740 shares to
Messrs. Friedly, Baird and Heinze, respectively, for aggregate
consideration of $514,700, $74,000 and $74,000 respectively
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
*1.1 Form of Underwriting Agreement.
2.1 Stock Exchange Agreement dated as of September 23, 1998, by and among
the Registrant and the parties named therein (excluding schedules, which
the Registrant agrees to furnish supplementally to the Commission upon
request).
2.2 Stock Purchase Agreement dated as of September 23, 1998 by and among the
Registrant and the investors identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish supplementally to the
Commission upon request).
*3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
*3.2 Form of Second Amended and Restated Certificate of Incorporation of the
Registrant (to be effective upon consummation of this offering).
*3.3 Form of Amended and Restated By-laws of the Registrant.
*4.1 Specimen certificate for shares of common stock, $.0001 par value, of
the Registrant.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered.
10.1 Credit Agreement dated as of September 23, 1998 by and among the
Registrant, Fleet National Bank, as agent, and the lenders identified
therein (excluding schedules and exhibits, which the Registrant agrees
to furnish supplementally to the Commission upon request).
10.2 First Amendment to Credit Agreement dated as of April 13, 1999 by and
among the Registrant, the Agent and the lenders identified therein.
10.3 Amended and Restated Promissory Note made by the Registrant in favor of
Horizon Cable I Limited Partnership.
10.4 Asset Purchase Agreement dated as of July 31, 1998 by and among the
Registrant, Freeway, Inc. (n/k/a Offline, Inc.) and the other parties
identified therein (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the Commission upon
request).
10.5 Asset Purchase Agreement dated as of September 23, 1998 by and among the
Registrant, EXEC-PC, Inc. (n/k/a The Mahoney Group) and the other
parties identified therein (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the Commission upon
request).
*10.6 Asset Purchase Agreement dated as of October 2, 1998, effective
September 30, 1998, by and among the Registrant, NetLink Systems,
L.L.C., and the other parties identified therein (excluding schedules
and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request).
*10.7 Reseller Agreement dated as of April 13, 1999 by and among the
Registrant and Millennium Digital Media Systems, L.L.C.
*10.8 Employment Agreement dated as of February 20, 1998 between the
Registrant and Christopher Torto, as amended.
|
II-3
10.9 Employment Agreement dated as of January 15, 1998 between the
Registrant and Michael Williams.
*10.10 Employment Agreement dated as of October 2, 1998 between the Registrant
and Christopher Michaels, as amended.
10.11 Employment Agreement dated as of October 2, 1998 between the Registrant
and David Shires.
10.12 Employment Agreement effective as of January 11, 1999 between the
Registrant and Osvaldo deFaria.
10.13 Employment Agreement dated as of March 18, 1999 between the Registrant
and Dennis Stepaniak.
10.14 Agreement Regarding Inventions, Non-competition and Confidentiality
dated as of February 20, 1998 between the Registrant and Christopher
Torto.
10.15 Agreement Regarding Inventions, Non-competition and Confidentiality
dated as of October 15, 1997 between the Registrant and Michael
Williams.
10.16 Agreement Regarding Inventions, Non-competition and Confidentiality
dated as of November 11, 1998 between the Registrant and Osvaldo
deFaria.
10.17 Agreement Regarding Inventions, Non-competition and Confidentiality
dated as of March 18, 1999 between the Registrant and Dennis Stepaniak.
10.18 Employee Non-Competition Agreement dated as of October 2, 1998 between
the Registrant and Christopher Michaels.
10.19 Employee Non-Competition Agreement dated as of October 2, 1998 between
the Registrant and David Shires.
*10.20 1998 Stock Option and Incentive Plan.
10.21 Form of Incentive Stock Option and Restriction Agreement.
10.22 Form of Stock Purchase and Stock Restriction Agreement.
*10.23 Promissory Note made by Osvaldo deFaria in favor of the Registrant.
*10.24 Promissory Note made by Glenn Friedly in favor of the Registrant.
10.25 Promissory Note made by Christopher Torto in favor of the Registrant.
10.26 Form of Director Indemnification Agreement.
*10.27 SNAP! Online Distribution Agreement dated as of February 12, 1998 by
and between CNET, Inc. and the Registrant.
*10.28 Planet Direct Internet Service Provider Agreement dated as of March 17,
1997 by and among Planet Direct Corporation and the Registrant.
*10.29 Telecommunications Services Agreement dated as of September 3, 1998 by
and between IXC Communications Services, Inc. and the Registrant.
21.1 Schedule of Subsidiaries of the Registrant.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1
hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule.
|
* To be filed by amendment to this registration statement.
(b)Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Except for the financial statement schedule listed above, all schedules have
been omitted because they are not required or because the required information
is given in the Financial Statements or Notes to those statements.
II-4
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on May 6, 1999.
Voyager.net, Inc.
/s/ Christopher P. Torto
By:__________________________________
Christopher P. Torto
President and Chief Executive
Officer
|
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Christopher P. Torto and Dennis J.
Stepaniak such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
(or to any other registration statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act), and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto each said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that any said attorney-in-fact
and agent, or any substitute or substitutes of any of them, may awfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher P. Torto President, Chief Executive May 6, 1999
______________________________________ Officer and Director
Christopher P. Torto (Principal Executive
Officer)
/s/ Dennis J. Stepaniak Chief Financial Officer May 6, 1999
______________________________________ (Principal Financial
Dennis J. Stepaniak Officer and Principal
Accounting Officer)
/s/ Glenn R. Friedly Director May 6, 1999
______________________________________
Glenn R. Friedly
/s/ John G. Hayes Director May 6, 1999
______________________________________
John G. Hayes
/s/ Christopher S. Gaffney Director May 6, 1999
______________________________________
Christopher S. Gaffney
/s/ David F. Dietz Director May 6, 1999
______________________________________
David F. Dietz
|
II-6
VOYAGER.NET AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Additions
----------------------
Balance at Charged to Charged to Deductions for Balance at
Beginning costs and other accounts end of
of period expenses accounts(1) written off(2) period
---------- ---------- ----------- -------------- ----------
Description
Year ended December 31,
1996:
Allowance for doubtful
accounts.............. $ -- $ 92,000 $ 2,000 $ 90,000
Valuation allowance for
deferred tax assets... 216,000 524,000 740,000
Year ended December 31,
1997:
Allowance for doubtful
accounts.............. 90,000 199,000 249,000 40,000
Valuation allowance for
deferred tax assets... 740,000 333,000 1,073,000
Year ended December 31,
1998:
Allowance for doubtful
accounts.............. 40,000 178,000 119,000 99,000
Valuation allowance for
deferred tax assets... 1,073,000 1,157,000 2,230,000
|
(1) Describe non-income statement accounts charged.
(2) Describe other changes to account balance.
S-1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Voyager.net, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated March 5, 1999 (except for Notes 17 for which the date is April 23,
1999) of Voyager.net, Inc. also included an audit of the financial statement
schedule listed in Item 16(b) herein. In our opinion, the financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
Grand Rapids, Michigan
May 3, 1999
S-2
Exhibit
Number Description Page No.
------- ----------- --------
*1.1 Form of Underwriting Agreement.
2.1 Stock Exchange Agreement dated as of September 23, 1998, by
and among the Registrant and the parties named therein
(excluding schedules, which the Registrant agrees to
furnish supplementally to the Commission upon request).
2.2 Stock Purchase Agreement dated as of September 23, 1998 by
and among the Registrant and the investors identified
therein (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request).
*3.1 Form of Amended and Restated Certificate of Incorporation
of the Registrant.
*3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be effective upon
consummation of this offering).
*3.3 Form of Amended and Restated By-laws of the Registrant.
*4.1 Specimen certificate for shares of common stock, $.0001 par
value, of the Registrant.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality
of the securities being offered.
10.1 Credit Agreement dated as of September 23, 1998 by and
among the Registrant, Fleet National Bank, as agent, and
the lenders identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request).
10.2 First Amendment to Credit Agreement dated as of April 13,
1999 by and among the Registrant, the Agent and the lenders
identified therein.
10.3 Amended and Restated Promissory Note made by the Registrant
in favor of Horizon Cable I Limited Partnership.
10.4 Asset Purchase Agreement dated as of July 31, 1998 by and
among the Registrant, Freeway, Inc. (n/k/a Offline, Inc.)
and the other parties identified therein (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request).
10.5 Asset Purchase Agreement dated as of September 23, 1998 by
and among the Registrant, EXEC-PC, Inc. (n/k/a The Mahoney
Group) and the other parties identified therein (excluding
schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request).
*10.6 Asset Purchase Agreement dated as of October 2, 1998,
effective September 30, 1998, by and among the Registrant,
NetLink Systems, L.L.C. and the other parties identified
therein (excluding schedules and exhibits, which the
Registrant agrees to furnish supplementally to the
Commission upon request).
*10.7 Reseller Agreement dated as of April 13, 1999 by and among
the Registrant and Millennium Digital Media Systems, L.L.C.
*10.8 Employment Agreement dated as of February 20, 1998 between
the Registrant and Christopher Torto, as amended.
10.9 Employment Agreement dated as of January 15, 1998 between
the Registrant and Michael Williams.
*10.10 Employment Agreement dated as of October 2, 1998 between
the Registrant and Christopher Michaels, as amended.
10.11 Employment Agreement dated as of October 2, 1998 between
the Registrant and David Shires.
10.12 Employment Agreement effective as of January 11, 1999
between the Registrant and Osvaldo deFaria.
|
Exhibit
Number Description Page No.
------- ----------- --------
10.13 Employment Agreement dated as of March 18, 1999 between the
Registrant and Dennis Stepaniak.
10.14 Agreement Regarding Inventions, Non-competition and
Confidentiality dated as of February 20, 1998 between the
Registrant and Christopher Torto.
10.15 Agreement Regarding Inventions, Non-competition and
Confidentiality dated as of October 15, 1997 between the
Registrant and Michael Williams.
10.16 Agreement Regarding Inventions, Non-competition and
Confidentiality dated as of November 11, 1998 between the
Registrant and Osvaldo deFaria.
10.17 Agreement Regarding Inventions, Non-competition and
Confidentiality dated as of March 18, 1999 between the
Registrant and Dennis Stepaniak.
10.18 Employee Non-Competition Agreement dated as of October 2,
1998 between the Registrant and Christopher Michaels.
10.19 Employee Non-Competition Agreement dated as of October 2,
1998 between the Registrant and David Shires.
*10.20 1998 Stock Option and Incentive Plan.
10.21 Form of Incentive Stock Option and Restriction Agreement.
10.22 Form of Stock Purchase and Stock Restriction Agreement.
*10.23 Promissory Note made by Osvaldo deFaria in favor of the
Registrant.
*10.24 Promissory Note made by Glenn Friedly in favor of the
Registrant.
10.25 Promissory Note made by Christopher Torto in favor of the
Registrant.
10.26 Form of Director Indemnification Agreement.
*10.27 SNAP! Online Distribution Agreement dated as of February
17, 1998 by and between CNET, Inc. and the Registrant.
*10.28 Planet Direct Internet Service Provider Agreement dated as
of March 17, 1997 by and among Planet Direct Corporation
and the Registrant.
*10.29 Telecommunications Services Agreement dated as of September
3, 1998 by and between IXC Communications Services, Inc.
and the Registrant.
21.1 Schedule of Subsidiaries of the Registrant.
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit
5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule.
|
* To be filed by amendment to this registration statement.
Exhibit 2.1
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT is made as of September 23, 1998 by and among
Voyager Holdings, Inc., a Delaware corporation (the "Company"), and each of the
Stockholders listed on Schedule A attached hereto (the "Stockholders").
WHEREAS, the Stockholders own one hundred percent (100%) of the issued and
outstanding shares of common stock, no par value per share ("Voyager Common
Stock"), of Voyager Information Networks, Inc., a Michigan corporation
("Voyager"), and one hundred percent (100%) of the issued and outstanding shares
of preferred stock, no par value per share, of Voyager ("Voyager Preferred
Stock", and together with Voyager Common Stock, "Voyager Stock");
WHEREAS, each of the Stockholders desires to transfer and assign all of
such Stockholder's respective shares of Voyager Stock to the Company in exchange
for shares of common stock, par value $.0001 per share, of the Company ("Common
Stock"), and shares of Series A Preferred Stock, $.01 par value per share, of
the Company (the "Preferred Stock", and together with Common Stock, the
"Stock"), and the Company desires to accept such transfer and assignment of the
Voyager Stock in exchange for the issuance to the Stockholders of shares of
Stock, in each case on the terms and conditions contained herein, all pursuant
to a tax-free exchange under Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. STOCK EXCHANGE.
1.1 Stockholders. In exchange for the shares of Stock to be issued to
each Stockholder pursuant to Section 1.2, such Stockholder hereby agrees to
transfer and assign to the Company all of such Stockholder's shares of Voyager
Stock as set forth opposite such Stockholder's name in Columns 1 and 2 of
Schedule A attached hereto and the Company agrees to accept and acquire all of
such shares of Voyager Stock. Each Stockholder agrees to deliver herewith to
the Company the certificate or certificates evidencing all of such Stockholder's
shares of Voyager Stock, duly endorsed in blank or accompanied by duly executed
stock powers for transfer.
1.2 Company. In exchange for the shares of Voyager Stock transferred to
the Company by each Stockholder pursuant to Section 1.1, the Company hereby
agrees to issue and deliver to such Stockholder certificates representing the
number of shares of Stock set forth opposite such Stockholder's name in Columns
3 and 4 of Schedule A attached hereto (the "Company Shares"), and each
Stockholder agrees to accept and receive from the Company
such Company Shares. The Company agrees to enter the name of each Stockholder
and the number of Company Shares delivered thereto in accordance with this
Agreement in the stock register and record books of the Company.
1.3 Consent and Waiver. Each of the Stockholders hereby consents to the
transfer and assignment of the shares of Voyager Stock to the Company, as
contemplated by this Agreement, under any relevant stockholders' agreement or
similar document or agreement, whether written or oral, if any, that requires or
purports to require such Stockholder's consent. Each Stockholder hereby waives
its respective right to purchase any of the shares of Voyager Stock being
transferred hereby to the Company and any other shares of Voyager's capital
stock at any time issued by Voyager, including without limitation any such right
under any provision of the Stock Purchase Agreement dated August 22, 1997,
effective August 7, 1997, by and among the Investors named therein and the
Company (the "1997 Stock Purchase Agreement"), and the Amended and Restated
Stockholders' Agreement dated as of August 22, 1997, effective August 7, 1997,
by and among Voyager and its Stockholders.
1.4 Termination. Each of the Stockholders agrees that the 1997 Stock
Purchase Agrement is terminated and of no further force and effect.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
As a material inducement to the Company entering into this Agreement and to
consummate the transactions contemplated hereby, each Stockholder severally, and
not jointly, hereby makes to the Company the following representations and
warranties:
2.1 Voyager Stock. Such Stockholder owns of record the shares of Voyager
Stock set forth opposite such Stockholder's name in Columns 1 and 2 of Schedule
A attached hereto. Such shares of Voyager Stock are, and when delivered by such
Stockholder pursuant to this Agreement will be, duly authorized, validly issued,
fully paid and non-assessable and, are free and clear of all claims, liens,
pledges, security interests, restrictions and encumbrances of any kind or nature
("Claims"). Such shares of Voyager Stock represent all of the shares of capital
stock of Voyager owned by such Stockholder.
2.2 Authority. Such Stockholder has full right, authority, power and
capacity to enter into this Agreement and to carry out the transactions
contemplated hereby, including, without limitation, the transfer of the Voyager
Stock to the Company. This Agreement constitutes the valid and binding
obligation of such Stockholder enforceable against such Stockholder in
accordance with its terms except as may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws from time to time
in effect affecting creditor's rights generally or by principles governing the
availability of equitable remedies.
2
2.3 No Conflicts. The execution, delivery and performance by such
Stockholder of this Agreement does not and will not, with or without the giving
of notice or the lapse of time or both, (a) constitute a violation of, or
conflict with or result in any breach of, acceleration of any obligation under,
right of termination under, or default under, any agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which such Stockholder
is a party or by which such Stockholder or such Stockholder's property is bound
or affected, (b) violate any judgment, decree, order, statute, law, rule or
regulation applicable to such Stockholder, or (c) require such Stockholder to
obtain any approval, consent or waiver of, or to make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or made.
2.4 Investment. Such Stockholder is acquiring the Company Shares for his,
her or its own account and not with a present view to any distribution thereof
or with the present intention of offering or selling such Company Shares in a
transaction that would violate the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. Such Stockholder understands that
the Company Shares to be issued to such Stockholder hereunder may not be sold,
transferred or otherwise disposed of without registration under the Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the same or an available exemption from registration under
the Act, such Company Shares must be held indefinitely. In the absence of an
effective registration statement under the Act or an exemption therefrom, such
Stockholder shall not sell any Company Shares received hereunder except in a
manner consistent with the representations set forth herein. Such Stockholder
understands that the Company is relying upon exemptions from registration under
the Act and state securities laws based in part upon such Stockholder's
representations contained in this Agreement. Such Stockholder acknowledges that
the certificates representing the Company Shares will contain a legend
substantially to the foregoing.
2.5 Experience. Such Stockholder has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risk of an investment in the Company Shares to be acquired by such Stockholder
and such Stockholder is able to bear the economic risk of loss of the investment
for an indefinite period of time. Such Stockholder has consulted with his, her
or its own advisors with respect to such Stockholder's proposed investment in
the Company.
2.6 Access to Records. Such Stockholder has been afforded full access to
the corporate records and accounts of the Company and has made an informed
decision with regard to the acquisition of the Company Shares to be acquired by
such Stockholder. Such Stockholder has had the opportunity to ask questions and
to receive answers from the Company concerning the financial condition,
operations and prospects of the Company and the proposed investment in the
Company.
3
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to the Stockholders entering into this Agreement
and to consummate the transactions contemplated hereby, the Company hereby
represents and warrants to the Stockholders as follows:
3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to own or lease its assets and
other properties and to conduct its business in the manner and in the places
where such assets and other properties are owned or leased or such business is
conducted by it.
3.2 Authority. The Company has full right, authority and power to enter
into this Agreement, and to carry out the transactions contemplated hereby. The
execution, delivery and performance by the Company of this Agreement has been
duly authorized by all necessary corporate action of the Company and no other
action on the part of the Company is required in connection therewith. This
Agreement constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms except as may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws from
time to time in effect affecting creditor's rights generally or by principles
governing the availability of equitable remedies.
3.3 Capital Stock. The Company Shares have been duly authorized, and
when issued to the Stockholders in accordance with this Agreement will be
validly issued, fully paid and nonassessable and will be free and clear of any
and all claims, except for restrictions imposed by federal and state securities
laws. The issuance and delivery of the Company Shares to the Stockholders (i)
does not and will not violate the Certificate of Incorporation or by-laws of the
Company and (ii) does not and will not require the Company to obtain any
approval, consent or waiver of, or make any filing with, any person or entity
that has not been obtained or made.
SECTION 4. MISCELLANEOUS.
4.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts (without giving
effect to choice or conflicts of law principles the effect of which would cause
the application of the domestic substantive laws of any other jurisdiction).
4.2 Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by and against the parties hereto and their
respective successors and assigns.
4
4.3 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original but together shall constitute one and the same
agreement.
4.4 Further Assurances. At any time or from time to time after the date
of this Agreement, the parties hereto will take all appropriate action and
execute and deliver, without limitation, any documents or instruments of
transfer, conveyance, assignment and confirmation or provide any information
which may be reasonably necessary to carry out any of the provisions of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
IN WITNESS WHEREOF, the parties hereto have executed this Stock Exchange
Agreement as of the date first written above.
COMPANY:
VOYAGER HOLDINGS, INC., a Delaware corporation
By: /s/ Christopher Torto
-------------------------------------
Christopher Torto, Chief Executive Officer
|
MANAGEMENT STOCKHOLDERS:
By: /s/ Glenn Friedly
-------------------------------------
Glenn Friedly
By: /s/ Alan R. Baird
-------------------------------------
Alan R. Baird
By: /s/ Michael L. Heinze
-------------------------------------
Michael L. Heinze
|
INVESTOR STOCKHOLDERS:
MEDIA/COMMUNICATIONS PARTNERS II
LIMITED PARTNERSHIP
By: M/CP II Limited Partnership
By: M/CP II General Partner-H, Inc.,
a General Partner
By: /s/ John G. Hayes
-------------------------------------
John G. Hayes, President
|
6
MEDIA/COMMUNICATIONS INVESTORS LIMITED
PARTNERSHIP
By: /s/ John G. Hayes
-------------------------------------
John G. Hayes, Attorney-in-fact
|
7
SCHEDULE A
Column 1 Column 2 Column 3 Column 4
Shares of Shares of Shares of Shares of
Voyager Voyager Company Company
Stockholder Common Stock Preferred Stock Common Stock Preferred Stock
----------- ------------ --------------- ------------ ---------------
Glenn Friedly 135,968 2,719,360
Michael L. Heinze 19,424 388,480
Alan R. Baird 25,427 508,540
Media/Communications
Partners II Limited Partnership 588,763 38,798 11,775,260 41,150
Media/Communications
Investors Limited Partnership 18,237 1,202 364,740 1,274
------- ------ ---------- ------
Total 787,819 40,000 15,756,380 42,442
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8
EXHIBIT 2.2
VOYAGER HOLDINGS, INC.
Purchase and Sale of
up to
360,000 shares of Common Stock
and
40,000 shares of Series A Preferred Stock
STOCK PURCHASE AGREEMENT
Dated as of September 23, 1998
VOYAGER HOLDINGS, INC.
Stock Purchase Agreement
Dated as of September 23, 1998
INDEX
Page
----
SECTION 1. TERMS OF PURCHASE.......................................... 1
1.1 Description of Securities.................................. 1
1.2 Exchange; Sale and Purchase; Delivery...................... 1
1.3 Closing.................................................... 2
1.4 Subsequent Sale and Purchase............................... 2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 3
2.1 Organization and Corporate Power............................ 3
2.2 Authorization............................................... 4
2.3 Capitalization.............................................. 4
2.4 Subsidiaries................................................ 5
2.5 Financial Statements........................................ 5
2.6 Absence of Undisclosed Liabilities.......................... 5
2.7 Absence of Certain Developments............................. 5
2.8 Title to Properties......................................... 6
2.9 Tax Matters................................................. 6
2.10 Contracts and Commitments................................... 6
2.11 Intellectual Property....................................... 6
2.12 Effect of Transactions...................................... 8
2.13 Litigation.................................................. 8
2.14 Offerees.................................................... 8
2.15 Business; Compliance with Laws.............................. 9
2.16 Environmental Compliance.................................... 9
2.17 Information Supplied to Investors........................... 9
2.18 Brokerage.................................................. 10
2.19 Employee Benefit Plans..................................... 10
SECTION 3. CONDITIONS OF PURCHASE..................................... 10
3.1 Satisfaction of Conditions................................. 10
3.2 Authorization.............................................. 10
3.3 Stockholders' Agreement.................................... 10
3.4 Election of Investor Representative as Director............ 10
3.5 Stock Option Plan; Termination of Voyager Options.......... 11
|
(i)
3.6 All Proceedings Satisfactory............................... 11
SECTION 4. COVENANTS OF THE COMPANY................................... 11
4.1 Financial Statements....................................... 11
4.2 Budget and Operating Forecast.............................. 12
4.3 Conduct of Business........................................ 12
4.4 Payment of Taxes, Compliance with Laws, etc................ 12
4.5 Adverse Changes............................................ 12
4.6 Insurance.................................................. 13
4.7 Affiliated Transactions.................................... 13
4.8 Use of Proceeds............................................ 13
4.9 Inspection................................................. 13
4.10 Board of Directors Meetings................................ 13
4.11 Right to Participate in Sales of Additional Securities..... 14
4.12 Distributions or Redemption of Capital Stock............... 15
4.13 Merger, Consolidation, Sale of Assets or Acquisition....... 15
4.14 Restrictions on Other Agreements........................... 15
4.15 Other Actions.............................................. 15
SECTION 5. REPRESENTATIONS AND WARRANTIES OF INVESTORS................ 16
SECTION 6. REGISTRATION RIGHTS........................................ 18
6.1 Optional Registrations..................................... 18
6.2 Required Registrations..................................... 19
6.3 Form S-3................................................... 20
6.4 Registrable Securities..................................... 20
6.5 Further Obligations of the Company......................... 21
6.6 Indemnification; Contribution.............................. 22
6.7 Rule 144 Requirements...................................... 24
6.8 Transfer of Registration Rights............................ 24
SECTION 7. GENERAL.................................................... 24
7.1 Amendments, Waivers and Consents........................... 24
7.2 Survival of Covenants; Assignability of Rights............. 25
7.3 Governing Law.............................................. 25
7.4 Section Headings........................................... 25
7.5 Counterparts............................................... 25
7.6 Notices and Demands........................................ 25
7.7 Severability............................................... 25
7.8 Expenses................................................... 26
7.9 Integration................................................ 26
7.10 Dispute Resolution......................................... 26
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(ii)
Exhibits
--------
Exhibit A - Investors and Shares; Consideration
Exhibit 1.4(c) - Form of Representation Certificate
Exhibit B - Terms of Series A Preferred Stock
Exhibit C - Business Plan
Exhibit D - Form of Stockholders' Agreement
Exhibit E - Form of Stock Option and Incentive Plan
Exhibit F - Form of Option Termination Agreements
Schedules
---------
Schedule 2.2 - Approvals; Consents
Schedule 2.3 - Capitalization
Schedule 2.5 - Financial Statements
Schedule 2.7 - Certain Changes
Schedule 2.8 - Liens
Schedule 2.10 - Contracts and Commitments
Schedule 2.11 - Intellectual Property
Schedule 2.19 - Employee Benefit Plans
Schedule 3.5 - Allocation of Restricted Stock and Options
Schedule 4.7 - Affiliated Transactions
Schedule 4.8 - Use of Proceeds
|
(iii)
STOCK PURCHASE AGREEMENT
AGREEMENT made as of this 23rd day of September, 1998, by and among
VOYAGER HOLDINGS, INC., a corporation incorporated under the laws of the State
of Delaware (the "Company"), the funds managed by MEDIA/COMMUNICATIONS PARTNERS
listed in Exhibit A hereto (the "M/C Investors"), and the MANAGEMENT INVESTORS
listed on Exhibit A hereto (the "Management Investors," and the M/C Investors
and the Management Investors shall be referred to collectively as the
"Investors," and each individually as an "Investor").
WHEREAS, immediately prior to the consummation of the transactions
contemplated by this Agreement, the Company, Voyager Information Networks, Inc.
("Voyager") and all of the shareholders of Voyager have completed the
transactions contemplated in that certain Stock Exchange Agreement dated the
date hereof (the "Exchange Agreement") pursuant to which the existing
stockholders of Voyager exchanged their shares of capital stock in Voyager for
shares of capital stock of the Company, in the amounts and types specified
therein; and
WHEREAS, the Company and the Investors desire to provide for the
purchase by the Investors of an aggregate 360,000 shares (the "Common Shares")
of Common Stock, $.0001 par value per share, of the Company ("Common Stock"),
and an aggregate 40,000 shares (the "Series A Preferred Shares," and together
with the Common Shares, the "Shares") of Series A Preferred Stock, $.01 par
value per share, of the Company ("Series A Preferred Stock"), on the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promise set forth herein,
the parties hereto agree as follows:
SECTION 1. TERMS OF PURCHASE
1.1 Description of Securities. The Company has authorized the issuance
and sale to the Investors of an aggregate 360,000 shares of its authorized but
unissued Common Stock for a purchase price of $.0005 per share and 40,000 shares
of its authorized but unissued Series A Preferred Stock for a purchase price of
$100 per share.
1.2 Exchange; Sale and Purchase; Delivery. Subject to the terms and
conditions herein set forth, at the Closing and the Second Closing (each as
defined below):
(a) Each M/C Investor shall deliver to the Company a Demand
Promissory Note in the principal amount set forth opposite the name of such M/C
Investor in Column 2 of Exhibit A hereto for cancellation (the "Notes") as well
as the cash amount set forth opposite the name of such M/C Investor in Column 3
of Exhibit A hereto, in exchange for the number of shares of Common Stock and
Series A Preferred Stock set forth opposite the name of such Investor in Columns
4 and 5 of Exhibit A hereto, respectively (the "M/C Investor Shares").
(b) The Company shall issue and sell to each of the Management
Investors the number of Series A Preferred Shares set forth opposite the name of
such Management Investor in Column 4 of Exhibit A hereto, respectively
(collectively, the "Management Shares"), and each Management Investor shall
deliver to the Company the cash purchase price for such Series A Preferred
Shares set forth opposite the name of such Management Investor in Column 3 of
Exhibit A hereto.
1.3 Closing. The closing (the "Closing") of the sale and purchase of the
M/C Investor Shares shall take place at the offices of Goodwin, Procter & Hoar
LLP, located at Exchange Place, Boston, Massachusetts, at 10:00 A.M., at such
date, time and place as shall be mutually agreed upon by the Company and the
Investors (the "Closing Date"). At the Closing, the Company will deliver the
Shares being acquired by each M/C Investor in the form of certificates issued in
such M/C Investor's name or in the name of its nominee (of which such M/C
Investor shall notify the Company not less than two (2) business days prior to
the Closing), against payment of the full purchase price therefor by or on
behalf of each M/C Investor to the Company by wire transfer to an account
designated by the Company no later than two (2) business days prior to the
Closing and delivery to the Company of the Notes.
1.4 Subsequent Sale and Purchase.
(a) The closing (the "Second Closing") of the sale and purchase of
the Management Shares shall take place on March 31, 1999, or such earlier date
as agreed to by the Management Investors and the Company (the "Second Closing
Date"), at the offices of Goodwin, Procter & Hoar LLP. At the Second Closing,
the Company shall deliver the Management Shares to be purchased thereat to the
Management Investors in the form of a certificate or certificates issued in such
Management Investor's name, against payment in full of the purchase price for
such Management Shares by wire transfer to an account designated by the Company
no later than two (2) business days prior to such Second Closing.
(b) Notwithstanding the foregoing, each of the Management Investors
shall have the right (the "Put Right") to put to M/C Investors such Management
Investor's obligation hereunder to purchase all, but not less than all, of his
respective Management Shares (the "Put Shares") and deliver to the Company the
purchase price therefor. The exercise price for each Management Investor's Put
Right shall be the number of shares of Common Stock set forth opposite such
Management Investor's name on Column 6 of Exhibit A hereto (the "Exercise
Price"). Each Management Investor may exercise its Put Right by delivering to
each of the M/C Investors and the Company a written notice to the effect that
such Management Investor's obligation to purchase such Shares shall be delegated
to the M/C Investors no later than fifteen (15) business days prior to the
Second Closing Date (which date, in the event of the exercise of a Put Right,
shall not be earlier than March 31, 1999); provided, however, that if, by March
31, 1999, a Management Investor has not purchased his Shares and has not
exercised his Put Right with respect to such Shares, then such Management
Investor shall be deemed, for all purposes hereof, to have exercised his Put
Right, and the M/C Investors shall purchase such Shares from the Company in
exchange for the Exercise Price as
2
if the Management Investor had exercised the Put Right. In the event a
Management Investor exercises his Put Right (or the M/C Investors otherwise
become obligated to purchase a Management Investor's Shares), then, at the
Second Closing, (i) the Company shall deliver the Put Shares to be purchased
thereat to the M/C Investors in the form of a certificate or certificates issued
in each such M/C Investor's name or in the name of its respective nominee (of
which the M/C Investor shall notify the Company not less than two (2) business
days prior to the Second Closing), and (ii) the M/C Investors shall pay in full
the purchase price for such Put Shares by wire transfer to an account designated
by the Company no later than two (2) business days prior to such Second Closing,
whereupon such Management Investor shall be relieved of its obligation to
purchase such Management Investor's Shares. Simultaneously with the execution of
this Agreement, each Management Investor is delivering to the M/C Investors a
stock assignment executed in blank in order to effect the valid transfer of the
certificate representing the Exercise Price for such Management Investor's
exercise of a Put Right, or the failure of such Management Investor to purchase
his Shares by March 31, 1999. Subject to the applicable provisions of any pledge
arrangements with the Company's senior lenders, upon payment in full by the M/C
Investors for such Management Investor's Shares at the Second Closing, the M/C
Investors shall be the record owners of the shares representing the Exercise
Price, and the Company agrees to take all actions necessary to record the
transfer of the shares of Common Stock representing the Exercise Price therefor
to the M/C Investors in the stock record books of the Company.
(c) In connection with, and as a condition precedent to, the Second
Closing, the Company shall deliver to each of the Investors purchasing Shares
thereat a certificate in substantially the form attached hereto as Exhibit
1.4(c) (the "Representation Certificate") to the effect that the
representations, warranties, covenants and agreements made herein are true and
correct as though made on the Second Closing Date (except for such
representations and warranties that by their terms relate to a specific time or
a specific date other than the Closing Date, which representations and
warranties shall be true and correct at and as of such time or date).
(d) The Company shall at all times hereafter reserve for issuance at
the Second Closing 6,667 duly authorized shares of Series A Preferred Stock.
1.5 Cancellation of Notes. The Company shall, upon receipt of the Notes as
is contemplated in Section 1.2(a), cancel all of such Notes.
3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Investors to enter into this Agreement, the
Company (which, unless otherwise indicated or as the context requires, shall
mean and include Voyager and any other subsidiaries of the Company) hereby makes
the following representations and warranties:
2.1 Organization and Corporate Power.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and is qualified
to do business as a foreign corporation in each jurisdiction in which such
qualification is required and the failure to so qualify would have a material
adverse effect on the properties, assets, prospects, financial condition or
business of the Company. The Company has all required corporate power and
authority to own its property, to carry on its business as presently conducted
or contemplated, to enter into and perform this Agreement and generally to carry
out the transactions contemplated hereby. The copies of the Certificate of
Incorporation and by-laws of the Company, as amended to date, which have been
furnished to counsel for the Investors by the Company, are correct and complete
at the date hereof. The Company is not in violation of any term of its
Certificate of Incorporation or by-laws, or in material violation of any term of
any agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to the Company.
(b) Voyager is a corporation duly organized, validly existing and
in good standing under the laws of the State of Michigan, and is qualified to do
business as a foreign corporation in each jurisdiction in which such
qualification is required and the failure to so qualify would have a material
adverse effect on the properties, assets, prospects, financial condition or
business of Voyager. Voyager has all required corporate power and authority to
own its property, to carry on its business as presently conducted or
contemplated, to enter into and perform this Agreement and generally to carry
out the transactions contemplated hereby. The copies of the Restated Articles of
Incorporation and by-laws of Voyager, as amended to date, which have been
furnished to counsel for the Investors by Voyager, are correct and complete at
the date hereof. Voyager is not in violation of any term of its Restated
Articles of Incorporation or by-laws, or in material violation of any term of
any agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to Voyager.
2.2 Authorization. This Agreement and all documents and instruments
executed pursuant hereto are valid and binding obligations of the Company,
enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws applicable to creditors'
rights and remedies and to the exercise of judicial discretion in accordance
with general principles of equity. The execution, delivery and performance of
this Agreement and the issuance of the Shares have been duly authorized by all
necessary corporate or other action of the Company. Except as set forth in
Schedule 2.2 attached hereto, no consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or other
person is required of the Company in connection with the
4
execution and delivery of this Agreement, or the issuance and delivery of the
Shares in accordance with the terms of this Agreement or the consummation of any
other transaction contemplated hereby.
2.3 Capitalization. As of the Closing, the authorized and issued
capital stock of the Company and each subsidiary of the Company is as set forth
in Schedule 2.3 attached hereto. All of the presently outstanding shares of
capital stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and have been issued in compliance with
applicable federal and state securities laws. The Shares have been duly and
validly authorized and, when delivered and paid for pursuant to the terms of
this Agreement, will be validly issued, fully paid and non-assessable. The
relative rights, preferences, restrictions and other provisions relating to the
Series A Preferred Stock are as set forth in Exhibit B attached hereto. Except
as provided in this Agreement or in Schedule 2.3 hereto or in the charter or
by-laws of the Company and each subsidiary of the Company, in each case as
amended to date, neither the Company nor any Subsidiary has issued any other
shares of its capital stock and there are no outstanding warrants, options or
other rights to purchase or acquire any of such shares, nor any outstanding
securities convertible into such shares or outstanding warrants, options or
other rights to acquire any such convertible securities. Except as disclosed in
Schedule 2.3 hereto or in the charter or by-laws of the Company and each
subsidiary of the Company, in each case as amended to date, there are no
preemptive rights with respect to the issuance or sale of the Company's or any
of the Company's subsidiaries capital stock. Except as disclosed in Schedule 2.3
hereto, there are no restrictions on the transfer of the Company's capital stock
other than those arising from federal and state securities laws or under this
Agreement, the Stockholders' Agreement, the Stock Purchase and Stock Restriction
Agreements (as defined below) or as set forth in the charter or by-laws of the
Company, as amended. The outstanding shares of Common Stock are held of record
and beneficially by the persons identified in Schedule 2.3 in the amounts
indicated therein.
2.4 Subsidiaries. Other than Voyager and Horizon Telecommunications,
Inc., a wholly-owned subsidiary of Voyager, the Company has no subsidiaries or
any interests in any other entity.
2.5 Financial Statements. Included in Schedule 2.5 attached hereto is
the unaudited balance sheet of the Company as of June 30, 1998 and the related
statement of earnings and retained earnings for the six (6) months then ended,
all of which statements (including the footnotes thereto) were prepared in
accordance with generally accepted accounting principles consistently applied
during the periods covered thereby, are in accordance in all material respects
with the books and records of the Company, and fairly present the financial
position of the Company on the date of such statements and the results of the
operations of the Company for the period covered (subject to changes resulting
from audit and year-end adjustments, none of which are believed by the Company
to be material).
2.6 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the balance sheet included in Schedule 2.5
attached hereto (the "Base
5
Balance Sheet"), to the best knowledge of the Company, the Company does not have
any material accrued or contingent liability or liabilities arising out of any
transaction or state of facts existing prior to the date hereof and arising
other than in the ordinary course of business (whether such liability is
accrued, to become due, contingent, or otherwise).
2.7 Absence of Certain Developments. Since the date of the Base
Balance Sheet, except as set forth in Schedule 2.7 attached hereto, there has
been (i) no material adverse change in the condition, financial or otherwise, of
the Company or in the assets, liabilities, properties or business of the
Company, (ii) no declaration, setting aside or payment of any dividend or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any of the capital stock of the Company, (iii) no waiver of any
valuable right of the Company or the cancellation of any debt or claim held by
the Company, (iv) no loan by the Company to any officer, director, employee or
shareholder of the Company, or any agreement or commitment therefor, (v) no
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee or agent of the Company which increase is in excess
of an annual rate of $5,000, (vi) no material loss, destruction or damage to any
property of the Company, whether or not insured, (vii) no labor trouble
involving the Company and no material change in the personnel of the Company or
the terms and conditions of their employment, and (viii) no acquisition or
disposition of any assets (or any contract or arrangement therefor) nor any
other transaction by the Company otherwise than for fair value in the ordinary
course of business.
2.8 Title to Properties. Except as disclosed in Schedule 2.8 attached
hereto, the Company has good and marketable title to all of its properties and
assets, free and clear of all liens, restrictions or encumbrances. All machinery
and equipment included in such properties which is necessary to the business of
the Company is in good condition and repair (subject to normal wear and tear
incurred in the ordinary course of business), and all leases of real or personal
property to which the Company is a party are fully effective in all material
respects and afford the Company peaceful and undisturbed possession of the
subject matter of the lease. To the best knowledge of the Company, the Company
is not in violation of any material zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties, nor has it received any notice of violation
with which it has not complied.
2.9 Tax Matters. All federal, state, county and local taxes, and all
applicable taxes owed to foreign jurisdictions, due and payable by the Company
have been paid.
2.10 Contracts and Commitments. The Company is not a party to any
contract, obligation or commitment which involves a potential commitment in
excess of $100,000 or which is otherwise material and not entered into in the
ordinary course of business, and does not have any employment contracts or other
agreements with employees or consultants; stock redemption or purchase
agreements; financing agreements; licenses; distributor, sales representative,
supply, manufacturing, design or OEM agreements; agreements with officers,
directors, employees or shareholders of the Company or persons or organizations
related to or
6
affiliated with any such persons; leases (except leases of tangible personal
property with a term of less than one year and aggregate monthly rental payments
of less than $5,000); agreements relating to the licensing, distribution,
development, purchase or sale of software; or pension, profit-sharing,
retirement or stock option plans, except in each case as are described in
Schedule 2.10 attached hereto, true and complete copies of which have been
delivered to counsel for the Investors. To the best knowledge of the Company,
the Company is not in default under any contract, obligation or commitment, and
there is no state of facts which upon notice or lapse of time or both would
constitute such a default, the consequences of which default if asserted by the
other contracting party would be materially adverse with respect to the Company.
To the best knowledge of the Company, the Company is not a party to any contract
or arrangement which under circumstances now foreseeable is likely to have a
material adverse effect on the assets, business, properties or prospects of the
Company.
2.11 Intellectual Property.
(a) The Company has exclusive ownership of, or license to use,
all copyright, trade secret, trademark, or other proprietary rights
(collectively, "Intellectual Property") used or to be used in the business of
the Company as presently conducted or contemplated. There are no claims or
demands of any other person pertaining to any of such Intellectual Property and
no proceedings have been instituted, or are pending or, to the best knowledge of
the Company, threatened, which challenge the rights of the Company in respect
thereof. The Company has the right to use, free and clear of all claims or
rights of other persons, all customer lists, processes, computer software,
systems, data compilations, research results and other information required for
or incident to its products or its business as presently conducted or
contemplated.
(b) All patents, patent applications, trade names, trademarks,
trademark applications and registrations, copyrights, applications and
registrations and other proprietary rights owned by or licensed to the Company
or used or to be used by the Company in its business as presently conducted or
contemplated and all other Intellectual Property material to the Company's
business are listed in Schedule 2.11 attached hereto. All of such patents,
patent applications, trademark registrations, trademark applications and
registered copyrights registered in, filed in or issued by the United States
Patent and Trademark Office, the United States Register of Copyrights, or the
corresponding offices of other jurisdictions as identified in Schedule 2.11
attached hereto have been properly maintained and renewed in accordance with all
applicable provisions of law and administrative regulations in the United States
and each such jurisdiction. Use of said trade names, trademarks, copyrights or
other proprietary rights in the ordinary course of the Company's business as
presently conducted or contemplated does not require the consent of any other
person. The Company has exclusive ownership or licenses to use of all trade
name, trademark, copyright, or other proprietary rights used or to be used by
the Company in its business as presently conducted or contemplated free and
clear of any attachments, liens, encumbrances or adverse claims and its present
or contemplated activities or products do not infringe any such trade name,
trademark or other proprietary rights of others. None of the trade names,
trademarks, copyrights or other
7
proprietary rights listed in Schedule 2.11 attached hereto is subject to any
outstanding order, decree, judgment or stipulation or, to the best knowledge of
the Company, is being infringed by others. No proceeding charging the Company
with infringement of any adversely held patent, trade name, trademark or
copyright has been filed or, to the best knowledge of the Company, is threatened
to be filed, and the Company has not received notice of any such proceeding.
(c) All licenses or other agreements under which the Company is
granted rights in Intellectual Property are listed in Schedule 2.11 attached
hereto. All said licenses or other agreements are in full force and effect,
there is no material default by any party thereto and, except as set forth in
Schedule 2.11 attached hereto, all of the Company's rights thereunder are freely
assignable. The licensors under said licenses and other agreements have and had
all requisite power and authority to grant the rights purported to be conferred
thereby. True and complete copies of all such licenses or other agreements and
any amendments thereto, have been provided to Investors.
(d) All licenses or other agreements under which the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company are listed in Schedule 2.11 attached hereto. All of said licenses or
other agreements are in full force and effect, there is no material default by
any party thereto, and, except as set forth in Schedule 2.11 attached hereto,
all of the Company's rights thereunder are freely assignable. True and complete
copies of all such licenses or other agreements and any amendments thereto have
been provided to Investors.
(e) The Company has taken all steps required in accordance with sound
business practice to establish and preserve its ownership of all material
patent, copyright, trade secret and other proprietary rights with respect to its
products and technology. The Company has not made any such information available
to any person other than employees of the Company except pursuant to written
agreements requiring the recipients to maintain the confidentiality of such
information and appropriately restricting the use thereof.
(f) The present business, activities and products of the Company do
not infringe any Intellectual Property of any other person. The Company is not
making unauthorized use of any confidential information or trade secrets of any
person, including without limitation, any former employer of any past or present
employee of the Company. Except as set forth in Schedule 2.11 attached hereto,
neither the Company nor, to the best knowledge of the Company, any of its
employees have any agreements or arrangements with any persons other than the
Company related to confidential information or trade secrets of such persons or
restricting any such employee's engagement in business activities of any nature.
The activities of the Company's employees on behalf of the Company, to the best
knowledge of the Company, do not violate any such agreements or arrangements
which any such employees have with other persons.
8
2.12 Effect of Transactions. The execution, delivery and performance
by the Company of this Agreement and the agreements and transactions
contemplated hereby will not conflict with or result in any default under any
material contract, obligation or commitment of the Company, or any charter
provision, by-law or corporate restriction of the Company, or the creation of
any lien, charge or encumbrance of any nature upon any of the properties or
assets of the Company except pursuant to this Agreement. The Company's execution
and delivery of this Agreement and its performance of the transactions
contemplated hereby will not violate any instrument, agreement, judgment,
decree, or statute, and, to the best knowledge of the Company, any rule or
regulation of any federal, state or local government or agency applicable to the
Company.
2.13 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company affecting any of its properties or assets, or against any
officer or key employee of the Company, or which may call into question the
validity, or materially hinder the enforceability or performance, of this
Agreement; nor, to the best knowledge of the Company, has there occurred any
event or does there exist any condition on the basis of which any litigation,
proceeding or investigation might properly be instituted with any substantial
chance of a recovery which would be materially adverse to the Company.
2.14 Offerees. Neither the Company nor anyone acting on its behalf has
in the past or will hereafter sell, offer for sale or solicit offers to buy any
securities of the Company so as to bring the offer, issuance or sale of the
Shares, as contemplated by this Agreement, within the provisions of Section 5 of
the Securities Act of 1933, as amended (the "Securities Act"), unless such
offer, issuance or sale was or shall be within the exemptions of Section 4
thereof. The Company has complied and will comply with all applicable state
"blue-sky" or securities laws in connection with the issuance and sale of its
Common Stock, Series A Preferred Stock and other securities heretofore and upon
the closing of this Agreement.
2.15 Business; Compliance with Laws. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as is presently
conducted. The Company is not in violation of any law, regulation, authorization
or order of any public authority relevant to the ownership of its properties or
the carrying on of its business as it is presently conducted.
2.16 Environmental Compliance. To the best knowledge of the Company,
the Company (i) has not violated, and is presently in substantial compliance
with all federal, state, and local environmental and health and safety laws,
rules, regulations, ordinances, and bylaws ("Environmental Laws") applicable to
its business and properties; (ii) has not generated, manufactured, refined,
transported, treated, stored, handled, disposed, transferred, produced, or
processed any pollutant, toxic substance, hazardous waste, hazardous substance,
hazardous material, oil, or petroleum product ("Hazardous Materials") as defined
under any Environmental Law or any solid waste, except in substantial compliance
with all applicable Environmental Laws, and has no knowledge of the material
release or threat of material release
9
of any Hazardous Materials from its products, properties or facilities; (iii)
has not (a) entered into or been subject to any consent decree, compliance
order, or administrative order with respect to any environmental or health and
safety matter relating to its business or any of its properties or facilities,
(b) received notice under the citizen suit provision of any Environmental Law in
connection with its business or any of its properties or facilities, (c)
received any request for information, notice, demand letter, administrative
inquiry, or formal or informal complaint or claim with respect to any
environmental or health and safety matter relating to its business or any of its
properties or facilities; or (d) been subject to or threatened with any
governmental or citizen enforcement action with respect to any environmental or
health and safety matter relating to its business or any of its properties or
facilities, and has no reason to believe that any of (a)-(d) above will be
forthcoming. No lien has been imposed on any of the properties or facilities of
the Company by any governmental agency at the federal, state, or local level in
connection with the presence of any Hazardous Materials.
2.17 Information Supplied to Investors. This Agreement and the
Business Plan provided to Investors attached hereto as Exhibit C, and the
Exhibits and Schedules hereto taken as a whole, do not contain any untrue
statements of a material fact or omit to state a material fact necessary in
order to make the statements contained therein not misleading. Such Business
Plan was prepared by the Company in good faith and fairly presents the business
and prospects of the Company in all material respects as of its date. The
forecasts and projections of future financial results contained in such Business
Plan were prepared by the Company in good faith and are based upon information
available to the Company as of the date thereof and upon assumptions believed by
the Company to be reasonable, but such forecasts and projections may not be
achieved in the event of changes in the facts and circumstances upon which such
forecasts, projections and assumptions are based which could not reasonably have
been foreseen at the date on which such forecasts, projections and assumptions
were made.
2.18 Brokerage. There are no claims for brokerage commissions,
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company.
2.19 Employee Benefit Plans. Except as set forth in Schedule 2.19
attached hereto, the Company does not maintain or contribute to any employee
benefit plans as that term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
SECTION 3. CONDITIONS OF PURCHASE
The Investors' obligation to purchase and pay for the Shares shall be
subject to compliance by the Company with its agreements herein contained and to
the fulfillment to the Investors' satisfaction on or before and at the Closing
Date of the following conditions:
10
3.1 Satisfaction of Conditions. The representations and warranties of
the Company contained in this Agreement shall be true and correct with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date; each of the conditions specified in this Section 3
to be performed by the Company shall have been satisfied or waived in writing;
and on the Closing Date certificates to such effect executed by an authorized
officer of the Company shall be delivered to the Investors.
3.2 Authorization. The Board of Directors and stockholders of the
Company shall have duly adopted resolutions in form reasonably satisfactory to
the Investors authorizing the Company to consummate the transactions
contemplated hereby in accordance with the terms hereof, and the Investors shall
have received a duly executed certificate of an authorized officer of the
Company setting forth a copy of such resolutions and the Certificate of
Incorporation and by-laws of the Company, in each case as amended to date, and
such other matters as may be requested by the Investors.
3.3 Stockholders' Agreement. The Company, the Investors and each of
the other stockholders of the Company shall have executed and delivered a
Stockholders' Agreement in the form of Exhibit D attached hereto (the
"Stockholders' Agreement").
3.4 Election of Investor Representative as Director. The number of
individuals constituting the Company's Board of Directors shall be established
at three (3), and the representatives nominated by the M/C Investors (the "M/C
Investor Representative") shall have been duly elected as members of the
Company's Board of Directors as contemplated by the Stockholders' Agreement.
3.5 Stock Option Plan; Termination of Voyager Options. The Company's
Board of Directors shall have adopted the Company's 1998 Stock Option and
Incentive Plan, and the stockholders of the Company shall have approved such
plan, in substantially the form of Exhibit E attached hereto (the "Stock Option
and Incentive Plan"). Each holder of an option to purchase Voyager stock shall
have executed an Option Termination Agreement in the form attached hereto as
Exhibit F. In addition, the Company shall have reserved for future issuance an
aggregate 3,883,620 shares of Common Stock as indicated on Schedule 3.5 attached
hereto, and shall have allocated for issuance up to 2,920,000 shares of
restricted stock and options under the Stock Option and Incentive Plan as set
forth on Schedule 3.5 attached hereto.
3.6 All Proceedings Satisfactory. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors, and the Investors shall receive such copies thereof and other
materials (certified, if requested) as they may reasonably request in connection
therewith. The issuance and sale of the Shares to the Investors shall be made in
conformity with all applicable state and federal securities laws.
11
SECTION 4. COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes of
this Section 4, any subsidiary or subsidiaries of the Company presently existing
or formed after the date of this Agreement) shall comply with the following
covenants until the earlier of (i) such time as the Company shall have completed
a public offering of its capital stock in which gross proceeds received by the
Company exceed $20,000,000 at a sale price to the public of at least $2.50 per
share (appropriately adjusted for stock splits, stock dividends and similar
events) ("Qualified Public Offering"), or (ii) such time as there remains
outstanding less than 10% of the M/C Investor Shares (appropriately adjusted for
stock splits, stock dividends and similar events), except as shall otherwise be
expressly agreed pursuant to a written consent or consents executed by M/C
Investors holding in the aggregate a majority of the then outstanding M/C
Investor Shares.
4.1 Financial Statements. The Company will maintain a comparative
system of accounts in accordance with generally accepted accounting principles,
keep full and complete financial records and will furnish to each M/C Investor
until such time as such M/C Investor holds fewer than ten percent (10%) of all
issued and outstanding Series A Preferred Shares, the following reports:
(a) within ninety (90) days after the end of each fiscal year, a
copy of the consolidated balance sheet of the Company as at the end of such
year, together with a consolidated statement of income, earnings and retained
earnings of the Company for such year, audited and certified by independent
public accountants of recognized national standing reasonably satisfactory to
the M/C Investors, prepared in accordance with generally accepted accounting
principles and practices consistently applied;
(b) within fifteen (15) days after the end of each month commencing
with August 31, 1998, an unaudited balance sheet of the Company as at the end of
such month and an unaudited statement of income, earnings and retained earnings
for the Company for such month and for the year to date; and
(c) such other financial information as the M/C Investors may
reasonably request, including, without limitation, certificates of the principal
financial officer of the Company concerning compliance with the covenants of the
Company under this Section 4.
4.2 Budget and Operating Forecast. The Company will prepare and submit
to the Board of Directors of the Company a budget for the Company for each
fiscal year of the Company at least thirty (30) days prior to the beginning of
such fiscal year, together with management's written discussion and analysis of
such budget. The budget shall be accepted as the budget for such fiscal year
when it has been approved by the full Board of Directors of the Company and,
thereupon, a copy of such budget promptly shall be sent to the M/C Investors.
The Company shall review the budget periodically and shall advise the Board of
Directors and the M/C Investors of all changes therein and all material
deviations therefrom.
12
4.3 Conduct of Business. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith, including such
research and development activities as the Board of Directors may from time to
time approve. The Company will keep in full force and effect its corporate
existence and all Intellectual Property useful in its business.
4.4 Payment of Taxes, Compliance with Laws, etc. The Company will pay
and discharge all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon its income or property before the same shall become in
default, as well as all lawful claims for labor, materials and supplies which,
if not paid when due, might become a lien or charge upon its property or any
part thereof; provided, however, that the Company shall not be required to pay
and discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is being contested by the Company in good faith by appropriate
proceedings and an adequate reserve therefor has been established on its books.
The Company will comply with all applicable laws and regulations in the conduct
of its business, including, without limitation, all applicable federal and state
securities laws in connection with the issuance of any shares of its capital
stock.
4.5 Adverse Changes. The Company will promptly advise the M/C Investors
of any event which represents a material adverse change in the condition or
business, financial or otherwise, of the Company, and of each suit or proceeding
commenced or threatened against the Company which, if adversely determined,
would result in such a material adverse change, in each case at such time as the
Company knew or should have known of such event or suit or proceeding. The
Company will also promptly notify the M/C Investors of any facts which, if such
facts had existed at the Closing, would have constituted a material breach of
any of the representations and warranties contained herein.
4.6 Insurance. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage sufficient in the reasonable business judgment of the
Company to protect the Company. The Company will also maintain, upon reasonable
business terms, with such insurers insurance against other hazards and risks and
liability to persons and property sufficient in the reasonable business judgment
of the Company to protect the Company.
4.7 Affiliated Transactions. Except as set forth on Schedule 4.7
attached hereto, all transactions by and between the Company and any officer,
key employee or stockholder of the Company or persons controlled by or
affiliated with such officer, key employee or stockholder, shall be conducted on
an arm's-length basis, shall be on terms and conditions no less favorable to the
Company than could be obtained from nonrelated persons and shall be approved
unanimously in advance by the full Board of Directors after full disclosure of
the terms thereof, for which purpose the interested party, if a Director, and
any affiliate of the interested party who is a Director, shall not be entitled
to vote.
13
4.8 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares substantially as set forth in Schedule 4.8 attached hereto.
4.9 Inspection. The Company will, upon reasonable prior notice to the
Company, permit authorized representatives of the M/c Investors to visit and
inspect any of the properties of the Company, including its books of account
(and to make copies thereof and take extracts therefrom), and to discuss its
affairs, finances and accounts with its officers, administrative employees and
independent accountants, all at such reasonable times and as often as may be
reasonably requested.
4.10 Board of Directors Meetings. The Company will ensure that meetings
of its Board of Directors are held regularly and will reimburse directors for
their reasonable travel expenses, including the cost of airfare and any
necessary meals and lodging, incurred in connection with attending meetings of
the Board of Directors or performing such other business on behalf of the
Company as may be approved by the Company in advance. The Certificate of
Incorporation or By-laws of the Company will at all times during which any M/C
Investor Representative serves as director of the Company provide for
indemnification of the directors and limitations on the liability of the
directors to the fullest extent permitted under applicable state law.
4.11 Right to Participate in Sales of Additional Securities.
(a) Except as set forth in Section 4.11(b) below, the Company
covenants and agrees that it will not sell or issue any shares of capital stock
of the Company, or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for capital stock of the Company, or
options, warrants or rights carrying any rights to purchase capital stock or
convertible or exchangeable securities of the Company, other than in connection
with a Qualified Public Offering, unless (i) the Company shall have received a
bona fide arm's-length offer to purchase such stock, bonds, certificates of
indebtedness, debentures, securities, options, warrants or rights from a third
party, and (ii) the Company first submits a written offer to the M/C Investors
identifying the third party to whom such stock, bonds, certificates of
indebtedness, debentures, securities, options, warrants or rights are proposed
to be sold and the terms of the proposed sale, and offering to the M/C Investors
the opportunity to purchase their proportionate share of such securities on
terms and conditions, including price, no less favorable to the M/C Investors
than those on which the Company proposes to sell such securities to the third
party. Each M/C Investor shall have the right to purchase its proportionate
share of such securities based on the ratio which the shares of the Common Stock
of the Company owned at the time by such M/C Investor bears to all the issued
and outstanding shares of the Common Stock of the Company, calculated in each
case on a fully-diluted basis to include shares of the Common Stock issuable
upon the exercise of any stock options or warrants then outstanding and upon
conversion or exchange of any convertible or exchangeable securities then
outstanding. Any M/C Investor may transfer its right to be offered any such
opportunity to purchase such capital stock to any transferee of its Shares (A)
who is an M/C Investor, (B) who is an affiliate, as that term is defined in the
Investment
14
Company Act of 1940, as amended, of a M/C Investor (including a partner of a M/C
Investor), (C) who acquires from an M/C Investor at least ten percent (10%) of
the M/C Shares or such lesser amount as represents all of the Shares then held
by the transferring M/C Investor; provided, however, that the transferee of such
lesser amount of shares must be a single entity, or (D) who is a stockholder,
partner or other investor in a M/C Investor which is an investment fund and who
receives Shares from such M/C Investor. The Company's offer to the M/C Investors
shall remain open and irrevocable for a period of at least thirty (30) days. Any
securities so offered to the M/C Investors which are not purchased pursuant to
such offer may be sold by the Company to the third party originally named in the
offer to the M/C Investors on terms and conditions, including price, not more
favorable to the third party than those set forth in such offer at any time
within ninety (90) days following the date of such offer, but may not be sold to
any other person or on terms and conditions, including price, that are more
favorable to the purchaser than those set forth in such offer or after such
90-day period without renewed compliance with this Section 4.11(a).
(b) Notwithstanding the foregoing Section 4.11(a), the Company
may (i) issue up to 3,883,620 shares of Common Stock (or options to purchase
shares of Common Stock) to employees and consultants of the Company as
determined by the Board of Directors of the Company pursuant to the terms of the
Stock Option and Incentive Plan, and (ii) declare, make or issue a dividend or
other distribution payable in shares of Common Stock in respect of outstanding
shares of Common Stock or Series A Preferred Stock in accordance with the
Company's Certificate of Incorporation, as amended, without offering to the M/C
Investors the opportunity to purchase their proportionate share of such shares
or options under this Section 4.11.
4.12 Distributions or Redemption of Capital Stock. Except as otherwise
expressly provided in this Agreement or in Exhibit B hereto, the Company will
not declare or pay any dividends (other than a dividend payable in shares of its
Common Stock) or make any distributions of cash, property or securities of the
Company with respect to any shares of its Common Stock or any other class of its
capital stock, or directly or indirectly redeem, purchase, or otherwise acquire
for consideration any shares of its Common Stock or any other class of its
capital stock. Any redemption, repurchase or other acquisition by the Company of
any shares of its capital stock shall be made in compliance with all laws,
including but not limited to federal and state securities laws.
4.13 Merger, Consolidation, Sale of Assets or Acquisition. The Company
will not (a) sell, lease or otherwise dispose of (whether in one transaction or
a series of related transaction) all or substantially all of its assets, (b)
merge with or into or consolidate with another corporation, (c) acquire any
other corporation or business concern, whether by acquisition of assets, capital
stock or otherwise, and whether in consideration of the payment of cash, the
issuance of capital stock or otherwise, or (d) issue any shares of the Common
Stock, or other securities convertible into or exchangeable for shares of the
Common Stock, to any person or persons acting in concert or a group of
affiliated persons, which issuance results in such person or persons or group
holding in the aggregate more than fifty percent (50%) of
15
the issued and outstanding shares of the Common Stock after giving effect to
such issuance or transfer, except for a merger or consolidation in which the
Company is the continuing or surviving corporation in such merger or
consolidation and the holders of the issued and outstanding capital stock of the
Company before such merger or consolidation hold in the aggregate at least a
majority of the capital stock of the continuing or surviving corporation
entitled to vote generally (and provided further that no agreement or other
document exists which reduces, or could in the future reduce in any way, the
voting rights attaching to such capital stock to less than a majority of the
total voting power of the continuing or surviving corporation).
4.14 Restrictions on Other Agreements. The Company will not enter into
any agreement with any party which by its terms restricts the payments due the
holders of its Series A Preferred Shares pursuant to Exhibit B hereto or grants
any right relating to the registration of its Common Stock superior to or on a
parity with the rights granted to the M/C Investors pursuant to Section 6
hereof. For purposes of this paragraph 4.14, loan agreements approved by the
Board of Directors of the Company which provide that no dividends may be paid
while there is a continuing default shall be deemed not to restrict such
payments.
4.15 Other Actions. The Company shall not:
(a) Redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), any share or shares of
Series A Preferred Stock other than pursuant to the Certificate of
Incorporation;
(b) Redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose), any of the Common Stock
of any class or any other capital stock of the Company other than the Series A
Preferred Stock or any of the Company's options, warrants, or convertible or
exchangeable securities, except that these provisions will not prohibit the
Company from:
(i) repurchasing or redeeming any shares of capital stock owned
by a deceased stockholder pursuant to an agreement with such
stockholder requiring such repurchase or redemption; or
(ii) otherwise repurchasing shares of capital stock which are
subject to an agreement or a provision in the Certificate of
Incorporation under which the Company has the right to repurchase the
same; provided that the Company may not make any such repurchases
which will result in payments of cash or other assets (other than a
note) aggregating more than $50,000 in any calendar year without the
approval of the Board of Directors;
(c) Authorize or issue, or obligate itself to issue, any other
equity security senior to or on a parity with the Series A Preferred Stock as to
liquidation preferences or dividend rights;
16
(d) Increase or decrease the total number of authorized shares of
Series A Preferred Stock;
(e) Authorize any merger or consolidation of the Company with or
into any other company or entity, or authorize the sale of substantially all of
the assets of the Company;
(f) Authorize the liquidation, dissolution or winding up of the
Company;
(g) Declare or pay any dividend or make any distribution with
respect to any share of capital stock of the Company; or
(h) Amend the Certificate of Incorporation or Bylaws of the Company
in any manner that adversely affects the preferences, powers, rights or
privileges of the holders of Series A Preferred Stock.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF INVESTORS
In order to induce the Company to enter into this Agreement, each Investor
hereby severally represents and warrants to the Company with respect to such
Investor's purchase of Securities hereunder that:
(a) The execution of this Agreement has been duly authorized by all
necessary action on the part of the Investor, has been duly executed and
delivered, and constitutes a valid, legal, binding and enforceable agreement of
the Investor.
(b) The Investor is acquiring the Securities for its own account,
for investment, and not with a view to any "distribution" thereof within the
meaning of the Securities Act.
(c) The Investor understands that because the Securities have not
been registered under the Securities Act, it cannot dispose of any or all of the
Securities unless such Securities are subsequently registered under the
Securities Act or exemptions from such registration are available. The Investor
acknowledges and understands that, except as provided in Section 6 hereof, it
has no independent right to require the Company to register the Securities. The
Investor is aware that the Company may not accomplish a public offering of its
stock. The Investor further understands that the Company may, as a condition to
the transfer of any of the Securities, require that the request for transfer be
accompanied by opinion of counsel, in form and substance satisfactory to the
Company, to the effect that the proposed transfer does not result in violation
of the Securities Act, unless such transfer is covered by an effective
registration statement under the Securities Act. The Investor understands that
each certificate representing the Securities will bear the following legend or
one substantially similar thereto:
17
"The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not be
offered, sold, transferred, hypothecated or otherwise assigned except
pursuant to (1) a registration statement with respect to such securities
which is effective under the Act or (2) an available exemption from such
registration under the Act."
(d) The Investor is knowledgeable and experienced in the making of
venture capital investments, is able to bear the economic risk of loss of its
investment in the Company, has been granted the opportunity to make a thorough
investigation of the affairs of the Company, and has availed itself of such
opportunity either directly or through its authorized representative.
(e) The Investor has been advised that the Securities have not been
and are not being registered under the Securities Act or under the "blue sky"
laws of any jurisdiction and that the Company in issuing the Common Shares and
the Series A Preferred Shares is relying upon, among other things, the
representations and warranties of each Investor contained in this Section 5 in
concluding that each such issuance is a "private offering" and does not require
compliance with the registration provisions of the Securities Act.
(f) There are no valid claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
such Investor.
SECTION 6. REGISTRATION RIGHTS
6.1 Optional Registrations. If at any time or times after the date
hereof, the Company shall determine to register any shares of its Common Stock
or securities convertible into or exchangeable or exercisable for shares of the
Common Stock under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the "Securities Act") (whether in connection
with a public offering of securities by the Company (a "primary offering"), a
public offering of securities by stockholders (a "secondary offering"), or both,
but not in connection with a registration effected solely to implement an
employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Securities and Exchange Commission (the "Commission") under the
Securities Act is applicable), the Company will promptly give written notice
thereof to the holders of Registrable Securities (as hereinafter defined in
paragraph 6.4 below) then outstanding (the "Holders"). In connection with any
such registration, if within fifteen (15) days after their receipt of such
notice the Holders of the Registrable Securities request the inclusion of some
or all of the Registrable Securities owned by them in such registration, the
Company will notify all of the Holders of its receipt of such request, and will
use its best efforts to effect the registration under the Securities Act of all
Registrable Securities which such Holders may request in a writing delivered to
the Company within fifteen (15) days after the notice given by the Company with
respect to its receipt of such request; provided, however, that in the case of
the registration of shares of the Common Stock by the Company in connection with
an underwritten public offering, it shall not be
18
required to register Registrable Securities of the Holders in excess of the
amount, if any, of shares of the Common Stock which the principal underwriter of
such underwritten offering shall reasonably and in good faith agree in writing
to include in such offering in excess of any amount to be registered for the
Company; and provided, further, that if any Registrable Securities are not
included for this reason, the Company will nevertheless permit the Holders of
Registrable Securities who have requested participation to register (on a pro
rata basis in proportion to their respective holdings of Registrable Securities)
such number of Registrable Securities which is equal to the total number of such
excess amount of shares of the Common Stock to be included in such offering in
excess of any amount to be registered for the Company. In no event shall other
stockholders of the Company be permitted to register their shares of Common
Stock in any offering in which the number of Registrable Securities included in
the offering has been reduced in accordance with this paragraph 6.1. If the
Company includes in such a registration any securities to be offered by it, all
expenses of the registration and offering and the reasonable fees and expenses
of not more than one independent counsel for the Holders shall be borne by the
Company, except that the Holders shall bear underwriting and selling commissions
attributable to their Registrable Securities being registered and transfer taxes
on shares being sold by such Holders. If the registration under this paragraph
6.1 is exclusively a secondary offering, as defined in this paragraph, the
Holders shall bear their proportionate share of the expenses of the registration
and offering (provided all stockholders registering shares thereunder bear their
proportionate share of the expenses), except expenses which the Company would
have incurred whether or not registration was attempted, including, without
limitation, the expense of preparing normal audited or unaudited financial
statements or summaries consistent with this Agreement or applicable Commission
filings. Without in any way limiting the types of registrations to which this
paragraph 6.1 shall apply, in the event that the Company shall effect a "shelf
registration" under Rule 415 promulgated under the Securities Act, or any other
similar rule or regulation ("Rule 415"), the Company shall take all necessary
action, including, without limitation, the filing of post-effective amendments,
to permit the Holders to include their shares in such registration in accordance
with the terms of this paragraph 6.1.
6.2 Required Registrations. If on any one (1) occasion after September 23,
1998, one or more of the Holders of at least fifty percent (50%) of the
Registrable Securities then outstanding shall notify the Company in writing that
he or they intend to offer or cause to be offered for public sale all or any
portion of his or their Registrable Securities, the Company will notify all of
the Holders of Registrable Securities who would be entitled to notice of a
proposed registration under paragraph 6.1 above of its receipt of such
notification from such Holder or Holders. Upon the written request of any such
Holder delivered to the Company within fifteen (15) days after receipt from the
Company of such notification, the Company will either (i) elect to make a
primary offering in which case the rights of such Holders shall be as set forth
in paragraph 6.1 above (except that the Company shall not be permitted to limit
the number of shares which may be registered by any Holder), or (ii) use its
best efforts to cause such of the Registrable Securities as may be requested by
any Holders (including the Holder or Holders giving the initial notice of intent
to register hereunder) to be registered under the Securities Act in accordance
with the terms of this paragraph 6.2. All expenses of such
19
registrations and offerings and the reasonable fees and expenses of not more
than one independent counsel for the Holders shall be borne by the Company
except that the Holders shall bear underwriting commissions and transfer taxes
of shares being sold by the Holders. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed sixty (60) days during any twelve month period, if the Company has
been advised by legal counsel, which counsel shall be acceptable to the Holders
of Registrable Securities, that such filing would require the disclosure of a
material transaction or other matter and the Company determines reasonably and
in good faith that such disclosure would have a material adverse effect on the
Company. The Company shall not be required to cause a registration statement
requested pursuant to this paragraph 6.2 to become effective prior to ninety
(90) days following the effective date of a registration statement initiated by
the Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the Holders of Registrable Securities to the effect that the Company is
commencing to prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly following such 90-day
period if the request pursuant to this paragraph 6.2 has been made prior to the
expiration of such 90-day period.
6.3 Form S-3. If the Company becomes eligible to use Form S-3 under the
Securities Act or a comparable successor form, the Company shall use its best
efforts to continue to qualify at all times for registration of its capital
stock on Form S-3 or such successor form. One or more of the Holders shall have
the right to request and have effected registrations of shares of Registrable
Securities on Form S-3 or such successor form for a public offering of shares of
Registrable Securities having an aggregate proposed offering price of not less
than $250,000.00 (such requests shall be in writing and shall state the number
of shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders). The Company shall give
notice to all of the Holders of Registrable Securities of the receipt of a
request for registration pursuant to this paragraph 6.3 and shall provide a
reasonable opportunity for such Holders to participate in such a registration.
Subject to the foregoing, the Company will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 or
such successor form to the extent requested by the Holder or Holders thereof. If
so requested by any Holder in connection with a registration under this
paragraph 6.3, the Company shall take such steps as are required to register
such Holder's Registrable Securities for sale on a delayed or continuous basis
under Rule 415, and to keep such registration effective until all of such
Holder's Registrable Securities registered thereunder are sold. All expenses
incurred in connection with a registration requested pursuant to this paragraph
6.3 and the reasonable fees and expenses of not more than one independent
counsel for the Holders shall be borne by the Company, except that the Holders
shall bear underwriting commissions and transfer taxes of shares being sold by
the Holders. The Company may postpone the filing of any registration statement
required hereunder for a reasonable period of time, not to exceed 60 days, if
the Company has been advised by legal counsel, which counsel shall be acceptable
to the Holders
20
of Registrable Securities, that such filing would require the disclosure of a
material transaction or other factor and the Company determines reasonably and
in good faith that such disclosure would have a material adverse effect on the
Company. The Company shall not be required to cause a registration statement
requested pursuant to this paragraph 6.3 to become effective prior to 90 days
following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the Holders of Registrable Securities to the effect that the Company is
commencing to prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly following such 90-day
period if the request pursuant to this paragraph 6.3 has been made prior to the
expiration of such 90-day period.
6.4 Registrable Securities. For the purposes of this Section 6, the
term "Registrable Securities" shall mean any shares of the Common Stock
purchased by, or issued to, an M/C Investor prior to, at or after the Closing,
including, without limitation, any shares of Common Stock issued to an M/C
Investor pursuant to the Exchange Agreement, and including, without limitation,
any shares of Common Stock issued or issuable with respect to any shares of
Common Stock held by such M/C Investor by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
6.5 Further Obligations of the Company. Whenever under the preceding
paragraphs of this Section 6 the Company is required hereunder to register any
Registrable Securities, it agrees that it shall also do the following:
(a) Use its best efforts to diligently prepare and file with the
Commission a registration statement and such amendments and supplements to said
registration statement and the prospectus used in connection therewith as may be
necessary to keep said registration statement effective and to comply with the
provisions of the Securities Act with respect to the sale of securities covered
by said registration statement for the period necessary to complete the proposed
public offering;
(b) Furnish to each selling Holder such copies of each preliminary
and final prospectus and such other documents as such Holder may reasonably
request to facilitate the public offering of his Registrable Securities;
(c) Enter into any reasonable underwriting agreement required by the
proposed underwriter for the selling Holders, if any;
(d) Use its best efforts to register or qualify the securities
covered by said registration statement under the securities or "blue-sky" laws
of such jurisdictions as any selling Holder may reasonably request, provided
that the Company shall not be required to
21
register or qualify the securities in any jurisdictions which require it to
qualify to do business or subject itself to general service of process therein;
(e) Immediately notify each selling Holder, at any time when a
prospectus relating to his Registrable Securities is required to be delivered
under the Securities Act, of the happening of any event as a result of which
such prospectus contains an untrue statement of a material fact or omits any
material fact necessary to make the statements therein not misleading, and, at
the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(f) Cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders, in each case as soon as practicable an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the Securities
Act; and
(h) Obtain and furnish to each selling Holder, immediately prior to
the effectiveness of the registration statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable Securities
sold pursuant thereto), a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of the
Registrable Securities being sold reasonably request.
6.6 Indemnification; Contribution.
(a) Incident to any registration statement referred to in this
Section 6, and subject to applicable law, the Company will indemnify and hold
harmless each underwriter, each Holder of Registrable Securities (including its
respective directors, officers, employees and agents) so registered, and each
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act"), from and
against any and all losses, claims, damages, expenses and liabilities, joint or
several (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based on (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement (including any related preliminary or definitive
prospectus, or any amendment or supplement to such registration statement or
prospectus), (ii) any omission or alleged omission to state in such document a
22
material fact required to be stated in it or necessary to make the statements in
it not misleading, or (iii) any violation by the Company of the Securities Act,
any state securities or "blue-sky" laws or any rule or regulation thereunder in
connection with such registration, provided that the Company will not be liable
to the extent that such loss, claim, damage, expense or liability arises from
and is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information furnished in
writing to the Company by such underwriter, Holder or controlling person
expressly for use in such registration statement. With respect to such untrue
statement or omission or alleged untrue statement or omission in the information
furnished in writing to the Company by such Holder expressly for use in such
registration statement, such Holder will indemnify and hold harmless each
underwriter, the Company (including its directors, officers, employees and
agents), each other Holder of Registrable Securities (including its respective
directors, officers, employees and agents) so registered, and each person who
controls any of them within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise to the
same extent provided in the immediately preceding sentence. In no event,
however, shall the liability of a Holder for indemnification under this
subparagraph 6.6(a) exceed the lesser of (i) that proportion of the total of
such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total Registrable Securities sold under such registration
statement which is being sold by such Holder or (ii) the proceeds received by
such Holder from its sale of Registrable Securities under such registration
statement.
(b) If the indemnification provided for in subparagraph 6.6(a) above
for any reason is held by a court of competent jurisdiction to be unavailable to
an indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this
paragraph 6.6, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, expenses or liabilities (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, the
other selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
selling Holders and the underwriters shall be deemed to be in the same
respective proportions as the net proceeds from the offering (before deducting
expenses) received by the Company and the selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the selling Holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission
23
or alleged omission to state a material fact relates to information supplied by
the Company, the selling Holders or the underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Holders, and the underwriters agree
that it would not be just and equitable if contribution pursuant to this
subparagraph 6.6(b) were determined by pro rata or per capita allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding sentence. In no event,
however, shall a Holder be required to contribute any amount under this
subparagraph 6.6(b) in excess of the lesser of (i) that proportion of the total
of such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total Registrable Securities sold under such registration
statement which is being sold by such Holder or (ii) the proceeds received by
such Holder from its sale of Registrable Securities under such registration
statement. No person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(c) The amount paid or payable by an indemnified party as a
result of the losses, claims, damages and liabilities referred to in this
paragraph 6.6 shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim. The
indemnification and contribution provided for in this paragraph 6.6 will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified parties or any officer, director, employee, agent or controlling
person of the indemnified parties.
6.7 Rule 144 Requirements. If the Company becomes subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, the Company will
use its best efforts to file with the Commission such information as the
Commission may require under either of said Sections; and in such event, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 or Rule 144A under the Securities Act
(or any successor or similar exemptive rules hereafter in effect). The Company
shall furnish to any Holder of Registrable Securities upon request a written
statement executed by the Company as to the steps it has taken to comply with
the current public information requirement of Rule 144 or Rule 144A or such
successor rules.
6.8 Transfer of Registration Rights. The registration rights of the
Holders under this Section 6 may be transferred to any transferee of Registrable
Securities (a) who is a Holder, (b) who is an affiliate, as that term is defined
in the Investment Company Act of 1940, as amended, of a Holder (including a
partner of a Holder), (c) who acquires from a Holder at least five percent (5%)
of the outstanding shares of Common Stock of the Company, or such lesser amount
as represents all of the shares of Common Stock then held by the transferring
Holder; provided, however, that the transferee of all such lesser amount of
shares is a single entity, or (d) who is a stockholder, partner or other
investor in a Holder which is an
24
investment fund and who receives the shares of Common Stock as a distribution
from such Holder. Each such transferee shall be deemed to be a "Holder" for
purposes of this Section 6.
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents. For the purposes of this Agreement
and all agreements, documents and instruments executed pursuant hereto, except
as otherwise specifically set forth herein or therein, no course of dealing
between the Company and any Investor and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No covenant or other provision hereof
or thereof may be waived otherwise than by a written instrument signed by the
party so waiving such covenant or other provision; provided, however, that
except as otherwise provided herein or therein, changes in or additions to, and
any consents required by, this Agreement may be made, and compliance with any
term, covenant, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by the holders of a
majority of the Series A Preferred Shares (unless the effect of such consent or
consents would be to have a disproportionately adverse effect on any Investor,
in which case the consent of such Investor shall be required), and (in the case
of any such change or addition) the Company. Any amendment or waiver effected in
accordance with this paragraph 7.1 shall be binding upon each Investor and each
future holder of all such securities and the Company.
7.2 Survival of Covenants; Assignability of Rights. All covenants,
agreements, representations and warranties of the Company made herein and to be
performed prior to or at the Closing and in the certificates, lists, exhibits,
schedules or other written information delivered or furnished by or on behalf of
the Company to any Investor in connection herewith shall be deemed material and
to have been relied upon by such Investor, and, except as otherwise provided in
this Agreement, shall survive the delivery of the Shares and shall bind the
Company's successors and assigns, whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to transferees of the Securities, whether so
expressed or not.
7.3 Governing Law. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of The Commonwealth
of Massachusetts.
7.4 Section Headings. The descriptive headings in this Agreement have
been inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision thereof or hereof.
7.5 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
25
7.6 Notices and Demands. Any notice or demand which, by any provision
of this Agreement or any agreement, document or instrument executed pursuant
hereto or thereto, except as otherwise provided therein, is required or provided
to be given shall be deemed to have been sufficiently given or served and
received for all purposes when delivered or three days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or by express delivery providing receipt of delivery, to the
following addresses: if to the Company, at its address as shown on the signature
page hereof, or at any other address designated by the Company to each of the
Investors in writing; if to an Investor, at such Investor's mailing address as
shown on Exhibit A hereto, or at any other address designated by such Investor
to the Company and the other Investors in writing; and if to an assignee of an
Investor, at its address as designated to the Company and the other Investors in
writing.
7.7 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
7.8 Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement and the agreements, documents and instruments contemplated hereby
or executed pursuant hereto. The Company shall also pay all costs and expenses
that incurred by the Investors with respect to the negotiation, execution,
delivery and performance of this Agreement and the agreements, documents and
instruments contemplated hereby or executed pursuant hereto, and upon and after
the Closing pursuant to this Agreement, the Company shall reimburse the
Investors for reasonable legal fees for the counsel for the Investors incurred
in connection with the negotiation, execution, delivery and performance of this
Agreement and the agreements, documents and instruments contemplated hereby or
executed pursuant hereto, plus reasonable expenses and disbursements of such
counsel.
7.9 Integration. This Agreement, including the exhibits, schedules,
documents and instruments referred to herein or therein, constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
7.10 Dispute Resolution. Any dispute arising out of or relating to
this Agreement or the breach, termination or validity hereof shall be finally
settled by arbitration conducted expeditiously in accordance with the Center for
Public Resources Rules for Nonadministered Arbitration of Business Disputes (the
"CPR Rules"). The Center for Public Resources shall appoint a neutral advisor
from its National CPR Panel. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. (S)(S)1-16, and judgment upon the award
rendered by
26
the arbitrators may be entered by any court having jurisdiction thereof. The
place of arbitration shall be Boston, Massachusetts.
Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours;
such hearings to take place in one or two days at a maximum; and
(d) decision to be rendered not later than ten (10) days following
such hearings.
Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of the United States District Court for the District
of Massachusetts, for the purpose of enforcing the award or decision in any such
proceeding and (b) hereby waives, and agrees not to assert in any civil action
to enforce the award, any claim that it is not subject personally to the
jurisdiction of the above-named court, that its property is exempt or immune
from attachment or execution, that the civil action is brought in an
inconvenient forum, that the venue of the civil action is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court,
and (c) hereby waives and agrees not to seek any review by any court of any
other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its submission to jurisdiction and
its consent to service of process by mail is made for the express benefit of the
other parties hereto. Final judgment against any party hereto in any such
action, suit or proceeding may be enforced in other jurisdictions by suit,
action or proceeding on the judgment, or in any other manner provided by or
pursuant to the laws of such other jurisdiction; provided, however, that any
party may at its option bring suit, or institute other judicial proceedings, in
any state or federal court of the United States or of any country or place where
the other parties or their assets, may be found.
Notwithstanding the foregoing, it is specifically understood and agreed
that certain breaches of this Agreement will result in irreparable injury to the
parties hereto, that the remedies available to the parties at law alone will be
an inadequate remedy for such breach, and that, in addition to any other legal
or equitable remedies which the parties may have, a party may enforce its rights
by an action for specific performance and the parties expressly waive the
defense that a remedy in damages will be adequate.
27
[End of Text]
28
IN WITNESS WHEREOF, the undersigned have executed this Stock Purchase
Agreement as a sealed instrument as of the day and year first above written.
COMPANY:
VOYAGER HOLDINGS, INC.
By: /s/ Christopher Torto
--------------------------------
Name: Christopher Torto
Title: Chief Executive Officer
|
4660 S. Hagadorn Road
Suite 320
East Lansing, Michigan 48823
M/C INVESTORS:
MEDIA/COMMUNICATIONS
PARTNERS II LIMITED PARTNERSHIP
By: M/CP II Limited Partnership
By: M/CP II General Partner-H, Inc.,
a General Partner
By: /s/ John G. Hayes
--------------------------------
John G. Hayes, President
|
MEDIA/COMMUNICATIONS
INVESTORS LIMITED PARTNERSHIP
By: /s/ John G. Hayes
--------------------------------
John G. Hayes, Attorney-in-Fact
|
MANAGEMENT INVESTORS:
/s/ Glenn Friedly
------------------------------
Glenn Friedly
/s/ Alan Baird
------------------------------
Alan Baird
/s/ Michael Heinze
------------------------------
Michael Heinze
|
30
EXHIBIT A
(1) (2) (3) (4) (5) (6) (7)
Number of Number
Principal Accrued Number of Series A of
Amount of Interest Common Preferred Exchange
Name and Address Notes on Notes Cash Shares Shares Shares
---------------- ----------- -------- ---- --------- --------- --------
M/C INVESTORS:
Media/Communications Partners II
Limited Partnership $ 2,716,000 $ 31,550 $ 517,333.33 349,184 32,647
Media/Communications Investors
Limited Partnership 84,000 976 16,000.00 10,816 1,010
MANAGEMENT INVESTORS:
Glenn Friedly 518,666.67 5,187 778,000
Alan Baird 74,000.00 740 111,000
Michael Heinze 74,000.00 740 111,000
----------- -------- ------------- ------- ------ ---------
Total $ 2,800,000 $ 32,526 $1,200,000.00 360,000 40,324 1,000,000
|
EXHIBIT 10.1
CREDIT AGREEMENT
AMONG
VOYAGER INFORMATION NETWORKS, INC.
THE SEVERAL LENDERS FROM
TIME TO TIME PARTIES HERETO
AND
FLEET NATIONAL BANK
AS AGENT
DATED AS OF SEPTEMBER 23, 1998
TABLE OF CONTENTS
Page No.
--------
I. GENERAL TERMS 1
1.01. REDUCING REVOLVING FACILITIES 1
1.02. INTEREST ON THE NOTES 2
1.03. LOAN REQUESTS; TYPE OF LOAN 5
1.04. LOAN DISBURSEMENTS 6
1.05. PREPAYMENTS AND TERMINATION OR REDUCTION OF THE COMMITMENTS 6
1.06. FEES 9
1.07. REQUIREMENTS OF LAW 10
1.08. LIMITATIONS ON LIBOR LOANS; ILLEGALITY 11
1.09. TAXES 12
1.10. INDEMNIFICATION 13
1.11. PAYMENTS UNDER THE NOTES 14
1.12. SET-OFF, ETC. 15
1.13. PRO RATA TREATMENT; SHARING 15
1.14. NON-RECEIPT OF FUNDS BY THE AGENT 16
1.15. REPLACEMENT OF NOTES 17
II. SECURITY; SUBORDINATION; USE OF PROCEEDS 17
2.01. SECURITY FOR THE OBLIGATIONS; SUBORDINATION; ETC. 17
2.02. USE OF PROCEEDS; SCHEDULE OF SOURCES AND USES 18
III. CONDITIONS OF MAKING THE LOANS 18
3.01. CONDITIONS TO THE FIRST LOANS 18
3.02. ALL LOANS 20
|
3.03. LENDER APPROVALS 21
IV. REPRESENTATIONS AND WARRANTIES 21
4.01. FINANCIAL STATEMENTS 21
4.02. ORGANIZATION, QUALIFICATION, ETC. 22
4.03. AUTHORIZATION; COMPLIANCE; ETC. 22
4.04. GOVERNMENTAL AND OTHER CONSENTS, ETC. 23
4.05. COMPLIANCE WITH LAWS AND AGREEMENTS 23
4.06. PROPRIETARY RIGHTS; THE PUBLICATIONS 23
4.07. LITIGATION 23
4.08. MATERIAL AGREEMENTS 23
4.09. TITLE TO PROPERTIES; CONDITION OF PROPERTIES 24
4.10. SOLVENCY 24
4.11. FULL DISCLOSURE 25
4.12. MARGIN STOCK 25
4.13. TAX RETURNS 25
4.14. PENSION PLANS, ETC. 25
4.15. PROJECTIONS 25
4.16. BROKERS, ETC. 26
4.17. CAPITALIZATION 26
4.18. ENVIRONMENTAL COMPLIANCE 26
4.19. INVESTMENT COMPANY ACT 27
4.20. LABOR MATTERS 27
4.21. YEAR 2000 27
V. FINANCIAL COVENANTS 27
5.01. LEVERAGE 27
5.02. FIXED CHARGES 28
|
ii
5.03. TOTAL INTEREST COVERAGE 28
VI. AFFIRMATIVE COVENANTS 28
6.01. PRESERVATION OF ASSETS; COMPLIANCE WITH LAWS, ETC. 28
6.02. INSURANCE 29
6.03. TAXES, ETC. 31
6.04. NOTICE OF PROCEEDINGS, DEFAULTS, ADVERSE CHANGE, ETC. 32
6.05. FINANCIAL STATEMENTS AND REPORTS 32
6.06. INSPECTION 34
6.07. ACCOUNTING SYSTEM 34
6.08. ADDITIONAL ASSURANCES 34
6.09. COMPLIANCE WITH ENVIRONMENTAL LAWS 35
6.10. INTEREST RATE PROTECTION 35
6.11. YEAR 2000 COMPLIANCE 36
VII. NEGATIVE COVENANTS 36
7.01. INDEBTEDNESS 36
7.02. LIENS 37
7.03. DISPOSITION OF ASSETS; ETC. 38
7.04. FUNDAMENTAL CHANGES; ACQUISITIONS; RESTRICTED PAYMENTS 38
7.05. MANAGEMENT 39
7.06. SALE AND LEASEBACK 39
7.07. INVESTMENTS 39
7.08. CHANGE IN BUSINESS 39
7.09. ACCOUNTS RECEIVABLE 39
7.10. TRANSACTIONS WITH AFFILIATES 39
7.11. AMENDMENT OF CERTAIN AGREEMENTS, ETC. 39
7.12. ERISA 40
|
iii
7.13. MARGIN STOCK 40
7.14. NEGATIVE PLEDGES, ETC. 40
VIII. DEFAULTS 40
IX. REMEDIES ON DEFAULT, ETC. 42
X. THE AGENT 43
10.01. APPOINTMENT, POWERS AND IMMUNITIES 43
10.02. RELIANCE BY AGENT 44
10.03. EVENTS OF DEFAULT 44
10.04. RIGHTS AS A LENDER 45
10.05. INDEMNIFICATION 45
10.06. NON-RELIANCE ON AGENT AND OTHER LENDERS 45
10.07. FAILURE TO ACT 46
10.08. RESIGNATION OF AGENT 46
10.09. COOPERATION OF LENDERS 46
XI. DEFINITIONS 46
XII. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; ACTIONS BY THE LENDERS 63
XIII. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS 65
XIV. MISCELLANEOUS 68
14.01. SURVIVAL 68
14.02. FEES AND EXPENSES; INDEMNITY; ETC. 68
14.03. NOTICE 69
14.04. GOVERNING LAW 70
14.05. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 70
14.06. SEVERABILITY 71
|
iv
14.07. SECTION HEADINGS, ETC. 71
14.08. SEVERAL NATURE OF LENDERS' OBLIGATIONS 71
14.09. COUNTERPARTS 71
14.10. KNOWLEDGE AND DISCOVERY 71
14.11. AMENDMENT OF OTHER AGREEMENTS 71
14.12. DISCLAIMER OF RELIANCE 71
14.13. ENVIRONMENTAL INDEMNIFICATION 72
14.14. INTEGRATION 73
|
v
INDEX OF SCHEDULES
Schedule 1.01(a) Allocation of Commitments
Schedule 1.01(b) Form of Reducing Revolving Credit Note
Schedule 1.03(a) Form of Loan Request
Schedule 1.03(d) Form of Interest Rate Option Notice
Schedule 2.01 Exceptions to Security Requirements
Schedule 2.02 Sources and Uses of Capital
Schedule 3.01(c) Omnibus Officers' Certificate
Schedule 4.01 Opening Balance Sheet
Schedule 4.02 Organization; Qualification
Schedule 4.04 Consents
Schedule 4.06 Proprietary Rights
Schedule 4.07 Litigation
Schedule 4.08 Material Agreements
Schedule 4.09 Condition of Properties
Schedule 4.14 Pension Plans
Schedule 4.15 Projections
Schedule 4.17 Capitalization
Schedule 6.05 Compliance Report
Schedule 7.01 Permitted Indebtedness
Schedule 7.02 Permitted Liens
Schedule 13(b)(iii) Form of Assignment and Acceptance
Schedule 13(b)(iv) Form of Notice of Assignment and
Acceptance
Schedule A Form of NetLink Acquisition Agreement
|
CREDIT AGREEMENT
AGREEMENT dated as of September __, 1998, by and among VOYAGER INFORMATION
NETWORKS, INC. (the "Borrower"), a Michigan corporation that is wholly-owned by
Voyager Holdings, Inc., a Delaware corporation (the "Parent"); the financial
institutions which are now, or in accordance with ARTICLE XIII hereafter become,
parties hereto by execution of the signature pages to this Agreement or
otherwise (collectively, the "Lenders" and each individually, a "Lender"); and
FLEET NATIONAL BANK, as Agent for the Lenders (in such capacity as Agent,
together with its successors and assigns in such capacity, the "Agent").
RECITALS
The Borrower is an Internet service provider with primary operations in
Michigan, and Wisconsin. The Borrower desires to obtain funds for Capital
Expenditures, to finance the Borrower's debt service and future acquisitions
made by the Borrower and for the Borrower's general working capital purposes.
The Lenders are willing to provide such funds, all subject to the terms and
conditions of this Agreement.
NOW THEREFORE, the parties hereto, intending to be legally bound, and in
consideration of the foregoing and the mutual covenants contained herein, hereby
agree as follows:
I. GENERAL TERMS
SECTION 1.01. REDUCING REVOLVING FACILITIES.
(a) On the Closing Date, subject to the terms and conditions contained in
this Agreement, the Lenders agree to establish in favor of the Borrower reducing
revolving credit facilities in the aggregate principal amount of $40,000,000,
allocated among the Lenders as set forth in Schedule 1.01(a) (collectively, in
either case, as reduced pursuant to Section 1.01(e), the "Commitments" and, with
respect to each Lender's allocation thereof, its "Commitment"), which
Commitments shall expire on September 30, 2004 (such date, or such earlier date
as the Commitments shall expire or be terminated hereunder, being referred to
herein as the "Maturity Date").
(b) The borrowings under the Commitments (such borrowings being referred to
as "Loans") shall be evidenced by the Borrower's Reducing Revolving Credit
Notes, each in the form attached hereto as Schedule 1.01(b) (together with any
additional Reducing Revolving Credit Notes issued to any assignee(s) of the
Commitments under Article XIII or otherwise issued in substitution therefor or
replacement thereof, the "Notes"). The Notes are hereby incorporated by
reference herein and made a part hereof.
(c) From the Closing Date to and including the Maturity Date and within the
limits of the aggregate Commitments, the Borrower may borrow, repay and reborrow
under this Section 1.01. The Notes shall be paid as required in accordance with
SECTION 1.05 in connection with all mandatory and voluntary reductions of the
Commitments.
(d) The Commitments (i) shall be automatically and permanently reduced on
September 30, 2000 and on the last Business Day of each December, March, June
and September thereafter (each such date being referred to as a "Quarterly
Date"), on each of which dates the Borrower shall repay such amount of the
aggregate Notes as shall cause the aggregate outstanding principal balance
thereunder to be less than or equal to the Commitments, as so reduced, and (ii)
shall expire on the Maturity Date, when all outstanding principal and accrued
interest on the Notes shall be due and payable in full. Such quarterly
reductions of the Commitments shall be in the amounts set forth below, without
giving effect to any other mandatory or optional Commitment reductions and,
after giving effect to such quarterly automatic reductions, the maximum
aggregate amount of the Commitments shall not exceed the levels set forth below:
AGGREGATE AMOUNT OF AUTOMATIC PERMANENT
PAYMENT DATE REDUCTION MAXIMUM COMMITMENTS
------------ --------- -------------------
Closing Date $ - 0 - $40,000,000
September 30, 2000 $ 500,000 $39,500,000
December 31, 2000 500,000 39,000,000
March 31, 2001 1,000,000 38,000,000
June 30, 2001 1,000,000 37,000,000
September 30, 2001 1,000,000 36,000,000
December 31, 2001 1,000,000 35,000,000
March 31, 2002 2,000,000 33,000,000
June 30,2002 2,000,000 31,000,000
September 30, 2002 2,000,000 29,000,000
December 31, 2002 2,000,000 27,000,000
March 31, 2003 3,000,000 24,000,000
June 30, 2003 3,000,000 21,000,000
September 30, 2003 3,000,000 18,000,000
December 31, 2003 3,000,000 15,000,000
March 31, 2004 5,000,000 10,000,000
June 30, 2004 5,000,000 5,000,000
September 30, 2004 5,000,000 $- 0 -
|
SECTION 1.02. INTEREST ON THE NOTES.
(A) INTEREST RATE. Subject to the terms and conditions set forth in this
SECTION 1.02, the Borrower may elect an interest rate for the outstanding
principal balances from time to time of the Notes, or any portion thereof, based
upon either the Base Rate or the applicable LIBOR Rate and determined as of any
date, as set forth in the table below, as follows:
2
(i) the rate for any Base Rate Loan shall be the Base Rate plus the
Applicable Margin for Base Rate Loans then in effect; and
(ii) the rate for any LIBOR Loan shall be the applicable LIBOR Rate
plus the Applicable Margin for LIBOR Loans in effect on the first day of
the applicable Interest Period.
(B) DETERMINATION OF APPLICABLE MARGIN.
(i) The Applicable Margin for Base Rate Loans and LIBOR Loans shall be
determined based upon the ratio of (A) Total Funded Debt as of the first
day of such Pricing Period to (B) Annualized Operating Cash Flow for the
three months ended on the last day of the month immediately preceding the
first day of such Pricing Period (the "Pricing Ratio"), as indicated in the
following Table:
------------------------------------------------------------------------------------
RATIO OF TOTAL FUNDED DEBT
TO ANNUALIZED OPERATING APPLICABLE MARGIN: APPLICABLE MARGIN:
CASH FLOW BASE RATE LOANS LIBOR LOANS
------------------------------------------------------------------------------------
Greater than or equal to 2.25% 3.50%
5.00:1.00
------------------------------------------------------------------------------------
Less than 5.00:1.00 but
greater than or equal to
4.50:1.00 2.00% 3.25%
------------------------------------------------------------------------------------
Less than 4.50:1.00 but
greater than or equal to
4.00:1.00 1.75% 3.00%
------------------------------------------------------------------------------------
Less than 4.00:1.00 1.50 % 2.75%
------------------------------------------------------------------------------------
|
NOTHING IN THIS SECTION 1.02(B) SHALL BE DEEMED TO CONSTITUTE A WAIVER OF THE
REQUIREMENTS OF SECTION 5.01, DEFAULT UNDER WHICH WILL RESULT IN AN EVENT OF
DEFAULT AND THE IMPOSITION OF THE DEFAULT RATE.
(ii) As used in this SECTION 1.02, the term "Pricing Period" shall
mean each period commencing on (A) the date as of which the Borrower is
required, under SECTION 6.05 (B) and SECTION 6.05(C), to deliver financial
statements and a Compliance Report indicating the applicable Pricing Ratio
(in each case, a "Compliance Report Delivery Date") and ending on (B) the
next following Compliance Report Delivery Date.
3
(iii) The determination of the Applicable Margin for any Pricing
Period shall be based on the quarterly financial statements and Compliance
Report required to be delivered on the first date of such Pricing Period,
as provided above. Notwithstanding the preceding sentence, in the event of
any discrepancy between the computation based on such financial statements
and Compliance Report and the related audited financial statements
furnished pursuant to SECTION 6.05(A) (the "Audited Financial Statements"),
the computation based upon the Audited Financial Statements shall govern,
retroactive to the first day of the applicable Pricing Period in which such
discrepancy occurred. In the event of a retroactive correction in the
determination of the Applicable Margin in favor of the Borrower, the amount
of interest thereby refundable to the Borrower shall be applied on the date
of such retroactive correction, to prepay interest payable on the Notes. If
the retroactive correction is in favor of the Lenders, the amount of
interest due to the Lenders shall be paid in full to the Agent on the first
Quarterly Date after written notice of such correction is provided to the
Borrower.
(iv) Notwithstanding the foregoing, no reduction of the Applicable
Margin hereunder shall occur (A) until or unless the Compliance Report for
the relevant fiscal period is delivered to the Agent, which Compliance
Report demonstrates the basis for such reduction or (B) during the
existence of any Default.
(v) Notwithstanding the foregoing, if the Borrower shall consummate
an Acquisition during any Pricing Period, the Applicable Margin for the
period commencing on the date of such Acquisition and ending on the last
day of such Pricing Period shall be determined based upon the ratio of (A)
Total Funded Debt as of the date of such Acquisition to Annualized
Operating Cash Flow for the three months ended on the month immediately
preceding the date of such Acquisition, as indicated in the table set forth
in paragraph (i) of this Section 1.02(b).
(C) INTEREST PAYMENT DATES. Interest on the Loans shall be payable in
arrears, without setoff, deduction or counterclaim, as follows:
(i) Interest on each Base Rate Loan shall be due and payable on the
Quarterly Dates, commencing December 31, 1998, and at maturity, whether by
reason of acceleration, prepayment, payment or otherwise, provided that
interest accrued on any Base Rate Loan that is converted to a LIBOR Loan
shall be paid on the Quarterly Date following the date of such conversion
(or, if accrued on a Base Rate Loan which is so converted on a Quarterly
Date, on such Quarterly Date). The interest rate on Base Rate Loans shall
change on the date of any change in the applicable Base Rate without prior
notice thereof being provided to Borrower.
4
(ii) Interest on each LIBOR Loan shall be due and payable on the last
day of the Interest Period applicable to such Loan and, if such Interest
Period exceeds three (3) months, every three (3) months after the beginning
of such interest period, until and at maturity, whether by reason of
acceleration, prepayment, payment or otherwise.
(D) COMPUTATIONS. Interest on Base Rate Loans shall be computed on the
basis of the actual number of days elapsed over a 365 or 366-day year, as
applicable. Interest on LIBOR Loans shall be computed on the basis of the
actual number of days elapsed over a 360-day year.
(E) EFFECT OF DEFAULTS, ETC.
(i) At all times during the existence of any Event of Default, the
outstanding principal under the Notes and, to the extent permitted by
applicable law, overdue interest, fees , expenses or other amounts payable
hereunder or under the other Loan Documents shall bear interest at a rate
per annum (the "Default Rate") equal to two (2.00%) above (a), with respect
to Base Rate Loans and overdue interest, fees, expenses and other amounts
payable hereunder, the highest interest rate then applicable to any Base
Rate Loans and (b), with respect to any LIBOR Loans then in effect (and
only until the end of the Interest Period applicable to such LIBOR Loans),
the highest interest rate then applicable to any LIBOR Loans.
(ii) Nothing in this SECTION 1.02(E) shall affect the rights of the
Agent or the Lenders to exercise any rights or remedies under the Loan
Documents or applicable law arising upon the occurrence of an Event of
Default.
SECTION 1.03. LOAN REQUESTS; TYPE OF LOAN.
(A) LOAN REQUESTS. Each request by the Borrower for Loans under the
Commitments (other than the initial Loans made concurrently herewith) shall be
made not later than (i) 11:00 A.M. (Boston time) on the Business Day prior to
the proposed Borrowing Date, if such Loans are Base Rate Loans, or (ii) 11:00
A.M. (Boston time) on the third Business Day prior to the proposed Borrowing
Date, if any of such Loans are LIBOR Loans, by telephonic notice to the Agent,
confirmed no later than 11:00 A.M. (Boston time) on the next following Business
Day by a written Loan Request, in the form of SCHEDULE 1.03(A) (each, a "Loan
Request"), signed by an Authorized Officer of the Borrower and indicating (i)
the date of such Loans, (ii) whether such Loans shall be Base Rate Loans or
LIBOR Loans and, if so, the Interest Period therefor, and (iii) the use of
proceeds thereof, to the extent any such proceeds are not being used for working
capital purposes. The Agent shall promptly notify the Lenders of such Loan
Request and the information contained therein. Each Loan Request shall, upon
such notification by the Agent to the Lenders, be irrevocable and binding on the
Borrower.
(B) CONVERSION TO A DIFFERENT TYPE OF LOAN. The Borrower may elect from
time to time to convert any outstanding Loans to Base Rate Loans or LIBOR Loans,
as the case may be, provided that (i) with respect to any such conversion of
LIBOR Loans to Base Rate Loans, the
5
Borrower shall provide the appropriate Interest Rate Option Notice by 11:00 A.M.
(Boston time) on the date of such proposed conversion; (ii) with respect to any
such conversion of Base Rate Loans to LIBOR Loans, the Borrower shall provide
the appropriate Interest Rate Option Notice by 11:00 A.M. (Boston time) at least
three Business Days prior to the date of such proposed conversion; (iii) with
respect to any such conversion of LIBOR Loans into Base Rate Loans, such
conversion shall only be effected on the last day of the Interest Period for
such LIBOR Loans unless the required indemnification payments are made under
SECTION 1.11; (iv) no Loans may be converted into LIBOR Loans when any Default
has occurred and is continuing; (v) the Borrower may have no more than five (5)
LIBOR Loans outstanding at any time; (vi) any conversion of less than all of the
outstanding Base Rate Loans into LIBOR Loans shall be in a minimum aggregate
principal amount of $500,000 and, if greater, an integral multiple of $100,000;
and (viii) any conversion of less than all of the outstanding LIBOR Loans into
Base Rate Loans shall be in a minimum aggregate principal amount of $100,000
and, if greater, an integral multiple of $100,000. The Agent shall promptly
notify the Lenders of such Interest Rate Option Notice and the information
contained therein.
(C) CONTINUANCE OF AN INTEREST RATE OPTION. The Borrower may continue any
LIBOR Loans as such upon the expiration of the related Interest Period by
providing to the Agent an Interest Rate Option Notice in compliance with the
notice provisions set forth in SECTION 1.03(B); provided that no LIBOR Loans may
be continued when any Default has occurred and is continuing, but shall be
automatically converted to Base Rate Loans on the last day of the first
applicable Interest Period that ends during the continuance of such Default.
Base Rate Loans shall be deemed to continue as such until receipt of an Interest
Rate Option Notice requesting conversion thereof to LIBOR Loans.
(D) FORM OF NOTICE. Each Interest Rate Option Notice shall be
substantially in the form of SCHEDULE 1.03(D) and shall specify: (i) the
aggregate principal amount of Loans to be continued or converted; (ii) the
proposed date thereof; (iii) the Interest Period for such LIBOR Loans; and (iv)
whether such Loans shall be LIBOR Loans or Base Rate Loans.
SECTION 1.04. LOAN DISBURSEMENTS. The Loans shall be made by the Lenders
pro rata as provided in SECTION 1.13. Not later than 1:00 P.M. (Boston time),
in the case of LIBOR Loans, or 3:00 P.M. (Boston time), in the case of Base Rate
Loans, on the date specified for any Loans, each Lender shall make available to
the Agent the portion of the Loans to be made by it on such date, in immediately
available funds, for the account of the Borrower. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower by depositing the same in immediately available funds
in the appropriate account or accounts of the Borrower and by disbursing such
funds as indicated in writing in the related Loan Request furnished prior to or,
if applicable, on the date such Loans are proposed to be made.
SECTION 1.05. PREPAYMENTS AND TERMINATION OR REDUCTION OF THE COMMITMENTS.
(A) VOLUNTARY REDUCTIONS AND RELATED PREPAYMENTS. At any time prior to the
Maturity Date, as the case may be, upon at least three (3) Business Days'
written notice to the
6
Agent (each, a "Commitment Reduction Notice"), the Borrower may permanently
terminate or permanently reduce any of the Commitments, without penalty or
premium, provided as follows:
(i) any such reduction shall be in an aggregate amount of not less
than $250,000 or, if greater, an integral multiple of $250,000;
(ii) any such reduction shall apply to each Lender's Commitment pro
rata as provided in SECTION 1.13;
(iii) simultaneously with each such reduction, the Borrower (A) shall
pay to the Agent, for the ratable account of each Lender, any then accrued
unpaid Commitment Fees on the terminated or reduced portion of the
respective Commitments, (B) shall repay such amount, if any, of the
aggregate principal amount of the Notes as shall be required to cause the
outstanding principal balance thereunder to be less than or equal to the
aggregate Commitments after giving effect to such reductions, and (C) shall
pay any indemnification payments due in accordance with SECTION 1.10 in
respect of LIBOR Loans so prepaid.
Each Commitment Reduction Notice shall specify the date fixed for such
termination or reduction, the aggregate principal amount thereof and the
aggregate principal amount of the Notes, if any, required to be repaid hereunder
on such date.
(B) MANDATORY COMMITMENT REDUCTIONS AND PREPAYMENTS; INSURED EVENTS.
(i) Subject to the provisions of SECTION 6.02, within one hundred
eighty (180) days following the receipt by the Borrower or any of the
Subsidiaries of the proceeds of insurance, condemnation award or other
compensation in respect of any Casualty Event (the "Restoration Period")
(or upon such earlier date following the receipt of such proceeds, as the
Borrower or any Subsidiary shall have determined not to restore, repair or
replace the asset or property affected by such Casualty Event), which
proceeds, have not been applied to the restoration, repair or replacement
of the assets or properties affected by such Casualty Events, the Borrower
shall prepay the Notes and/or permanently reduce the Commitments in the
aggregate amount of such proceeds, all as provided in SECTION 1.05(F).
Nothing in this SECTION 1.05(B) shall be deemed (i) to limit any obligation
of the Companies pursuant to the Security Agreements to remit to the
Collateral Account the proceeds of insurance, condemnation award or other
compensation received in respect of any Casualty Event, (ii) to obligate
the Agent to release any of such proceeds from the Collateral Account to
the Borrower or any Subsidiary during the existence of any Default or (iii)
to require the Borrower or Lenders to apply Insurance Proceeds in the
Collateral Account to prepayment of the Notes pending completion of
repairs, replacements and restoration initiated within the Restoration
Period.
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(C) MANDATORY COMMITMENT REDUCTIONS AND PREPAYMENTS; EXCESS CASH FLOW. On
April 30 of each year, commencing April 30, 2001, the Borrower shall prepay the
Notes and reduce the Commitments, all as provided in SECTION 1.05(F), in an
aggregate amount equal to the percentage of Excess Cash Flow for the immediately
preceding calendar year determined as provided in the following table, which
percentage shall be based upon the ratio of Total Funded Debt as of December 31
of the preceding calendar year to Annualized Operating Cash Flow for the three
months ended on December 31 of the preceding calendar year.
--------------------------------------------------------------------
RATIO OF TOTAL FUNDED DEBT TO
OPERATING CASH FLOW AS OF PERCENTAGE OF EXCESS
DECEMBER 31 CASH FLOW REQUIRED TO BE
OF PRECEDING YEAR USED FOR PREPAYMENT
---------------------------------------------------------------------
Greater than 3.00:1.00 50%
---------------------------------------------------------------------
Less than or equal to 3.00:1.00 0%
---------------------------------------------------------------------
|
(D) MANDATORY COMMITMENT REDUCTIONS AND PREPAYMENTS; DISPOSITIONS OF
ASSETS. Without limiting the obligation of the Borrower under SECTION 7.03 to
obtain the consent of the Lenders to any Disposition not otherwise permitted
hereunder, the Borrower agrees (i) three (3) Business Days prior to the
occurrence of any disposition of assets or properties by any Company, other than
as permitted under SECTION 7.03, to deliver to the Agent (in sufficient copies
for each Lender) a statement, certified by an Authorized Officer and in
reasonable detail, of the estimated amount of the Net Sale Proceeds of such
Disposition and (ii) that in the event such Disposition is completed, the
Borrower shall prepay the Notes and/or permanently reduce the Commitments in the
amount of such Net Sale Proceeds, as provided in SECTION 1.06(F) and as follows:
(A) on the date of such Disposition, in an aggregate amount equal to
100% of the Net Sale Proceeds of such Disposition received by any Company
on the date of such Disposition; and
(B) thereafter, to the extent any Company shall receive Net Sale
Proceeds under deferred payment arrangements or investments entered into or
received in connection with any Disposition, an amount equal to one hundred
percent (100%) of the aggregate amount of such deferred Net Sale Proceeds,
payable within two (2) Business Days after such Company receives such
funds, in each case reduced until the Commitments and any outstanding Loans
under the Notes are reduced to zero.
(E) MANDATORY COMMITMENT REDUCTIONS AND PREPAYMENTS; EQUITY ISSUANCES.
Upon any issuance of additional Equity Securities of any Company for cash
consideration (other
8
than with respect to the Equity Financing and with respect to issuances of
shares of the Parent's common stock upon the exercise of options granted under
the Plan), the Borrower shall prepay the Notes and permanently reduce the
Commitments in the aggregate amount equal to the net proceeds, all as provided
in SECTION 1.05(F), until the Commitments and any outstanding Loans under the
Notes are reduced to zero.
(F) APPLICATION OF REDUCTIONS OF THE COMMITMENTS AND PREPAYMENTS/
COMMITMENT REDUCTION.
(i) The prepayment that is to be made hereunder upon the occurrence
of any of the events described in SECTIONS 1.05(A) through 1.05(E) shall be
applied to permanently reduce the Commitments and pay the Notes until the
Commitments are reduced to $0 and are terminated and the Notes are paid in
full; and
(ii) Simultaneously with the termination or reduction of the
Commitments under any of the foregoing provisions of this SECTION 1.05, the
Borrower (A) shall pay to the Agent, for the ratable account of each
Lender, any then accrued unpaid Commitment Fee on the reduced portion of
such Commitments, and (B) shall repay such amount, if any, of the aggregate
principal amount of the Notes as shall cause the balance outstanding
thereunder to be less than or equal to the aggregate Commitments, after
giving effect to such termination or reduction.
(iii) All voluntary and mandatory prepayments of the Notes under the
foregoing provisions of this SECTION 1.05 (A) shall be made without set-
off, deduction or counterclaim, (B) shall be accompanied by any
indemnification payments due in accordance with SECTION 1.10 in respect of
LIBOR Loans and (C) unless otherwise specified in this SECTION 1.05, shall
be applied first, to overdue interest, fees and expenses hereunder and
second, to pay installments of principal of the Notes, in the inverse order
of maturity (if applicable), provided, in each case, that (x) payments of
principal, interest, fees and expenses of the Notes shall be applied to the
Lenders' respective Notes pro rata as provided in SECTION 1.13, unless
otherwise agreed to by the Lenders, and (y) applications of prepayments to
principal shall be made first to Base Rate Loans and then to LIBOR Loans.
SECTION 1.06. FEES.
(a) The Borrower shall pay to the Agent, for the ratable account of each
Lender, a non-refundable fee (the "Commitment Fee") on the aggregate daily
unutilized portion of the Commitments, from the Closing Date to and including
the earlier of the termination thereof or the Maturity Date, at the rate of
0.50% per annum computed on the basis of the actual number of days elapsed over
a 360-day year), payable quarterly in arrears on each Quarterly Date, commencing
December 31, 1998, without setoff, deduction or counterclaim, with a final
payment on the termination date thereof or, if earlier, the maturity of the
Notes, whether by payment, prepayment, acceleration or otherwise.
9
(b) The Borrowers shall pay to the Lenders certain fees in the amounts
specified in the respective Fee Letters.
SECTION 1.07. REQUIREMENTS OF LAW.
(a) In the event that any Regulatory Change shall:
(i) change the basis of taxation of any amounts payable to any
Lender under this Agreement or the Notes in respect of any Loans, including
without limitation LIBOR Loans (other than taxes imposed on the net income of
such Lender);
(ii) impose or modify any reserve, compulsory loan assessment,
special deposit or similar requirement relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, any applicable
office of such Lender (including any of such Loans or any deposits referred to
in the definition of "LIBOR Base Rate" in Article XI); or
(iii) impose any other conditions affecting this Agreement in respect
of Loans, including without limitation LIBOR Loans (or any of such extensions of
credit, assets, deposits or liabilities);
and the result of any of the foregoing shall be to increase such Lender's costs
of making or maintaining any Loans, including without limitation LIBOR Loans or
any Commitment, or to reduce any amount receivable by such Lender hereunder in
respect of any of its LIBOR Loans or any Commitment, in each case only to the
extent that such additional amounts are not included in the LIBOR Base Rate or
Base Rate applicable to such Loans, then the Borrower shall pay on demand to
such Lender, through the Agent, and from time to time as specified by such
Lender, such additional amounts as such Lender shall reasonably determine are
sufficient to compensate such Lender for such increased cost or reduced amount
receivable.
(b) If at any time after the date of this Agreement any Lender shall have
determined that the applicability of any law, rule, regulation or guideline
adopted after the Closing Date pursuant to, or arising after the Closing Date
out of, the July 1988 report of the Basle Committee on Lending Regulations and
Supervisory Practices entitled "International Convergence of Capital Measurement
and Capital Standards", or the adoption or implementation after the Closing Date
of any other Regulatory Change regarding capital adequacy or any change after
the Closing Date in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof (whether or not having the force of
law), has or will have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding company, if any, as
a consequence of the existence of its obligations hereunder to a level below
that which such Lender or its holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's policies
with respect to capital adequacy) by an amount reasonably deemed by such Lender
to be material, then from time to time following written notice by such
10
Lender to the Borrower as provided in paragraph (c) of this Section, within
fifteen (15) days after demand by such Lender, the Borrower shall pay to such
Lender, through the Agent, such additional amount or amounts as such Lender
shall reasonably determine will compensate such Lender or such corporation, as
the case may be, for such reduction, provided that to the extent that any or all
of the Borrower's liability under this Section arises following the date of the
adoption of any such Regulatory Change (the "Effective Date"), such compensation
shall be payable only with respect to that portion of such liability arising
after notice of such Regulatory Change is given by such Lender to the Borrower
(unless such notice is given within sixty (60) days after the Effective Date, in
which case such compensation shall be payable in full).
(c) If any Lender becomes entitled to claim any additional amounts pursuant
to this Section, it shall promptly notify the Borrower of the event by reason of
which it has become so entitled. A certificate setting forth in reasonable
detail the computation of any additional amounts payable pursuant to this
Section submitted by such Lender to the Borrower shall be delivered to the
Borrower and the other Lenders promptly after the incurrence of such additional
amounts and shall be presumed correct in the absence of manifest error. The
covenants contained in this Section shall survive the termination of this
Agreement and the payment of the outstanding Notes. No failure on the part of
any Lender to demand compensation under paragraph (a) or (b) above on any one
occasion shall constitute a waiver of its rights to demand compensation on any
other occasion. The protection of this Section shall be available to each
Lender regardless of any possible contention of the invalidity or
inapplicability of any law, regulation or other condition which shall give rise
to any demand by such Lender for compensation thereunder. In the event that any
of the losses or payments for which any Lender or its holding company is
compensated under this SECTION 1.07 are reimbursed or otherwise restored to such
Lender or its holding company for any reason, including the rescission,
nullification or retroactive modification of any such Regulatory Change, such
Lender shall reimburse the Borrower accordingly as soon as reasonably
practicable.
SECTION 1.08. LIMITATIONS ON LIBOR LOANS; ILLEGALITY.
(a) Anything herein to the contrary notwithstanding, if, on or prior to the
determination of an interest rate for any LIBOR Loans for any applicable
Interest Period, the Agent shall determine (which determination shall be
conclusive absent manifest error) that:
(i) by reason of any event affecting United States money markets or
the London interbank market, quotations of interest rates for the relevant
deposits are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining the rate of interest for such Loans
under this Agreement; or
(ii) the rates of interest referred to in the definition of "LIBOR Base
Rate" in ARTICLE XI, on the basis of which the rate of interest on any
LIBOR Loans for such period is determined, do not accurately reflect the
cost to the Lenders of making or maintaining such LIBOR Loans for such
period;
11
then the Agent shall give the Borrower prompt notice thereof (and shall
thereafter give the Borrower prompt notice of the cessation, if any, of such
condition), and so long as such condition remains in effect, the Lenders shall
be under no obligation to make LIBOR Loans or to convert Base Rate Loans into
LIBOR Loans and the Borrower shall, at its sole discretion, on the last day(s)
of the then current Interest Period(s) for any outstanding LIBOR Loans, either
prepay such LIBOR Loans in accordance with SECTION 1.05 or convert such Loans
into Base Rate Loans in accordance with SECTION 1.03.
(b) Notwithstanding any other provision herein, if for any reason a Lender
shall be unable to make or maintain LIBOR Loans as contemplated by this
Agreement, such Lender shall provide prompt written notice to the Borrower and
(i) such Lender's commitment hereunder to make LIBOR Loans, continue LIBOR Loans
as such and convert Base Rate Loans to LIBOR Loans shall thereupon terminate
(subject to reinstatement by such Lender at any such time as this Section shall
no longer preclude LIBOR lending by such Lender) and (ii) such Lender's Loans
then outstanding as LIBOR Loans, if any, shall be converted automatically to
Base Rate Loans on the respective last days of the then current Interest Periods
with respect to such Loans or within such earlier period as required by law. If
any such conversion of a LIBOR Loan occurs on a day which is not the last day of
the then current Interest Period with respect thereto, and if the reason for
such Lender's inability to make or maintain LIBOR Loans as contemplated by this
Agreement is a Regulatory Change, then the Borrower shall pay to such Lender
such amounts, if any, as may be required pursuant to SECTION 1.10.
SECTION 1.09. TAXES.
(a) All payments made by the Borrower under this Agreement and the Notes
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority (all such
taxes, levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"); provided, however, that the term "Taxes" shall not
include net income taxes, franchise taxes (imposed in lieu of net income taxes)
and general intangibles taxes (such as those imposed by the State of Florida)
imposed on the Agent or any Lender, as the case may be, as a result of a present
or former connection or nexus between the jurisdiction of the government or
taxing authority imposing such tax (or any political subdivision or taxing
authority thereof or therein) and the Agent or such Lender other than that
arising solely from the Agent or such Lender having executed, delivered or
performed its obligations or received a payment under, or enforced, this
Agreement, the Notes or any of the Security Documents. If any Taxes are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder or under the Notes, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes. Whenever any Taxes are payable by the Borrower in respect of this
Agreement or the Notes, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof.
12
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Lenders for
any incremental taxes, interest or penalties that may become payable by the
Agent or any Lender as a result of any such failure. If, after any payment of
Taxes by the Borrower under this Section, any part of any Tax paid by the Agent
or any Lender is subsequently recovered by the Agent or such Lender, the Agent
or such Lender shall reimburse the Borrower to the extent of the amount so
recovered. A certificate of an officer of the Agent or such Lender setting forth
the amount of such recovery and the basis therefor shall, in the absence of
manifest error, be conclusive. The Agent and the Lenders shall use reasonable
efforts to notify the Borrower of (i) unpaid Taxes, if any, owed by the Borrower
which are subject to this Section and (ii) the attempts by the Agent and the
Lenders, if any, to obtain abatements of any such Taxes and the receipt by the
Agent or the Lenders of any funds in connection therewith. The agreements in
this subsection shall survive the termination of this Agreement and the payment
of the Notes and all other amounts payable hereunder.
(b) Each Lender, if any, that is not incorporated under the laws of the
United States or a state thereof agrees that, prior to the first date as of
which any payment is required to be made to it hereunder, it will deliver to the
Borrower and the Agent (i) two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or successor applicable form, as the case may
be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable
form. Each such Lender also agrees to deliver to the Borrower and the Agent two
further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor
applicable forms or other manner of certification, as the case may be, on or
before the date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to the Borrower, and such extensions or renewals thereof as may
reasonably be requested by the Borrower or the Agent, unless in any such case an
event (including, without limitation, any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it and
such Lender so advises the Borrower and the Agent. Such Lender shall certify
(x) in the case of a Form 1001 or 4224, that it is entitled to receive payments
under this Agreement without deduction or withholding of any United States
federal income taxes and (y) in the case of a Form W-8 or W-9, that it is
entitled to an exemption from United States backup withholding tax.
SECTION 1.10. INDEMNIFICATION. The Borrower shall pay to the Agent, for
the account of each Lender, upon the request of such Lender delivered to the
Agent and thereafter delivered by the Agent to the Borrower, such amount or
amounts as shall compensate such Lender for any direct loss, cost or expense
actually incurred by such Lender (as such amount is reasonably determined by
such Lender) as a result of:
(a) any payment or prepayment or conversion of any LIBOR Loan held by such
Lender on a date other than the last day of the Interest Period for such LIBOR
Loan (including without limitation any such payment, prepayment or conversion
required under SECTION 1.03 or 1.05); or
13
(b) any failure by the Borrower to borrow, convert into or continue a LIBOR
Loan on the date for such borrowing specified in the relevant Loan Request or
Interest Rate Option Notice under SECTION 1.03 or otherwise.
Such indemnification shall include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the amount so prepaid,
or not so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank eurodollar
market. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder. The determination
by each such Lender of the amount of any such loss or expense, when set forth in
a written notice delivered to the Agent (and thereafter delivered by the Agent
to the Borrower), containing such Lender's calculation thereof in reasonable
detail, shall be presumed correct in the absence of manifest error.
SECTION 1.11. PAYMENTS UNDER THE NOTES. All payments and prepayments made
by the Borrower of principal of, and interest on, the Notes and other sums and
charges payable under this Agreement, including without limitation the
Commitment Fee and any payments under SECTIONS 1.07, 1.09 and 1.10, shall be
made in immediately available funds to the Agent (as specified in SECTION 14.03)
for the accounts of the Lenders as provided in SECTION 1.13 and otherwise herein
or in the Fee Letter, not later than 2:00 P.M. (Boston time), on the date on
which such payment shall become due. The failure by the Borrower to make any
such payment by such hour shall not constitute a default hereunder so long as
payment is received later that day, provided that any such payment made after
2:00 P.M. (Boston time), on such due date shall be deemed to have been made on
the next Business Day for the purpose of calculating interest on amounts
outstanding on the Notes. The Borrower shall, at the time of making each
payment under this Agreement or the Notes, specify to the Agent the Notes or
amounts payable by the Borrower hereunder to which such payment is to be applied
(and in the event that it fails to so specify, or if an Event of Default has
occurred and is continuing, the Agent may distribute such payments in such
manner as the Required Lenders may direct or, absent such direction, as it
determines to be appropriate, subject to the provisions of SECTION 1.13).
Except as otherwise provided in the definition of "Interest Period" with respect
to LIBOR Loans, if any payment hereunder or under the Notes shall be due and
payable on a day that is not a Business Day, such payment shall be deemed due on
the next following Business Day and interest shall be payable at the applicable
rate specified herein through such extension period. The Agent, or any Lender
for whose account any such payment is made, may (but shall not be obligated to)
debit the amount of any such payment which is not made by such time to any
deposit account of the Borrower with the Agent or such Lender, as the case may
be. Each payment received by the Agent under this Agreement or any Note for the
account of a Lender shall be paid promptly to such Lender, in
14
immediately available funds, for the account of such Lender for the Note in
respect to which such payment is made.
SECTION 1.12. SET-OFF, ETC. The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall be entitled, at its option, to
offset balances held by it (other than accounts as to which the Borrower is
acting solely as a fiduciary) for the account of the Borrower at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on the Notes held by such Lender or other fees or charges owed to such
Lender hereunder that are not paid when due (regardless of whether such balances
are then due to the Borrower), in which case it shall promptly notify the
Borrower and the Agent thereof, provided that such Lender's failure to give such
notice shall not affect the validity thereof and (as security for any
Indebtedness hereunder) the Borrower hereby grants to the Agent and the Lenders
a continuing security interest in any and all balances, credit, deposits,
accounts or moneys of the Borrower maintained with the Agent and any Lender now
or hereafter (other than accounts as to which the Borrower is acting solely as a
fiduciary). If a Lender shall obtain payment of any principal, interest or
other amounts payable under this Agreement through the exercise of any right of
set-off, banker's lien or counterclaim or otherwise, it shall promptly purchase
from the other Lenders participations in (or, if and to the extent specified by
such Lender, direct interests in) the Note(s) held by the other Lenders in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of such
payment (net of any expenses which may be incurred by such Lender in obtaining
or preserving such benefit) pro rata in accordance with the unpaid principal
amounts of and interest on the Note(s) held by each of them. To such end, the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored. The Borrower agrees that any Lender or any other Person that
purchases a participation (or direct interest) in the Note(s) held by any or all
of the Lenders (each being hereinafter referred to as a "Participant") may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Participant were a direct
holder of Notes in the amount of such participation. Nothing contained herein
shall be deemed to require any Participant to exercise any such right or shall
affect the right of any Participant to exercise, and retain the benefits of
exercising, any such right with respect to any indebtedness or obligation of the
Borrower, other than the Borrower's indebtedness and obligations under this
Agreement.
SECTION 1.13. PRO RATA TREATMENT; SHARING.
(a) Except to the extent otherwise provided herein: (i) each borrowing
from the Lenders under the Commitments shall be made from the Lenders, each
payment of the Commitment Fee shall be made to the Lenders and each reduction of
the Commitments shall be applied to the Notes held by the Lenders pro rata
according to the amounts of their respective unused Commitments; (ii) without
limiting the generality of clause (i) above, the principal amount of LIBOR Loans
made by each Lender shall be determined on a pro rata basis in accordance with
its respective Commitment or the outstanding principal amounts of the Loans owed
to such Lender (in the case of conversions to or continuations of Loans as LIBOR
Loans); (iii) each payment and prepayment of principal of the Notes shall be
made to the Lenders pro rata
15
in accordance with the respective unpaid principal amounts of the respective
Notes held by the Lenders; (iv) each payment of interest on the Notes shall be
made for the accounts of the Lenders and each payment of the Commitment Fee or
any other sums and charges payable under this Agreement (except for fees payable
in accordance with the Fee Letters, which are payable as provided thereunder)
shall be made to the Lenders pro rata in accordance with the respective unpaid
principal amounts of, and interest on, the related Loans made by each of them
(calculated, as applicable, for each day of the relevant payment period); (v)
each payment under SECTION 1.07, 1.09 or 1.10 shall be made to each Lender in
the amount required to be paid to such Lender pursuant to such Section for
losses suffered or costs incurred by such Lender; and (vi) each distribution of
cash, property, securities or other value received by any Lender, directly or
indirectly, in respect of the Borrower's Indebtedness hereunder, whether
pursuant to any attachment, garnishment, execution or other proceedings for the
collection thereof or pursuant to any bankruptcy, reorganization, liquidation or
other similar proceeding, after payment of collection and other expenses as
provided herein and in the Security Documents, shall be apportioned among the
Lenders pro rata in accordance with the respective unpaid principal amounts of
of and interest on the Notes held by each of them.
(b) Notwithstanding the foregoing, if any Lender (a "Recovering Party")
shall receive any distribution of the type referenced in SECTION 1.13(A)(VI) (a
"Recovery") in respect thereof, such Recovering Party shall pay to the Agent for
distribution to the Lenders as set forth herein their respective pro rata shares
of such Recovery, as set forth herein, unless the Recovering Party is legally
required to return any Recovery, in which case each party receiving a portion of
such Recovery shall return to the Recovering Party its pro rata share of the sum
required to be returned without interest. For purposes of this Agreement,
calculations of the amount of the pro rata share of each Lender shall be rounded
to the nearest whole dollar.
(c) The Borrower acknowledges and agrees that, if any Recovering Party
shall be obligated to pay to the other Lenders a portion of any Recovery
pursuant to SECTION 1.13(B) and shall make such recovery payment, the Borrower
shall be deemed to have satisfied its obligations in respect of Indebtedness
held by such Recovering Party only to the extent of the Recovery actually
retained by such Recovering Party after giving effect to the pro rata payments
by such Recovering Party to the other Lenders. The obligations of the Borrower
in respect of Indebtedness held by each other Lender shall be deemed to have
been satisfied to the extent of the amount of the Recovery distributed to each
such other Lender by the Recovering Party.
SECTION 1.14. NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall
have been notified in writing by a Lender or the Borrower prior to one (1)
Business Day before the time at which such Lender or the Borrower is scheduled
to make payment to the Agent of (in the case of a Lender) the proceeds of a Loan
to be made by it hereunder or (in the case of the Borrower) a payment to the
Agent for the account of any or all of the Lenders hereunder (such payment being
herein referred to as a "Required Payment"), which notice shall be effective
upon actual receipt, that it does not intend to make such Required Payment to
the Agent, the Agent may (but shall not be required to) assume that the Required
Payment has been made and may (but shall not be required to), in reliance upon
such assumption, make the amount thereof available to the intended recipient(s)
on such date and, if such Lender or the Borrower (as the case may be) has not in
fact
16
made the Required Payment to the Agent, the recipient(s) of such payment shall,
on demand, or with respect to payment received by the Borrower, within three (3)
Business Days after such receipt repay to the Agent for the Agent's own account
the amount so made available together with interest thereon in respect of each
day during the period commencing on the date such amount was so made available
by the Agent until the date the Agent recovers such amount at a rate per annum
equal to (a) the Federal Funds Rate for such day, with respect to interest paid
by such Lender, or (b) the applicable rate provided under SECTION 1.02, with
respect to interest paid by the Borrower.
SECTION 1.15. REPLACEMENT OF NOTES. Upon receipt of evidence reasonably
satisfactory to the Borrower of the loss, theft, destruction or mutilation of
any Note and (a) in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement reasonably satisfactory to the Borrower
(without need to post bond or any other security with respect thereto), or (b)
in the case of any such mutilation, upon the surrender of such Note for
cancellation, the Borrower will execute and deliver, in lieu of such lost,
stolen, destroyed, or mutilated Note, a new Note of like tenor.
II. SECURITY; SUBORDINATION; USE OF PROCEEDS
SECTION 2.01. SECURITY FOR THE OBLIGATIONS; SUBORDINATION; ETC.
(a) Except as specified in SCHEDULE 2.01 attached hereto, the Borrower's
obligations hereunder, under the Notes and in respect of any Rate Hedging
Obligations entered into with any of the Lenders or any Hedging Lenders shall be
secured at all times, by:
(i) the unlimited guaranty of the Parent and each Subsidiary of the
Borrower, if any;
(ii) a first priority perfected security interest in and lien upon all
presently owned and hereafter acquired tangible and intangible personal
property and fixtures of each of the Companies (including, without
limitation, and any intercompany notes), subject only to any prior Liens
expressly permitted under this Agreement;
(iii) to the extent requested by the Agent, first Mortgages on all
hereafter acquired real estate owned by each of the Companies, subject only
to any prior Liens expressly permitted under this Agreement, together with
mortgagee's title insurance policies acceptable to the Agent;
(iv) to the extent requested by the Agent, first priority perfected
collateral assignments of or leasehold mortgages on all real estate leases
in which any of the Companies now has or may in the future have an interest
and such third party consents, lien waivers, non-disturbance agreements and
estoppel certificates as the Agent shall reasonably require, together with
mortgagee's title insurance policies acceptable to the Agent;
17
(v) a first priority perfected collateral assignment and/or pledge of
all of the issued and outstanding Equity Securities of the Parent (except
for up to 6% of the Parent's common stock or options therefor issued to
employees of the Borrower in accordance with the Plan), the Borrower and
each Subsidiary, and all warrants, options and other rights to purchase
such ownership interests or capital stock; and
(vi) subject to the provisions of SECTION 6.01(C), first priority
perfected collateral assignments of all such stock and asset purchase
agreements, and such other management agreements, co-location agreements, line
access agreements and other licenses, permits and authorizations to which any of
the Companies is a party as the Agent shall reasonably deem necessary to protect
the interests of the Lenders, together with such third party consents, lien
waivers and estoppel certificates as the Agent shall reasonably require.
(B) SUBORDINATION. All existing and hereafter arising indebtedness and
other obligations, including, without limitation, any obligations to pay
dividends or to make any other distributions, of each Company to their
respective Affiliates shall be subordinated to the Obligations of the Companies
pursuant to subordination agreements (the "Affiliate Subordination Agreements")
or other Security Documents satisfactory in form and substance to the Required
Lenders and to the Agent's counsel, in their sole and absolute discretion.
(C) SECURITY DOCUMENTS. All agreements and instruments described or
contemplated in this SECTION 2.01, together with any and all other agreements
and instruments heretofore or hereafter securing the Notes and the Borrower's
obligations hereunder or otherwise executed in connection with this Agreement,
are sometimes hereinafter referred to collectively as the "Security Documents"
and each individually as a "Security Document". The Borrower agrees to take
such action as the Lenders may reasonably request from time to time in order to
cause the Agent and the Lenders to be secured at all times as described in this
Section.
SECTION 2.02. USE OF PROCEEDS; SCHEDULE OF SOURCES AND USES.
The proceeds of the Loans shall be used by the Borrower (a) to make Capital
Expenditures, (b) to fund its Total Debt Service, (c) to make Permitted
Acquisitions and (d) for working capital.
III. CONDITIONS OF MAKING THE LOANS
SECTION 3.01. CONDITIONS TO THE INITIAL LOANS. The obligations of the
Lenders to enter into this Agreement and to make the initial Loans to the
Borrower on the Closing Date are subject to the following conditions:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Borrower and its Affiliates set forth in this Agreement and in the Loan
Documents shall be true
18
and correct in all material respects on and as of the date hereof and on the
Closing Date and the Borrower shall have performed all obligations that were to
have been performed by it hereunder prior to the Borrowing Date of such Loans.
(B) LOAN DOCUMENTS AND ORGANIZATIONAL DOCUMENTS. On or before the Closing
Date, the Borrower shall have executed and/or delivered to the Agent (or shall
have caused to be executed and delivered to the Agent by the appropriate
Persons), the following:
(i) The Notes;
(ii) All of the Security Documents, including without limitation all
Uniform Commercial Code Financing Statements and Termination Statements and
(except as provided in SCHEDULE 2.01) all lessor consents and waivers, required
by the Agent or its counsel in connection with the Borrower's compliance with
the provisions of SECTION 2.01;
(iii) Certified copies of the resolutions of the Board of Directors of
each Company, authorizing the execution and delivery of the Loan Documents to
which it is a party;
(iv) A copy of the certificate or articles of incorporation of each
Company, with any amendments thereto, certified by the appropriate Secretary of
State and by the Secretary or an Assistant Secretary of such Company;
(v) For each Company, certificates of legal existence and good
standing issued as of a reasonably recent date by such Company's state of
organization or formation and any other state in which such Company is
authorized or qualified to transact business;
(vi) No later than three (3) Business Days prior to the Closing Date,
to the extent requested by the Agent, copies of all material governmental
licenses, franchises and permits, and all other material leases, contracts,
agreements, instruments and other documents specified in SCHEDULES 4.04, 4.06,
4.08, 4.09 and 4.17;
(vii) Such Uniform Commercial Code, Federal tax lien and judgment
searches with respect to the Companies as are requested by the Agent, the
results thereof to be satisfactory to the Agent ("Lien Searches");
(viii) The Opening Balance Sheet;
(ix) Certificates of insurance evidencing the insurance coverage and
policy provisions required in this Agreement; and
19
(x) Such other supporting documents and certificates as the Agent or
the Lenders may reasonably request from time to time.
(C) OFFICER'S CERTIFICATES AS TO COMPLIANCE, ETC. The Borrower shall have
provided to the Agent an officer's certificate, in substantially the form of
SCHEDULE 3.01(C), executed on behalf of the Borrower by an Authorized Officer,
with his or her signature certified as provided therein.
(D) COMPANIES' COUNSEL OPINIONS. The Agent shall have received the
favorable written opinion of general counsel to the Parent and the Borrower,
dated as of the Closing Date, addressed to the Agent and the Lenders and
reasonably satisfactory to the Agent in scope and substance.
(E) EQUITY FINANCING. The Lenders shall have received evidence that the
Borrower has received cash equity contributions prior to the Closing Date from
the Equity Investors, which when combined with the outstanding principal balance
of the Subordinated Debt, equals an amount of not less than $9,333,333 in the
aggregate and evidence of the Equity Investors' obligation to make additional
cash equity contributions to the Borrower of at least $666,666.67 on or before
March 31, 1999 (the financing described in this Section 3.01(e) is referred to
as the "Equity Financing"). Such evidence may include, without limitation,
evidence of the Parent having entered into the Stock Purchase Agreement and
consummated the initial closing thereunder pursuant to which certain Equity
Investors shall have (i) converted existing promissory notes and (ii)
contributed an additional $533,333.33 in cash to Parent (and the Parent in turn
having contributed such proceeds to the Borrower), in exchange for additional
Equity Securities of the Parent that are pledged to the Lenders in accordance
with Section 2.01, and certain other Equity Investors shall have committed to
contribute to the Parent in cash an additional $666,666.67 (which proceeds shall
be contributed by the Parent to the Borrower) on or before March 31, 1999 in
exchange for additional Equity Securities of the Parent. The Borrower shall
have certified to such effect in the certificate referred to in paragraph (c)
above.
(F) CLOSING LEVERAGE. After giving effect to such Loans, the ratio of (i)
Total Funded Debt as of the Closing Date to (ii) Operating Cash Flow for the
three months ended July 31, 1998 multiplied by four ("Closing Leverage") shall
be less than or equal to 6.00:1.00 and the Agent shall have received
satisfactory evidence (including detailed calculations) to such effect.
(G) NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, no event or
circumstance shall have occurred that could reasonably be expected to have a
Material Adverse Effect.
(H) LEGAL AND OTHER FEES. As of the Closing Date, all fees owed to the
Agent and the Lenders, including documented legal fees and out-of-pocket
expenses incurred through such date shall have been paid in full.
SECTION 3.02. ALL LOANS. The obligations of the Lenders to make any Loans
or to permit the Conversion are subject to the following conditions:
20
(a) All warranties and representations set forth in this Agreement shall be
true and correct in all material respects as of the date such Loans are made,
except to the extent they relate specifically to an earlier date or are affected
by transactions occurring after the date hereof and permitted hereunder;
(b) No Default or Event of Default shall have occurred and be continuing;
and
(c) After giving effect to such Loans, no event or circumstances shall have
occurred that has had or could reasonable be expected to have a Material Adverse
Effect.
Each telephonic or written request for such Loans shall constitute a
representation to such effect as of the date of such request and as of the date
of such borrowing.
(d) The Agent shall have received a properly completed Loan Request,
together with all such certified financial calculations as the Agent shall
reasonably require to substantiate the current and pro forma certifications of
no Default contained therein.
(e) The Agent shall have received such other supporting documents and
certificates as the Agent and the Required Lenders may reasonably request.
SECTION 3.03. LENDER APPROVALS. For purposes of determining compliance
with the conditions precedent referred to in SECTIONS 3.01 and 3.02, as of the
date hereof or, with respect to Loans made hereafter, as of the Borrowing Date
of such Loans, each of the Lenders shall be deemed to have consented to,
approved or accepted or be satisfied with each document or other matter which is
the subject of such Lender's consideration under any of the provisions of such
Sections, unless an officer of the Agent responsible for the transactions
contemplated by the Loan Documents shall have received written notice from such
Lender prior to the date hereof or the applicable Borrowing Date, as the case
may be, specifying its objection thereto and such Lender shall have failed to
execute and deliver this Agreement or to make available to the Agent such
Lender's ratable share of such Loans, as the case may be.
IV. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Lenders as set forth below. Such representations and warranties
are, unless otherwise specified, made as of the date hereof and shall survive
the delivery of the Notes and the making of the Loans.
SECTION 4.01. FINANCIAL STATEMENTS. The Borrower has heretofore furnished
to the Lenders:
(a) (i) the Borrower's audited balance sheets dated as of December 31,
1996 and December 31, 1997 and the related statements of operations,
stockholders' equity and cash flow for the fiscal year then ended, and (ii) the
Borrower's unaudited balance sheet dated as of June 30, 1998 and the related
statements of operations, stockholders' equity and cash flow for the six months
then ended (collectively, the "Financial Statements"); and
21
(b) the Borrower's balance sheet attached as SCHEDULE 4.01 showing its pro
forma financial condition as of the date hereof, after giving effect to the
first Loans contemplated hereunder (the "Opening Balance Sheet").
The Financial Statements have been prepared in accordance with GAAP. Since
the respective dates of the most recent Financial Statements, there has been no
material adverse change in the assets, properties, business or condition
(financial or otherwise) of the Borrower. The Companies have no contingent
liabilities or other obligations other than as set forth in the Opening Balance
Sheet. The Opening Balance Sheet fairly represents in all material respects the
Borrower's pro forma financial condition as of the date thereof. The financial
projections submitted to the Lenders by the Borrower (including all projections
set forth in the Budget) are believed by the Borrower to be reasonable as of the
date hereof in light of all information presently known by the Borrower.
SECTION 4.02. ORGANIZATION, QUALIFICATION, ETC. Each of the Companies (a)
is a corporation, duly organized, validly existing and in good standing under
the laws of its state of incorporation, all as specified in SCHEDULE 4.02, (b)
has the power and authority to own its properties and to carry on its business
as now being conducted and as presently contemplated, (c) has the power and
authority to execute and deliver, and perform its obligations under, this
Agreement, the Notes and each of the other Loan Documents and (d) is duly
qualified to transact business in the jurisdictions specified in SCHEDULE 4.02
and in each other jurisdiction where the nature of its activities requires such
qualification, except where the failure to so qualify would not have Material
Adverse Effect. The Parent has no Subsidiaries other than the Borrower; and, as
of the date hereof, the Borrower has no Subsidiaries except for Horizon
Telecommunications, Inc., a Michigan corporation. The Parent's sole asset
(other than de minimus assets having a book value of not more than $1,000 in the
aggregate) is the record and beneficial ownership interests in all of the
Borrower's issued and outstanding Equity Securities.
SECTION 4.03. AUTHORIZATION; COMPLIANCE; ETC. The execution and delivery
of, and performance by the Companies of their respective obligations under, this
Agreement and the other Loan Documents have been duly authorized by all
requisite corporate action and will not violate any provision of law, any order,
judgment or decree of any court or other agency of government, the charter
documents or by-laws of any corporate Company, or any indenture, agreement or
other instrument to which any Company is a party, or by which any Company is
bound or result in a breach of, or constitute (with due notice or lapse of time
or both) a default under, or except as may be permitted under this Agreement,
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the property or assets of any Company pursuant to,
any such indenture, agreement or instrument that would have a Material Adverse
Effect. Each of the Loan Documents constitutes the valid and binding obligation
of each of the Companies and any of their Affiliates party thereto, enforceable
against such party in accordance with its terms, subject, however to bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the rights and
remedies of creditors generally or the application of principles of equity,
whether in any action in law or proceeding in
22
equity, and subject to the availability of the remedy of specific performance or
of any other equitable remedy or relief to enforce any right under any such
agreement.
SECTION 4.04. GOVERNMENTAL AND OTHER CONSENTS, ETC. Except for filings
and recording required under SECTION 2.01 and the Security Documents and except
as set forth in SCHEDULE 4.04, none of the Companies is required to obtain any
material consent, approval or authorization from or to file any declaration or
statement with or to give any notice to, any Governmental Authority or any other
Person (including, without limitation, any notices required under the applicable
bulk sales law) in connection with or as a condition to the execution, delivery
or performance of any of the Loan Documents. Except as set forth in such
SCHEDULE 4.04, all consents, approvals and authorizations described in such
Schedule have been duly granted and are in full force and effect on the date
hereof and all filings described in such Schedule have been properly and timely
made.
SECTION 4.05. COMPLIANCE WITH LAWS AND AGREEMENTS. None of the Companies
is in violation of any provision of its corporate charter or by-laws or any
other organizational documents, as the case may be, or of any indenture,
agreement or instrument to which it is a party or by which it is bound or of any
provision of law, the violation of which could have a Material Adverse Effect,
or any order, judgment or decree of any court or other agency of government to
which it is subject.
SECTION 4.06. PROPRIETARY RIGHTS.
The Companies possess or have the rights to all trade names, trademarks,
copyrights and other proprietary rights necessary for the operation of the
Companies' businesses, free and clear of any attachments, liens, encumbrances or
adverse claims (except to the extent the absence thereof has not had, and could
not reasonably be expected to have, a Material Adverse Effect), and neither the
present or contemplated activities or products of any of such entities infringe
any such trade names, trademarks, copyrights or other proprietary rights of
others. Each of such trade names, trademarks, copyrights and other rights is in
full force and effect and no material default has occurred and is continuing
thereunder. All such proprietary rights that have been registered, or as to
which registration applications have been submitted, are described on SCHEDULE
4.06.
SECTION 4.07. LITIGATION. Except as specified in SCHEDULE 4.07, there is
no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency pending or, to the knowledge of the
Borrower, threatened (nor is any basis therefor known to the Borrower), as of
the date hereof (a) that questions the validity of any of the Loan Documents, or
any action taken or to be taken pursuant hereto or thereto, in a manner or to an
extent that would have a Material Adverse Effect, or (b) against or affecting
any Company that, if adversely determined, either in any case or in the
aggregate, would have a Material Adverse Effect.
SECTION 4.08. MATERIAL AGREEMENTS. In addition to the proprietary rights
described in SECTION 4.06, the Companies possess all other material contract
rights, including co-location agreements, line access agreements, distribution
agreements, subscription agreements,
23
noncompetition agreements and employment agreements that are reasonably
necessary for the operation of the Companies' businesses, each of which, to the
extent material to the Companies' operations, is accurately described on
SCHEDULE 4.08. In addition, SCHEDULE 4.08 also accurately and completely lists
all agreements, if any, among any Company's members and all material
management, consulting and other agreements, if any, to which any Company is a
party, and that are in effect in connection with the conduct of the businesses
of such Company. Each of the foregoing rights and agreements is in full force
and effect and no material default has occurred and is continuing thereunder.
SECTION 4.09. TITLE TO PROPERTIES; CONDITION OF PROPERTIES.
(a) Except as set forth on SCHEDULE 4.09, the Companies have good title to
all of their properties and assets free and clear of all mortgages, security
interests, restrictions, liens and encumbrances of any kind, including without
limitation liens or encumbrances in respect of unpaid taxes (collectively,
"Liens"), except liens and encumbrances contemplated by and permitted under this
Agreement.
(b) None of the Companies owns any fee interest in any real property as of
the date hereof.
(c) Except as set forth on SCHEDULE 4.09, each of the Companies enjoys
quiet possession under all leases to which it is a party as lessee, and all of
such leases are valid, subsisting and in full force and effect. None of such
leases contains any provision restricting the incurrence of indebtedness by the
lessee.
SECTION 4.10. SOLVENCY..
(a) The aggregate amount of the full salable value of the assets and
properties of each Company exceeds the amount that will be required to be paid
on or in respect of such Company's existing debts and other liabilities
(including contingent liabilities) as they mature.
(b) No Company's assets and properties constitute unreasonably small
capital for such Company to carry out its business as now conducted and as
proposed to be conducted, including such Company's capital needs, taking into
the account the particular capital requirements of such Company's business and
the projected capital requirements and capital availability thereof.
(c) The Companies do not have debts beyond their ability to pay such debts
as they mature, taking into account the timing and amounts of cash reasonably
anticipated to be received by each Company and the amounts of cash reasonably
anticipated to be payable on or in respect of each Company's obligations.
(d) The Borrower believes that no reasonably anticipated final judgment in
a pending action or, to its knowledge, any threatened actions for money damages
will be rendered at a time when, or in an amount such that, any Company will be
unable to satisfy such judgment promptly
24
in accordance with its terms (taking into account the maximum reasonable amount
thereof and the earliest reasonable time at which such judgment might be
rendered). The cash available to each Company, after taking into account all
other anticipated uses of cash (including the payment of all such Company's
indebtedness) is anticipated to be sufficient to pay any such judgment promptly
in accordance with their terms.
(e) No Company is contemplating either the filing of a petition by it under
any state or federal bankruptcy or insolvency laws or the liquidating of all or
a substantial portion of its property, and the Borrower has no knowledge of any
Person contemplating the filing of any such petition against any Company.
SECTION 4.11. FULL DISCLOSURE. No statement of fact made by or on behalf
of any of the Companies in this Agreement, the Security Documents or in any
certificate or schedule furnished to the Lenders pursuant hereto or thereto
contains any untrue statement of a material fact or omits to state any fact
necessary to make statements contained in any such writing not misleading. There
is no fact presently known to the Borrower that has not been disclosed to the
Lenders in writing that has had, or could reasonably be expected to have, a
Material Adverse Effect.
SECTION 4.12. MARGIN STOCK. The Companies do not own or have any present
intention of acquiring any "margin stock" within the meaning of Regulation U (12
CFR Part 221), of the Board of Governors of the Federal Reserve System (herein
called "Margin Stock").
SECTION 4.13. TAX RETURNS. Each of the Companies has filed when due all
federal, state and local tax and information returns required to be filed, and
has paid or made adequate provision for the payment of all material federal,
state and local taxes, franchise fees, charges and assessments shown thereon.
SECTION 4.14. PENSION PLANS, ETC.
(a) Except as described in SCHEDULE 4.14, neither the Borrower nor any
member of the Controlled Group has any pension, profit sharing or other similar
plan providing for a program of deferred compensation to any employee.
(b) Neither the Borrower nor any member of the Controlled Group has any
material liability (i) under Section 412 of the Code for failure to satisfy the
minimum funding requirements for pension plans, (ii) as the result of the
termination of a defined benefit plan under Title IV of ERISA, (iii) under
Section 4201 of ERISA for withdrawal or partial withdrawal from a multi-employer
plan, or (iv) for participation in a prohibited transaction with an employee
benefit plan as described in Section 406 of ERISA and Section 4975 of the Code.
SECTION 4.15. PROJECTIONS. Attached as SCHEDULE 4.15 are annual
projections as of the date hereof of the operation of the Companies' businesses
through December 31, 2004 (the "Projections"). Such Projections represent the
Borrower's reasonable estimate of future performance, but should not be
construed as a guarantee of future results.
25
SECTION 4.16. BROKERS, ETC. None of the Companies is under any obligation
to pay any broker's fee, finder's fee or commission in connection with the Loans
contemplated by this Agreement.
SECTION 4.17. CAPITALIZATION. Attached as SCHEDULE 4.17 is a description
of the equity capital structure of the Companies showing, for each Company,
accurate ownership percentages of the equityholders of record and accompanied by
a statement of authorized and issued Equity Securities for each Company as of
the date hereof. Such SCHEDULE 4.17 also includes as of the date hereof a
narrative indicating (a) which securities, if any, carry preemptive rights; (b)
whether there are any outstanding subscriptions, warrants or options to purchase
any securities; (c) whether any Company is obligated to redeem or repurchase any
of its securities, and the details of any such committed redemption or
repurchase; and (d) any other agreement, arrangement or plan to which any
Company is a party or of which the Borrower has knowledge that could directly or
indirectly affect the capital structure of the Companies. All such Equity
Securities (i) are validly issued and fully paid and non-assessable and (ii) are
owned of record and beneficially (except that the Borrower makes no
representation or warranty as to the beneficial ownership of the issued and
outstanding Equity Securities of the Parent) as set forth on SCHEDULE 4.17, free
of any assignment, pledge, lien, security interest, charge, option or other
encumbrance, except for liens and security interests granted to the Agent or the
Lenders or permitted under SECTION 7.02.
SECTION 4.18. ENVIRONMENTAL COMPLIANCE.
(a) All real property leased by the Companies (the "Properties") and their
existing and, to the Borrower's knowledge, prior uses and activities thereon,
including, but not limited to, the use, maintenance and operation of each of the
Properties and all activities of the Borrower in conduct of business related
thereto comply and have at all times complied with all Environmental Laws the
violation of which could reasonably be expected to have a Material Adverse
Effect.
(b) None of the Companies, and to the Borrower's knowledge, no previous
owner, tenant, occupant or user of any of the Properties or any other Person,
has engaged in or permitted any operations or activities upon any of the
Properties for the purpose of or in any way involving the handling, manufacture,
treatment, storage, use, generation, release, discharge, refining, dumping or
disposal of a material amount of any Hazardous Materials in violation of any
Environmental Law that could reasonably be expected to have a Material Adverse
Effect.
(c) To the Borrower's knowledge, no Hazardous Material has been or is
currently located in, on, under or about any of the Properties in a manner which
violates any Environmental Law or which requires cleanup or corrective action of
any kind under any Environmental Law that in either case could reasonably be
expected to have a Material Adverse Effect.
(d) No notice of violation, lien, complaint, suit, order or other notice or
communication concerning any alleged violation of any Environmental Law in, on,
under or about any of the
26
Properties has been received by any Company or, to the Borrower's knowledge, any
prior owner or occupant of any of the Properties that could reasonably be
expected to have a Material Adverse Effect.
(e) The Companies have all material permits and licenses required under any
Environmental Law to be issued to them by any Governmental Authority for
activities on any of the Properties, except to the extent that the absence of
any such permit or license could not reasonably be expected to have a Material
Adverse Effect, and are in material compliance with the terms and conditions of
such permits and licenses except to the extent failure to comply therewith could
not reasonably be expected to have a Material Adverse Effect. To the Borrower's
knowledge, such permits or licenses are in full force and effect.
(f) To the Borrower's knowledge, no portion of any of the Properties has
been listed, designated or identified in the National Priorities List (NPL) or
the CERCLA information system (CERCLIS), both as published by the United States
Environmental Protection Agency, or any similar list of sites published by any
Federal, state or local authority proposed for or requiring cleanup, or remedial
or corrective action under any Environmental Law.
SECTION 4.19. INVESTMENT COMPANY ACT. None of the Companies is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
SECTION 4.20. LABOR MATTERS. No Company is experiencing any strike, labor
dispute, slow down or work stoppage due to labor disagreements; to the knowledge
of the Companies, there is no such strike, dispute, slow down or work stoppage
threatened against any Company and none of the Companies is subject to any
collective bargaining or similar arrangements, which, in any case, could
reasonably be expected to have a Material Adverse Effect.
SECTION 4.21. YEAR 2000..
The Borrower's billing system is Year 2000 Compliant. In addition, each of the
Companies has reviewed the Year 2000 Risk and acknowledges the actions necessary
to ensure that the Year 2000 Risk will not have a Material Adverse Effect.
V. FINANCIAL COVENANTS. The Borrower covenants and agrees that, so long
as any Lender has any obligation to extend credit to the Borrower hereunder, and
for so long thereafter as there remains outstanding any portion of the principal
of, or interest on, any Note or any other Obligations, whether now existing or
arising hereafter, the Companies will (on a consolidated basis, as applicable):
SECTION 5.01. LEVERAGE. Maintain a ratio of (a) Total Funded Debt as of
each Quarterly Date during each period indicated below to (b) Annualized
Operating Cash Flow for the fiscal quarter then ended not exceeding the
following:
27
MAXIMUM RATIO OF
TOTAL FUNDED DEBT TO
PERIOD ANNUALIZED OPERATING CASH FLOW
------ ------------------------------
Date through December 31, 1998 6.00:1.00
January 1, 1999 through March 31, 1999 5.50:1.00
April 1, 1999 through June 30, 1999 5.00:1.00
July 1, 1999 through December 31, 1999 4.75:1.00
January 1, 2000 through June 30, 2000 4.00:1.00
July 1, 2000 and thereafter 3.50:1.00
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SECTION 5.02. FIXED CHARGES. For each period of four (4) consecutive
fiscal quarters ending on or after June 30, 1999, maintain a ratio of (a)
Operating Cash Flow for such period minus Capital Expenditures made during such
period to (b) Fixed Charges for such period of at least 1.10:1.00.
SECTION 5.03. TOTAL INTEREST COVERAGE. For each fiscal quarter ending on
the Quarterly Dates indicated below, maintain a ratio of Pro Forma Operating
Cash Flow for such period to Total Interest Expense for such period (the "Total
Interest Coverage Ratio") not less than the following:
FISCAL QUARTER ENDING MINIMUM TOTAL INTEREST COVERAGE
--------------------- -------------------------------
September 30, 1998 through June 30, 1999 1.75:1.00
July 1, 1999 through December 31, 2000 2.25:1.00
January 1, 2001 and thereafter 2.50:1.00
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VI. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees to
and with each of the Lenders that, so long as any Lender has any obligation to
extend credit to the Borrower hereunder, and for so long thereafter as there
remains outstanding any portion of any Obligation, whether now existing or
hereafter arising, each of the Companies shall:
SECTION 6.01. PRESERVATION OF ASSETS; COMPLIANCE WITH LAWS; THIRD PARTY
CONSENTS, ETC.
(a) Do or cause to be done all things necessary to preserve, renew and keep
in full force and effect its existence as a corporation, a limited partnership
or limited liability company, as the case may be, all material contract and
other rights, licenses, permits and franchises and comply in every material
respect with all laws and regulations applicable to it and all material
agreements
28
to which it is a party, including, without limitation, management agreements,
co-location agreements, line access agreements, and all agreements with its
equityholders, the violation of which could reasonably be expected to have a
Material Adverse Effect;
(b) at all times maintain, preserve and protect all material trade names
and other proprietary rights; and
(c) use its best efforts to obtain all requisite third party consents to
the collateral assignment to the Lenders as contemplated by SECTION 2.01 of all
management agreements, co-location agreements and line access agreements to
which the Borrower is a party (or that have been assigned to the Borrower) as of
the Closing Date on or before the 60th day following the Closing Date; and
thereafter assure that all new management agreements, co-location agreements and
line access agreements (including, without limitation, renewals of existing
agreements) may be collaterally assigned to the Lenders as contemplated by
SECTION 2.01.
(d) preserve all the remainder of its material property used or useful in
the conduct of its business and keep the same in good repair, working order and
condition (reasonable wear and tear and damage by fire or other casualty
excepted), and from time to time, make or cause to be made all needful and
proper repairs, renewals, replacements, betterments and improvements thereto, so
that the business carried on in connection therewith may be conducted at all
times in the ordinary course in a manner substantially consistent with past
practices.
SECTION 6.02. INSURANCE.
(a) Keep all of its insurable properties now or hereafter owned adequately
insured at all times against loss or damage by fire or other casualty to the
extent customary with respect to like properties of companies conducting similar
businesses; maintain public liability, business interruption, liability and
workers' compensation insurance and insurance against claims of libel and
defamation and copyright and other proprietary right infringement, maintain
insurance with respect to its printing and other production facilities and
related equipment in an amount equal to the full replacement cost thereof, in
each case insuring such Company to the extent customary (and as permitted under
applicable law) with respect to companies conducting similar businesses, all by
financially sound and reputable insurers and furnish to the Agent satisfactory
evidence of the same (including certification by an Authorized Officer of timely
renewal of, and timely payment of all insurance premiums payable under, all such
policies, which certification shall be included in the next succeeding
Compliance Report delivered pursuant to SECTION 6.05); notify the Agent of any
material change in the insurance maintained on its properties after the date
hereof and furnish each of the Lenders satisfactory evidence of any such change;
provide that each insurance policy pertaining to any of its insurable properties
shall: (i) name the Agent, on behalf of the Lenders, as loss payee pursuant to a
so-called "standard mortgagee clause" or "Lender's loss payable endorsement", or
as additional insured (as appropriate), (ii) provide that no action of any
Company shall void such policy as to the Agent or the Lenders, and (iii) provide
that the insurer(s) shall notify the Agent of any proposed cancellation of such
policy at least thirty (30) days in advance thereof (unless such proposed
cancellation arises by reason of non-payment of insurance premiums in which case
such notice shall be given at least ten (10) days in
29
advance thereof) and that the Agent or the Lenders will have the opportunity to
correct any deficiencies justifying such proposed cancellation.
(b) Promptly following the occurrence of any Casualty Event affecting any
asset or property of any Company (whether or not such property constitutes
Collateral) (the "Damaged Property") resulting in Insurance Proceeds aggregating
$500,000 or more, give prompt notice thereof to the Agent and cause all of such
Insurance Proceeds to be paid to the Agent for deposit into the Collateral
Account, as additional collateral security for the payment of the Obligations,
pending disbursement thereof as hereinafter provided. If, on or before the last
day of the applicable Restoration Period, the Borrower or any Subsidiary shall
not have restored, repaired or replaced the Damaged Property (or, if earlier, on
the date following the deposit of such Insurance Proceeds such Company shall
have determined not to restore, repair or replace the Damaged Property) the
Insurance Proceeds so deposited in the Collateral Account shall be applied in
accordance with and to the extent required in SECTION 1.05(B).
(c) In the event of a Casualty Event affecting any Damaged Property,
whether or not subject to SECTION 6.02(B), and provided that no Event of Default
shall have occurred and be continuing, the Agent or the Lenders will deliver to
the Borrower (for the benefit of such Company) any Insurance Proceeds therefrom,
if the Borrower so elects following notice thereof provided by the Agent,
provided that (i) such Company shall use such proceeds for the repair
restoration or replacement of the Damaged Property within the applicable
Restoration Period, (ii) the Borrower shall have demonstrated to the reasonable
satisfaction of the Lenders that the Damaged Property will be repaired or
restored to substantially its previous condition or will be replaced by
substantially identical property or assets and (iii) if the Agent, on behalf of
the Lenders, had a security interest in and lien upon the Damaged Property, the
Lenders shall have received, at their request, a favorable opinion from the
Borrower's counsel, in form and substance reasonably satisfactory to the Agent,
as to the perfection of the Agent's security interest in and lien upon such
restored or replaced property or asset and such evidence satisfactory to the
Agent as to the priority of such security interest and liens. If the Borrower
fails to elect the disbursement of such Insurance Proceeds as provided in the
foregoing sentence within thirty (30) days following receipt of the Agent's
notice, the Borrower shall be deemed to have elected that such Insurance
Proceeds be applied to the prepayment of the Loans and, if the related Casualty
Event was subject to SECTION 6.02(B), the permanent reduction of the Commitments
provided in SECTION 1.05.
(d) If the Borrower receives any disbursements of Insurance Proceeds as
contemplated by SECTION 6.02(C), but fails to repair, restore or replace the
Damaged Property within the applicable Restoration Period, as required under
SECTION 6.02(C), then the Borrower shall return all such disbursements to the
Agent for application, together with the balance of any related Insurance
Proceeds not so disbursed, to the prepayment of the Loans and, if the related
Casualty Event was subject to SECTION 6.02(B), the permanent reduction of the
Commitments provided in SECTION 1.06.
(e) The Agent may, if directed by the Required Lenders upon the occurrence
and during the existence of any Default, elect to apply any Insurance Proceeds
paid into the Collateral
30
Account or otherwise received by the Agent pursuant to this SECTION 6.02 to the
replacement, restoration and/or repair of the Damaged Property, in lieu of
effecting the prepayment of the Loans required under SECTION 1.05(B) or 6.02(A)
through (D).
(f) If the Borrower or the Agent elects to replace, restore and/or repair
the Damaged Property as provided in SECTION 6.02(C) OR (E), the related
Insurance Proceeds (and any earnings thereon) held in the Collateral Account
shall be applied to the replacement, restoration and repair of the Damaged
Property and advanced by the Agent in periodic installments upon compliance by
the Borrower with such reasonable conditions to disbursement as may be imposed
by the Agent, including, but not limited to, reasonable retention amounts and
receipt of lien releases and, if a Casualty Event results in the Agent's receipt
of Insurance Proceeds aggregating $100,000 or more, disbursement of such
Insurance Proceeds to the Borrower.
(g) Following the occurrence and the continuance of any Default, the Agent
shall have no obligation to release any proceeds from the Collateral Account to
the Borrower as provided above and all such proceeds shall be subject to the
provisions of the Security Agreements. All Insurance Proceeds remaining in the
Collateral Account after application to the repair, replacement and/or
restoration of Damaged Property pursuant to this Section may, at the option of
the Agent, be applied to the prepayment of the Loans or (if consented to by the
Required Lenders) released to the Borrower.
(h) With respect to any Casualty Event resulting in Insurance Proceeds
aggregating $500,000 or more, the Agent shall be entitled at its option to
participate in any compromise, adjustment or settlement in connection with any
claims for damage or destruction under any policy or policies of insurance, and
the Borrower shall, within five (5) Business Days after request therefor,
reimburse the Agent for all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and disbursements) incurred by the Agent in
connection with such participation. None of the Companies shall make any
compromise, adjustment or settlement in connection with any such claim resulting
in Insurance Proceeds aggregating $500,000 or more without the approval of the
Agent.
(i) To the extent, if any, that any improved real property (whether owned
or leased) of the Companies that is mortgaged as required under SECTION 2.01(A)
is situated in a flood zone designated as type "A", "B" or "V" by the U.S.
Department of Housing and Urban Development, obtain and maintain flood insurance
in coverage and amount satisfactory to the Agent.
SECTION 6.03. TAXES, ETC. Pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or levies imposed
upon it or upon its income and profits or upon any of its property, real,
personal or mixed, or upon any part thereof, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, would become a lien or charge upon such properties
or any part thereof; provided that no Company shall be required to pay and
discharge or cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as the validity thereof shall be contested in good faith
by appropriate proceedings and it shall have set aside on its books adequate
reserves with respect to any such tax, assessment, charge, levy or claim, so
contested;
31
and provided, further that, in any event, payment of any such tax, assessment,
charge, levy or claim shall be made before any of its property shall be seized
or sold in satisfaction thereof.
SECTION 6.04. NOTICE OF PROCEEDINGS, DEFAULTS, ADVERSE CHANGE, ETC.
Promptly (and in any event within five (5) days after the discovery by the
Borrower thereof) give written notice to each of the Lenders of (a) any
proceedings instituted or threatened in writing against it by or in any federal,
state or local court or before any commission or other regulatory body, whether
federal, state or local which could reasonably be expected to have a Material
Adverse Effect; (b) any notices of default received by any Company (together
with copies thereof, if requested by any Lender) with respect to (i) any alleged
default under or violation of any of its material licenses, permits or
franchises (including any material agreement to which it is a party, or (ii) any
alleged default with respect to, or acceleration or other action under any
evidence of material Indebtedness of any Company or any mortgage, indenture or
other agreement relating thereto; (c) (i) any notice of any violation or
administrative or judicial complaint or order filed or to be filed against any
Company and/or any real property owned or leased by it alleging any material
violations of any law, ordinance and/or regulation or requiring it to take any
action in connection with the release and/or clean-up of any Hazardous
Materials, or (ii) any notice from any governmental body or other Person
alleging that any Company is or may be liable for costs associated with a
release or clean-up of any Hazardous Materials or any damages resulting from
such release; (d) any event of dissolution; (e) any change in the condition,
financial or otherwise, of any Company which is reasonably likely to have a
Material Adverse Effect; or (f) the occurrence of any Default or the occurrence
of any event which, upon notice or lapse of time or both, would constitute such
a Default.
SECTION 6.05. FINANCIAL STATEMENTS AND REPORTS. Furnish to the Agent
(with multiple copies for each of the Lenders):
(a) Within ninety (90) days after the end of each fiscal year, the
consolidated and consolidating (or, if applicable, combined and combining)
balance sheets and statements of income, stockholders', partners' or members'
equity (as applicable) and cash flows of the Companies, together with supporting
schedules in form and substance reasonably satisfactory to the Lenders, audited
by an independent certified public accountants of national reputation selected
by the Borrower and reasonably satisfactory to the Lenders (the "Accountants"),
the opinion to be unqualified, (i) showing the financial condition of the
Borrower and all of its Subsidiaries at the close of such fiscal year and the
results of operations during such year, (ii) containing a statement to the
effect that the Accountants have examined the provisions of this Agreement and
that in the course of their examination they did not become aware of any Event
of Default, or any event which upon notice or lapse of time or both would
constitute an Event of Default, under ARTICLE V or otherwise (or, if such an
event has occurred, a statement explaining its nature and extent) and (iii)
without disclaiming the Accountants' obligation to address the Year 2000 Risk as
it relates to liabilities or contingent liabilities of the Borrower or any of
its Subsidiaries or the failure of any Borrower or any of its Subsidiaries to
take all necessary and appropriate steps to address the Year 2000 Risk;
provided, however, that in issuing such statement, the Accountants shall not be
required to exceed the scope of normal auditing procedures conducted in
connection with their opinion referred to above;
32
(b) Within forty-five (45) days after the end of each quarter in each
fiscal year, commencing with the fiscal quarter ending June 30, 1998, the
consolidated (or, if applicable, combined) balance sheets and statements of
income, stockholders', partners' or members' equity (as applicable) and cash
flows of the Companies, together with supporting schedules, setting forth in
each case in comparative form the corresponding figures from the preceding
fiscal period of the same duration, prepared by the Borrower in accordance with
GAAP (except for the absence of notes) and certified by an Authorized Officer,
such balance sheets to be as of the close of such quarter, and such statements
of income, stockholders', equity and cash flow to be for the quarter then ended
and the period from the beginning of the then current fiscal year to the end of
such quarter (in each case subject to normal audit and year-end adjustments) and
to include (i) a comparison of actual results to results for the comparable
period of the preceding fiscal year and projected results set forth in the
Budget for such period and (ii) a profit and loss statement for each product
line and business unit for the quarter then ended and the period from the
beginning of the then current fiscal year to the end of such quarter;
(c) Within thirty (30) days after the end of each month, the consolidated
(or, if applicable, combined) balance sheet and statements of income,
stockholders' equity and cash flow of the Companies, together with supporting
schedules, prepared by the Borrower in accordance with GAAP (except for the
absence of notes) and certified by an Authorized Officer, such balance sheets to
be as of the end of such month and income statements to be for the period from
the beginning of the then current fiscal year to the end of such month (subject
to normal audit and year-end adjustments);
(d) Concurrently with the delivery of any annual financial statements
required by SECTION 6.05(A) and any quarterly financial statements required by
SECTION 6.05(B), a report in the form of SCHEDULE 6.05 attached hereto (or
otherwise in a form satisfactory to the Agent) signed on behalf of the Borrower
by an Authorized Officer (each a "Compliance Report"), setting forth the
calculations contemplated in ARTICLE V of this Agreement and certifying as to
the fact that such Person has examined the provisions of this Agreement and that
no Event of Default nor any event which upon notice or lapse of time, or both,
would constitute such an Event of Default has occurred and is continuing;
(e) (i) On or before January 31 of each fiscal year, commencing January 31,
1999, an updated monthly cost budget of the Borrower, including planned Capital
Expenditures and projected borrowings for such fiscal year, with updated
Projections showing financial covenant compliance (collectively, the "Budget"),
for the operation of the Companies' businesses during such fiscal year, setting
forth in detail reasonably satisfactory to the Lenders the projected results of
operations of the Companies and stating underlying assumptions, and (ii) within
five (5) days after the effective date thereof, notice of any material changes
or modifications in the Budget (which shall not include changes resulting from
immaterial adjustments to the timing of any proposed borrowings);
(f) Promptly upon receipt or issuance thereof, and in any event within five
(5) Business Days after such receipt, copies of all audit reports submitted to
any Company by its accountants
33
in connection with each yearly, interim or special audit of the books of any
Company made by such accountants, including any material related correspondence
between such accountants and the Borrower's management; and
(g) As soon as reasonably possible after request therefor, such other
information regarding its operations, assets, business, affairs and financial
condition or regarding any of the Companies as the Agent may reasonably request,
including copies of any and all material agreements to which any Company is a
party from time to time.
SECTION 6.06. INSPECTION. Permit employees, agents and representatives of
the Lenders to inspect, during normal business hours, its premises, its books
and records (and to make abstracts or reproductions thereof) and such other
facilities and systems of the Borrower, as any Lender may wish to inspect in
connection with the Year 2000 Risk and the Company's efforts to become Year 2000
Compliant in accordance with SECTION 6.12. In connection with any such
inspections, the Lenders will use reasonable efforts to avoid an unreasonable
disruption of the Companies' businesses and will give reasonable advance notice
thereof (provided, however, that during the existence of a Default, such notice
will be provided only if circumstances reasonably warrant).
SECTION 6.07. ACCOUNTING SYSTEM. Prepare its financial statements in
accordance with generally accepted accounting principles and maintain a fiscal
year ending December 31 for each of the Companies.
SECTION 6.08. ADDITIONAL ASSURANCES. From time to time hereafter:
(a) execute and deliver or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Agent or the Lenders shall reasonably request for the purpose of
implementing or effectuating the provisions of this Agreement and the other Loan
Documents, including without limitation (i) the items set forth in SCHEDULE
2.01, if any, which require action after the date hereof, within the time
periods stated in such Schedule, and (ii) the execution and delivery to the
Agent of a mortgage or deed of trust or collateral assignment of lease or
leasehold mortgage in form and substance satisfactory to the Agent (in a
recordable form and in such number of copies as the Agent shall have requested)
covering any real property interests acquired (by ownership or lease) by any
Company, together with any necessary consents relating thereto; and
(b) upon the exercise by the Agent or the Lenders of any power, right,
privilege or remedy pursuant to this Agreement or any other Loan Document which
requires any consent, approval, registration, qualification or authorization of
any Governmental Authority, execute and deliver all applications,
certifications, instruments and other documents and papers that the Lenders may
be so required to obtain.
34
SECTION 6.09. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Comply in all material respects with all Environmental Laws and not
generate, store, handle, process, dispose of or otherwise use and not generate,
store, handle, process, dispose of or otherwise use Hazardous Materials in, on,
under or about the Property in a manner that could lead or result in imposition
on any Company or the Agent or any Lender or any of the Properties of any
material liability or lien of any nature whatsoever under any Environmental Law.
(b) Notify the Agent promptly in the event of any spill or other release of
any Hazardous Material in, on, under or about any of the Properties which is
required to be reported to a Governmental Authority under any Environmental Law,
promptly forward to the Agent copies of any notices received by any Company
relating to any alleged violation of any Environmental Law and pay when due any
fine or assessment against the Lenders, any Company or any of the Properties
relating to any Environmental Law, the Borrower or such other Company, unless
payment of the same is being contested in good faith by appropriate proceedings
and it shall have set aside on its books adequate reserves with respect thereto.
(c) If at any time it is determined that the operation or use of any of the
Properties violates any applicable Environmental Law or that there is any
Hazardous Material located in, on, under or about the Properties which under any
Environmental Law requires special handling in collection, treatment, storage or
disposal or any other form of cleanup or remedial or corrective action, and such
requirement has been violated then, within thirty (30) days after receipt of
written notice thereof from a Governmental Authority (or such other time period
as may be specified in the notice sent by such Governmental Authority) or from
the Lenders, take, at its sole cost and expense, such actions as may be
necessary to comply in all material respects with any applicable Environmental
Laws, provided, however, that if such compliance cannot reasonably be completed
within such thirty (30) day period, the Borrower shall commence such necessary
action within such thirty (30) day period and shall thereafter diligently and
expeditiously proceed to comply in all material respects with any and all
applicable Environmental Laws. Nothing herein shall prohibit the Borrower from
asserting any good faith defenses against the government in any governmental
demands.
(d) If a lien is filed against any of the Properties by any Governmental
Authority resulting from the need to expend or the actual expending of monies
arising from an action or omission, whether intentional or unintentional, of any
Company or for which any Company is responsible, resulting in the releasing,
spilling, leaking, leaching, pumping, emitting, pouring, emptying or dumping of
any Hazardous Material in violation of an Environmental Law, then, within thirty
(30) days from the date that such Company is first given written notice that
such lien has been placed against the Properties, either (i) pay the claim and
remove the lien or (ii) furnish a cash deposit, bond or such other security with
respect thereto as is reasonably satisfactory in all respects to the Lenders and
is sufficient to effect a complete discharge of such lien on the Properties.
SECTION 6.10. INTEREST RATE PROTECTION.
35
(a) Within ninety (90) days after the date of the first Loans, keep in
effect or enter into, and, thereafter, maintain in full force and effect, one or
more Rate Hedging Agreements containing terms and conditions reasonably
satisfactory to the Agent and generally prevailing at such time and sufficient
to ensure that at least fifty percent (50%) of the outstanding principal balance
of the Loans is protected at all times against increases in the all-in interest
rate thereon to a per annum rate in excess of ten percent (10%), in each case
for a term extending for at least twenty-four (24) months.
(b) Deliver to the Agent copies of each such Rate Hedging Agreement,
including any and all amendments thereto and substitutions thereof, and such
other documentation relating thereto as the Agent or the Lenders may from time
to time request.
SECTION 6.11. YEAR 2000 COMPLIANCE. Use its best efforts to ensure that
each Company is Year 2000 Compliant by June 30, 1999. At the request of the
Agent, Borrower will provide the Agent evidence reasonably acceptable to the
Agent that each Company has complied with its obligations under the preceding
sentence.
VII. NEGATIVE COVENANTS. The Borrower covenants and agrees that, so
long as any Lender has any obligation to extend credit to the Borrower
hereunder, and for so long thereafter as there remains outstanding any portion
of any Obligation, whether now existing or arising hereafter, unless the
Required Lenders shall otherwise consent in writing in accordance with the terms
of ARTICLE XII, none of the Companies will, directly or indirectly:
SECTION 7.01. INDEBTEDNESS. Incur, create, assume, become or be liable,
directly, indirectly or contingently, in any manner with respect to, or permit
to exist, any Indebtedness or liability, except:
(a) Indebtedness of the Borrower to the Lenders hereunder and under the
Notes;
(b) the guaranties of the Subsidiaries required under SECTION 2.01;
(c) any Rate Hedging Obligations incurred in accordance with SECTION 6.11;
(d) Indebtedness existing on the date hereof and described in SCHEDULE
7.01; provided however, that the terms of such indebtedness shall not be
modified or amended in any material respect, nor shall payment thereof be
extended, except as set forth on such SCHEDULE 7.01, without the prior written
consent of the Required Lenders;
(e) Indebtedness in respect of endorsements of negotiable instruments for
collection in the ordinary course of business;
(f) Indebtedness of the Companies under Capital Leases and purchase money
Indebtedness relating to the purchase price of real estate and equipment to be
used in the
36
Companies' businesses, in the aggregate principal amount (including any such
amounts set forth on SCHEDULE 7.01 attached hereto) of not more than $2,000,000
outstanding at any time; and
(g) loans between the Companies.
SECTION 7.02. LIENS. Create, incur, assume, suffer or permit to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or ownership interests, now or hereafter owned, other than the
following ("Permitted Liens"):
(a) liens securing the payment of taxes, either not yet due or the validity
of which is being contested in good faith by appropriate proceedings, and as to
which it shall have set aside on its books adequate reserves;
(b) deposits under workers' compensation, unemployment insurance and social
security laws, or to secure the performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or to secure statutory
obligations or surety or appeal bonds, or to secure indemnity, performance or
other similar bonds arising in the ordinary course of business;
(c) liens existing on the date hereof and described on SCHEDULE 7.02
attached hereto;
(d) liens against the Companies imposed by law, such as vendors',
carriers', lessors', warehouser's or mechanics' liens, incurred by it in good
faith in the ordinary course of business;
(e) liens arising out of a prejudgment attachment, a judgment or award
against it with respect to which it shall currently be prosecuting an appeal, a
stay of execution pending such appeal having been secured, except any such lien
arising in connection with a judgment, attachment or proceeding which gives rise
to an Event of Default under paragraph (i) or (j) of ARTICLE VIII;
(f) liens in favor of the Agent or the Lenders securing the Notes, any
intercompany notes assigned to the Agent and the Lenders as collateral therefor
and the other obligations of the Companies to the Lenders hereunder or under
Rate Hedging Obligations entered into with any Lender or any Lender's Affiliate;
(g) liens against the Companies arising under or securing Capital Leases
and liens or mortgages securing purchase money Indebtedness described in SECTION
7.01(F), provided that the obligation secured by any such lien shall not exceed
one hundred percent (100%) of the lesser of cost or fair market value as of the
time of the acquisition of the property covered thereby and that each such lien
or mortgage shall at all times be limited solely to the item or items of
property so acquired; and
(h) restrictions, easements and minor irregularities in title which do not
and will not interfere with the occupation, use and enjoyment by any Company of
such properties and assets in the normal course of its business as presently
conducted or materially impair the value of such properties and assets for the
purpose of such business.
37
SECTION 7.03. DISPOSITION OF ASSETS; ETC. Sell, lease, transfer or
otherwise dispose of its properties, assets, rights, licenses and franchises to
any Person (including without limitation dispositions in exchange for similar
assets and properties and commonly referred to as "asset swaps") (all of the
foregoing being referred to herein as a "Disposition"), and except for
Dispositions made in the ordinary course of business (including the Disposition,
without replacement, of equipment which is obsolete or no longer needed by the
Companies in the conduct of their businesses and the replacement of equipment
with other equipment of at least equal utility and value (provided that the
Agent's or the Lenders' lien upon such newly acquired equipment shall have the
same priority as the Agent's or the Lenders' lien upon the replaced equipment
subject to any prior liens permitted by SECTION 7.02(G)).
SECTION 7.04. FUNDAMENTAL CHANGES; ACQUISITIONS; RESTRICTED PAYMENTS.
(A) PROHIBITED CHANGES AND TRANSACTIONS.
(i) Form any Subsidiary or otherwise change the equity capital
structure or organization of the Companies from that set forth in
SCHEDULE 4.17;
(ii) Permit or suffer any amendment of its charter, by-laws or
other organizational documents that could have a Material Adverse
Effect (it being expressly agreed that the inclusion in any such
charter documents of any provision similar to those set forth in
Section 102(b)(2) of Title 8 of the Delaware Code is prohibited under
this Section);
(iii) Dissolve, liquidate, consolidate with or merge with any
other Person or otherwise effect any Change of Control;
(iv) Acquire any Person or all or any substantial portion of the
ownership interests or assets or properties of any corporation,
partnership, limited liability company or other entity or any other
material assets (in each case, an "Acquisition") other than Permitted
Acquisitions;
(v) Repurchase any shares of capital stock or partnership,
membership or other ownership interests, other than (A) the repurchase
of shares of an employee upon the termination of employment of such
employee in accordance with the Companies' applicable employee stock
plan(s) and (B) in the case of the Parent, for the repurchase of
shares of its capital stock not required to be pledged to the Lenders
in accordance with the Security Documents; or
(vi) Issue any additional Equity Securities, except for (i)
common stock of the Parent or options therefor issued in accordance
with the Plan that do not represent in the aggregate more than 6% of
the Parent's issued
38
and outstanding common stock, (ii) Equity Securities of the Parent
issued in accordance with the Equity Financing Documents that, upon
issuance, are pledged to the Agent as required hereunder and (iii)
Equity Securities of the Parent (including, without limitation, those
issued in exchange for the Subordinated Debt) (A) in respect of which
the Parent has no obligation to redeem or to pay cash distributions or
dividends, (B) the issuance of which does not result in an Event of
Default and (C) which shall have been collaterally assigned or pledged
to the Agent as required hereunder.
(B) RESTRICTED PAYMENTS. Directly or indirectly declare, order, pay or
make any Restricted Payment or set aside any sum or property therefor.
SECTION 7.05. MANAGEMENT. Turn over the day-to-day management of its
properties, assets, rights, licenses and franchises to any Person other than a
full-time employee of the Companies.
SECTION 7.06. SALE AND LEASEBACK. Enter into any arrangements, directly
or indirectly, with any Person whereby it shall sell or transfer any property,
real, personal or mixed, used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property.
SECTION 7.07. INVESTMENTS. Except for Permitted Investments, purchase,
invest in or otherwise acquire or hold securities, including, without
limitation, capital stock and evidences of indebtedness of, or make loans or
advances to, or enter into any arrangement for the purpose of providing funds or
credit to, any other Person.
SECTION 7.08. CHANGE IN BUSINESS. Engage, directly or indirectly, in any
business other than businesses reasonably related to the businesses in which it
is currently engaged.
SECTION 7.09. ACCOUNTS RECEIVABLE. Sell, assign, discount or dispose in
any way of any accounts receivable, promissory notes or trade acceptances held
by any Company, with or without recourse, except for collection (including
endorsements) in the ordinary course of business.
SECTION 7.10. TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
assets or the rendering or accepting of any service with or to any Affiliate of
any Company, except in the ordinary course of business and pursuant to the
reasonable requirements of its business and upon terms not less favorable to
such Company than it could obtain in a comparable arm's-length transaction with
a third party other than such Affiliate.
SECTION 7.11. AMENDMENT OF CERTAIN AGREEMENTS, ETC. Amend, modify or
terminate any material agreement to which any Company is a party, or enter into
any material agreement, in each case, outside of the ordinary course of business
and if the effect thereof would be to
39
increase materially the obligations of any Company thereunder or to confer
additional rights upon the other parties thereto that could have a Material
Adverse Effect. Notwithstanding the foregoing, none of the Companies shall renew
or enter into any co-location agreement, line access agreement or other material
agreements specified by the Agent without obtaining the written consents of such
third parties necessary to effect the collateral assignment thereof in
accordance with SECTION 2.01.
SECTION 7.12. ERISA. (a) Fail to make contributions to pension plans
required by Section 412 of the Code, (b) fail to make payments required by Title
IV of ERISA as the result of the termination of a single employer pension plan
or withdrawal or partial withdrawal from a multiemployer pension plan, or (c)
fail to correct a prohibited transaction with an employee benefit plan with
respect to which it is liable for the tax imposed by Section 4975 of the Code.
SECTION 7.13. MARGIN STOCK. Use or permit the use of any of the proceeds
of the Loans, directly or indirectly, for the purpose of purchasing or carrying,
or for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry, any Margin Stock or for any other purpose which
might constitute the transactions contemplated hereby a "purpose credit" within
the meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the
Federal Reserve System, or cause any Loan, the application of proceeds thereof
or this Agreement to violate Regulation G, Regulation U, Regulation T or
Regulation X of the Board of Governors of the Federal Reserve System or any
other regulation of such Board or the Securities Exchange Act of 1934, as
amended, or any rules or regulations promulgated under such statutes.
SECTION 7.14. NEGATIVE PLEDGES, ETC. Enter into any agreement (excluding
this Agreement or any other Transaction Document) prohibiting (a) any Company
from amending or otherwise modifying this Agreement or any other Transaction
Document, or (b) the creation or assumption of any lien upon the properties,
revenues or assets of any Company, whether now owned or hereafter acquired.
VIII. DEFAULTS. In each case of happening of any of the following events
(each of which is herein sometimes called an "Event of Default"):
(a) any representation or warranty made by or on behalf of any Company or
any of its Affiliates in this Agreement or the Security Documents, or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder, shall prove to be
false or misleading in any material respect when made or, except for those
representations and warranties that are by their terms limited to a specific
time, reconfirmed;
(b) default in the payment or mandatory prepayment of any installment of
the principal of any Note or any payment of any installment of the principal of
any other indebtedness of the Borrower to the Agent, any Lender or any Hedging
Lender, or any payment in respect of any Rate Hedging Obligations entered into
with the Agent or any Hedging Lender, when the same shall become due and
payable, whether at the due date thereof or at a date fixed for prepayment or by
acceleration or otherwise;
40
(c) default in the payment of any installment of any interest on any Note,
or any premium or fee or any other indebtedness of any Company to the Agent or
any Lender for more than five (5) Business Days after the date when the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment or by acceleration or otherwise;
(d) default in the due observance or performance by, or compliance with,
any Person other than the Agent or any Lender of any covenant or agreement
contained in ARTICLE V, SECTION 6.02, 6.04, 6.06, 6.07, 6.08, 6.09 or 6.11 or
ARTICLE VII (except SECTION 7.10) of this Agreement;
(e) default in the due observance or performance of, or compliance with,
any other covenant, condition or agreement, on the part of any Person other than
the Agent or any Lender to be observed or performed pursuant to the terms of
this Agreement or pursuant to the terms of any Security Document or any Rate
Hedging Obligation entered into with the Agent, any Lender or any Hedging
Lender, which default is not referred to in paragraphs (a) through (d),
inclusive, of this ARTICLE VIII and which default shall continue unremedied for
ten (10) calendar days after the earlier to occur of (i) the Borrower's actual
discovery of such default, or (ii) written notice thereof from the Agent or any
Lender to the Borrower; provided, however, that if any such default cannot be
remedied, then such default shall be deemed to be an Event of Default as of the
date of the occurrence thereof;
(f) any default with respect to any evidence of Indebtedness of any Company
(other than to the Lenders hereunder) for borrowed money, or default under any
agreement giving rise to monetary remedies, in each case which, when aggregated
with all other such defaults of the Companies, exceeds $500,000, if the effect
of such default is to permit the holder of such Indebtedness to accelerate the
maturity of such Indebtedness;
(g) any Company shall (i) discontinue its business, (ii) permit an event of
dissolution to occur, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian or liquidator of it or any of its property, (iv)
admit in writing its inability to pay its debts as they mature, (v) make a
general assignment for the benefit of creditors, (vi) be adjudicated a bankrupt
or insolvent or be the subject of an order for relief under Title 11 of the
United States Code or (vii) file a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization or an arrangement with creditors or
to take advantage of any bankruptcy, reorganization, insolvency, readjustment of
debt, dissolution or liquidation law or statute, or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law or corporate action shall be taken for the purpose of effecting any of
the foregoing;
(h) there shall be filed against any Company an involuntary petition
seeking reorganization of such company or the appointment of a receiver,
trustee, custodian or liquidator of such company or a substantial part of its
assets, or an involuntary petition under any bankruptcy, reorganization or
insolvency law of any jurisdiction, whether now or hereafter in effect and such
involuntary petition shall not have been dismissed within sixty (60) days
thereof;
41
(i) final judgment for the payment of money which, when aggregated with all
other outstanding judgments against the Companies, exceeds $250,000 (exclusive
of amounts covered by insurance or actually contributed in cash by third party
obligors with respect to such judgments) shall be rendered against any Company,
and the same shall remain undischarged (unless fully bonded upon terms
satisfactory to the Required Lenders) for a period of thirty (30) consecutive
days, during which execution shall not be effectively stayed;
(j) the occurrence of any attachment of any deposits or other property of
any Company in the hands or possession of the Agent or any of the Lenders, or
the occurrence of any attachment of any other property of any Company in an
amount which, when aggregated with all other attachments against the Companies,
exceeds $250,000 and which shall not be discharged within thirty (30) days of
the date of such attachment;
(k) there shall occur for any reason a Change of Control;
(l) for any reason, the transaction contemplated by Section 1.4 of the
Stock Purchase Agreement shall not be consummated on or prior to March 31, 1999;
or
(m) for any reason (other than the gross negligence of the Agent or the
Lenders, it being nonetheless understood and agreed that the Borrower shall have
the primary responsibility for filing continuation statements under the Uniform
Commercial Code and making other conforming amendments to the Security Documents
to reflect changed circumstances and assure continued compliance therewith and
with SECTION 2.01), any material Security Document shall not be in full force
and effect in all material respects or shall not be enforceable in all material
respects in accordance with its terms, or any security interest(s) or lien(s)
granted pursuant thereto which is, or are in the aggregate, material shall fail
to be perfected, or any party thereto other than the Agent or the Lenders shall
contest the validity of any material lien(s) granted under, or shall disaffirm
its obligations under, any material Security Document;
then and upon every such Event of Default and at any time thereafter during the
continuance of such Event of Default, at the election of the Required Lenders as
provided in ARTICLE XII, the Commitments shall terminate and the Notes and any
and all other Indebtedness of the Borrower to the Lenders shall immediately
become due and payable, both as to principal and interest, without presentment,
demand, prior notice, or protest, all of which are hereby expressly waived,
anything contained herein or in the Notes or other evidence of such indebtedness
to the contrary notwithstanding (except in the case of an Event of Default under
paragraph (g) or (h) of this ARTICLE VIII which, under applicable law, would
result in the automatic acceleration of the Borrower's Indebtedness, in which
event the Commitments shall automatically terminate and such Indebtedness shall
automatically become due and payable).
IX. REMEDIES ON DEFAULT, ETC.
(a) GENERAL REMEDIES. In case any one or more Events of Default shall
occur and be continuing, the Agent and the Lenders may proceed to protect and
enforce their rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance
42
of any agreement contained in this Agreement, any Security Document, any other
Loan Document or the Notes, or for an injunction against a violation of any of
the terms hereof or thereof or in and of the exercise of any power granted
hereby or thereby or by law, all subject to the provisions of ARTICLE XII. No
right conferred upon the Agent or the Lenders hereby or by any Security
Document, other Loan Document or the Notes shall be exclusive of any other right
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise.
(b) CONSENT TO RECEIVER. Without limiting the generality of the
foregoing or limiting in any way the rights of the Lenders under the Security
Documents or otherwise under applicable law, at any time after the occurrence,
and during the continuance, of an Event of Default arising under paragraph (b)
or (c) of ARTICLE VIII, or anytime after the acceleration of the Loans, the
Agent, at the direction of the Required Lenders, shall be entitled to apply for
and have a receiver or receiver and manager appointed under state or Federal law
of the United States by a court of competent jurisdiction in any action taken by
the Agent or the Lenders to enforce their rights and remedies hereunder and
under the Security Documents in order to manage, protect, preserve, sell and
otherwise dispose of all or any portion of the Collateral and continue the
operation of the businesses of the Companies, and to collect all revenues and
profits thereof and apply the same to the payment of all expenses and other
charges of such receivership, including the compensation of the receiver, and to
the payment of the Obligations as aforesaid until a sale or other disposition of
such Collateral shall be finally made and consummated. The Borrower (for itself
and, with all due authority, each Subsidiary) hereby irrevocably consents to and
waives any right to object to or otherwise contest the appointment of a receiver
as provided above. The Borrower (for itself and with all due authority, each
Subsidiary) grants such waiver and consent knowingly after having discussed the
implications thereof with counsel, acknowledges that the uncontested right to
have a receiver appointed for the foregoing purposes is considered essential by
the Lenders in connection with the enforcement of their rights and remedies
hereunder and under the Security Documents, and the availability of such
appointment as a remedy under the foregoing circumstances was a material factor
in inducing the Lenders to make (and commit to make) the Loans to the Borrower;
and agrees to enter into any and all stipulations in any legal actions, or
agreements or other instruments in connection with the foregoing and to
cooperate fully with the Agent and the Lenders in connection with the assumption
and exercise of control by the receiver over all or any portion of the
Collateral.
X. THE AGENT.
SECTION 10.01. APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably (subject to SECTION 10.08) designates and appoints Fleet National
Bank, which designation and appointment is coupled with an interest, as the
Agent of such Lender under this Agreement and the other Loan Documents, and each
such Lender irrevocably authorizes Fleet National Bank, as the Agent of such
Lender, to take such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and perform such duties
as are expressly delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. The Agent (which term as used in this sentence and in
SECTION 10.05 and such first sentence of
43
SECTION 10.06 hereof shall include reference to its affiliates and its own and
such affiliates' officers, directors, employees and agents) shall not: (a) have
any duties or responsibilities to be a trustee or other fiduciary for any
Lender; (b) be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement, or in any certificate
or other document referred to or provided for in, or received by either of them
under, this Agreement, or for the value, validity, effectiveness, genuineness,
enforceability, perfection or sufficiency of this Agreement, any Note, any
Security Document or any other document referred to or provided for herein or
for any failure by the Borrower or any other Person to perform any of its
obligations hereunder or thereunder; (c) be required to initiate or conduct any
litigation or collection proceedings hereunder, except to the extent requested
by the Required Lenders; and (d) be responsible for any action taken or omitted
to be taken by it hereunder or under any other document or instrument referred
to or provided for herein or in connection herewith, except for its own gross
negligence or willful misconduct. The Agent may employ agents and attorneys-in-
fact and shall not be responsible for the negligence or misconduct of any such
agents or attorneys-in-fact it selects with reasonable care. Subject to the
foregoing, to ARTICLE XII and to the provisions of any intercreditor agreement
among the Lenders in effect from time to time, the Agent shall, on behalf of the
Lenders, (a) hold and apply any and all Collateral, and the proceeds thereof, at
any time received by it, in accordance with the provisions of the Security
Documents and this Agreement; (b) exercise any and all rights, powers and
remedies of the Lenders under this Agreement or any of the Security Documents,
including, without limitation, the giving or withholding of any consent or
waiver or the entering into of any amendment; (c) execute, deliver and file UCC
Financing Statements, mortgages, deeds of trust, lease assignments and other
such agreements, and possess instruments on behalf of any or all of the Lenders;
and (d) in the event of acceleration of the Borrower's Indebtedness hereunder,
sell or otherwise liquidate or dispose of any portion of the Collateral held by
it and otherwise exercise the rights of the Lenders hereunder and under the
Security Documents.
SECTION 10.02. RELIANCE BY AGENT. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any
communication by telephone, telex, telegram or cable) believed by it to be
genuine and correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent. As to any
matters not expressly provided for by this Agreement, the Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Required Lenders or the Lenders, as
the case may be, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on the Lenders.
SECTION 10.03. EVENTS OF DEFAULT. The Agent shall not be deemed to have
knowledge of the occurrence of an Event of Default (other than the non-payment
of principal of or interest on the Notes) unless such Agent has received written
notice from any Lender or the Borrower specifying such Event of Default and
stating that such notice is a "Notice of Default". In the event that the Agent
receives such a notice of the occurrence of an Event of Default, the Agent shall
give prompt notice thereof to the Lenders (and shall give each Lender prompt
notice of each such non-payment). The Agent shall (subject to SECTION 10.07)
take such action with respect to such Event of Default as shall be directed by
the Required Lenders, as provided under
44
ARTICLE XII, provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action on
behalf of the Lenders, or refrain from taking such action, with respect to such
Event of Default as it shall deem advisable in the best interest of the Lenders.
SECTION 10.04. RIGHTS AS A LENDER. With respect to its Commitments and
the Loans made by the Agent hereunder, the Agent shall have the same rights and
powers hereunder as any other Lenders and may exercise the same as though its
Affiliates were not acting as the Agent. The Agent and its Affiliates may,
without having to account therefor to the Lenders and without giving rise to any
fiduciary or other similar duty to any Lender, accept deposits from, lend money
to and generally engage in any kind of banking, trust or other business with the
Borrower and any of its Affiliates as if it were not acting as an Agent and as
if Agent were not a Lender, and the Agent may accept fees and other
consideration from or on behalf any Company for services in connection with this
Agreement or otherwise without having to account for the same to the Lenders.
SECTION 10.05. INDEMNIFICATION. The Lenders agree to indemnify the Agent
(to the extent not reimbursed under SECTION L4.02, but without limiting the
obligations of the Borrower under such SECTION L4.02), ratably in accordance
with the aggregate principal amount of the Notes held by the Lenders (or, if no
such principal or interest is at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, action, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any Security Document or any other document contemplated by
or referred to herein or the transactions contemplated by or referred to herein
or therein (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under SECTION 14.02) or the enforcement of any of
the terms of this Agreement or of any Security Document or of any such other
documents, provided that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
SECTION 10.06. NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
agrees that it has, independently and without reliance on the Agent or any other
Lenders, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Companies and its own decision
to enter into this Agreement and that it will, independently and without
reliance upon the Agent or any other Lenders, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement. The
Agent shall not be required to keep itself informed as to the performance or
observance by the Companies of this Agreement or any other document referred to
or provided for herein or to inspect the properties or books of the Borrower.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Agent hereunder, the Agent shall
have no duty or responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or businesses of the
Companies, (or any other Affiliates) of the Borrower which may come into the
possession of the Agent or any of its Affiliates. Notwithstanding the
45
foregoing, the Agent will provide to the Lenders any and all information
reasonably requested by them and reasonably available to the Agent promptly upon
such request.
SECTION 10.07. FAILURE TO ACT. Except for action expressly required of
the Agent hereunder, the Agent shall in all cases be fully justified in failing
or refusing to act hereunder unless it shall be indemnified to its satisfaction
by the Lenders against any and all liability and expense which may be incurred
by it by reason of taking or continuing to take any such action.
SECTION 10.08. RESIGNATION OF AGENT. Fleet National Bank (or any other
Agent hereunder), may resign as the Agent at any time by giving fifteen (15)
days' prior written notice thereof to the Lenders and the Borrower. Any such
resignation shall take effect at the end of such fifteen (15) day period or upon
the earlier appointment of a successor Agent by the Required Lenders as provided
below. Upon any resignation of Fleet National Bank (or any other Agent
hereunder), the Required Lenders shall appoint a successor agent from among the
Lenders or, if such appointment is deemed inadvisable or impractical by the
Required Lenders, another financial institution with a combined capital and
surplus of at least $500,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent. After the effective date of the resignation of an Agent
hereunder, the retiring Agent shall be discharged from its duties and
obligations hereunder, provided that the provisions of this ARTICLE X shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Agent. In the event that there shall
not be a duly appointed and acting Agent, the Borrower agrees to make each
payment due to the Agent hereunder and under the Notes, if any, directly to each
Lender entitled thereto, pursuant to written instructions provided by the
retiring Agent, and to provide copies of each certificate or other document
required to be furnished to the Agent hereunder, if any, directly to each
Lender.
SECTION 10.09. COOPERATION OF LENDERS. Each Lender shall (a) promptly
notify the other Lenders and the Agent of any Event of Default known to such
Lender under this Agreement and not reasonably believed to have been previously
disclosed to the other Lenders; (b) provide the other Lenders and the Agent with
such information and documentation as such other Lenders or the Agent shall
reasonably request in the performance of their respective duties hereunder,
including, without limitation, all information relative to the outstanding
balance of principal, interest and other sums owed to such Lender by the
Borrower but excluding internally generated reports and analyses and other
customarily confidential materials; and (c) cooperate with the Agent with
respect to any and all collections and/or foreclosure procedures at any time
commenced against the Borrower or otherwise in respect of the Collateral by the
Agent in the name and on behalf of the Lenders.
XI. DEFINITIONS
As used herein the following terms have the following respective meanings:
ACCOUNTANTS. See SECTION 6.05.
46
ACQUISITION. See SECTION 7.04.
AFFILIATE(S). With respect to any Person, any other Person that would
be considered to be an affiliate of any Company under Rule 144(a) of the
Rules and Regulations of the Securities and Exchange Commission, as in
effect on the date hereof, if such Company were issuing securities.
AFFILIATE SUBORDINATION AGREEMENTS. See SECTION 2.01.
AGENT. See the PREAMBLE.
ANNUALIZED OPERATING CASH FLOW. For any three month period, Proforma
Operating Cash Flow for such period multiplied by four (4).
ASSIGNMENT AND ACCEPTANCE. See Article XIII.
AUDITED FINANCIAL STATEMENTS. See SECTION 1.02.
AUTHORIZED OFFICER. With respect to any certificate, agreement or other
document to be executed by or on behalf of any Company, the chairman,
president, chief executive officer, chief operating officer, chief
financial officer, vice president or treasurer of such Company, who shall,
in any event, be an officer duly authorized by all required action of such
Company to execute and deliver such document.
BASE RATE. As of any date, the fluctuating interest rate per annum equal
to the greater of (a) the rate established by Fleet National Bank from time
to time at its office in New York, New York as its "Base Rate" for
commercial loans in United States Dollars, and (b) the Federal Funds Rate
plus .50%; in each case, including any applicable adjustments for reserves
or Federal Deposit Insurance Corporation requirements. The Base Rate is not
necessarily intended to be the lowest rate of interest determined by Fleet
National Bank in connection with extensions of credit.
BASE RATE LOANS. Loans bearing interest at a rate determined on the basis
of the Base Rate.
BORROWER. See the PREAMBLE.
BORROWING DATE. With respect to any Loans requested hereunder, the date
such Loans are to be made.
BUDGET. See SECTION 6.05.
BUSINESS DAY. (a) For all purposes other than as provided in clause (b)
below, any day other than a Saturday, Sunday or legal holiday on which
banks in Boston, Massachusetts, and Chicago, Illinois, are open for the
transaction of a substantial part of their commercial
47
banking business; and (b) with respect to all notices and determinations in
connection with, and payments of principal and interest on, LIBOR Loans,
any day that is a Business Day described in clause (a) and that is also a
day for trading by and between banks in U.S. Dollar deposits in the London
interbank market.
CAPITAL EXPENDITURES. For any period, the aggregate amount of payments
made by the Companies during such period (including the aggregate amount of
Capital Lease Obligations incurred during such period) for the rental,
lease, purchase, construction or use of any property, the value or cost of
which would, under GAAP, appear on the Borrower's consolidated (or, if
applicable, combined) balance sheet in the category of property, plant and
equipment during such period.
CAPITAL LEASE. Any lease of property (real, personal or mixed) which, in
accordance with GAAP would be capitalized on the lessee's balance sheet or
for which the amount of the asset and liability thereunder if not so
capitalized should be disclosed in a note to such balance sheet.
CAPITAL LEASE OBLIGATIONS. All obligations of the Companies' to pay rent
or other amounts under a lease of (or other agreement conveying the right
to use) property (real, personal or mixed) to the extent such obligations
are required to be classified and accounted for as a Capital Lease on the
Borrower's balance sheet under GAAP, and, for purposes of this Agreement,
the amount of such obligations shall be the capitalized amount thereof,
determined in accordance with GAAP.
CASUALTY EVENT. Any loss of, or damages to, or any condemnation or other
taking of any assets or property of the Companies for which any Company
receives insurance proceeds, proceeds of a condemnation award or other
compensation.
CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act of 1989 (42 USC 9601, et. seq.).
CHANGE OF CONTROL. For any reason, (i) Media/Communications Partners II
Limited Partnership and its affiliates shall cease to own of record at
least 51% of the issued and outstanding Equity Securities of the Parent,
(ii) the Equity Investors shall cease to own of record collectively at
least 75% of the issued and outstanding Equity Securities of the Parent,
(iii) the Parent shall cease to own of record and beneficially 100% of the
issued and outstanding Equity Securities of the Borrower, (iv) the Borrower
shall cease to own of record and beneficially, directly or indirectly
through one or more other Subsidiaries, all of the issued and outstanding
Equity Securities of each of the Subsidiaries or, (v) if at any time, Glenn
Friedly or Christopher Torto (or, in their absence, persons acceptable to
the Agent in its sole discretion) shall cease to serve in the management
capacities in which they serve as of the date hereof (or on the date the
Agent accepts such successors).
CLOSING DATE. The date as of which all of the conditions to the first
Loans have been satisfied.
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CLOSING LEVERAGE. See SECTION 3.01.
CODE. The Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
COLLATERAL. Collectively, any and all collateral referred to herein and in
the Security Documents.
COLLATERAL ACCOUNT. See SECTION 1(D) of each of the Security Agreements.
COMMITMENT and COMMITMENTS. See SECTION 1.05.
COMMITMENT FEE. See SECTION 1.06.
COMMITMENT REDUCTION NOTICE. See SECTION 1.05.
COMPANIES. Collectively, the Parent, Borrower and its Subsidiaries, from
time to time.
COMPLIANCE REPORT. See SECTION 6.05.
COMPLIANCE REPORT DELIVERY DATE. See SECTION 1.02.
CONSOLIDATED NET INCOME. For any period, the net income of the Borrower
and its Subsidiaries (or, with respect to Acquisitions, the net income of
the entity being acquired or generated by the assets being acquired in such
Acquisitions) from operations for such period, after deduction of all
expenses, taxes and other proper charges for such period, determined on a
consolidated basis in accordance with GAAP, after eliminating therefrom all
extraordinary nonrecurring gains or losses, including without limitation
any gains (or losses) from any Disposition of any assets.
CONTROLLED GROUP. All trades or businesses (whether or not incorporated)
under common control that, together with the Borrower, are treated as a
single employer under Section 414(b) or 414(c) of the Code or Section 40001
of ERISA.
COPYRIGHT OFFICE. The United States Copyright and Trademark Office or any
other federal government agency which may hereafter perform its functions.
DAMAGED PROPERTY. See SECTION 6.02.
DEFAULT. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would constitute
an Event of Default.
DEFAULT RATE. See SECTION 1.03(E).
49
DISPOSITION. See SECTION 7.03.
DOLLARS AND $. Lawful money of the United States of America.
EFFECTIVE DATE. See SECTION 1.07.
ENVIRONMENTAL LAWS. Any and all Federal, state, local and foreign laws,
rules or regulations, and any judicial or administrative orders or decrees,
relating to the regulation or protection of human health, safety or the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or toxic or hazardous substances or
wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or
wastes.
ENVIRONMENTAL SITE ASSESSMENT. A "Phase One" or other appropriate site
assessment performed by an environmental assessment firm of national
reputation satisfactory to the Agent and reflected in a written report
which authorizes the reliance thereon by the Agent and the Lenders.
EQUITY FINANCING. See SECTION 3.01.
EQUITY FINANCING DOCUMENTS. The Stock Purchase Agreement and the other
instruments, agreements and documents evidencing the Equity Financing, true
and complete copies of which have been provided to the Agent.
EQUITY INVESTORS. Media/Communications Partners II Limited Partnership,
Media/Communications Investors Limited Partnership, Glenn Friedly, Alan
Baird, Michael Heinze, Christopher Torto and Michael Williams.
EQUITY SECURITIES. Means, as to any Person that is a corporation, the
authorized shares of such Person's capital stock, including all classes of
common, preferred, voting and nonvoting capital stock, and, as to any
Person that is not a corporation or an individual, the ownership interests
in such Person, including, without limitation, the right to share in
profits and losses, the right to receive distributions of cash and
property, and the right to receive allocations of items of income, gain,
loss, deduction and credit and similar items from such Person, whether or
not such interests include voting or similar rights entitling the holder
thereof to exercise control over such Person
ERISA. The Employee Retirement Security Act of 1974, as amended.
EVENT OF DEFAULT. See ARTICLE VIII.
50
EXCESS CASH FLOW. For any period, Operating Cash Flow for such period
less (i) Total Interest Expense for such period and (ii) Capital
Expenditures made during such period.
EXEC-PC ACQUISITION AGREEMENT. Means the Asset Purchase Agreement dated as
of September 14, 1998 among the Borrower, EXEC-PC, Inc., a Wisconsin
corporation, Robert J. Mahoney and Tracy Mahoney.
FEDERAL FUNDS RATE. For any period, a fluctuating interest rate per
annum (based on a 365 or 366 day year, as the case may be) equal for each
day during such period to the weighted average of the rates of interest
charged on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published for any day which is a Business Day by the Federal Reserve Bank
of New York (or, in the absence of such publication, as reasonably
determined by the Agent).
FEE LETTERS. The three letter agreements of even date herewith between the
Borrower, and, respectively, Fleet, FINOVA Capital Corporation and State
Street Bank and Trust Company, with respect to the payment of certain fees.
FIXED CHARGES. For any period of four (4) consecutive fiscal quarters, the
sum of (a) Total Debt Service for such period, (b) cash income, franchise
or similar taxes paid by any corporate subsidiary of the Borrower or any
Subsidiary and (c) Tax Distributions made by the Borrower during such
period.
FLEET. Fleet National Bank, a national banking association.
FUNDED DEBT. In relation to any Person at any time, all indebtedness for
borrowed money (including all notes payable and drafts accepted
representing extensions of credit and all obligations evidenced by bonds,
debentures, notes or other similar instruments on which interest charges
are customarily paid) of such Person, all guaranty or other contingent
obligations of such Person in respect of any such Indebtedness of any other
Person, the liquidation value of all preferred stock at such time (other
than any preferred stock that is not redeemable at the option of the
holder), all obligations of such Person under Capital Leases and for the
deferred purchase price of property or services (except, in any event,
trade payables arising in the ordinary course of business and obligations
under leases that do not constitute Capital Leases).
GAAP. Generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or such other entity as may be
approved by a significant segment of the accounting profession, as in
effect on June 30, 1998, applied on a basis consistent with (a) the
application of the same in prior fiscal periods, except as otherwise
required, and (b) that employed by the Accountants in preparing the
financial statements referred to in SECTION 6.05(A).
51
GOVERNMENTAL AUTHORITY. Any nation or government, any state or other
political subdivision thereof and any entity exercising any executive,
legislative, judicial, regulatory or administrative functions of, or
pertaining to, government.
HAZARDOUS MATERIALS. Any petroleum or petroleum products, flammable
materials, explosives, radioactive materials, asbestos, urea formaldehyde
foam insulation, and transformers or other equipment that contain
polychlorinated biphenyls, "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", "contaminants",
"pollutants" or words of similar import under any Environmental Law and any
other chemical or other material or substance, the generation, storage,
transportation, use, disposal, release or location of which is now or
hereafter prohibited, limited or regulated under any Environmental Law.
HEDGING LENDER. Any Lender, or any Affiliate of any Lender, which from
time to time enters into a Rate Hedging Agreement with the Borrower.
INDEBTEDNESS OR INDEBTEDNESS. As applied to any Person, (a) all items
(except items of capital stock, capital or paid-in surplus or of retained
earnings) which, in accordance with GAAP, would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as at the date as of which Indebtedness is to be determined,
including Capital Lease Obligations, but excluding all deferred
subscription liabilities and Indebtedness with respect to trade obligations
and other normal accruals in the ordinary course of business which are not
more than ninety (90) days in arrears measured from the date of billing,
(b) all indebtedness secured by any mortgage, pledge, lien or conditional
sale or other title retention agreement to which any property or asset
owned or held by such Person is subject, whether or not the indebtedness
secured thereby shall have been assumed; and (c) all indebtedness of others
which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business), discounted or sold with recourse or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire, or in respect of
which such Person has agreed to supply or advance funds (whether by way of
loan, stock or equity purchase, capital contribution, makewell or
otherwise) or otherwise to become directly or indirectly liable.
INSURANCE PROCEEDS. With respect to any Casualty Event, any proceeds of
insurance, condemnation award or other compensation in respect thereof, net
of reasonable fees and expenses related thereto.
INTEREST EXPENSE. For any period, the aggregate amount (determined on a
consolidated basis, after eliminating intercompany items, in accordance
with GAAP) of interest, commitment fees and letter of credit fees accrued
(whether or not paid) during such period (including, without limitation,
the interest component of Capital Lease Obligations
52
and the Commitment Fee, but excluding non-recurring fees payable under the
Fee Letters and interest in respect of overdue trade payables) by the
Companies in respect of all Indebtedness for borrowed money; plus the net
amount payable (or minus the net amount receivable) under Rate Hedging
Agreements during such period (whether or not actually paid or received
during such period).
INTEREST PERIOD. With respect to each LIBOR Loan, the period commencing on
the date such Loan is made or converted from a Base Rate Loan, or the last
day of the immediately preceding Interest Period, as to LIBOR Loans being
continued as such, and ending one (1), three (3) or six (6) months, or, to
the extent available, in the sole discretion of the Agent, nine (9) or
twelve (12) months thereafter, as the Borrower may elect in the applicable
Loan Request or Interest Rate Option Notice, provided that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iv) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the immediately preceding Business Day;
(ii) if the Borrower shall fail to give notice as provided in SECTION
1.03, the Borrower shall be deemed to have requested a conversion of the
affected LIBOR Loan to a Base Rate Loan on the last day of the then
current Interest Period with respect thereto;
(iii) any Interest Period relating to a LIBOR Loan that begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iv) below, end on the last
Business Day of a calendar month;
(iv) any Interest Period related to a LIBOR Loan that would otherwise
end after the final maturity date of the Loans shall end on such final
maturity date;
(v) no Interest Period shall include a principal repayment date for the
Loans unless an aggregate principal amount of Loans at least equal to the
principal amount due on such principal repayment date shall be Base Rate
Loans or LIBOR Loans having Interest Periods ending on or before such
date; and
(vi) notwithstanding clauses (iv) and (v) above, no Interest Period
shall have a duration of less than one (1) month.
53
INTEREST RATE OPTION NOTICE. A notice given by the Borrower to the Agent
of the Borrower's election to convert Loans to a different type or continue
Loans as the same type, in accordance with SECTION 1.04.
LENDERS. See the PREAMBLE.
LIBOR BASE RATE. With respect to each day during each Interest Period
pertaining to any LIBOR Loan, the rate per annum determined by the Agent
to be the arithmetic mean (rounded to the nearest l/100th of 1%) of the
offered rates for deposits in Dollars with a term comparable to such
Interest Period that appears on the Telerate British Bankers Assoc.
Interest Settlement Rates Page (as defined below) at approximately 11:00
A.M., London time, on the second full Business Day preceding the first day
of such Interest Period; provided, however, that if there shall at any time
no longer exist a Telerate British Bankers Assoc. Interest Settlement Rates
Page, the term "LIBOR Base Rate" shall mean, with respect to each day
during each Interest Period pertaining to any LIBOR Loan, the rate per
annum equal to the rate at which the Agent is offered Dollar deposits at or
about 10:00 A.M., Boston time, two Business Days prior to the beginning of
such Interest Period in the London interbank deposit market where the
eurodollar and foreign currency and exchange operations in respect of its
LIBOR Loans are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an amount
comparable to the amount of its LIBOR Loan to be outstanding during such
Interest Period. As used herein, the "Telerate British Bankers Assoc.
Interest Settlement Rates Page" means the display designated as Page 3750
on the Telerate System Incorporated Service (or such other page as may
replace such page on such service for the purpose of displaying the rates
at which Dollar deposits are offered by leading banks in the London
interbank deposit market).
LIBOR LOANS. Loans bearing interest at a rate determined on the basis of
the LIBOR Rate.
LIBOR RATE. With respect to each day during each Interest Period
pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward, if necessary, to the
nearest 1/16th of 1%):
LIBOR Base Rate
1.00 - LIBOR Reserve Requirements
LIBOR RESERVE REQUIREMENTS. For any day as applied to a LIBOR Loan, the
aggregate (without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on such day (including without
limitation basic, supplemental, marginal and emergency reserves) under any
regulations of the Board of Governors of the Federal Reserve System (or
other Governmental Authority having jurisdiction with respect thereto)
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a member bank of
the Federal Reserve System; provided, however, that LIBOR Reserve
Requirements
54
shall be calculated without giving effect to any increase of the rate of
reserve applicable to any Lender which is specifically imposed on such
Lender under a memorandum of understanding with a Federal Reserve Bank.
LIENS. See SECTION 4.09.
LIEN SEARCHES. See SECTION 3.01.
LOAN DOCUMENTS. This Agreement, the Notes, the Security Documents and all
other agreements, instruments and certificates contemplated hereby and
thereby, including without limitation any Rate Hedging Agreements entered
into with any of the Lenders or any Hedging Lenders.
LOAN REQUEST. See SECTION 1.03.
LOANS. See SECTION 1.01.
MARGIN STOCK. See SECTION 4.12.
MATERIAL ADVERSE EFFECT. (a) An adverse effect on the validity or
enforceability of this Agreement or any of the other Loan Documents in any
material respect, (b) an adverse effect on the condition (financial or
other), business, results of operations, prospects or properties of the
Companies, taken as a whole, in any material respect, other than any event
or circumstances that are generally applicable to the Internet service
provider industry or to general economic conditions, or (c) an impairment
of the ability of the Companies to fulfill their respective obligations
under this Agreement, the Notes or any other Loan Document to which it is a
party in any material respect.
MATURITY DATE. September 30, 2004.
MORTGAGES. Collectively, one or more mortgages, deeds of trust, deeds to
secure debt or collateral assignments of leasehold interest, in form and
substance satisfactory to the Agent, to effect a Lien on real property or
leasehold interests in the state where the respective real property to be
covered by such instrument is located, executed by the party that is the
owner or lessee of such real property in favor of the Agent (or, in the
case of a deed of trust, in favor of a trustee for the benefit of the Agent
and the Lender), covering the respective fee or leasehold interest owned by
the such party, as said mortgages, deeds of trust, deeds to secure debt,
leasehold deeds of trust and collateral assignments of leasehold interests
shall be modified and supplemented and in effect from time to time.
NETLINK ACQUISITION AGREEMENT. Means an Asset Purchase Agreement in
substantially the form of SCHEDULE A to be entered into among the Borrower,
NetLink Systems, L.L.C., a Michigan limited liability company, David
Shires, Christopher Michaels and Edward Quinones.
55
NET SALE PROCEEDS. With respect to any Disposition, the aggregate amount
of all cash payments received by any Company, directly or indirectly, in
connection with such Disposition, whether at the time thereof or after such
Disposition under deferred payment arrangements or investments entered into
or received in connection with such Disposition, minus the aggregate amount
of any reasonable and customary legal, accounting, regulatory, title and
recording tax expenses, transfer taxes, commissions and other fees and
expenses paid at any time by any Company in connection with such
disposition, and minus any cash income taxes payable by any Company in
connection with such Disposition.
NOTES. See SECTION 1.01.
OBLIGATIONS. The Loans and the other obligations of each of the Companies
under this Agreement and the other Loan Documents, including without
limitation any and all future loans, advances, debts, liabilities,
obligations, covenants and duties owing by any of the Companies to the
Agent, the Lenders and the Hedging Lenders, or any of them, of any kind or
nature, whether or not evidenced by any note, mortgage or other instrument,
whether arising by reason of an extension of credit, loan, guarantee,
indemnification or in any other manner, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired. The
term "Obligations" also includes, without limitation, all interest,
charges, expenses, fees (including attorneys', accountants', appraisers',
consultants' and other fees) and any other sums chargeable to the Companies
under this Agreement or any other Loan Documents.
OPENING BALANCE SHEET. See SECTION 4.01.
OPERATING CASH FLOW. For any fiscal period, Consolidated Net Income for
such period, plus, to the extent deducted in the determination of
Consolidated Net Income for such period; (a) Total Interest Expense, (b)
depreciation, (c) authorization, (d) taxes in respect of income and profits
expensed during such period and determined on a consolidated basis, (d)
other non-cash expenses, minus (e) extraordinary gains; in each case, for
such period and determined on a consolidated basis, after eliminating
intercompany items, in accordance with GAAP.
PARENT. See the PREAMBLE.
PARTICIPANT. See SECTION 1.12.
PERMITTED ACQUISITIONS.
(a) (i) The Acquisitions contemplated by the EXEC-PC Acquisition
Agreement and the NetLink Acquisition Agreement (providing that the
purchase price paid on account of the Acquisition contemplated by the
NetLink Acquisition Agreement does not
56
exceed $4,000,000), in case of such Acquisition, subject to the
satisfaction of the terms and conditions set forth in paragraphs (b)(i)
through (xi) below in this definition;
(b) Any Acquisition by the Borrower that does not result in a
Change of Control, whether such Acquisition is effected by way of the
purchase of assets or Equity Securities, by merger or consolidation of
one or more Subsidiaries or otherwise, of substantially all of the
assets of or Equity Securities issued by Internet service providers or
related businesses located in Michigan, Illinois, Ohio, Indiana,
Wisconsin, Minnesota, Iowa, Missouri and Kentucky, the purchase price
of which does not exceed $10,000,000, in the case of each such
Acquisition, subject to the satisfaction of the terms and conditions
set forth in (i) through (xi) below:
(i) If such Acquisition involves the purchase of equity
interests, the same shall be effected in such a manner as to assure
that the acquired entity becomes a wholly owned Subsidiary of the
Borrower;
(ii) No later than (1) thirty (30) days prior to the
consummation of any such Acquisition or, if earlier, ten (10) business
days after the execution and delivery of the related acquisition
agreement, the Borrower shall have delivered to the Agent (in
sufficient copies for all Lenders) a copy of executed counterparts of
such acquisition agreement, together with all schedules thereto, and
all applicable financial information, including new Projections,
updated to reflect such Acquisition and any related transactions, (2)
promptly following a request therefor, copies of such other
information or documents relating to such Acquisition as the Agent or
any Lender shall have reasonably requested, and (3) promptly following
the consummation of such Acquisition, copies of the material
agreements, instruments and documents executed and delivered at the
closing under such acquisition agreement;
(iii) Neither the Borrower nor any Subsidiary shall, in
connection with any such Acquisition, assume or remain liable with
respect to any indebtedness (including any material tax or ERISA
liability) of the related seller, except (i) to the extent permitted
under this Agreement and (ii) obligations of the seller incurred in
the ordinary course of business and necessary or desirable to the
continued operation of the underlying properties;
(iv) All assets and properties acquired in connection with
any such Acquisition shall be free and clear of any Liens other than
Permitted Liens;
(v) The applicable Sellers shall have consented to the
collateral assignment to the Agent of the Borrower's rights under the
Acquisition Agreement and any other agreements executed thereunder, as
required under SECTION 2.01.
57
(vi) The applicable third parties shall have consented to
the collateral assignment to the Agent of the Borrower's rights under
the leases, co-location agreements, line access agreements and other
material agreements specified by the Agent as is necessary to effect
the collateral assignment thereof in accordance with SECTION 2.01.
(vii) Immediately prior to any such Acquisition and after
giving effect thereto, no Default shall have occurred or be
continuing;
(viii) The Agent shall have received copies of the legal
opinions delivered by Seller(s) pursuant to such Acquisition Agreement
in connection with such Acquisition, and a letter from each Person
delivering an opinion (or authorization within in the opinion)
authorizing reliance thereon by the Agent and the Lenders;
(ix) Without limiting the generality of the foregoing,
after giving effect to such Acquisition (including any Loan therefor)
the Borrower shall be in compliance with the provisions of SECTION 5,
(i) calculated on a pro forma basis as of the end of and for the
fiscal period most recently ended prior to the date of such
Acquisition, and (ii) under the Borrower's updated Projections
referred to above. The Borrower shall provide to the Agent a
certificate signed on behalf of the Borrower by its chief financial
officer demonstrating such compliance in reasonable detail;
(x) The Borrower shall have executed and/or delivered to
the Agent (or shall have caused to be executed and delivered to the
Agent by the appropriate Person), the following:
(A) With respect to the assets to be acquired
pursuant to such Acquisition, and the applicable Seller(s), all
Uniform Commercial Code financing statements, termination statements
and all security and pledge agreements, securities pledge agreements,
mortgages, deeds of trusts and related title insurance policies and
all other Security Documents necessary and required by the Agent or
its counsel in connection with the Borrower's compliance with SECTION
2.01;
(B) certified copies of the resolutions of the
Borrower authorizing such Acquisition;
(C) Uniform Commercial Code, tax lien and judgment
searches with respect to the assets to be acquired pursuant to such
Acquisition and the applicable Seller(s) (and their predecessors as
owners of such assets);
(D) updated certificates of insurance evidencing the
additional insurance coverage and policy provisions required in this
Agreement; or
58
(E) such other supporting documents and certificates
as the Agent or Lenders may request; and
(xi) In connection with an Acquisition involving the purchase or
formation of a new Subsidiary and/or the execution of additional
Security Documents or any other Loan Document, the Agent shall have
received the favorable written opinions, addressed to the Agent and
the Lenders, of the Companies' general counsel and local counsel in
the jurisdictions where the assets subject to such Acquisition are
located (in the case of local counsel opinions, relating to matters
concerning the perfection of security interests in real property owned
or leased by the Borrower or any Subsidiary (and, in the case of
leased real property, with respect to which the Agent requests a
collateral assignment or leasehold mortgage in accordance with SECTION
2.01(A)(IV)), such opinions to be in form and substance satisfactory
to the Agent.
(c) Any other Acquisition approved by the Required Lenders in their
sole and absolute discretion prior to the Borrower making a binding
commitment with respect thereto.
PERMITTED INVESTMENTS. (a) Investments in property to be used by any
Company in the ordinary course of business; (b) current assets arising from
the sale of goods and services in the ordinary course of business; (c)
investments (of one year or less) in direct or guaranteed obligations of
the United States, or any agency thereof; (d) investments (of 90 days or
less) in certificates of deposit of the Lenders or any other domestic
commercial bank of recognized standing having capital, surplus and
undivided profits in excess of $100,000,000, membership in the Federal
Deposit Insurance Corporation ("FDIC") and senior debt rated carrying one
of the two highest ratings of Standard & Poor's Ratings Service, A Division
of McGraw Hill, Inc., or Moody's Investors Service, Inc. (an "Approved
Institution"); (e) investments (of 90 days or less) in commercial paper
given one of the two highest ratings by Standard and Poor's Ratings
Service, A Division of McGraw Hill, Inc., or by Moody's Investors Service,
Inc.; (f) investments redeemable at any time without penalty in money
market instruments placed through the Lenders or Approved Institutions; (g)
repurchase agreements fully collateralized by United States government
securities; (h) deposits fully insured by the FDIC; (i) investments made
prior to and after the date hereof in Subsidiaries, including the
formation and capitalization of new Subsidiaries in connection with and as
permitted under SECTION 7.04; (j) intercompany loans and advances and
otherwise permitted under SECTION 7.01 and (k) short-term relocation and
other personal loans to employees and advances to employees in the ordinary
course of business for the payment of bona fide, properly documented,
business expenses to be incurred on behalf of the Companies, provided that
the aggregate outstanding amount of all such loans and advances shall not
exceed $50,000 in the aggregate at any time.
PERMITTED LIENS. See SECTION 7.02.
59
PERSON OR PERSON. Any individual, corporation, partnership, joint venture,
trust, business unit, unincorporated organization, or other organization,
whether or not a legal entity, or any government or any agency or political
subdivision thereof.
PLAN. The Voyager Holdings, Inc. 1998 Stock Option and Incentive Plan.
PRICING PERIOD. See SECTION 1.02.
PRICING RATIO. See SECTION 1.02.
PROFORMA OPERATING CASH FLOW. For any three-month period, Operating Cash
Flow for such period plus pro forma Operating Cash Flow of any Subsidiaries
acquired, or generated by any assets acquired, during such period in
Permitted Acquisitions, assuming such Permitted Acquisitions occurred on
the first day of such period. The determination of "Operating Cash Flow"
of any Subsidiary or assets acquired pursuant to a Permitted Acquisition,
(1) shall be calculated in a manner consistent in all relevant respects
with the method used to determine Operating Cash Flow hereunder and (2)
shall account for only those items included in the definition of Operating
Cash Flow hereunder that are directly attributable to such Subsidiary or
assets and the operation thereof.
PROJECTIONS. See SECTION 4.15.
PROPERTIES. See SECTION 4.18.
QUARTERLY DATES. See SECTION 1.01.
RATE HEDGING AGREEMENTS. Any written agreements evidencing Rate Hedging
Obligations, including without limitation the LIBOR provisions of this
Agreement.
RATE HEDGING OBLIGATIONS. Any and all obligations of the Borrower, whether
direct or indirect and whether absolute or contingent, at any time created,
arising, evidenced or acquired (including all renewals, extensions,
modifications and amendments thereof and all substitutions therefor), in
respect of: (a) any and all agreements, arrangements, devices and
instruments designed or intended to protect at least one of the parties
thereto from the fluctuations of interest rates, exchange rates or forward
rates applicable to such party's assets, liabilities or exchange
transactions, including without limitation dollar-denominated or cross
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants and so-called "rate
swap" agreements; and (b) any and all cancellations, buy-backs, reversals,
terminations or assignments of any of the foregoing.
RECOVERY. See SECTION 1.13.
RECOVERING PARTY. See SECTION 1.13.
60
REGULATION D. Regulation D of the Board of Governors of the Federal
Reserve System, as the same may be amended or supplemented from time to
time.
REGULATORY CHANGE. With respect to any Lender, any change after the
Closing Date in any law, rule or regulation (including without limitation
Regulation D) of the United States, any state or any other nation or
political subdivision thereof, including without limitation the issuance of
any final regulations or guidelines, or the adoption or making after the
Closing Date (or, if later, the date as of which such Person became a
Lender) of any interpretation, directive or request, applying to a class of
banks in which such Lender is included under any such law, rule or
regulation (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) by any court or governmental
or monetary authority charged with the interpretation thereof.
RELATED LENDER PARTY. With respect to any Lender, such Lender's parent
company and/or any affiliate of such Lender which is at least fifty percent
(50%) owned by such Lender or its parent company or, in the case of any
Lender which is a fund investing in bank loans, any other fund that invests
in bank loans and is managed by the same investment advisor of such Lender
or by a controlled affiliate of such investment advisor.
REMEDIAL WORK. All activities required under any Environmental Law,
including, without limitation, cleanup design and implementation, removal
activities, investigation, field and laboratory testing and analysis,
monitoring and other remedial and response actions, taken or to be taken,
arising out of or in connection with Hazardous Materials, including without
limitation all activities included within the meaning of the terms
"removal," "remedial action" or "response," as defined in 42 U.S.C. Section
9601(23), (24) and (25).
REQUIRED LENDERS. (a) Lenders holding at least 60% of the aggregate
amount of the unused Commitments; and thereafter, (b) Lenders holding at
least 60% of the sum of (i) the aggregate outstanding principal amount of
the Loans and (ii) the aggregate amount of the unused Commitments.
REQUIRED PAYMENT. See SECTION 1.14.
RESTORATION PERIOD. See SECTION 1.05(B).
RESTRICTED PAYMENT. Any distribution or payment of cash or property, or
both, directly or indirectly (a) to any Affiliate of any Company or (b) any
equityholder of any Company or any of their Affiliates, in each case for
any reason whatsoever, including without limitation, salaries, loans, debt
repayment, consulting fees, management fees, operating fees, expense
reimbursements and dividends, distributions, put, call or redemption
payments and any other payments in respect of equity interests; provided,
however, that Restricted Payments shall not include any of the following:
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(i) reasonable Transaction Costs, and
(ii) transactions in the ordinary course of the business of the
Companies, provided they comply with the provisions of SECTION 7.10.
SECURITY AGREEMENTS. The Security and Pledge Agreements dated as of
the Closing Date or thereafter between (a) the Borrower and the Agent and
(b) each other Company and the Agent, as amended from time to time in
accordance with their respective terms.
SECURITY DOCUMENT(S). See SECTION 2.01.
SOLVENT and SOLVENCY. With respect to any Person on a particular date, the
condition that on such date, (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person of its debts
as they become absolute and matured, (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (d) such
Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's property would
constitute an unreasonably small amount of capital.
STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement of even date
herewith among the Parent and the Equity Investors.
SUBORDINATED DEBT. The Indebtedness evidenced by the (i) Borrower's
Amended and Restated Subordinated Promissory Note dated September 23, 1998
in the principal amount of $2,101,197 made payable to the order of Horizon
Cablevision I Limited Partnership and (ii) Horizon Telecommunications
Inc.'s Amended and Restated Promissory Note dated September 23, 1998 in the
principal amount of $100,000 made payable to the order of Horizon
Cablevision I Limited Partnership.
SUBSIDIARY. (a) Any corporation, association, joint stock company,
business trust or other similar organization of which more than 50% of the
ordinary voting power for the election of a majority of the members of the
board of directors or other governing body of such entity is held or
controlled by the Borrower; (b) any other such organization the management
of which is directly or indirectly controlled by a Borrower or a Subsidiary
of the Borrower through the exercise of voting power or otherwise; or (c)
any joint venture, association, partnership or other entity in which the
Borrower has a 50% equity interest.
TAXES. See SECTION 1.09.
THIRD PARTIES. See SECTION 14.02.
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TOTAL DEBT SERVICE. For any period, the aggregate amount (determined on a
combined or consolidated basis, as appropriate after eliminating
intercompany items, in accordance with GAAP) of principal and premium, if
any, and cash interest required to be paid during such period in respect of
Total Funded Debt. For purposes of this definition, the aggregate amount
of all principal required to be paid in respect of the Loans shall be
limited to Scheduled Principal Payments.
TOTAL FUNDED DEBT. As of any date, Funded Debt of the Companies
(excluding the Subordinated Debt) as of such date, determined on a
consolidated basis in accordance with GAAP.
TOTAL INTEREST EXPENSE. For any period, Interest Expense for such period
which is payable, or currently paid, in cash.
TOTAL INTEREST COVERAGE RATIO. See SECTION 5.03.
TRANSACTION COSTS. For any period, nonrecurring out-of-pocket expenses
(including attorneys' fees, investment banking fees, broker's fees and
facility fees) accrued by any Company and owing to Persons who are not
Affiliates of the Borrower during such period in connection with the
closing of the transactions under this Agreement, and any other
transactions occurring after the Closing Date which are consented to by the
Required Lenders.
YEAR 2000 COMPLIANT. When used with regard to any Company or any of the
Companies' suppliers, vendors and customers, all software, embedded
microchips, and other processing capabilities utilized by, and material to
the business operations or financial condition of, such entity are able to
interpret and manipulate data on and involving all calendar dates
correctly, including in relation to dates on or after January 1, 2000, and
without causing a Material Adverse Effect.
YEAR 2000 RISK. The risk that the computer applications used by any
Company and its suppliers, vendors and customers may be unable to recognize
and perform without error date-sensitive functions involving certain dates
prior to any date after December 31, 1999.
XII. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS; ACTIONS BY THE LENDERS.
(a) This Agreement (including the Schedules hereto) and the other Loan
Documents constitute the entire agreement of the parties herein and supersede
any and all prior agreements, written or oral, as to the matters contained
herein, and no modification or waiver of any provision hereof or of the Notes or
any other Loan Document, nor consent to the departure by the Borrower or any
other Person therefrom, shall be effective unless the same is in writing, and
then such waiver or consent shall be effective only in the specific instance,
and for the purpose, for which given. Except as hereafter provided, the consent
of the Required Lenders shall be required and
63
sufficient (i) to amend, with the consent of the Borrower, any term of this
Agreement, the Notes or any other Loan Document or to waive the observance of
any such term (either generally or in a particular instance or either
retroactively or prospectively); (ii) to take or refrain from taking any action
under this Agreement, the Notes, any other Loan Document or applicable law,
including, without limitation, (A) the acceleration of the payment of the Notes,
(B) the termination of the Commitments, (C) the exercise of the Agent's and the
Lenders' remedies hereunder and under the Security Documents and (D) the giving
of any approvals, consents, directions or instructions required under this
Agreement or the Security Documents; provided that no such amendment, waiver
or consent shall, without the prior written consent of all of the Lenders or the
holders of all of the Notes at the time outstanding,
(1) extend the fixed maturity or reduce the principal amount of, or reduce
the amount or extend the time of payment of any principal of, or interest
or fees on, any Note (including the Applicable Margin but excluding
mandatory unscheduled prepayments of the Notes under SECTIONS 1.05(B)),
(2) increase or extend any Commitment of any Lender or extend the Maturity
Date (it being understood that waivers or modifications of conditions
precedent, covenants, Defaults or Events of Default shall not constitute
any such increase or extension),
(3) release any guaranties or all or substantially all of the Collateral,
unless (x) such release of Collateral is in connection with a Disposition
permitted under SECTION 7.03 or to which any required consent of the
Required Lenders has been given and (y) substantially all of the Net Sale
Proceeds of such sale are used to repay the Borrower's indebtedness to the
Lenders hereunder or otherwise used in a manner permitted hereunder it
being understood that no amendment or modification to the financial
definitions in this Agreement and no waiver or modification of any
condition precedent, covenant or Default shall constitute a reduction of
interest or fees for purposes of this clause (1),
(4) change the percentage referred to in the definition of "Required
Lenders" contained in ARTICLE XI or materially alter the provisions of
SECTION 1.13,
(5) change any other provisions requiring the consent of all of the Lenders
or the Required Lenders
(6) amend the provisions of this ARTICLE XII, or
(7) consent to the assignment or transfer by the Borrower or any of its
rights and obligations under this Agreement, provided, further that no such
amendment, waiver, consent or other action shall, without the consent of
the Agent, amend, modify or waive any provision of ARTICLE X as the same
applies to the Agent or any other provision of any Loan Documents as same
relates to the rights or obligations of the Agent;
64
and provided, further, that neither notice to, nor the consent of the Borrower
shall be required for any modification, amendment or waiver of the provisions of
this ARTICLE XII governing the number of Lenders required to consent to any act
or omission under the Loan Documents or of the definition of "Required Lenders".
(b) Any amendment or waiver effected in accordance with this ARTICLE XII
shall be binding upon each holder of any Note at the time outstanding, each
future holder of any Note and the Borrower. The Lenders' failure to insist
(directly or through the Agent) upon the strict performance of any term,
condition or other provision of this Agreement, any Note, or any of the Security
Documents, or to exercise any right or remedy hereunder or thereunder, shall not
constitute a waiver by the Lenders of any such term, condition or other
provision or default or Event of Default in connection therewith, nor shall a
single or partial exercise of any such right or remedy preclude any other or
future exercise, or the exercise of any other right or remedy; and any waiver of
any such term condition or other provision or of any such default or Event of
Default shall not affect or alter this Agreement, any Note or any of the
Security Documents, and each and every term, condition and other provision of
this Agreement, the Notes and the Security Documents shall, in such event,
continue in full force and effect and shall be operative with respect to any
other then existing or subsequent default or Event of Default in connection
therewith. An Event of Default hereunder and a default under any Note or under
any of the Security Documents shall be deemed to be continuing unless and until
waived in writing by the Required Lenders or all of the Lenders, as provided in
paragraph (a) above.
XIII. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders and the Agent and their respective successors and assigns,
and all subsequent holders of any of the Notes or any portion hereof.
(b) Each Lender may assign its rights and interests under this Agreement,
the Notes and the Security Documents and/or delegate its obligations hereunder
and thereunder, in whole or in part, and sell participations in the Notes and
the Security Documents as security therefor, provided as follows:
(i) Any such assignment (other than of all of a Lender's Notes and
Commitments) made other than to another Lender or a Related Lender
Party shall reflect an assignment of such assigning Lender's Notes and
Commitments which is in an aggregate principal amount of at least
$5,000,000, and if greater, shall be an integral multiple of
$1,000,000.
(ii) Notwithstanding any provision of this Agreement to the contrary,
each Lender may at any time assign all or any portion of its rights
under this Agreement and each of the other Loan Documents, including,
without limitation, the Notes held by such Lender, to a Federal
Reserve Bank (or equivalent thereof in the case of Lenders chartered
outside of the United
65
States); provided that no such assignment shall release a Lender from
any of its obligations and liabilities under the Loan Documents. Any
Federal Reserve Bank (or equivalent thereof) which receives such an
assignment from any Lender may make further assignments of such rights
in accordance with the provisions of this Section.
(iii) Any assignments and/or delegations made hereunder shall be
pursuant to an instrument of assignment and acceptance (the
"Assignment and Acceptance") substantially in the form of SCHEDULE
13(B)(III) and the parties to each such assignment shall execute and
deliver to the Agent for its acceptance the Assignment and Acceptance
together with any Note or Notes subject thereto. Upon such execution
and delivery, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (A) the assignee
thereunder shall become a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder with Commitments and outstanding Loans as set forth
therein and (B) the assigning Lender thereunder shall, to the extent
provided in such assignment, be released from its obligations under
this Agreement as to that portion of its obligation being so assigned
and delegated. The Assignment and Acceptance shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to
reflect the addition of the assignee as a Lender and the resulting
adjustment of Commitments and outstanding Loans arising from the
purchase by and delegation to such assignee of all or a portion of the
rights and obligations of such assigning Lender under this Agreement.
(iv) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and the assignee together with the Note(s)
subject to such assignment and payment by the assignee to the Agent of
a registration and processing fee of $3,000, the Agent shall accept
such Assignment and Acceptance. Promptly upon delivering such
Assignment and Acceptance to the Agent, the assigning Lender shall
give notice thereof to the Borrower and the other Lenders pursuant to
a Notice of Assignment and Acceptance substantially in the form of
SCHEDULE 13(B)(IV). Within five (5) Business Days after receipt of
such notice, the Borrower shall execute and deliver to the Agent in
exchange for such surrendered Note(s) one or more new Notes payable to
the order of such assignee in an amount equal to the portion of the
Commitments assumed, and the Loans purchased, by such assignee
pursuant to such Assignment and Acceptance and one or more new Notes
payable to the order of the assigning Lender in an amount equal to the
portion of the Commitments and outstanding Loans retained by it
hereunder. Each new Note shall be dated the effective date of such
Assignment and Acceptance and shall
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otherwise be in substantially the form provided in SECTION 1.01. The
canceled Note(s) surrendered by the assigning Lender shall be returned
to the Borrower upon the execution and delivery of such new Note(s).
(v) Each Lender may sell participations in all or a portion of
its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments and the Notes held by
it); provided, however, that, (A) the selling Lender shall remain
obligated under this Agreement to the extent as it would if it had not
sold such participation, (B) the selling Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (C) at no time shall the selling Lender agree with such
participant to take or refrain from taking any action hereunder or
under any other Loan Document, except that the selling Lender may
agree not to consent, without such participant's consent, to any of
the actions referred to in ARTICLE XII, to the extent that the same
require the consent of each Lender hereunder, (D) all amounts payable
by the Borrower hereunder shall be determined as if such Lender had
not sold such participation and no participant shall be entitled to
receive any greater amount pursuant to this Agreement than the selling
Lender would have been entitled to receive in respect of the amount of
the participation transferred by such Lender to such participant had
no such transfer occurred, and (E) the Borrower, the Agent and the
other Lenders shall continue to deal solely and directly with the
selling Lender in connection with such Lender's rights and obligations
under this Agreement.
(vi) Except for an assignment made to a separately organized
branch or an Affiliate of a Lender, no assignment or participation
referred to above shall be permitted without the prior written consent
of the Agent, which consent shall not be unreasonably withheld or
delayed.
(vii) Except during the existence of an Event of Default, no
assignment by a Lender referred to above, other than to a Related
Lender Party and other than under paragraph (b)(ii) of this Section,
shall be permitted without the prior written consent of the Borrower,
which consent shall not be unreasonably withheld or delayed.
(viii) The Borrower may not assign any of its rights or delegate
any of its duties or obligations hereunder.
(ix) Any Lender may, in connection with any assignment or
participation pursuant to this Section, disclose to the assignee or
participant any information relating to any of the Companies furnished
to such Lender by or on behalf of the Borrower and such assignee or
participant shall treat such information as confidential.
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XIV. MISCELLANEOUS
SECTION 14.01. SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making by the Lenders of the Loans and shall
continue in full force and effect so long as any Obligation is outstanding and
unpaid or any Lender has any obligation to advance funds to the Borrower
hereunder.
SECTION 14.02. FEES AND EXPENSES; INDEMNITY; ETC. The Borrower agrees (a)
to pay or reimburse the Agent for all its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation, negotiation,
interpretation and execution of, and any amendment, supplement or modification
to, this Agreement, the Notes and any other Loan Documents and the consummation
and administration of the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of (i) counsel to the Agent
and (ii) such agents of the Agent not regularly in its employ, accountants,
other auditing services, consultants and appraisers engaged by or on behalf of
the Agent or by the Borrower at the request of the Agent (collectively, "Third
Parties"); (b) to pay or reimburse the Agent for all its reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the Notes and any other Loan Documents, including,
without limitation, the reasonable fees and disbursements of (i) counsel to the
Agent and (ii) Third Parties; (c) following the occurrence of an Event of
Default hereunder, to pay or reimburse the Lenders for the reasonable fees and
disbursements of counsel for the respective Lenders engaged for the preservation
or enforcement of such Lender's rights under this Agreement or any other Loan
Documents relating to such Event of Default; (d) to pay, indemnify, and hold
each Lender and the Agent harmless from, any and all recording and filing fees
and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the Notes and any other Loan Documents; and (e)
to pay, indemnify, and hold each Lender and the Agent (and their respective
directors, officers, employees and agents) harmless from and against any and all
other liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of, or any transaction contemplated by, any Loan Document or the use or proposed
use of the proceeds of the Loans or the refinancing or restructuring of the
credit arrangement provided under this Agreement in the nature of a "work-out"
or any proceedings with respect to the bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation of the Borrower or any other
party other than the Lender or Agent to any Loan Document (all the foregoing in
this clause (e), collectively, the "indemnified liabilities"), provided, that
the Borrower shall have no obligation hereunder to the Agent or any Lender with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Agent or any such Lender. The agreements in this Section
shall survive repayment of the Notes and all other amounts payable hereunder.
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SECTION 14.03. NOTICE.
(a) All notices, requests, demands and other communications provided for
hereunder (including without limitation Loan Requests) shall be in writing
(including telecopied communication) and mailed or telecopied or delivered to
the applicable party at the addresses indicated below.
If to the Agent:
Fleet National Bank
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang and Vincent Rivers
Telecopy No.: (617) 346-4346
and if to any Lender, at the address set forth on the appropriate signature page
hereto or, with respect to any assignee of the Notes under ARTICLE XIII, at the
address designated by such assignee in a written notice to the other parties
hereto;
in each case (except for routine communications), with a copy to:
Edwards & Angell, LLP
101 Federal Street
Boston, Massachusetts 02110
Telecopy No.: (617) 439-4170
Attention: Leonard Q. Slap, Esquire
If to the Borrower:
Voyager Information Networks, Inc.
4660 South Hagadorn, Suite 320
East Lansing, Michigan 48823
Attention: Christopher Torto
Telecopy No.: (517) 324-8965
with copies (except for routine communications) to:
Goodwin Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: David F. Dietz, P.C.
Telecopy No.: (617) 523-1231
69
or, as to each party, at such other address as shall be designated by such
parties in a written notice to the other party complying as to delivery with the
terms of this Section. All such notices, requests, demands and other
communication shall be deemed given upon receipt by the party to whom such
notice is directed.
(b) The address of the Agent for payment hereunder is as follows:
Fleet National Bank, as Agent
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang and Vincent Rivers
Telecopy No.: (617) 346-4346
SECTION 14.04. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY CONFLICTS OR CHOICE
OF LAWS PROVISIONS THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE
LAWS OF ANY OTHER JURISDICTION).
SECTION 14.05. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(A) THE BORROWER TO THE EXTENT THAT IT MAY LAWFULLY DO SO, HEREBY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE OF MASSACHUSETTS, AS
WELL AS TO THE JURISDICTION OF ALL COURTS TO WHICH AN APPEAL MAY BE TAKEN FROM
SUCH COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF ANY OF ITS OBLIGATIONS ARISING HEREUNDER OR UNDER THE NOTES OR THE SECURITY
DOCUMENTS OR WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY, AND EXPRESSLY
WAIVES ANY AND ALL OBJECTIONS IT MAY HAVE AS TO VENUE, INCLUDING, WITHOUT
LIMITATION, THE INCONVENIENCE OF SUCH FORUM, IN ANY OF SUCH COURTS. IN ADDITION,
TO THE EXTENT THAT IT MAY LAWFULLY DO SO, THE BORROWER CONSENTS TO THE SERVICE
OF PROCESS BY PERSONAL SERVICE OR U.S. CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO SUCH PARTY AT THE ADDRESS PROVIDED HEREIN. TO
THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES
SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
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(B) WAIVER OF JURY TRIAL. THE BORROWER HEREBY VOLUNTARILY AND IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT,
THE NOTES, THE SECURITY DOCUMENTS OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION
HEREWITH.
SECTION 14.06. SEVERABILITY. Any provision of this Agreement, the Notes
or any of the Security Documents which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
SECTION 14.07. SECTION HEADINGS, ETC. Any Article and Section headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
SECTION 14.08. SEVERAL NATURE OF LENDERS' OBLIGATIONS. Notwithstanding
anything in this Agreement, the Notes or any of the Security Documents to the
contrary, all obligations of the Lenders hereunder shall be several and not
joint in nature, and in the event any Lender fails to perform any of its
obligations hereunder, the Borrower shall have no recourse against any other
Lender(s) who has (have) performed its (their) obligations hereunder. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement, subject to the provisions of ARTICLE XII,
and it shall not be necessary for any other Lender to be joined as an additional
party in any proceeding for such purpose.
SECTION 14.09. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same Agreement.
SECTION L4.10. KNOWLEDGE AND DISCOVERY. All references in this Agreement
to "knowledge" of, or "discovery" by, the Borrower shall be deemed to include,
without limitation, any such actual knowledge of, or discovery by any executive
officer or the chief financial officer, if any, of the Borrower.
SECTION 14.11. AMENDMENT OF OTHER AGREEMENTS. All references in this
Agreement to other documents and agreements to which the Lenders are not parties
(including without limitation the Acquisition Agreements) shall be deemed to
refer to such documents and agreements as presently constituted and, except for
any amendments and modifications not prohibited under SECTION 7.11, not as
hereafter amended or modified unless the Required Lenders shall have expressly
consented in writing to such amendment(s) or modification(s).
SECTION 14.12. DISCLAIMER OF RELIANCE. THE BORROWER HAS NOT RELIED ON ANY
ORAL REPRESENTATIONS CONCERNING ANY OF THE TERMS OR CONDITIONS OF THE LOANS, THE
NOTES, THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS IN ENTERING INTO THE
SAME. THE BORROWER ACKNOWLEDGES AND AGREES THAT NONE OF THE OFFICERS OF THE
AGENT OR ANY LENDER HAS MADE ANY REPRESENTATIONS THAT ARE INCONSISTENT WITH THE
TERMS AND PROVISIONS OF THIS AGREEMENT, THE
71
NOTES AND THE SECURITY DOCUMENTS, AND NEITHER THE BORROWER NOR ANY OF ITS
AFFILIATES HAS RELIED ON ANY ORAL PROMISES OR REPRESENTATIONS IN CONNECTION
THEREWITH.
SECTION 14.13. ENVIRONMENTAL INDEMNIFICATION. Without limiting the
generality of SECTION 14.02, in consideration of the execution and delivery of
this Agreement by the Lenders and the making of the Loans, the Borrower hereby
indemnifies, exonerates and holds the Lenders and each of their respective
officers, directors, employees and agents (collectively, the "Indemnified
Parties") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of:
(a) any investigation, litigation or proceeding, including, without
limitation, the assertion of any lien, related to any environmental cleanup,
compliance action or release by any Company of any Hazardous Material or any
other matter affecting any of the Properties and relating to the protection of
the environment; or
(b) the presence on or under, or the actual or threatened discharge or
release from, any Property of any Hazardous Material whether or not such
Hazardous Material originates or emanates from such Property or is present or
threatening to affect such Property
(c) personal injury, death or property damage arising under any statutory
or common law tort theory of liability, including without limitation the
maintenance of a nuisance; or
(d) any other environmental condition arising at or affecting any of the
Properties which is limited, prohibited or otherwise regulated by a federal,
state or local agency charged with the enforcement of Environmental Laws.
The foregoing indemnification shall not apply to any such Indemnified
Liabilities arising for the account of a particular Indemnified Party by reason
of the relevant Indemnified Party's negligence or misconduct, and if and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Borrower agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Notwithstanding anything to the contrary herein contained, the obligations
and liabilities under this Section shall survive and continue in full force and
effect and shall not be terminated, discharged or released in whole or in part
irrespective of whether all the Obligations have been paid in full or the
Commitments have been terminated and irrespective of any foreclosure of any
mortgage, deed of trust or collateral assignment on any real property or
acceptance by any Lender of a deed or assignment in lieu of foreclosure.
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SECTION 14.14. INTEGRATION.
This Agreement and the other Loan Documents represent the agreement of the
Borrower, the Agent and the Lenders' with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by Agent
or any Lender relative to the subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
[THE NEXT PAGES ARE THE SIGNATURE PAGES]
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IN WITNESS WHEREOF, the Agent, the Lenders and the Borrower have caused
this Agreement to be duly executed by their duly authorized representatives, as
a sealed instrument, all as of the day and year first above written.
BORROWER:
VOYAGER INFORMATION NETWORKS, INC.
By: /s/ Christopher P. Torto
-------------------------------------
Title: CEO
|
AGENT:
FLEET NATIONAL BANK
By: /s/ Vincent Rivers
--------------------------------------
Title: A V.P.
|
LENDER:
FLEET NATIONAL BANK
By: /s/ Vincent Rivers
--------------------------------------
Title: A V.P.
|
[Signature Page to Credit Agreement]
Lending Office for all Loans:
Fleet National Bank
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang/Vincent Rivers
Telecopy No.: (617) 346-4346
Address for Notices:
Fleet National Bank
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang/Vincent Rivers
Telecopier No.: (617) 346-4346
FINOVA CAPITAL CORPORATION
By: /s/ Andrew J. Pluta
----------------------------------
Title: Andrew J. Pluta
|
Address for Notices:
FINOVA Capital Corporation
311 South Wacker Drive
Suite 4400
Chicago, Illinois 60606
Attention: Portfolio Manager
Telecopy No.: (312) 322-3530
and
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85004
Attention: Vice President, Law
Telecopy No.: (602) 207-5036
2
STATE STREET BANK AND TRUST COMPANY
By: /s/ Hamilton H. Wood
----------------------------
Title: Vice President
|
Address for Notices:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Hamilton H. Wood
Telecopy No.: (617) 664-3708
with a copy to:
Peter Palladino, Esquire
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
3
JOINDER
The undersigned joins in the execution of the foregoing Agreement for the
purpose of agreeing to be bound by the provisions thereof applicable to it.
VOYAGER HOLDINGS, INC.
By: /s/ Christopher P. Torto
--------------------------------
Title: CEO
|
4
EXHIBIT 10.2
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
April 13, 1999 by and among the following persons: FLEET NATIONAL BANK
("Fleet"), FINOVA CAPITAL CORPORATION ("Finova"), STATE STREET BANK AND TRUST
COMPANY ("State Street") and CIBC INC. ("CIBC", and, collectively with Fleet,
Finova and State Street, and each of the foregoing institution's successors and
assigns hereunder, the "Lenders" and each individually, a "Lender"); FLEET
NATIONAL BANK, as agent for the Lenders (in such capacity, together with its
successors and assigns in such capacity, the "Agent"); and VOYAGER INFORMATION
NETWORKS, INC., a Michigan corporation (the "Borrower"). Capitalized terms used
herein without definition have the meanings assigned to them in the Original
Agreement referred to below.
RECITALS
A. Fleet, Finova and State Street (the "Original Lenders"), the Agent and
the Borrower are parties to a Credit Agreement dated as of September 23, 1998
(the "Original Agreement" and, as amended hereby, the Credit Agreement"),
pursuant to which the Original Lenders made available to the Borrower a reducing
revolving credit facility in the aggregate principal amount of $40,000,000.
B. The Borrower desires to amend the Original Agreement to (1) reflect
the purchase on the date hereof immediately prior to giving effect hereto by
CIBC of a portion of the Borrower's indebtedness to the Original Lenders,
pursuant to which purchase CIBC became a party to the Original Agreement, having
the rights and remedies of, and being bound and obligated as, a "Lender"
thereunder (and as provided in the Loan Documents); (2) increase the Commitments
under the Credit Agreement from $40,000,000 to $70,000,000; and (3) revise and
adjust various financial and other covenants in connection with the foregoing.
C. The Lenders are willing to effect such amendments and make available
such additional loans, subject to the terms and conditions hereinafter set
forth.
D. Capitalized terms used in this Amendment and not defined herein are
used with the same meaning as set forth in the Original Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
I. AMENDMENTS TO CREDIT AGREEMENT.
The Original Agreement is hereby amended as follows:
1. Reducing Revolving Facilities.
(a) Section 1.01(a) of the Original Agreement is hereby amended by
(i) deleting the number "$40,000,000" and substituting in its stead the number
"$70,000,000"; (ii) deleting the date "September 30, 2004" and substituting in
its stead the date "March 31, 2005"; and (iii) inserting the words "subject to
Section 2.02" after the date "March 31, 2005". Schedule 1.01(a) to the Original
Agreement is hereby amended in its entirety to provide as set forth in Schedule
1.01(a) attached to this Amendment.
(b) Section 1.01(d) of the Original Agreement is hereby amended in
its entirety to provide as follows:
The Commitments (i) shall be automatically and permanently reduced on
December 31, 2000 and on the last Business Day of each March, June,
September and December thereafter (each such date being referred to as a
"Quarterly Date"), on each of which dates the Borrower shall repay such
amount of the aggregate Notes as shall cause the aggregate outstanding
principal balance thereunder to be less than or equal to the Commitments,
as so reduced, and (ii) shall expire on the Maturity Date, when all
outstanding principal and accrued interest on the Notes shall be due and
payable in full. Such quarterly reductions of the Commitments shall be in
the amounts set forth below, without giving effect to any other mandatory
or optional Commitment reductions and, after giving effect to such
quarterly automatic reductions, the maximum aggregate amount of the
Commitments shall not exceed the levels set forth below:
AGGREGATE AMOUNT OF
PAYMENT DATE AUTOMATIC PERMANENT MAXIMUM
------------
REDUCTION COMMITMENTS
--------- -----------
First Amendment Date $- 0 - $70,000,000
December 31, 2000 875,000 69,125,000
March 31, 2001 875,000 68,250,000
June 30, 2001 1,750,000 66,500,000
September 30, 2001 1,750,000 64,750,000
December 31, 2001 1,750,000 63,000,000
March 31, 2002 1,750,000 61,250,000
June 30, 2002 3,500,000 57,750,000
September 30, 2002 3,500,000 54,250,000
December 31, 2002 3,500,000 50,750,000
March 31, 2003 3,500,000 47,250,000
June 30, 2003 5,250,000 42,000,000
|
-2-
September 30, 2003 5,250,000 36,750,000
December 31, 2003 5,250,000 31,500,000
March 31, 2004 5,250,000 26,250,000
June 30, 2004 6,562,500 19,687,500
September 30, 2004 6,562,500 13,125,000
December 31, 2004 6,562,500 6,562,000
March 31, 2005 6,562,500 $- 0 -
2. Use of Proceeds. Section 2.02 is hereby amended in its entirety as
---------------
|
follows:
"The proceeds of the Loans shall be used by the Borrower (a) to
make Capital Expenditures, (b) to fund its Total Debt Service,
(c) to make Permitted Acquisitions, and (d) for working capital,
with the last $2,000,000 under the Commitments to be reserved to
make Capital Expenditures, to fund Total Debt Service and for
working capital."
3. Equity Financing. Section 3.01(e) of the Original Agreement is hereby
amended by deleting the reference of "March 30, 1999" and replacing it in its
stead the reference of "May 7, 1999."
4. Leverage. Section 5.01 of the Original Agreement is hereby amended in
its entirety to provide as follows:
SECTION 5.01. LEVERAGE. Maintain a ratio of (a) Total Funded Debt as
of each Quarterly Date during each period indicated below to (b) Annualized
Operating Cash Flow for the fiscal quarter then ended not exceeding the
following:
MAXIMUM RATIO OF
TOTAL FUNDED DEBT TO
ANNUALIZED OPERATING
PERIOD CASH FLOW
------ ---------
Quarter ended March 31, 1999 5.25:1.00
April 1, 1999 through June 30, 1999 5.00:1.00
July, 1, 1999 through September 30, 1999 4.75:1.00
October 1, 1999 through December 31, 1999 4.25:1.00
January 1, 2000 through March 31, 2000 4.00:1.00
April 1, 2000 through June 30, 2000 3.75:1.00
July 1, 2000 and thereafter 3.50:1.00
|
-3-
5. Fixed Charges. Section 5.02 of the Original Agreement is hereby
amended in its entirety to provide as follows:
SECTION 5.02. FIXED CHARGES. Maintain a ratio of at least that indicated
below of (a) Annualized Operating Cash Flow for each fiscal quarter ending
on the Quarterly Dates indicated below minus Capital Expenditures made
during the twelve month period ending on the last day of such fiscal
quarter to (b) Fixed Charges for such fiscal quarter multiplied by four
(4):
FISCAL QUARTER ENDING MINIMUM FIXED CHARGES RATIO
--------------------- ---------------------------
December 31, 1999 through June 30, 2000 1.15:1.00
July 1, 2000 and thereafter 1.25:1.00
|
6. Total Interest Coverage. Section 5.03 of the Original Agreement is
hereby amended in its entirety to provide as follows:
SECTION 5.03. TOTAL INTEREST COVERAGE. For each fiscal quarter ending on
the Quarterly Dates indicated below, maintain a ratio of Pro Forma
Operating Cash Flow for such period to Total Interest Expense for such
period (the "Total Interest Coverage Ratio") not less than the following:
MINIMUM TOTAL
FISCAL QUARTER ENDING INTEREST COVERAGE
--------------------- -----------------
March 31, 1999 through December 31, 1999 2.00:1.00
January 1, 2000 through December 31, 2000 2.25:1.00
January 1, 2001 and thereafter 2.50:1.00
7. CHURN. (a) The Original Agreement is hereby amended to add the
-----
following as Section 5.04 thereto.
|
SECTION 5.04 MAXIMUM CHURN. For each fiscal quarter ending on March 31,
1999, June 30, 1999 and September 30, 1999, experience average monthly
Churn during each such period of not more than 3.00%.
8. Compliance Certificate. Exhibit A to Schedule 6.05 to the Original
Agreement is hereby amended in its entirety to provide as set forth on Exhibit A
hereto.
-4-
9. Capital Leases. Section 7.01(f) of the Original Agreement is hereby
amended by deleting the number "$2,000,000" and substituting in its stead the
number "$3,500,000".
10. Equity Default. Paragraph (1) of Article VIII of the Original
Agreement is hereby amended in its entirety to provide as follows:
(1) for any reason, (i) the transaction contemplated by
Section 1.4 of the Stock Purchase Agreement shall not be
consummated on or prior to May 7, 1999, or (ii) the
Borrower shall not receive equity capital contributions
from the Parent of at least $5,000,000 on or prior to
November 1, 1999 (unless the Contribution Commitment
Agreement has been terminated pursuant to the terms
thereof), or earlier upon the occurrence of any Event
of Default arising under paragraphs (b) or (c) OF THIS
ARTICLE VIII or upon the default in the due observance or
performance by the Borrower, or compliance with, the
covenants and agreements set forth in ARTICLE V, in
accordance with the Contribution Commitment Agreement
dated as of April 13, 1999 among the Parent, Media/
Communication Partners II Limited Partnership and Media/
Communications Investors Limited Partnership.
11. New Definitions. Article XI of the Original Agreement is hereby
amended by inserting the following definitions in appropriate alphabetical
order:
CHURN. For any period, the fraction, expressed as a percentage, (i) the
numerator of which is the number of residential dial-up subscribers to the
internet access services offered by the Companies that cease to be
subscribers during such period (including any such subscribers whose
service has been discontinued for non-payment, but excluding (x) any such
subscribers discontinued in connection with a sale of assets by any of the
Companies outside of the ordinary course of business, (y) and subscribers
that resubscribe to such internet access services during such period and
(z) any subscribers obtained outside of the ordinary course of business in
a Permitted Acquisition whose service is discontinued for any reason during
such period and, as a result thereof, the Companies receive a credit,
refund or other reduction in the purchase price paid or payable with
respect to such Permitted Acquisition), and (ii) the denominator of which
is the number of residential dial-up subscribers to the internet access
services offered by the Companies as of the last day of such period.
FIRST AMENDMENT DATE. Means the date as of which all of the conditions to
the effectiveness of the First Amendment dated as of April 13, 1999 among
the Borrower, the Lenders and the Agent are satisfied as contemplated by
Section IV thereof.
-5-
12. Change of Control Definition. The definition of the term "CHANGE OF
CONTROL" in Article XI of the Original Agreement is hereby amended by (x)
inserting the word "voting" after the word "outstanding" and before the term
"Equity Securities" in clause (i) thereof and (z) deleting the word "Agent" in
clause (v) thereof and substituting in its stead the term "Required Lenders".
13. Companies Definition. The definition of the term "Companies" in
Article XI of the Original Agreement is hereby amended in its entirety as
follows: "Collectively, the Parent and its Subsidiaries, the Borrower and its
Subsidiaries, from time to time."
14. Permitted Acquisitions Definition. Paragraph (b(ii)(1) definition of
the term "Permitted Acquisition" in Article XI of the Original Agreement is
hereby amended by deleting the reference of "thirty (30) days" and replacing it
in its stead the reference of "five (5) business days".
15. Maturity Date Definition. The definition of the term "Maturity Date"
in Article XI of the Original Agreement is hereby amended by deleting the
reference of "September 30, 2004" and replacing it in its stead the reference of
"March 31, 2005."
16. Permitted Acquisitions Certificate. (a) Paragraph (b) of the
definition of the term "PERMITTED ACQUISITIONS" in Article XI of the Original
Agreement is hereby amended by adding the following after the phrase "terms and
conditions set forth in (i) through (xi) below" and before the ":":
"and subject to the Agent's receipt of a completed "Offficer's
Compliance Certificate: Permitted Acquisitions" in substantially
the form of Schedule 11 hereto duly executed by the Borrower's
Chief Executive Officer or Chief Financial Officer"
(b) The Original Agreement is hereby amended by adding the Form of
"Officer's Compliance Certificate: Permitted Acquisitions" attached hereto as
Schedule 11 as Schedule 11 to the Credit Agreement.
17. Entire Agreement: Amendments and Waivers; Actions by the Lenders.
Paragraph (a) in Article XII of the Original Agreement is hereby amended by (i)
deleting ",or" at the end of subparagraph (6), (ii) deleting ";" at the end of
subparagraph (7) and inserting in its stead ", or" and (iii) inserting the
following subparagraph (8) after subparagraph (7):
"(8) amended the provisions of or waive an Event of Default under
paragraph (1) of Article VIII;"
18. Assignments and Participations. Article XIII, paragraph (b)(vi) of the
Original Agreement is hereby amended in its entirety to provide as follows:
-6-
(vi) Except for an assignment made to a separately organized
branch or Affiliate of a Lender, (x) no assignment referred to
above shall be permitted without the prior written consent of the
Agent, which consent will not be unreasonably withheld or delayed
and (z) no participation referred to above shall be sold without
providing prior written notice thereof to the Agent, such notice
to include the amount of the participation sold and the identity
of the participant, and an undertaking by the selling Lender to
provide to the Agent such additional information regarding such
participation as the Agent may reasonably request.
II NO FURTHER AMENDMENTS: SECURITY CONFIRMED
Except as specifically amended hereby, the Original Agreement shall remain
unmodified and in full force and effect. The Original Agreement as hereby
amended, and all of the other Loan Documents, are hereby ratified and affirmed
in all respects, and the indebtedness of the Borrower to the Agent and the
Lenders evidenced thereby and by the Notes (including the New Notes referred to
in SECTION IV below) is hereby reaffirmed in all respects. The Borrower hereby
confirms that (a) the term "Notes", as used in the Credit Agreement and various
of the Security Documents, shall mean the New Notes; (b) the term "Obligations",
as used in the Credit Agreement and in various of the Security Documents
includes the Borrower's obligations under the Original Agreement, as amended
hereby, and the New Notes issued pursuant thereto from time to time; and (c)
howsoever defined, such Obligations shall be secured by, and entitled to the
benefits of, all of the Security Documents, as in effect from time to time.
III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER
The Borrower hereby represents and warrants to, and covenants and agrees
with, the Lenders that:
A. The execution and delivery of the Amendment, the New Notes and all
other documents contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Borrower and each of its Subsidiaries.
B. Except as set forth on Schedule A hereto, the representations and
warranties contained in the Credit Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date of this
Agreement as though made at and as of such date except (i) for changes occurring
in the ordinary course of business since September 23, 1998, (ii) the Borrower
completed the Permitted Acquisitions referenced on Schedule A hereto and (iii)
representations and warranties that are specific to a time or date are true and
correct as made as of such specified time or date. No material adverse change
has occurred in the assets, liabilities, financial condition, business or
prospects of the Borrower and its Subsidiaries from that disclosed in the
financial statements most recently furnished to the Lenders. Except for the
-7-
Specified Defaults referenced in Article V below, no Event of Default has
occurred and is continuing.
C. Neither the Borrower nor any Affiliate of the Borrower is required to
obtain any consent, approval or authorization from, or to file any declaration
or statement with, any governmental instrumentality or other agency or any other
person or entity in connection with or as a condition to the execution, delivery
or performance of this Amendment or the other Loan Documents contemplated
hereby, if any (collectively the "Documents").
D. This Amendment, the New Notes and the other Documents constitute the
legal, valid and binding obligations of the Borrower and its Affiliates
enforceable against them, jointly and severally, in accordance with their
respective terms, subject to bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting the rights and remedies of creditors generally or the
application of principles of equity, whether in any action at law or proceeding
in equity, and subject to the availability of the remedy of specific performance
or of any other equitable remedy or relief to enforce any right thereunder.
E. Any reprogramming required to permit the proper functioning (but only
to the extent that such proper functioning would otherwise be impaired by the
occurrence of the year 2000) in and following the year 2000 of computer systems
and other equipment containing embedded microchips, in either case owned or
operated by the Borrower or any of its Subsidiaries or used or relied upon in
the conduct of their business (including any such systems and other equipment
supplied by others or with which the computer systems the Borrower or any of its
Subsidiaries interface), and the testing of all such systems and other equipment
as so reprogrammed, will be completed by June 30, 1999. The costs to the
Borrower and its Subsidiaries that have not been incurred as of the date hereof
for such reprogramming and testing and for the other reasonably foreseeable
consequences to them of any improper functioning of other computer systems and
equipment containing embedded microchips due to the occurrence of the year 2000
could not reasonably be expected to result in a Default or Event of Default or
to have a Material Adverse Effect. Except for any reprogramming referred to
above, the computer systems of the Borrower and its Subsidiaries are and, with
ordinary course upgrading and maintenance, will continue for the term of this
Agreement to be, sufficient for the conduct of their business as currently
conducted.
F. The Borrower will satisfy all of the conditions set forth in SECTION
IV.
IV. CONDITIONS. The willingness of the Agent and the Lenders to amend the
Original Agreement, and the effectiveness of the amendments to the Original
Agreement contemplated hereby, are subject to the satisfaction of the following
conditions precedent:
A. The Borrower shall have executed and delivered to the Agent (or shall
have caused to be executed and delivered to the Agent by the appropriate
persons) the following:
(a) This Amendment.
-8-
(b) True and complete copies of any required stockholders' and/or
directors' consents and/or resolutions, authorizing the execution and
delivery of this Amendment and the other Documents contemplated hereby,
certified by the Secretary of the appropriate Company, if needed.
(c) Such other supporting documents and certificates as the Agent or
its counsel may reasonably request, within the time period(s) reasonably
designated by the Agent or its counsel.
(d) The Borrower's Notes, as set forth below, in each case, in the
forms attached hereto as EXHIBIT B (collectively, the "New Notes"):
(a) $20,000,000.00 Amended and Restated Reducing Revolving Credit Note
payable to Fleet.
(b) $20,000,000.00 Amended and Restated Reducing Revolving Credit Note
payable to Finova.
(c) $15,000,000.00 Amended and Restated Reducing Revolving Credit Note
payable to State Street.
(d) $15,000,000.00 Amended and Restated Reducing Revolving Credit Note
payable CIBC.
B. The Lenders shall have received evidence that (i) the Equity Investors
are obligated to make additional cash equity contributions to the Parent of at
least $5,000,000 on or before November 1, 1999, (ii) that the Parent is
obligated to contribute such $5,000,000 amount to the Borrower upon its receipt
of the same from the Equity Investors, and (iii) that the Lenders are made third
party beneficiaries of the Equity Investors' and Parent's obligations referenced
in clauses (i) and (ii) above.
C. The Borrower shall have paid to the Agent in immediately available
funds for the Lenders' account the following facility fees in the aggregate
amount of $1,050,000 payable to the Lenders as follows:
Lender Facility Fee
------ ------------
Fleet $ 237,500
Finova 237,500
State Street 200,000
CIBC 375,000
------------
$1,050,000
|
D. Voyager Data Services, Inc., a Delaware corporation wholly-owned by
the Parent shall have executed and delivered to the Agent a Guaranty, Security
and Pledge Agreement in form acceptable to the Agent.
-9-
E. All legal matters incident to the transactions hereby contemplated
shall be reasonably satisfactory to the Agent's counsel and the Lenders shall
have received the favorable written opinion of Goodwin, Procter & Hoar LLP,
counsel to the Borrower, in form and substance satisfactory to the Lenders.
V ACKNOWLEDGMENT OF DEFAULTS: WAIVER.
A. The Borrower, the Agent and the Lenders hereby acknowledge and agree
that Item Nos. 1, 6, 9, 11, 12 and 13 listed on Schedule A hereto each
constitutes a breach of a covenant under the Original Agreement and an Event of
Default for all purposes of the Credit Agreement and each of the other Loan
Documents (the "Specified Defaults"). But for the waiver provided for below,
each such Specified Default gives rise to the Agent's and the Lenders' rights to
exercise remedies in accordance with ARTICLE IX of the Credit Agreement.
B. The Agent and the Lenders hereby waive the right to exercise any
remedies in accordance with ARTICLE IX of the Credit Agreement arising solely by
reason of the occurrence of the Specified Defaults. Such waiver specified in the
preceding sentence is limited to the express terms set forth herein and shall
not be deemed to be a waiver of any Default other than the Specified Defaults
that may have existed on or prior to the date hereof or that may hereafter
arise, or of any other of the Lenders' rights under the Credit Agreement or any
of the other Loan Documents (other than the rights under the Credit Agreement
arising by reason of the Specified Defaults). Neither the granting of the waiver
herein nor any prior waivers of Events of Default heretofore effected, give rise
to any right to, or expectation of, any waiver by the Agent and the Lenders in
the future with respect to any Default, whether or not under circumstances
similar to those under which the waiver hereunder is being granted or under
which previous waivers have been effected, and none of the Agent or the Lenders
shall have any duty to waive any other Default, or any right arising with
respect thereto, for any purpose whatsoever.
VI MISCELLANEOUS.
A. As provided in the Original Agreement, the Borrower agrees to
reimburse the Agent upon demand for all reasonable fees and disbursements of
counsel to the Agent incurred in connection with the preparation of this
Amendment and the Other Documents and the Credit Agreement.
B. This Amendment shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
C. This Agreement may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, all of which counterparts shall together constitute one and the same
agreement. Delivery of an executed signature page of this Agreement by facsimile
transmission shall be effective as an in-hand delivery of an original executed
counterpart hereof.
-10-
IN WITNESS WHEREOF, the Agent, the Borrower and the Lenders have caused
this Amendment to be duly executed as a sealed instrument by their duly
authorized representatives, all as of the day and year first above written.
BORROWER:
VOYAGER INFORMATION NETWORKS, INC.
By: /s/ Christopher P. Torto
------------------------------
Title: Chief Executive Officer
|
AGENT:
By: /s/ Vincent Rivers
------------------------------
Title: A V.P.
|
LENDERS:
FLEET NATIONAL BANK
By: /s/ Vincent Rivers
------------------------------
Title: A V.P.
|
Lending Office for all Loans:
Fleet National Bank
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang/Vincent Rivers
Telecopy No.: (617)346-4346
Address for Notices:
Fleet National Bank
One Federal Street
Mail Stop: MAOFD03D
Boston, Massachusetts 02110
Attention: Paula Lang/Vincent Rivers
Telecopy No.: (617)346-4346
FINOVA CAPITAL CORPORATION
By: /s/ Andrew J. Pluta
------------------------------------
Title: Vice President
|
Address for Notices:
FINOVA Capital Corporation
311 South Wacker Drive
Suite 4400
Chicago, Illinois 60606
Attention: Portfolio Manager
Telecopy No.: (312)322-3530
and
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85004
Attention: Vice President, Law
Telecopy No.: (602)207-5036
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Hamilton H. Wood
------------------------------------
Title: Vice President
|
Address for Notices:
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Hamilton H. Wood
Telecopy No.: (617) 664-3708
with a copy to:
Peter Palladino, Esquire
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
Address for notices:
CIBC INC.
By: /s/ Christine Harrigan
------------------------------------
Title: Executive Director
|
CIBC INC.
425 Lexington Avenue
8th Floor
New York, NY 10017
Attention: Laura Hom
Telecopy No.: (212) 856-3558
with a copy to:
CIBC INC.
2 Paces West, Suite 1200
2727 Paces Ferry Road
Atlanta, GA 30339
Attn: Chris Hiott
JOINDER
The undersigned hereby jointly and severally join in the execution of
the foregoing First Amendment to Credit Agreement dated as of April 13, 1999
(the "Amendment") to which this Joinder is attached to confirm their respective
consents to all of the transactions contemplated by the Amendment and all
agreements and instruments executed and delivered in connection therewith and
hereby jointly and severally reaffirm and ratify their respective guarantees and
all agreements securing such guarantees, all of which shall in all respects
remain in full force and effect and shall continue to guarantee any and all
indebtedness, obligations and liabilities of the Borrower to the Agent and the
Lenders, whether now existing or hereafter arising, on the same terms and
conditions as are set forth in their respective guarantees.
The undersigned, Voyager Holdings, Inc., hereby (i) represents and
warrants to the Lender that it is the record and beneficial owner of 1,000
shares of common stock of Voyager Data Services, Inc., a Delaware corporation
("VDS"), which 1,000 shares constitute all of the issued and outstanding capital
stock of VDS, and (ii) acknowledges that shares of VDS constitute Collateral for
all purposes of the Guaranty, Security and Pledge Agreement dated as of
September 23, 1998 between Voyager Holdings, Inc. and the Agent (the "Parent
Guaranty"). Exhibit A to the Parent Guaranty is hereby amended to provide as set
forth on Schedule B hereto.
VOYAGER HOLDINGS, INC.
By: /s/ Christopher P. Torto
------------------------------
Title: Chief Executive Officer
|
HORIZON TELECOMMUNICATIONS, INC.
By: /s/ Christopher P. Torto
------------------------------
Title: Chief Executive Officer
|
SCHEDULE 1.01(A)
ALLOCATION OF LOANS AND COMMITMENTS
LENDER COMMITMENT PERCENTAGE
------ ----------- ----------
Fleet National Bank $20,000,000 28.571%
Finova Capital $20,000,000 28.571%
Corporation
State Street Bank and $15,000,000 21.429%
Trust Company
CIBC Inc. $15,000,000 21.429%
|
First Amendment to
Credit Agreement dated as of
April 13, 1999
EXHIBIT A
Pledged Securities as of April 13, 1999
NAME OF SHAREHOLDER NO. AND TYPE OF SHARES OWNED
------------------- ----------------------------
Voyager Holdings, Inc. 787,819 shares of Voyager Information
Networks Inc.'s Common Stock, which
shares, collectively, represent 100% of
the issued and outstanding capital stock
of Voyager Information Networks, Inc.
Voyager Holdings, Inc. 1,000 shares of Voyager Data Services,
Inc.'s capital stock, which shares
represent 100% of the issued and
outstanding capital stock of Voyager Data
Services, Inc.
|
EXHIBIT 10.3
THIS NOTE AND THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED IN THE MANNER
AND TO THE EXTENT SET FORTH IN THE AFFILIATE SUBORDINATION AGREEMENT (AS THE
SAME MAY BE AMENDED, MODIFIED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME, THE
"SUBORDINATION AGREEMENT"), DATED AS OF SEPTEMBER 23, 1998 BY AND AMONG THE
MAKER OF THIS NOTE, THE PAYEE OF THIS NOTE, AND FLEET NATIONAL BANK, AS AGENT;
AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES (I) TO BE BOUND
BY THE TERMS OF THE SUBORDINATION AGREEMENT AND (II) IN THE EVENT THAT ANY
CONFLICT EXISTS BETWEEN THE TERMS OF THIS NOTE, ANY DOCUMENTS EXECUTED IN
CONNECTION WITH THE DELIVERY OF THIS NOTE AND THE TERMS OF THE SUBORDINATION
AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL GOVERN AND BE
CONTROLLING.
AMENDED AND RESTATED
SUBORDINATED PROMISSORY NOTE
$2,101,197 Lansing, Michigan September 23, 1998
For value received, the undersigned (the "Maker") promises to pay ON DEMAND
in immediately available funds to the order of Horizon Cable I Limited
Partnership (hereinafter referred to as the "Payee") the principal sum of Two
Million One Hundred and One Thousand One Hundred Ninety-Seven Dollars
($2,101,197) or such lesser amount as may be shown on a Schedule of Advances
annexed hereto and acknowledged in writing by the Maker (the "Principal"), with
interest (computed on the basis of a 360-day year) accrued on the unpaid
Principal from time to time outstanding, payable monthly at an annual rate equal
to eight percent (8%) per annum.
Notwithstanding anything to the contrary set forth herein, the entire
unpaid Principal and accrued interest on this Note is subject to mandatory
prepayment in the event of any liquidation, dissolution or winding up of the
Maker, whether voluntary or involuntary. The consolidation or merger of the
Maker into or with any other entity or entities, or the sale, lease, exchange or
other transfer by the Maker of all or substantially all of its assets, or the
dissolution without reconstitution of the Maker, appointment of a receiver of
any part of the property of, assignment for the benefit of creditors by, or
commencement of any proceedings under the United States Bankruptcy Code or any
insolvency law by or against the Maker, shall be deemed to be a liquidation,
dissolution or winding up of the Maker within the meaning of the provisions of
this paragraph.
Every maker, endorser and guarantor hereof or of the indebtedness evidenced
hereby (a) waives notice of and consents to any and all advances, settlements,
compromises, favors and indulgences (including, without limitation, any
extension or postponement of the time for payment), any and all receipts,
substitutions, additions, exchanges and releases of collateral, and any and all
additions, substitutions and releases of any person primarily or secondarily
liable, (b) waives presentment, demand, notice, protest and all other demands,
notices and suretyship defenses generally, in connection with the delivery,
acceptance, performance, default or enforcement of or under this Note, and (c)
agrees to pay, to the extent permitted by law, all costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Payee in enforcing this Note and any collateral or security therefor on
default, whether or not litigation is commenced.
No delay or omission of the Payee in exercising any right or remedy
hereunder shall constitute a wavier of any such right or remedy. Acceptance by
the Payee of any payment after acceleration shall not be deemed a waiver of such
acceleration. A waiver on one occasion shall not operate as a bar to or waiver
of any such right or remedy on any future occasion.
The Maker represents that this Note has been duly executed and delivered
and constitutes a legal, valid and binding obligation of the Maker, enforceable
against the Maker in accordance with its terms. The execution, delivery and
performance of this Note does not and will not violate or conflict with, result
in a breach of, or constitute a default under, any applicable law or any
indenture, agreement, other contractual restriction, or instrument to which the
Maker is a party, or all such violations, conflicts, breaches or defaults have
been duly waived.
This Note amends and restates in its entirety, and is issued in
substitution for, Maker's "Senior Secured Promissory Note" dated December 31,
1996 in the original principal amount of $1,775,000, and represents a
continuation of the outstanding obligations of the Maker thereunder.
This Note shall take effect as an instrument under seal and shall be
governed and construed in accordance with the laws of the State of Michigan.
VOYAGER INFORMATION NETWORKS, INC.
By: /s/ Christopher Torto
---------------------
Christopher Torto
Chief Executive Officer
|
2
SCHEDULE OF ADVANCES
This Schedule supplements the Amended and Restated Subordinated Promissory
Note of Voyager Information Networks, Inc. (the "Maker") dated September 23,
1998 in the original principal amount of $2,101,197 payable to Horizon Cable I
Limited Partnership. The Maker hereby acknowledges receipt of the advances in
the amount and on the dates set forth below, all of which shall be included as
"Principal" under, and be governed by the terms and conditions of, said Note.
Date of Advance Amount of Advance Receipt Acknowledged
3
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT
Agreement made as of July 27, 1998 by and between Voyager Information
Networks, Inc., a Michigan corporation ("Buyer"), and Freeway, Inc., a Michigan
corporation ("Seller").
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell, transfer and assign to Buyer, and Buyer desires to purchase from Seller,
all of the properties, rights and assets used or useful in connection with the
Internet service business of Seller (the "Business").
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Upon the terms and subject to the conditions set
forth in this Agreement, and the performance by the parties hereto of their
respective obligations hereunder, Seller agrees to sell, assign, transfer and
deliver to Buyer, and Buyer agrees to purchase from Seller, all of Seller's
right, title and interest in and to all of the properties, assets and business
of the Business of every kind and description, tangible and intangible, real,
personal or mixed, and wherever located, but excluding the Excluded Assets (as
defined in Section 1.2 below), including without limitation, the following:
(a) Equipment. All free standing kiosks, servers, routers, modems,
IP addresses, computers, electronic devices, test equipment and all other fixed
assets, equipment, furniture, fixtures, parts, accessories, inventory, office
materials, software, supplies and other tangible personal property of every kind
and description owned by Seller and used or held for use in connection with the
Business, in each case together with any additions thereto between the date of
this Agreement and the Closing Date (as defined below), all as set forth on
Schedule 1.1(a) attached hereto (collectively, "Equipment");
(b) Contracts. All of the rights of Seller under and interest of
Seller in and to all contracts relating to the Business (other than the Excluded
Contracts (as defined below)), including, without limitation, original contracts
for the provision of Internet connectivity, dedicated service, web-hosting, web-
domain, dial-up services and Internet commerce, a true, correct and complete
list of which contracts is attached hereto as Schedule 1.1(b) (collectively, the
"Contracts");
(c) Proprietary Rights. All Proprietary Rights (as defined in
Section 2.19), which shall include, without limitation, the name "Freeway" and
all related and associated
logos and trademarks and service marks as well as Seller's websites (including
the domain name "freeway.net" and any similar domain names) related to, or
contemplated for use by Seller in connection with the Business, and all licenses
to or from third parties with respect to the foregoing and rights related
thereto and including Seller's customer database, and any and all claims with
respect to any of the foregoing, all as set forth on Schedule 1.1(c) attached
hereto;
(d) Licenses and Authorizations. All rights associated with the
licenses, permits, easements, registrations and authorizations issued or granted
to Seller by any governmental authority with respect to the operation of the
Business, including, without limitation, those licenses and authorizations
listed on Schedule 1.1(d) attached hereto, and all applications therefor,
together with any renewals, extensions, or modifications thereof and additions
thereto;
(e) Accounts Receivable. All accounts receivable of Seller
outstanding on the Closing Date which are included as such in the balance sheet
of Seller, a schedule of which is attached hereto as Schedule 1.1(e) (the
"Accounts Receivable");
(f) Goodwill. All of the goodwill of Seller in, and the going
concern value of, the Business, and all of the business and customer lists,
proprietary information, and trade secrets related to the Business; and
(g) Records. All of Seller's customer logs, location files and
records, employee records, and other business files and records, in each case
relating to the Business.
The assets, properties and business of Seller being sold to and purchased
by Buyer under this Section 1.1 are referred to herein collectively as the
"Assets."
1.2 Excluded Assets. There shall be excluded from the Assets and retained
by Seller, to the extent in existence on the Closing Date, the following assets
(the "Excluded Assets"):
(a) Other Assets. All other assets of Seller which are not used or
held for use in connection with the Business or otherwise necessary to the
operation of the Business now or after the Closing Date as set forth on Schedule
1.2(a) attached hereto, including, without limitation, all assets used or held
for use in connection with Seller's Web development business (including all
personnel, code and systems related thereto), as well as the web-hosting
accounts set forth on such schedule (such accounts, the "Excluded Subscribers");
(b) Excluded Contracts. All of Seller's right, title and interest
in, to and under the Contracts listed on Schedule 1.2(b) attached hereto (the
"Excluded Contracts");
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(c) Insurance. All contracts of insurance (including any cash
surrender value thereof) and all insurance proceeds of settlement and insurance
claims made by Seller on or before the Closing Date as set forth on Schedule
1.2(c) attached hereto;
(d) Tax Items. All claims, rights and interest in and to any refunds
for federal, state or local Taxes (as defined below) for periods prior to the
Closing Date as set forth on Schedule 1.2(d) attached hereto; and
(e) Corporate Records. All of Seller's corporate and other
organizational records.
1.3 Assumed Liabilities; Excluded Liabilities; Employees.
(a) Assumed Liabilities. Buyer shall, on and as of the Closing Date,
accept and assume, and shall become and be fully liable and responsible for, and
other than as expressly set forth herein Seller shall have no further liability
or responsibility for or with respect to, (a) liabilities and obligations
arising out of events occurring on and after the Closing Date related to Buyer's
ownership of the Assets and Buyer's operation of the Business after the Closing
Date; (b) all obligations and liabilities of Seller which are to be performed
after the Closing Date arising under the Contracts, including, without
limitation, Seller's obligations to Subscribers under such Contracts for (i)
Subscriber deposits held by Seller as of the Closing Date in the amount for
which Buyer receives a credit pursuant to Section 1.6, (ii) Subscriber advance
payments held by Seller as of the Closing Date for services to be rendered in
connection with the Business in the amount for which Buyer receives a credit
pursuant to Section 1.6, and (iii) the delivery of Internet connectivity service
to Subscribers (whether under the Contracts or otherwise) after the Closing Date
((a) and (b) together, the "Assumed Liabilities"). The assumption of the
Assumed Liabilities by Buyer hereunder shall not enlarge any rights of third
parties under contracts or arrangements with Buyer or Seller or any of their
respective affiliates or subsidiaries. No parties other than Buyer and Seller
shall have any rights under this Agreement.
(b) Excluded Liabilities. It is expressly understood that, except for
the Assumed Liabilities, Buyer shall not assume, pay or be liable for any
liability or obligation of Seller of any kind or nature at any time existing or
asserted, whether, known, unknown, fixed, contingent or otherwise, not
specifically assumed herein by Buyer, including, without limitation, any
liability or obligation relating to, resulting from or arising out of (i) the
Excluded Assets, including, without limitation, the Excluded Contracts, (ii) the
employees of the Business, including, without limitation, any obligation to
provide any amounts due to the employees under any pension, profit sharing or
similar plan, bonus or other compensation plan, or related to vacation or other
similar employee benefits, or (iii) any fact existing or event occurring prior
to the Closing Date or relating to the operation of the Business prior to the
Closing Date. The liabilities which are not assumed by Buyer under this
Agreement are hereinafter sometimes referred to as the "Excluded Liabilities."
3
(c) Employees, Wages and Benefits.
(i) Seller shall terminate all of its employees effective as of
the Closing Date and Buyer shall not assume or have any obligations or
liabilities with respect to such employees or such terminations, including,
without limitation, any severance obligation. Seller acknowledges and
agrees that Buyer has the right to interview and discuss employment terms
and issues with such employees prior to and after the Closing.
(ii) Buyer specifically reserves the right, on or after the
Closing Date, to employ or reject any of Seller's employees or other
applicants in its sole and absolute discretion; provided that Buyer shall
provide to Seller a list of employees to whom Buyer intends to offer
employment as of the Closing Date. Nothing in this Agreement shall be
construed as a commitment or obligation of Buyer to accept for employment,
or otherwise continue the employment of, any of Seller's employees, and no
employee shall be a third-party beneficiary of this Agreement.
(iii) Seller shall pay all wages, salaries, commissions, and the
cost of all fringe benefits provided to its employees which shall have
become due for work performed as of and through the day preceding the
Closing Date, and Seller shall collect and pay all Taxes in respect of such
wages, salaries, commissions and benefits.
(iv) Seller acknowledges and agrees that Buyer shall not acquire
any rights or interests of Seller in, or assume or have any obligations or
liabilities of Seller under, any benefit plans maintained by, or for the
benefit of any employees of Seller prior to the Closing Date, including,
without limitation, obligations for severance or vacation accrued but not
taken as of the Closing Date.
1.4 The Closing. The transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at 10:00 a.m., local time, at
the offices of Stedman, Fershee & Fershee LLP, on July 31, 1998 or at such other
time and place as shall be mutually agreed upon in writing by Buyer and Seller
(the "Closing Date").
1.5 Purchase Price. In consideration of the sale by Seller to Buyer of
the Assets, and subject to the assumption by Buyer of the Assumed Liabilities
and satisfaction of the conditions contained herein, Buyer shall pay to Seller
at the Closing an amount (as adjusted in accordance with Section 1.6 below, the
"Purchase Price") equal to $4,050,000 as follows:
(a) Buyer shall deliver the sum of $3,645,000 to Seller by bank wire
transfer pursuant to payment instructions delivered by Seller to Buyer at least
two (2) business days prior to the Closing; and
(b) Buyer shall deposit the sum of $405,000 (the "Escrow Deposit")
with Old Kent Bank as Escrow Agent under the Escrow Agreement in the form
attached hereto as
4
Exhibit A (the "Escrow Agreement"). The Escrow Deposit shall be held,
administered and distributed in accordance with the terms of the Escrow
Agreement, and shall be Buyer's exclusive remedy for any indemnification claims
made pursuant to Section 10 hereof.
1.6 Adjustments to Purchase Price. The Purchase Price shall be adjusted
at the Closing in the manner set forth below:
(a) The Purchase Price shall be decreased by the amount of any and all
Deferred Revenue at the time of the Closing the liability of providing service
for which Buyer has agreed to assume hereunder. For purposes hereof, "Deferred
Revenue" shall mean all of Seller's customer accounts sold on a prepaid basis
whereby Seller has received revenue in connection with services to be fulfilled
in the future, including monthly billing in advance, and shall be calculated
from the Closing Date until the expiration of the applicable account term; and
(b) The Purchase Price shall be decreased by the amount of any
accounts receivable for customer accounts with outstanding balances sixty (60)
days or more as of ten (10) days prior to the Closing Date.
1.7 Purchase Price Allocation. At least ten (10) days prior to the
Closing, Buyer and Seller shall agree on the allocation of the Purchase Price as
set forth on Schedule 1.7 attached hereto. Such allocation shall be binding
upon Buyer and Seller for all purposes (including financial accounting purposes,
financial and regulatory reporting purposes and tax purposes). Buyer and Seller
each further agrees to file its Federal income tax returns and its other tax
returns reflecting such allocation, Form 8594 and any other reports required by
Section 1060 of the Code.
1.8 Records and Contracts. To the extent not previously provided to
Buyer, at the Closing, Seller shall deliver to Buyer all of the Contracts, with
such assignments thereof and consents to assignments as are necessary to assure
Buyer of the full benefit of the same. Seller shall also deliver to Buyer at
the Closing all of Seller's files and records constituting Assets.
1.9 Further Assurances. Seller, from time to time after the Closing at
the request of Buyer and without further consideration, shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Assets free and clear of all Liens (as defined in
Section 2.8).
1.10 Sales and Transfer Taxes. All sales, transfer, use, recordation,
documentary, stamp, excise taxes, fees and duties (including any real estate
transfer taxes) under applicable law incurred in connection with this Agreement
or the transactions contemplated thereby will be borne and paid by Seller, and
Seller shall promptly reimburse Buyer for the payment of any such tax, fee or
duty which Buyer is required to make under applicable law.
5
1.11 Transfer of Subject Assets. At the Closing, Seller shall deliver or
cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all of the Assets, together with all required
consents. Such instruments of transfer (a) shall contain appropriate warranties
and covenants which are usual and customary for transferring the type of
property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance reasonably satisfactory to Buyer
and its counsel, (c) shall effectively vest in Buyer good and marketable title
to all of the Assets free and clear of all Liens, and (d) where applicable,
shall be accompanied by evidence of the discharge of all Liens against the
Assets.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER. In order to induce Buyer
to enter into this Agreement, Seller hereby represents and warrants to Buyer as
follows:
2.1 Organization.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of Michigan, with full power and authority to own
or lease its properties and to conduct its business in the manner and in the
places where such properties are owned or leased or such business is currently
conducted or proposed to be conducted. Seller is duly qualified to do business
in the state of its organization, and is not required to be licensed or
qualified to conduct its business or own its property in any other jurisdiction.
(b) Seller has no subsidiaries and does not own any securities issued
by any other business organization or governmental authority, except U.S.
Government securities, bank certificates of deposit and money market accounts
acquired as short-term investments in the ordinary course of its business.
Seller does not own or have any direct or indirect interest in or control over
any corporation, partnership, joint venture or entity of any kind.
2.2 Required Action. All actions and proceedings necessary to be taken
by or on the part of Seller in connection with the transactions contemplated by
this Agreement have been duly and validly taken, and this Agreement and each
other agreement, document and instrument to be executed and delivered by or on
behalf of Seller pursuant to, or as contemplated by, this Agreement
(collectively, the "Seller Documents") has been duly and validly authorized,
executed and delivered by Seller. Seller has full right, authority, power and
capacity to execute and deliver this Agreement and each other Seller Document
and to carry out the transactions contemplated hereby and thereby. This
Agreement and each other Seller Document constitutes, or when executed and
delivered will constitute, the legal, valid and binding obligation of Seller
enforceable in accordance with its respective terms.
2.3 No Conflicts. The execution, delivery and performance by Seller of
this Agreement and each other Seller Document does not and will not (a) violate
any provision of the organizational documents or by-laws of Seller, in each case
as amended to date, (b) constitute a violation of, or conflict with or result in
any breach of, acceleration of any
6
obligation under, right of termination under, or default under, any agreement or
instrument to which Seller is a party or by which Seller or the Assets is bound,
(c) violate any judgment, decree, order, statute, rule or regulation applicable
to Seller or the Assets, (d) require Seller to obtain any approval, consent or
waiver of, or to make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made or (e) result in the creation or
imposition of any Lien on any of the Assets.
2.4 Taxes.
(a) Seller has paid or caused to be paid all federal, state, local,
foreign and other taxes, including, without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes, value-
added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes, windfall profit taxes, environmental taxes and property taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it (collectively,
"Taxes"), required to be paid by it through the date hereof whether disputed or
not.
(b) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of Seller, threatening to assert
against Seller any deficiency or claim for additional Taxes and, no event has
occurred which could impose on Buyer any liability for any Taxes due or to
become due from Seller by any taxing authority.
(c) There has not been any audit of any tax return applicable to
Seller or the Assets, no audit of any tax return applicable to Seller or the
Assets is in progress, and Seller has not been notified by any tax authority
that any such audit is contemplated or pending.
2.5 Compliance with Laws. Seller's operation of the Business and the
Assets is in compliance in all material respects with all applicable statutes,
ordinances, orders, rules and regulations promulgated by any federal, state,
municipal or other governmental authority (including the Federal Communications
Commission), and Seller has not received notice of a violation or alleged
violation of any such statute, ordinance, order, rule or regulation.
2.6 Insurance. The tangible Assets are insured to the extent disclosed in
Schedule 2.6, and all insurance policies and arrangements of Seller in effect as
of the date hereof are disclosed in said Schedule. Said insurance policies and
arrangements are in full force and effect, all premiums with respect thereto are
currently paid, and Seller is in compliance in all material respects with the
terms thereof. Said insurance is adequate and customary for the business
engaged in by Seller and is sufficient for compliance by Seller with all
requirements of law and all agreements and leases to which Seller is a party.
2.7 Contracts. The Contracts constitute all leases, contracts and
arrangements, whether oral or written, under which Seller is bound or to which
Seller is a party which relate to the Business or Assets. Schedule 1.1(b)
attached hereto contains a true, correct and
7
complete list of all Contracts. Each Contract is valid, in full force and effect
and binding upon Seller and the other parties thereto in accordance with its
terms. Neither Seller nor, to Seller's knowledge, any other party is in default
under or in arrears in the performance, payment or satisfaction of any agreement
or condition on its part to be performed or satisfied under any Contract, nor
does any condition exist that with notice or lapse of time or both would
constitute such a default, and no waiver or indulgence has been granted by any
party under any Contract. Seller has not received notice of, and has no
knowledge of, any fact which would result in a termination, repudiation or
breach of any Contract. Except as set forth on Schedule 2.7 attached hereto,
Seller has provided Buyer with true and complete copies of all of such
Contracts. Schedule 2.7 attached hereto contains a true, correct and complete of
any Contract that the Seller has not provided Buyer with copy thereof
(individually, "Missing Contract" and collectively "Missing Contracts") and such
Schedule contains an true, correct and complete description of the material
terms each such Missing Contract.
2.8 Title. Seller has good and marketable title to all of the Assets
free and clear of all mortgages, pledges, security interests, charges, liens,
restrictions and encumbrances of any kind (collectively, "Liens") whatsoever.
Upon the sale, assignment, transfer and delivery of the Assets to Buyer
hereunder and under the Seller Documents, there will be vested in Buyer good,
marketable and indefeasible title to the Assets, free and clear of all Liens.
The Assets include all of the assets and properties (i) held for use by Seller
to conduct the Business as presently conducted and (ii) necessary for Buyer to
operate the Business in the same manner as such business is currently operated
by Seller. All of the tangible Assets are in good repair, have been well
maintained and are in good operating condition, and do not require any material
modifications or repairs.
2.9 No Litigation. Seller is not now involved in nor, to the best
knowledge of Seller, is Seller threatened to be involved in any litigation or
legal or other proceedings related to or affecting the Business or any Asset.
Seller has not been operating the Business under, and the Business is not
subject to, any order, injunction or decree of any court of federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality.
2.10 Labor Matters. Seller does not have any employment contract,
collective bargaining or other labor agreement, any agreement containing
severance or termination pay arrangements, deferred compensation agreement,
pension or retirement plan, bonus or profit-sharing plan, stock option or
purchase plan or other non-terminable (whether with or without penalty)
arrangement, group insurance, group hospitalization or other employee benefit
plan, in each case relating to any employees of the Business.
2.11 Financial Statements. Attached hereto as Schedule 2.11 are copies
of the balance sheet of Seller as at June 30, 1998 (the "Base Balance Sheet")
and the statements of income and expense of Seller for the six months ended June
30, 1998 (collectively the "Financial Statements"). The Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied consistently during the periods covered thereby (except for the absence
of footnotes with respect to unaudited financials), are complete
8
and correct and present fairly and accurately the financial condition of the
Business at the dates of said statements and the results of operations of the
Business for the periods covered thereby. As of the date of the Base Balance
Sheet (the "Base Balance Sheet Date"), Seller had no liabilities or obligations
of any kind with respect to the Business, whether accrued, contingent or
otherwise, that are not disclosed and adequately reserved against in the Base
Balance Sheet.
2.12 Business Since the Base Balance Sheet Date. Since the Base Balance
Sheet Date:
(a) there has been no material adverse change in the Business or in
the Assets, operations or financial condition of the Business;
(b) the Business has, in all material respects, been conducted in the
ordinary course of business and in substantially the same manner as it was
conducted before the date of the Base Balance Sheet Date;
(c) there has not been any material obligation or liability
(contingent or other) incurred by Seller with respect to the Business, whether
or not incurred in the ordinary course of business;
(d) there has not been any purchase, sale or other disposition, or any
agreement or other arrangement, oral or written, for the purchase, sale or other
disposition, of any material properties or assets of the Business, whether or
not in the ordinary course of business;
(e) there has not been any damage, destruction or loss, whether or not
covered by insurance, adversely affecting the Business or Assets; and
(f) there has not been any change in the collection, payment and
accounting policies of the Business.
2.13 Licenses. As of the date of this Agreement, Seller is the holder of
all licenses and authorizations with respect to the Business (the
"Authorizations"). The Authorizations constitute all of the licenses and
authorizations required for operation of the Business as now operated. All of
the Authorizations are in full force and effect and no licenses, permits or
authorizations of any governmental department or agency are required for the
operation of the Business which have not been duly obtained. As of the date
hereof, there is not pending or, to the knowledge of Seller, threatened any
action by or before any governmental agency to revoke, cancel, rescind or modify
any of the Authorizations, and there is not now issued or outstanding or, to the
knowledge of Seller, pending or threatened any order to show cause, notice of
violation, notice of apparent liability, or notice of forfeiture or complaint
against Seller with respect to the Business.
9
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by Seller in connection with the execution and delivery of this Agreement
and the Seller Documents and the consummation of the transactions contemplated
hereby and thereby.
2.15 Customers and Suppliers. Seller's relations with its customers and
suppliers, including its Subscribers, are good and there are not pending or, to
Seller's knowledge, threatened claims or controversies with any customer or
suppliers that is material to the Assets or the Business.
2.16 Subscribers. Schedule 2.16(a) attached hereto sets forth, as of the
date hereof, the Subscribers of the Business as listed by class, type and
billing plan. As of the Closing Date, the Business will have no fewer than
8,150 Dial-up Subscribers, 30 Dedicated Subscribers and 200 Web-hosting accounts
(in addition to the Excluded Subscribers), all as set forth on Schedule 2.16(a)
attached hereto. For purposes of this Agreement, the terms "Subscriber" shall
mean any active subscriber to Internet services offered by Seller in the
Business who has subscribed to a service for at least one month and has paid at
least one bill, including, without limitation, any person who receives dial-up
Internet access or e-mail service through the Business (a "Dial-up Subscriber")
and any person who receives Internet access from Seller offering higher data
transmission rates than available from dial-up access (a "Dedicated
Subscriber"); provided, however, that "Subscriber" shall not include any person
who is (i) more than sixty (60) days delinquent in payment of such person's bill
for such services provided by the Business and (ii) any person receiving
complimentary Internet services or Internet services at a promotional discounted
rate. Set forth on Schedule 2.16(b) attached hereto is a listing of all such
accounts which receive complimentary Internet services or Internet services at a
promotional discounted rate.
2.17 Brokers. Seller has not retained any broker or finder or other person
who would have any valid claim against any of the parties to this Agreement for
a commission or brokerage fee in connection with this Agreement or the
transactions contemplated hereby.
2.18 Collectibility of Accounts Receivable. All of the Accounts Receivable
of Seller are or will be as of the Closing Date bona fide, valid and enforceable
claims, subject to no setoff or counterclaim and to Seller's knowledge are
collectible in accordance with their terms. Seller has no accounts or loans
receivable from any person, firm or corporation which is affiliated with Seller
or from any director, officer or employee of Seller, or from any of their
respective spouses or family members.
2.19 Patents, Trade Names, Trademarks, Copyrights and Proprietary Rights.
All patents, patent applications, trade names, trademarks, trademark
registration applications, copyrights, copyright registration applications,
software, domain names and other proprietary rights and intellectual property
owned by or licensed to Seller and used or held for use in the Business as
presently conducted or contemplated (the "Proprietary Rights") are listed in
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Schedule 2.19 attached hereto. Except as set forth in Schedule 2.19, use of the
Proprietary Rights does not require the consent of any other person and the same
are freely transferable (except as otherwise provided by law). Seller has
exclusive ownership or exclusive license to use all Proprietary Rights free and
clear of any Liens, Seller's use of the Proprietary Rights does not infringe any
patents, trade names, trademarks or other proprietary rights of others and none
of the Proprietary Rights is being infringed by any other person.
2.20 Absence of Restrictions. Seller has not entered into any other
agreement or arrangement with any other party with respect to the sale, transfer
or any other disposition or encumbrance of the Business or the Assets.
2.21 Disclosure. The representations, warranties and statements contained
in this Agreement and in the certificates, exhibits and schedules delivered by
Seller to Buyer pursuant to this Agreement do not contain any untrue statement
of a material fact, and, when taken together, do not omit to state a material
fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to Seller
which presently or may in the future have a material adverse affect on the
business, properties, prospects, operations or condition of the Business or the
Assets which has not been specifically disclosed herein or in a Schedule
furnished herewith, other than general economic conditions affecting the
Internet services industry generally.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER. As a material inducement to
Seller entering into this Agreement, Buyer hereby represents and warrants to
Seller as follows:
3.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan. Buyer has
all requisite power and authority to conduct its business as it is now conducted
and to own, lease and operate its properties and assets.
3.2 Required Action. All actions and proceedings necessary to be taken
by or on the part of Buyer in connection with the transactions contemplated by
this Agreement have been duly and validly taken, and this Agreement and each
other agreement, document and instrument to be executed and delivered by or on
behalf of Buyer pursuant to, or as contemplated by, this Agreement
(collectively, the "Buyer Documents") has been duly and validly authorized,
executed and delivered by Buyer. Buyer has full right, authority, power and
capacity to execute and deliver this Agreement and each other Buyer Document and
to carry out the transactions contemplated hereby and thereby. This Agreement
and each other Buyer Document constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligations of Buyer enforceable in
accordance with its respective terms.
3.3 No Conflicts. The execution, delivery and performance by Buyer of
this Agreement and each other Buyer Document does not and will not (a) violate
any provision of
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the Articles of Incorporation or by-laws of Buyer, as amended to date, (b)
constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which Buyer is a party or by which it is
bound, (c) violate any judgment, decree, order, statute, rule or regulation
applicable to Buyer, (d) require Buyer to obtain any approval, consent or waiver
of, or to make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made. The officers who execute this Agreement and
the other Buyer Documents contemplated hereby on behalf of Buyer have and shall
have all requisite power to do so in the name of and on behalf of Buyer.
SECTION 4. COVENANTS OF SELLER. Seller covenants and agrees that, from the date
hereof until consummation of the transactions contemplated hereby at the
Closing, Seller shall:
4.1 Access to Premises and Records. Seller shall give Buyer and its
representatives, at reasonable times and with reasonable prior notice, free
access to the properties, books and records of the Business and to the Assets
and will furnish to Buyer and its representatives such information regarding the
Business and the Assets as Buyer or its representatives may from time to time
reasonably request in order that Buyer may have full opportunity to make a
diligent investigation consistent with this Agreement. In addition to, and not
in limitation of the foregoing, Seller shall provide Buyer with access to and
copies of the records of all: (a) Accounts Receivable, (b) Subscriber billing,
(c) pre-paid accounts, (d) accounts for which no remuneration is received by
Seller and (e) general reports with respect to each category of service provided
by the Business.
4.2 Continuity and Maintenance of Operations of the Business. Except as
to actions which Buyer has been advised and to which Buyer has consented to in
writing, and except as specifically permitted or required by this Agreement,
Seller shall:
(a) Operate the Business in the ordinary course consistent with past
practices, use its commercially reasonable efforts to keep available the
services of the employees who are involved in the operation of the Business, and
use reasonable best efforts to preserve any beneficial business relationships
with Subscribers, customers, suppliers and others having business dealings with
Seller relating to the Business;
(b) Use and operate the Assets in a manner consistent with past
practice and maintain the Assets in good operating condition;
(c) Maintain adequate inventories of spare Equipment consistent with
past practices;
(d) Maintain insurance upon the Assets in such amounts and types as
in effect on the date of this Agreement as set forth in Schedule 2.6 attached
hereto;
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(e) Keep all of its business books, records and files in the ordinary
course of business in accordance with past practices, and provide Buyer with
access thereto upon its reasonable request;
(f) Continue to implement its procedures for disconnection and
discontinuance of service to subscribers whose accounts are delinquent in
accordance with those in effect on the date of this Agreement;
(g) Perform and comply in all material respects with the terms of the
Contracts and keep such Contracts in full force and effect; and
(h) Preserve the goodwill of the Business.
4.3 Negative Covenants. Seller shall not, without the prior written
consent of Buyer:
(a) Sell, transfer, lease, assign or otherwise dispose of, or agree to
sell, transfer, lease, assign or otherwise dispose of, any Assets;
(b) Enter into any contract or commitment for the acquisition of goods
or services relating to the Business (other than in the ordinary course of
business) or which otherwise obligates Seller to perform in full or in part
beyond the Closing Date;
(c) Hire any new employees or enter into any employment arrangements
or otherwise increase the salary or compensation of any existing employees;
(d) Renegotiate, modify, amend or terminate any Contract;
(e) Create, assume, or permit to exist, or agree to incur, assume or
acquire, any Lien, claim or liability on the Assets;
(f) Make any modifications or changes to the existing rate schedules
or product offerings in effect with respect to the Business;
(g) Offer or employ any sales discounts, free services or other
marketing practices or promotions other than routine advertising standard in the
industry;
(h) Take any actions or permit its employees and agents to take any
actions which would materially interfere with or preclude the transactions
contemplated by this Agreement; and
(i) Cause or permit the provision for any new and material pension,
retirement or other employment benefits for employees who perform services in
connection
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with the conduct of the Business or any material increase in any existing
benefits (other than as required by law).
4.4 Consents. Seller will use its reasonable best efforts to obtain, as
soon as practicable and at its expense, the consent of all third parties under
the Contracts for which the prior approval of such third party is required
pursuant to the terms of the Contract, in form and substance reasonably
satisfactory to Buyer; provided, however, that "reasonable best efforts" for
this purpose shall not require Seller to undertake extraordinary or unreasonable
measures to obtain such approvals and consents, including, without limitation,
the initiation or prosecution of legal proceedings or the payment of fees in
excess of customary filing and processing fees.
4.5 Notification of Certain Matters. Seller shall promptly notify Buyer
of (i) any fact, event, circumstances or action the existence or occurrence of
which would cause any of Seller's representations or warranties under this
Agreement, or the disclosures in any schedules or exhibits attached hereto, not
to be true in any material respect and (ii) any failure on its part to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement. Seller shall promptly
notify buyer in writing of the assertion, commencement or threat of any claim,
litigation, proceeding or investigation in which Seller is a party or in which
the Assets or Business may be affected and which could reasonably be expected to
be material or which relates to the transactions contemplated hereby.
4.6 Adverse Change. Seller shall promptly notify Buyer in writing of any
materially adverse developments affecting the Assets or the Business which
become known to Seller, including, without limitation, (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting any of the Assets or the Business, (ii) any material notice
of violation, forfeiture or complaint under any material Contract, or (iii)
anything which, if not corrected prior to the Closing Date, would prevent Seller
from fulfilling any condition to Closing described in Section 6 hereof.
4.7 No Solicitation. Seller shall not, and Seller shall cause its
officers, employees, stockholders, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
Seller) and all other employees who perform services with respect to the
operation of the Business not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to the
Assets or the Business, or engage in any negotiations concerning, or provide to
any other person any information or data relating to, the Business, the Assets
or Seller for the purpose of, or have any discussions with, any person relating
to, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any effort or attempt by
any other person to seek or effect a transaction, or enter into a transaction
with any person or persons, other than Buyer, concerning the possible sale of
the Assets or Business, or the capital stock of
14
Seller. Seller shall promptly inform Buyer of any such inquiries or proposals
and provide all pertinent documentation related thereto.
4.8 Cooperation. Seller shall use its reasonable best efforts to take all
steps within its power and will cooperate with Buyer to cause to be fulfilled
those of the conditions to Buyer's obligations to consummate the transactions
contemplated by this Agreement that are dependent upon its actions, and to
execute and deliver such instruments and take such other reasonable actions as
may be necessary or appropriate in order to carry out the intent of this
Agreement and consummate the transactions contemplated hereby. Without limiting
the foregoing, Seller shall cooperate with all reasonable requests of Buyer and
its counsel in connection with Buyer's due diligence investigation of the
Business and Assets.
4.9 Expenses. Seller shall bear its own expenses incurred in connection
with the negotiation and preparation of this Agreement and in connection with
all obligations required to be performed by it under this Agreement.
4.10 Financial Information. Seller shall, as promptly as practical after
such information become available, deliver to Buyer copies of Seller's monthly
unaudited financial statements, in form and presentation as is reasonably
acceptable to Buyer.
4.11 Consummation of Agreement. Subject to the provisions of Section 8 of
this Agreement: (a) Seller shall use its reasonable best efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement, and to cause the transactions contemplated by this
Agreement to be fully carried out on or before July 31, 1998; and (b) Seller
shall not take any action or omit to take any action that would or could
reasonably be expected to (i) result in any of the representations and
warranties of Seller being or becoming untrue in any respect that would cause
Section 6.1 not to be satisfied, (ii) result in any conditions to Closing set
forth in Section 6 of this Agreement not to be satisfied, or (iii) result in a
material violation of any provision of this Agreement.
4.12 Confidentiality. Seller agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Buyer with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Buyer's industry or which has been disclosed to Seller by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, Seller will return, and cause its respective
officers, members, agents and representatives to return, to Buyer (or certify
that they have destroyed) all copies of such data and information made available
to Seller (and its officers, members, agents and representatives) in connection
with the transaction.
4.13 Employees. Seller shall provide to Buyer, at least five (5) business
days prior to Closing, a list of the employees of Seller in connection with the
Business, including the name,
15
date of hire and wages of such employees, and such list will be attached hereto
as Schedule 4.13.
SECTION 5. COVENANTS OF BUYER. Buyer covenants and agrees that, from the date
hereof until consummation of the transactions contemplated hereby at the
Closing, Buyer shall:
5.1 Cooperation. Buyer shall use its reasonable best efforts to take all
steps within its power and will cooperate with Seller, to cause to be fulfilled
those of the conditions to Seller's obligations to consummate the transactions
contemplated by this Agreement that are dependent upon its actions and to
execute and deliver such instruments and take such other reasonable actions as
may be necessary or appropriate in order to carry out the intent of this
Agreement and consummate the transactions contemplated hereby.
5.2 Notification of Certain Matters. Buyer shall promptly notify Seller
of any fact, event, circumstances or action the existence or occurrence of which
would cause Buyer's representations or warranties under this Agreement not to be
true in any material respect.
5.3 Expenses. Buyer shall bear its own expenses incurred in connection
with the negotiation and preparation of this Agreement and in connection with
all obligations required to be performed by it under this Agreement, except
where specific expenses have been otherwise allocated by the provisions of this
Agreement, including, without limitation, the expenses of Rampart & Associates,
which shall be paid by Buyer at Closing.
5.4 Consummation of Agreement. Subject to the provisions of Section 8 of
this Agreement: (a) Buyer shall use its reasonable best efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement, and to cause the transactions contemplated by this
Agreement to be fully carried out on or before July 31, 1998; and (b) Buyer
shall not take any action or omit to take any action that would or could
reasonably be expected to (i) result in any of the representations and
warranties of Buyer set forth in this Agreement being or becoming untrue in any
respect that would cause Section 7.1 not to be satisfied, (ii) result in any
condition to the Closing set forth in Section 7 not being satisfied, or (iii)
result in a material violation of any provision of this Agreement.
5.5 Confidentiality. Buyer agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Seller with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Seller's industry or which has been disclosed to Buyer by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, Buyer will return, and cause its respective
officers, members, agents and representatives to return, to Seller (or certify
that they have destroyed) all copies of such data and information made available
to Buyer (and its officers, members, agents and representatives) in connection
with the transaction.
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SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. Buyer's obligation to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, unless otherwise waived by Buyer in writing:
6.1 Accuracy of Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects at the Closing Date with the same effect as though made at
such time and the representations and warranties of Seller contained in this
Agreement which are qualified by materiality shall be true and correct in all
respects as of the Closing Date with the same effect as though made at such
time.
6.2 Performance of Agreements and Deliveries. Seller shall have performed
in all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Seller prior to or
upon the Closing Date and shall have delivered all documents and items required
to be delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
Seller to the effect that the conditions set forth in Sections 6.1 and 6.2
have been satisfied;
(b) A certificate, dated the Closing Date, from Seller's Secretary as
to the charter, by-laws, authority and the incumbency of all officers
executing the Seller Documents on behalf of Seller;
(c) A certified copy of Seller's Articles of Incorporation from the
Secretary of State of the State of Michigan;
(d) A certificate of good standing from the Secretary of State of the
State of Michigan; and
(e) Such other certificates and instruments reasonably requested by
Buyer.
6.3 No Material Adverse Effect. None of the schedules, documents or other
information to be furnished by Seller to Buyer pursuant to this Agreement, shall
disclose any fact, circumstance or matter, or any change in or development in
connection with any matter disclosed in the original schedules or documents
previously delivered by Seller to Buyer, which has, or could reasonably be
expected to have, a material adverse effect on the Assets or on the Business;
and there shall have been no other changes or developments affecting either the
Assets or the Business since the Base Balance Sheet Date which have, or could
reasonably be expected to have, a material adverse effect.
17
6.4 Asset Transfer. Seller shall have delivered to Buyer the following
instruments of transfer and assignment in accordance with the provisions hereof,
transferring to Buyer all of Seller's right, title and interest in and to the
Assets, free and clear of all Liens:
(a) A Bill of Sale in the form attached hereto as Exhibit B;
(b) An Assignment and Assumption Agreement in the form attached
hereto as Exhibit C;
(c) An Assignment of Trademarks in the form attached hereto as
Exhibit D;
(d) A Domain Name Assignment in the form attached hereto as Exhibit
E; and
(e) Such other instruments of transfer reasonably requested by Buyer.
6.5 Assignment of Contracts. All Contracts shall have been duly and
validly assigned to Buyer by Seller, and all consents and approvals required in
connection with the consummation of the transactions contemplated hereby under
any Contract shall have been obtained without conditions materially and
adversely affecting Buyer and which do not require Buyer to pay money to any
party to any such contract in excess of amounts required to be so paid pursuant
to the terms and conditions thereof. All such Contracts shall remain in full
force and effect and shall not have been amended, modified or repudiated in any
material respect by either party thereto. Neither Seller nor, to the best
knowledge of Seller, the other party thereto, shall have breached or defaulted
under any Contract. Seller shall not have received notice of or have knowledge
of any fact which could result in the termination, repudiation or breach of any
Contract.
6.6 Escrow Agreement. Seller shall have executed and delivered to Buyer
the Escrow Agreement and such Escrow Agreement shall be in full force and
effect.
6.7 Non-competition Agreement. Seller and each of Messrs. Charles Scott
and James Cook shall have executed and delivered to Buyer a Non-competition
Agreement in substantially the form attached hereto as Exhibit F (the "Non-
competition Agreement"), and such Non-competition Agreement shall be in full
force and effect.
6.8 Employment Agreement. David Scott shall have executed and delivered
to Buyer the Employment Agreement in substantially the form attached hereto as
Exhibit G (the "Employment Agreement"), and such Employment Agreement shall be
in full force and effect.
6.9 Name Change. Seller shall have filed with the Secretary of State of
Michigan, and any other applicable jurisdiction, a certificate effecting the
change in Seller's corporate name.
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6.10 Release of Liens. Seller shall have obtained and delivered to Buyer
at or prior to the Closing instruments (including UCC-3 termination statements)
releasing any and all Liens on the Assets.
6.11 Revenues; Subscribers. Seller shall have delivered to Buyer (i)
Assets resulting in at least $165,000 in monthly revenues (exclusive of revenues
derived from the Excluded Assets) and (ii) at least 8,150 Dial-up Subscribers,
30 Dedicated Subscribers and 200 Web-hosting accounts and Seller shall deliver a
certificate, dated the Closing Date, from Seller's President and Chief Financial
Officer as to such.
6.12 Opinion of Seller's Counsel. Buyer shall have received the opinion or
opinions of Stedman, Fershee & Fershee LLP, counsel for Seller, dated the
Closing Date, substantially in the form of Exhibit H attached hereto.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions contemplated by this Agreement is subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, unless waived by Seller in writing:
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at the Closing Date with the same effect as though made at
such time, and the representations and warranties of Buyer contained in this
Agreement which are qualified by materiality shall be true and correct in all
respects as of the Closing Date with the same effect as though made at such
time.
7.2 Performance of Agreement and Deliveries. Buyer shall have performed
in all material respects all of its covenants, agreements and obligations under
this Agreement to be performed or complied with by Buyer prior to or upon the
Closing Date and shall have delivered all documents and items required to be
delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of Buyer
to the effect that the conditions set forth in Sections 7.1 and 7.2 have been
satisfied;
(b) A certificate, dated the Closing Date, from Buyer's Secretary as
to the charter, by-laws, authority and the incumbency of all officers executing
the Buyer Documents on behalf of Buyer;
(c) A certified copy of Buyer's charter from the Secretary of State of
the State of Michigan; and
19
(d) A certificate of good standing from the Secretary of State of the
State of Michigan.
7.3 Escrow Agreement. Buyer shall have executed and delivered to Seller
the Escrow Agreement and such Escrow Agreement shall be in full force and
effect.
7.4 Employment Agreement. Buyer shall have executed the Employment
Agreement and such Employment Agreement shall be in full force and effect.
SECTION 8. TERMINATION.
8.1 Events of Termination. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing:
(a) By the mutual written consent of Buyer and Seller.
(b) By Seller, if it is not in breach or default hereunder:
(i) if any representation or warranty of Buyer made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Buyer's receipt of a notice from Seller that such
breach exists or has occurred;
(ii) if Buyer shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Buyer's receipt of
a notice from Seller that such default exists or has occurred; or
(iii) if the conditions to Seller's obligations to consummate the
Closing as set forth in Section 7 cannot reasonably be satisfied or
performed on or before August 31, 1998 (unless such failure of
satisfaction, non-compliance or non-performance is the result,
directly or indirectly, of any action or failure to act on the part of
Seller).
(c) by Buyer, if it is not in breach or default hereunder:
(i) if any representation or warranty of Seller made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Seller's receipt of a notice from Buyer that such
breach exists or has occurred;
(ii) if Seller shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Seller's receipt
of a notice from Buyer that such default exists or has occurred; or
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(iii) if the conditions to Buyer's obligations to consummate the
Closing as set forth in Section 6 cannot reasonably be satisfied or
performed on or before August 31, 1998 (unless such failure of
satisfaction, non-compliance or non-performance is the result directly
or indirectly of any action or failure to act on the part of Buyer).
8.2 Manner of Exercise. In the event of the termination of this Agreement
by either Buyer or Seller pursuant to Section 8.1, notice thereof shall
forthwith be given to the other party in accordance with the provisions set
forth in Section 11 hereto and this Agreement shall terminate and the
transactions contemplated hereunder shall be abandoned without further action by
Buyer or Seller.
8.3 Effect of Termination; Liabilities. In the event of the termination
of this Agreement pursuant to Section 8.1 and prior to the Closing, all
obligations of the parties hereunder shall terminate, and neither Seller nor
Buyer shall have any further liability hereunder, including for losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, costs and expenses (including
attorneys' fees) of any kind whatsoever; except upon termination of this
Agreement pursuant to Sections 8.1(c)(i) and 8.1(c)(ii), Buyer shall be entitled
to any remedy which it may have, whether at law or in equity.
SECTION 9. POST-CLOSING COVENANTS; SURVIVAL.
9.1 Use of Trade Names. After the Closing Date, neither Seller, nor any
person controlling, controlled by or under common control with Seller will for
any reason, directly or indirectly, for itself or any other person, (a) use the
name or (b) use or disclose any trade secrets, confidential information, know-
how, proprietary information or other intellectual property of Seller
transferred pursuant to this Agreement.
9.2 Post-Closing Transitional Matters.
(a) For a period of ninety (90) days following the Closing, Seller
shall provide, without additional cost to Buyer, such assistance as is
reasonably requested by Buyer in order to effect an orderly transition in the
ownership and operation of the Assets.
(b) Web Site Cooperation. Buyer and Seller shall cooperate to modify
and effect the orderly transition of Seller's Web Site found at www.freeway.net
(the "Web Site"). The front page of the Web Site will be modified to inform
users regarding changes in access services and will provide links to Buyer's
home page.
9.3 Survival. All representations, warranties, covenants, agreements and
indemnities contained in this Agreement, or in any schedule, exhibit,
certificate, agreement, document or statement delivered pursuant hereto, are
material, shall be deemed to have been
21
relied upon by the parties and, shall survive the Closing regardless of any
investigation conducted by or knowledge of any party hereto.
SECTION 10. INDEMNIFICATION.
10.1 Indemnification by Seller. Seller hereby agrees to indemnify and hold
harmless Buyer, its affiliates and its and their respective directors, officers,
stockholders, partners, members, employees, and agents (individually, a "Buyer
Indemnified Party" and collectively, "Buyer Indemnified Parties"), against and
in respect of all losses, liabilities, obligations, damages, deficiencies,
actions, suits, proceedings, demands, assessments, orders, judgments, costs and
expenses (including the reasonable fees, disbursements and expenses of attorneys
and consultants) of any kind or nature whatsoever, to the extent sustained,
suffered or incurred by or made against any Buyer Indemnified Party, to the
extent based upon, arising out of or in connection with: (A) any breach of any
representation or warranty made by Seller in this Agreement or in any schedule,
exhibit, certificate, agreement or other instrument delivered pursuant to this
Agreement; (B) any breach of any covenant or agreement made by Seller in this
Agreement or in any schedule, exhibit, certificate, financial statement,
agreement or other instrument delivered pursuant to this Agreement; (C) any
claim relating to the operation of the Assets or the Business which arises in
connection with or on the basis of events, acts, omissions, conditions or any
other state of facts occurring on or existing before the Closing Date; (D) any
claim relating to any material deviation from the description of the terms of
any Missing Contract listed on Schedule 2.7 attached hereto; and (E) any claim
which arises in connection with any liability or obligation of Seller other than
the Assumed Liabilities. Seller's aggregate liability to Buyer under Section
10.1(A) shall not exceed $405,000, and all claims for indemnification by a Buyer
Indemnified Party shall initially be made against the Escrow Deposit until the
Escrow Deposit is reduced to zero, at which time all claims shall be made
directly against Seller.
10.2 Indemnification by Buyer. Buyer agrees to indemnify and hold harmless
Seller and its officers, directors, stockholders, employees and agents
(individually, a "Seller Indemnified Party" and collectively, "Seller
Indemnified Parties") at all times against and in respect of all losses,
liabilities, obligations, damages, deficiencies, actions, suits, proceedings,
demands, assessments, orders, judgments, costs and expenses (including the
reasonable fees, disbursements and expenses of attorneys and consultants), of
any kind or nature whatsoever, to the extent sustained, suffered or incurred by
or made against any Seller Indemnified Party, to the extent based upon, arising
out of or in connection with: (A) any breach of any representation or warranty
made by Buyer in this Agreement or in any schedule, exhibit, certificate,
agreement or other instrument delivered pursuant to this Agreement; (B) any
breach of any covenant or agreement made by Buyer in this Agreement or in any
schedule, exhibit, certificate, agreement or other instrument delivered pursuant
to this Agreement; (C) any claim made against Seller which relates to, results
from or arises out of Buyer's operation of the Assets or the Business from and
after the Closing Date; and (D) the Assumed Liabilities.
22
10.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified party
Promptly after receipt by an indemnified party of notice of any claim, liability
or expense to which the indemnification obligations hereunder would apply, the
indemnified party shall give notice thereof in writing to the indemnifying
party, but the omission to so notify the indemnifying party promptly will not
relieve the indemnifying party from any liability except to the extent that the
indemnifying party shall have been prejudiced as a result of the failure or
delay in giving such notice. Such notice shall state the information then
available regarding the amount and nature of such claim, liability or expense
and shall specify the provision or provisions of this Agreement under which the
liability or obligation is asserted.
(b) Third Party Claims. With respect to third party claims, if within
twenty (20) days after receiving the notice described in clause (a) above the
indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense and (ii) provides reasonable assurance to the indemnified party that
such claim will be promptly paid in full if required, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent of
the indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the indemnifying parties'
obligation to indemnify the indemnified party therefor will be fully satisfied.
The indemnifying party shall keep the indemnified party apprised of the status
of the claim, liability or expense and any resulting suit, proceeding or
enforcement action, shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated, the indemnified
party shall at all times have the right to fully participate in such defense at
its own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one
23
that by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available all information and assistance that the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party claims,
if within twenty (20) days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice. If the
indemnifying party provides written notice to the indemnified party within such
20-day period that it contests such indemnity, the parties shall attempt in good
faith to reach an agreement with regard thereto within thirty (30) days of
delivery of the indemnifying party's notice. If the parties cannot reach
agreement within such 30-day period, the matter may be submitted by either party
for binding arbitration in accordance with the provisions of Section 12.10
hereof.
SECTION 11. NOTICES. All notices and other communications required to be given
hereunder, or which may be given pursuant or relative to the provisions hereof,
shall be in writing and shall be deemed to have been given when delivered in
hand or mailed, postage prepaid, by first class United States mail, certified
return receipt requested as follows:
If to Seller: Freeway, Inc.
------------
325 E. Lake Street, Suite 21
Petoskey, MI 49770
Attn: David Scott
With a copy to: Stedman, Fershee & Fershee LLP
331 Bay Street
Petoskey, MI 49770
Attn: Lynn G. Stedman, Esq.
If to Buyer: Voyager Information Networks, Inc.
-----------
4660 S. Hagadorn Road
East Lansing, MI 48823
Attn: Christopher Torto
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: David F. Dietz, P.C.
|
24
SECTION 12. MISCELLANEOUS.
12.1 Assignability; Binding Effect. This Agreement shall not be assignable
by Buyer or Seller except with the written consent of the other, except that
Buyer may assign its rights hereunder to any affiliate of Buyer. This Agreement
shall be binding upon and shall inure to the benefit of, the parties hereto and
their respective successors, and assigns.
12.2 Headings. The subject headings used in this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
12.3 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer and Seller or, in the
case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, or any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
12.4 Bulk Sales Law. Buyer hereby waives compliance by Seller of any
applicable bulk sales law and Seller agrees, to make full and timely payment
when due of all amounts owed by such Seller to its creditors. Seller agrees to
indemnify and hold Buyer harmless from, and reimburse Buyer for, any loss, cost,
expense, liability or damage (including reasonable counsel fees and
disbursements and expenses) which Buyer may suffer or incur by virtue of the
non-compliance by Seller with such laws.
12.5 Entire Agreement. This Agreement, together with the schedules and
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes and cancels any and all
prior or contemporaneous arrangements, understandings and agreements between
them relating to the subject matter hereof.
12.6 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, then the
remaining provisions of this Agreement (and the remaining portion of any
provision held to be void or unenforceable in part only) shall continue in full
force and effect.
12.7 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed and construed by and enforced in accordance with the
laws of the State of Michigan, without regard to conflict of laws principles.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same instrument.
25
12.9 Expenses. Each party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accountants undertaken
pursuant to this Agreement, whether or not the transactions contemplated hereby
are consummated.
12.10 Dispute Resolution. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity hereof shall be finally settled
by arbitration conducted expeditiously in accordance with the Center for Public
Resources Rules for Nonadministered Arbitration of Business Disputes (the "CPR
Rules"). The Center for Public Resources shall appoint a neutral advisor from
its National CPR Panel. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S)1-16, and judgment upon the award rendered by
the arbitrators may be entered by any court having jurisdiction thereof. The
place of arbitration shall be Detroit, Michigan.
Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:
(a) Mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
(b) No other discovery;
(c) Hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place in one or two days at a maximum; and
(d) Decision to be rendered not later than ten (10) days following
such hearings.
Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of any United States District Court of competent
jurisdiction located in the State of Michigan for the purpose of enforcing the
award or decision in any such proceeding and (b) hereby waives, and agrees not
to assert in any civil action to enforce the award, any claim that it is not
subject personally to the jurisdiction of the above-named court, that its
property is exempt or immune from attachment or execution, that the civil action
is brought in an inconvenient forum, that the venue of the civil action is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court, and (c) hereby waives and agrees not to seek any review by
any court of any other jurisdiction which may be called upon to grant an
enforcement of the judgment of any such court. Each of the parties hereto hereby
consents to service of process by registered mail at the address to which
notices are to be given. Each of the parties hereto agrees that its submission
to jurisdiction and its consent to service of process by mail is made for the
express benefit of the other parties hereto. Final
26
judgment against any party hereto in any such action, suit or proceeding may be
enforced in other jurisdictions by suit, action or proceeding on the judgment,
or in any other manner provided by or pursuant to the laws of such other
jurisdiction; provided, however, that any party may at its option bring suit, or
institute other judicial proceedings, in any state or federal court of the
United States or of any country or place where the other parties or their
assets, may be found.
Notwithstanding the foregoing, it is specifically understood and agreed
that certain breaches of this Agreement will result in irreparable injury to the
parties hereto, that the remedies available to the parties at law alone will be
an inadequate remedy for such breach, and that, in addition to any other legal
or equitable remedies which the parties may have, a party may enforce its rights
by an action for specific performance and the parties expressly waive the
defense that a remedy in damages will be adequate.
[Remainder of page intentionally left blank]
27
IN WITNESS WHEREOF, Seller and Buyer have caused this Asset Purchase
Agreement to be executed as of the date first above written.
SELLER:
FREEWAY, INC.
By: /s/ Charles P. Scott
---------------------
Name: Charles P. Scott
Title: President
|
BUYER:
VOYAGER INFORMATION NETWORKS, INC.
By: /s/ Christopher Torto
----------------------
Name: Christopher Torto
Title: Chief Executive Officer
|
28
EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
Agreement made as of September 23, 1998 by and among Voyager Information
Networks, Inc., a Michigan corporation ("Buyer"), EXEC-PC, Inc., a Wisconsin
corporation ("Seller"), Robert J. Mahoney and Tracey Mahoney (together, the
"Principals").
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell, transfer and assign to Buyer, and Buyer desires to purchase from Seller,
all of the properties, rights and assets used or held for use in connection with
the Internet service business and related businesses of Seller (the "Business").
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
SECTION 1.PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets. Upon the terms and subject to the conditions set
forth in this Agreement, and the performance by the parties hereto of their
respective obligations hereunder, Seller agrees to sell, assign, transfer and
deliver to Buyer, and Buyer agrees to purchase from Seller, all of Seller's
right, title and interest in and to all of the properties, assets and business
of the Business of every kind and description, tangible and intangible, real,
personal or mixed, and wherever located, but excluding the Excluded Assets (as
defined in Section 1.2 below), including without limitation, the following:
(a) Equipment. All free standing kiosks, servers, routers, modems,
domain name addresses and numbers provided by Internic ("IP addresses"),
computers, electronic devices, test equipment and all other fixed assets,
equipment, furniture, fixtures, leasehold improvements, parts, accessories,
inventory, office materials, software, supplies and other tangible personal
property of every kind and description owned by Seller and used or held for use
in connection with the Business, in each case together with any additions
thereto between the date of this Agreement and the Closing Date (as defined
below), all as set forth on Schedule 1.1(a) attached hereto (collectively,
"Equipment");
(b) Contracts. All of the rights of Seller under and interest of
Seller in and to all contracts relating to the Business (other than the Excluded
Contracts (as defined below)), including, without limitation, original contracts
for the provision of Internet connectivity, dedicated service, web-hosting, web-
domain, dial-up services, web-development and Internet commerce, a true, correct
and complete list of which contracts is attached hereto as Schedule 1.1(b)
(collectively, the "Contracts") (but not including any Restricted Contract (as
defined in Section 4.4) until such time as the consent to assignment thereof is
obtained by Seller or, in the event of a Contract which is not assignable, until
a new Contract is obtained);
(c) Intellectual Property. All Intellectual Property (as defined in
Section 2.20), all as set forth on Schedule 1.1(c) attached hereto;
(d) Licenses and Authorizations. All rights associated with the
licenses, permits, easements, registrations and authorizations issued or granted
to Seller by any governmental authority with respect to the operation of the
Business, including, without limitation, those licenses and authorizations
listed on Schedule 1.1(d) attached hereto, and all applications therefor,
together with any renewals, extensions, or modifications thereof and additions
thereto (other than any of the foregoing which, by their terms, may not be
assigned or transferred by Seller);
(e) Current Assets; Accounts Receivable. All Current Assets of Seller
(as such term is hereinafter defined) and all accounts receivable of Seller
incurred in the ordinary course of business and which are determined in
accordance with Seller's historical accounting practices, a complete list of
which is attached hereto as Schedule 1.1(e) (the "Accounts Receivable");
(f) Goodwill. All of the goodwill of Seller in, and the going concern
value of, the Business, and all of the business and customer lists, proprietary
information, and trade secrets related to the Business; and
(g) Records. All of Seller's customer logs, location files and
records, employee records, and other business files and records, in each case
relating to the Business.
The assets, properties and business of Seller being sold to and purchased
by Buyer under this Section 1.1 are referred to herein collectively as the
"Assets."
1.2 Excluded Assets. There shall be excluded from the Assets and retained
by Seller, to the extent in existence on the Closing Date, the following assets
(the "Excluded Assets"):
(a) Other Assets. All other assets of Seller which are not used or
held for use in connection with the Business or otherwise necessary to the
operation of the Business now or after the Closing Date as set forth on Schedule
1.2(a) attached hereto;
(b) Excluded Contracts. All of Seller's right, title and interest in,
to and under the Contracts listed on Schedule 1.2(b) attached hereto (the
"Excluded Contracts");
(c) Insurance. All contracts of insurance (including any cash
surrender value thereof) and all insurance proceeds of settlement and insurance
claims made by Seller on or before the Closing Date as set forth on Schedule
1.2(c) attached hereto;
(d) Tax Items. All claims, rights and interest in and to any refunds
for federal, state or local Taxes (as defined below) for periods prior to the
Closing Date as set forth on Schedule 1.2(d) attached hereto;
2
(e) Corporate Records. All of Seller's corporate and other
organizational records;
(f) Certain Records. Any general accounting, personnel, or payroll
records of the Seller not related to the Business or that the Seller is required
to retain by law;
(g) Fiduciary Assets. Any assets of the Seller constituting a pension
trust or other segregated fund for the benefit of any employees of the Business;
(h) Cash. Cash, cash deposits, certificates of deposit, marketable
securities and/or cash equivalents;
(i) Certain Rights. To the extent such rights benefit or protect any
business or activities of the Seller which are not part of the Business and the
Assets, the Seller's rights under all noncompetition, confidentiality,
intellectual property assignment, research and development or similar agreements
or other restrictions on competition and confidentiality;
(j) Certain Permits. Any governmental permit, license or
authorization issued or granted to Seller by any governmental authority that is
not assignable or transferable to Buyer; and
(k) Rights Under Agreement. Any rights that accrue or will accrue to
the Seller under this Agreement.
1.3 Assumed Liabilities; Excluded Liabilities; Employees.
(a) Assumed Liabilities. Buyer shall, on and as of the Closing Date,
accept and assume, and shall become and be fully liable and responsible for, and
other than as expressly set forth herein Seller and the Principals shall have no
further liability or responsibility for or with respect to, (a) liabilities and
obligations arising out of events occurring on and after the Closing Date
related to Buyer's ownership of the Assets and Buyer's operation of the Business
after the Closing Date; (b) all obligations and liabilities of Seller which are
to be performed after the Closing Date arising under the Contracts, including,
without limitation, Seller's obligations to Subscribers (as defined herein)
under such Contracts for (i) Subscriber deposits held by Seller as of the
Closing Date in the amount for which Buyer receives a credit pursuant to Section
1.6, (ii) Subscriber advance payments held by Seller as of the Closing Date for
services to be rendered in connection with the Business in the amount for which
Buyer receives a credit pursuant to Section 1.6, and (iii) the delivery of
Internet connectivity service to Subscribers (whether under the Contracts or
otherwise) after the Closing Date; (c) the Current Liabilities (as hereinafter
defined) of Seller; (d) any Long-term Liabilities or other liabilities or claims
specifically assumed by Buyer in writing at the Closing and for which there is
an adjustment to the Purchase Price pursuant to Section 1.6(b) hereof; and (e)
the following liabilities and obligations with respect to the Business: (i) all
liabilities and obligations under the Worker Adjustment and Retraining
Notification Act of 1988 and
3
Sections 109.07 and 109.075 of the Wisconsin Statutes; (ii) all liabilities and
obligations with respect to health insurance coverage, to the extent assumed by
the Buyer, as provided in Section 1.3(c) below; and (iii) all liabilities and
obligations for vacation pay, sick pay and holiday pay with respect to the
Transferred Employees (as defined below) (but only to the extent Buyer receives
credit therefor pursuant to Section 1.6(a) hereof) ((a), (b), (c), (d) and (e)
together, the "Assumed Liabilities"). The assumption of the Assumed Liabilities
by Buyer hereunder shall not enlarge any rights of third parties under contracts
or arrangements with Buyer or Seller or any of their respective affiliates or
subsidiaries. No parties other than Buyer, Seller and the Principals shall have
any rights under this Agreement.
(b) Excluded Liabilities. It is expressly understood that, except for
the Assumed Liabilities, Buyer shall not assume, pay or be liable for any
liability or obligation of Seller of any kind or nature at any time existing or
asserted, whether, known, unknown, fixed, contingent or otherwise, not
specifically assumed herein by Buyer, including, without limitation, any
liability or obligation relating to, resulting from or arising out of the
Excluded Assets, including, without limitation, the Excluded Contracts. The
liabilities which are not assumed by Buyer under this Agreement are hereinafter
sometimes referred to as the "Excluded Liabilities."
(c) Employees, Wages and Benefits.
(i) As of the Closing Date, Buyer shall offer employment to all
persons who, as of the Closing Date, are employed in the operation of the
Business. Persons who as of the Closing Date and within three (3) months
thereafter become such employees of Buyer and accept such offer of
employment are referred to herein as "Transferred Employees."
(ii) Buyer agrees to provide group health plan coverage to the
Transferred Employees on substantially similar terms as provided by Seller
prior to the Closing Date and for a minimum of sixty (60) days following
the Closing Date. In addition, Buyer shall provide to each employee of
Seller who is not hired by Buyer a COBRA notice in accordance with 29
U.S.C. (S)(S)601-607 and assume all liability and obligations for providing
COBRA, or, to the extent required by applicable law, other health coverage
for such employees. All Transferred Employees will receive credit for
prior service with Seller for eligibility purposes with respect to Buyer's
group health plan.
(iii) Buyer shall not be obligated under and hereby specifically
disclaims any assumption of any liability with respect to any employee
benefit plan policy, practice or agreement to which Seller is a party or
under which any of Seller's employees or former employees is covered,
except as otherwise provided herein.
1.4 The Closing. The transactions contemplated by this Agreement shall
take place at a closing (the "Closing") to be held at 10:00 a.m., local time, at
the offices of Godfrey &
4
Kahn, S.C., 780 North Water Street, Milwaukee, WI 53202, on the date which is
three (3) business days after satisfaction or waiver of the conditions set forth
in Sections 6.5 and 7.5 hereof, or at such other time and place as shall be
mutually agreed upon in writing by Buyer and Seller (the "Closing Date").
1.5 Purchase Price. In consideration of the sale by Seller to Buyer of
the Assets, and subject to the assumption by Buyer of the Assumed Liabilities
and satisfaction of the conditions contained herein, Buyer shall pay to Seller
at the Closing an amount (as adjusted in accordance with Section 1.6 below, the
"Purchase Price") equal to $26,150,000 as follows:
(a) Buyer shall deliver the sum of $24,900,000, as adjusted in
accordance with Section 1.6, below, to Seller by bank cashier's check or bank
wire transfer pursuant to payment instructions delivered by Seller to Buyer at
least two (2) business days prior to the Closing; and
(b) Buyer shall deposit the sum of $1,250,000 (the "Escrow Deposit")
with Boston Safe Deposit and Trust Company as Escrow Agent under the Escrow
Agreement in the form attached hereto as Exhibit A (the "Escrow Agreement").
The Escrow Deposit shall be held, administered and distributed in accordance
with the terms of the Escrow Agreement, and shall be Buyer's exclusive remedy
for any and all claims made pursuant to Section 10 hereof.
1.6 Adjustments to Purchase Price. The Purchase Price shall be adjusted
at the Closing in the manner set forth below:
(a) The Purchase Price will be increased or decreased, as the case may
be, on a dollar-for-dollar basis, by the Working Capital Excess or
Deficiency, as applicable, as of the opening of business on the Closing
Date.
For the purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Working Capital" shall mean the difference between
Seller's Current Assets and Current Liabilities;
(ii) "Current Assets" shall mean and include all Accounts
Receivable of Seller outstanding on the Closing Date, all prepaid
expenses (including postal deposits), and all other current assets
which have value to the business at the Closing and which are used in
the operation of Seller's Business, in each case as determined in
accordance with Seller's historical accounting practices;
(iii) "Current Liabilities" shall mean and include accounts
payable, accrued expenses, all accrued but unpaid taxes, all deferred
revenues (as determined in accordance with Seller's past practices), the
amount of any liabilities to employees for sick pay, holiday pay, the pro-
rated amount of any
5
vacation pay, or other expenses which are assumed by Buyer at the Closing
pursuant to and as contemplated by Section 1.3(a), as applicable, the pro-
rated amount of any liability to employees for bonuses under employment
agreements, and all other current liabilities incurred in the operation of
Seller's Business and reflected on Seller's balance sheet, but shall not
include the current portion of any bank debt or line of credit, in each
case as determined in accordance with Seller's historical accounting
practices;
(iv) "Deficiency" shall mean the amount by which the Current
Liabilities exceeds the Current Assets; and
(v) "Excess" shall mean the amount by which the Current Assets
exceeds the Current Liabilities.
(b) The Purchase Price shall be decreased, on a dollar-for-dollar
basis, by the amount of any Long-term Liabilities that are assumed by Buyer at
the Closing. For purposes hereof, "Long-term Liabilities" shall mean and
include any term loans (including, without limitation, bank debt, lines of
credit and the current portion of any other debt), the present value of any
capital leases and operating leases not stated or reserved for on Seller's
balance sheet, which the parties hereto agree is Two Million Seven Hundred Forty
Three Thousand Thirty-Nine Dollars ($2,743,039), and the other liabilities of
Seller not included as part of the Current Liabilities which are assumed by
Buyer at the Closing, as determined in accordance with Seller's historical
accounting practices, all of which are set forth on Schedule 1.6(b) attached
hereto. In the event Seller elects to pay-off some of the Long-term Liabilities
consisting of bank debt at the Closing, then the calculation thereof shall be
decreased by such amount and Seller shall obtain a pay-off letter from the
third-party lender to evidence the discharge of such obligation at the Closing
and such payoff shall be made directly as part of the wire transfer of the
Purchase Price.
(c) (i) No later than five (5) days prior to the Closing, Buyer and
Seller shall prepare a statement in substantially the form and presentation
of Schedule 1.6(c) attached hereto (the "Estimated Adjustment Statement")
which sets forth (i) the Company's estimated Working Capital and the amount
of any estimated Deficiency or Excess, as the case may be, as of the
Closing Date, and (ii) the Long-term Liabilities Adjustment ((i) and (ii)
together, the "Estimated Adjustment"). The Purchase Price payable at the
Closing shall be increased on a dollar-for-dollar basis to the extent of
any positive Estimated Adjustment or decreased on a dollar-for-dollar basis
to the extent of any negative Estimated Adjustment, as the case may be, set
forth on such Estimated Adjustment Statement.
(ii) No later than forty-five (45) days following the Closing,
Seller shall prepare and deliver to Buyer a statement (the "Final
Adjustment Statement") setting forth the actual Working Capital, and the
amount of any actual Deficiency or Excess, as the case may be, as well as
any other changes to the Working Capital
6
component of the Estimated Adjustment, as of the Closing Date, it being
understood that no adjustment shall be made to the Long-term Liability
calculation after the Closing Date. In connection with the preparation of
such Final Adjustment Statement, Seller and its authorized representatives
shall have full access to the relevant books and records of Buyer and
Buyer's authorized representatives and employees to the extent necessary to
complete such Final Adjustment Statement. Subject to Section 1.6(d)(iii)
below, within ten (10) days following the delivery of such Final Adjustment
Statement to Buyer, Seller or Buyer, as the case may be, shall pay to the
other party, by wire transfer of immediately available funds, the
difference between the Estimated Adjustment, as shown on the Estimated
Adjustment Statement, and the actual adjustment, as shown on the Final
Adjustment Statement.
(iii) In the event Buyer objects to the Final Adjustment
Statement, Buyer shall notify Seller in writing of such objection within
the ten (10) day period following the delivery thereof, stating in such
written objection the reasons therefor and setting forth the Buyer's
calculation of Buyer's actual Working Capital at the Closing. Upon receipt
by Seller of such written objection, the parties shall attempt to resolve
the disagreement concerning the Final Adjustment Statement through
negotiation. If Seller and Buyer cannot resolve such disagreement
concerning the Final Adjustment Statement within thirty (30) days following
the end of the foregoing 10-day period, the parties shall submit the matter
for resolution to a nationally recognized firm of independent certified
public accountants not affiliated with either party, with the costs thereof
to be shared equally by the parties. Such accounting firm shall deliver a
statement setting forth its own calculation of the final adjustment to the
parties within thirty (30) days of the submission of the matter to such
firm. Any payment shown to be due by a party on the statement of such
accounting firm shall be paid to the other party promptly but in no event
later than five (5) days following the delivery of such statement by such
accounting firm to the parties.
1.7 Purchase Price Allocation. At least ten (10) days prior to the
Closing, Buyer and Seller shall agree on the allocation of the Purchase Price as
set forth on Schedule 1.7 attached hereto. Such allocation shall be binding
upon Buyer and Seller for all purposes (including financial accounting purposes,
financial and regulatory reporting purposes and tax purposes). Buyer and Seller
each further agrees to file its Federal income tax returns and its other tax
returns reflecting such allocation, Form 8594 and any other reports required by
Section 1060 of the Code.
1.8 Records and Contracts. To the extent not previously provided to
Buyer, at the Closing, Seller shall deliver to Buyer all of the Contracts, with
such assignments thereof and consents to assignments as are necessary to assure
Buyer of the full benefit of the same (other than as provided in Sections 4.4
and 6.5 hereof). Seller shall also deliver to Buyer at the Closing constructive
possession of all of Seller's files and records constituting Assets.
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1.9 Further Assurances. Seller, from time to time after the Closing at
the request of Buyer and without further consideration, shall execute and
deliver further instruments of transfer and assignment and take such other
action as Buyer may reasonably require to more effectively transfer and assign
to, and vest in, Buyer the Assets free and clear of all Liens (as defined in
Section 2.8).
1.10 Sales and Transfer Taxes. All sales, transfer, use, recordation,
documentary, stamp, excise taxes, personal property taxes, fees and duties
(including any real estate transfer taxes) under applicable law incurred in
connection with this Agreement or the transactions contemplated thereby will be
borne and paid by Seller, and Seller shall promptly reimburse Buyer for the
payment of any such tax, fee or duty which Buyer is required to make under
applicable law.
1.11 Transfer of Subject Assets. At the Closing, Seller shall deliver or
cause to be delivered to Buyer good and sufficient instruments of transfer
transferring to Buyer title to all of the Assets. Such instruments of transfer
shall be in form and substance reasonably satisfactory to Buyer and its counsel.
1.12 Accounts Receivable. Buyer shall receive from Seller and Seller shall
transfer to Buyer all of the Accounts Receivable at the Closing. For a period
of ninety (90) days after the Closing (the "Buyer Collection Period"), Buyer
shall have the sole and exclusive right to collect the Accounts Receivable. So
long as the Accounts Receivable are in Buyer's possession, neither Seller nor
its agents shall make any solicitation for collection purposes nor institute
litigation for the collection of any amounts due thereunder, except for such
Accounts Receivable which Buyer has consented to Seller's collection thereof
prior to the expiration of the Buyer Collection Period. All payments received
by Buyer during the Buyer Collection Period from any person obligated with
respect to any of the Accounts Receivable shall be for Buyer's account. Any
payment made by an account debtor to Buyer with respect to such an Account
Receivable shall be applied to such Account Receivable before it is applied to
any outstanding account receivable from such account debtor arising from sales
made by the Buyer after the Closing Date. The payment by an account debtor
shall be applied to such Account Receivable in inverse order of aging,
commencing with the oldest invoice. Buyer shall use commercially reasonable
efforts to collect Accounts Receivable during the Buyer Collection Period. All
of the right, title and interest in and to the Accounts Receivable which are
aged for more than thirty (30) days as of the Closing Date and that are not
collected during the Buyer Collection Period shall be assigned to Seller at the
end of the Buyer Collection Period at fair value, after which Buyer shall have
no further right or obligation with respect to the Accounts Receivable and
hereby agrees to promptly remit to the Seller any payment on such uncollected
accounts which it may thereafter receive; provided, however, that nothing
contained in this Section 1.12 shall be construed to grant Seller any right with
respect to any accounts receivable accrued in connection with Buyer's operation
of the Business on or after the Closing Date. Following the Buyer Collection
Period, Buyer shall make available to Seller, upon the reasonable request of
Seller, copies of all of its records relating to any uncollected Accounts
Receivable assigned to Seller and agrees that Seller may commence legal
proceedings or take
8
such other action as it considers appropriate to collect any such uncollected
Account Receivable. Notwithstanding anything provided in this Section 1.12 to
the contrary, Seller shall not be required to repurchase any such uncollected
Account Receivable if the reason for nonpayment by such account debtor is any
right of setoff or other claim arising out of any act or omission of the Buyer
after the Closing.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND PRINCIPALS. In order to
induce Buyer to enter into this Agreement, Seller and the Principals jointly and
severally hereby make the following representations and warranties to Buyer. As
used in this Agreement, the phrase "To the knowledge of Seller" shall mean and
include only the facts and other information which are, on the date such
representations and warranties are made, within the actual knowledge of each of
Robert Mahoney, Greg Ryan, Tracey Mahoney, Michael Mittelstadt, Curt Shambeau,
Karen Johnson, Dave Cowen, Marilyn Looney and Jacob Buchholz, without any
independent verification or investigation by them of the facts or other
information stated.
2.1 Organization; Subsidiaries.
(a) Except as set forth on Schedule 2.1(a), Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Wisconsin, with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of Seller's Articles of Incorporation and
by-laws, each as amended to date, heretofore delivered to Buyer's counsel are
complete and correct. Seller is not in violation of any term of its Articles of
Incorporation or by-laws. Except as set forth on Schedule 2.1(a), Seller is
duly qualified to do business in the state of its organization, and, to the
knowledge of Seller and Principals, is duly qualified as a foreign corporation
in each jurisdiction in which the character or location of the properties owned
or leased by Seller in the operation of the Business makes qualification to do
business as a foreign corporation necessary, except for such jurisdictions where
failure to so qualify would not have a Material Adverse Effect. For the
purposes of this Agreement, a "Material Adverse Effect" shall mean a material
adverse effect upon the assets, properties, business, prospects, condition
(financial or other) or results of operations of Seller or the Business, taken
as a whole.
(b) Except as set forth on Schedule 2.1(b), Seller has no
subsidiaries and does not own any securities issued by any other business
organization or governmental authority, except U.S. Government securities, bank
certificates of deposit and money market accounts acquired as short-term
investments in the ordinary course of its business. Except as set forth on
Schedule 2.1(b), Seller does not own or have any direct or indirect interest in
or control over any corporation, partnership, joint venture or entity of any
kind.
2.2 Required Action. All actions and proceedings necessary to be taken by
or on the part of Seller in connection with the transactions contemplated by
this Agreement have
9
been duly and validly taken, and this Agreement and each other agreement,
document and instrument to be executed and delivered by or on behalf of Seller
pursuant to, or as contemplated by, this Agreement (collectively, the "Seller
Documents") has been duly and validly authorized, executed and delivered by
Seller and no other action on the part of Seller or its stockholders is required
in connection therewith. Each of Seller and the Principals have full right,
authority, power and capacity to execute and deliver this Agreement and each
other Seller Document and to carry out the transactions contemplated hereby and
thereby. This Agreement and each other Seller Document constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of each of Seller and the Principals enforceable in accordance with its
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or by the application of general principles of equity.
2.3 No Conflicts.
(a) Except as set forth on Schedule 2.3, the execution, delivery and
performance by Seller of this Agreement and each other Seller Document does not
and will not (i) violate any provision of the Articles of Incorporation or by-
laws of Seller, in each case as amended to date, (ii) except as will not result
in a Material Adverse Effect, constitute a violation of, or conflict with or
result in any breach of, acceleration of any obligation under, right of
termination under, or default under, any agreement or instrument to which Seller
is a party or by which Seller or the Assets is bound, (iii) except as will not
result in a Material Adverse Effect, violate any judgment, decree, order,
statute, rule or regulation applicable to Seller or the Assets, (iv) except as
set forth in Sections 4.4, 6.5 and 7.5 hereof, require Seller to obtain any
approval, consent or waiver of, or to make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made or (v) result in
the creation or imposition of any Lien on any of the Assets.
(b) The execution, delivery and performance by each of the Principals
of this Agreement and each other Seller Document does not and will not (i)
constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which each such Principal is a party or by
which such Principal is bound, (ii) violate any judgment, decree, order,
statute, rule or regulation applicable to each such Principal, (iii) require
such Principal to obtain any approval, consent or waiver of, or to make any
filing with, any person or entity (governmental or otherwise) that has not been
obtained or made, or (iv) result in the creation or imposition of any Lien on
any of the Assets.
2.4 Taxes.
(a) Except as set forth on Schedule 2.4, Seller has paid or caused to
be paid all federal, state, local, foreign and other taxes, including, without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related
10
taxes, withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
it through the date hereof whether disputed or not.
(b) Seller has in accordance with applicable law filed all federal,
state, local and foreign tax returns required to be filed by it through the date
hereof, and to the knowledge of Seller and the Principals, all such returns
correctly and accurately set forth the amount of any Taxes relating to the
applicable period. A list of all federal, state, local and foreign income tax
returns filed with respect to Seller for taxable periods ended on or after
December 31, 1993, is set forth in Schedule 2.4 attached hereto, and said
schedule indicates those returns that have been audited or currently are the
subject of an audit. Seller has delivered to Buyer correct and complete copies
of all federal, state, local and foreign income tax returns listed on said
schedule, and of all examination reports and statements of deficiencies assessed
against or agreed to by Seller with respect to said returns.
(c) Neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the knowledge of Seller or the Principals,
threatening to assert against Seller any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a jurisdiction where
Seller does not file reports and returns that Seller is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
Assets of Seller that arose in connection with any failure (or alleged failure)
to pay any Taxes. Seller has never entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code of 1986, as amended (the "Code").
(d) Except as set forth in Schedule 2.4, there has not been any audit
of any tax return filed by Seller, no audit of any tax return of Seller is in
progress, and Seller has not been notified by any tax authority that any such
audit is contemplated or pending. Except as set forth in Schedule 2.4, no
extension of time with respect to any date on which a tax return was or is to be
filed by Seller is in force, and no waiver or agreement by Seller is in force
for the extension of time for the assessment or payment of any Taxes.
(e) Seller has never been (and has never had any liability for unpaid
Taxes because it once was) a member of an "affiliated group" (as defined in
Section 1504(a) of the Code). Seller has never filed, and has never been
required to file, a consolidated, combined or unitary tax return with any other
entity. Except as set forth in Schedule 2.1(b), Seller does not own and has
never owned a direct or indirect interest in any trust, partnership, corporation
or other entity and therefore Buyer is not acquiring from Seller an interest in
any entity. Except as set forth in Schedule 2.4, Seller is not a party to any
tax sharing agreement.
(f) Seller is, and at all times since January 2, 1992 has been, a
"small business corporation" with a valid election pursuant to Section 1362(a)
of the Code and applicable state law.
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(g) Seller is not a "foreign person" within the meaning of Section
1445 of the Code and Treasury Regulations Section 1.1445-2.
(h) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
2.5 Compliance with Laws. Except as set forth on Schedule 2.5 and
Schedule 2.7, Seller's operation of the Business and the Assets is in compliance
in all material respects with all applicable statutes, ordinances, orders, rules
and regulations promulgated by any federal, state, municipal or other
governmental authority (including the Federal Communications Commission), and,
to the knowledge of Seller and the Principals, Seller has not received notice of
a violation or alleged violation of any such statute, ordinance, order, rule or
regulation within the last three (3) years.
2.6 Insurance. The physical properties and tangible Assets are insured to
the extent disclosed in Schedule 2.6, and all insurance policies and
arrangements of Seller in effect as of the date hereof are disclosed in said
Schedule. Said insurance policies and arrangements are in full force and
effect, all premiums with respect thereto are currently paid, and Seller is in
compliance in all material respects with the terms thereof. Except as set forth
on Schedule 2.6, said insurance is adequate and customary for the business
engaged in by Seller and is sufficient for compliance by Seller with all
requirements of law and all agreements and leases to which Seller is a party.
2.7 Contracts. Except for the Excluded Contracts, the Contracts
constitute all leases, contracts and arrangements, whether oral or written,
under which Seller is bound or to which Seller is a party which relate to the
Business or Assets. To the knowledge of Seller and the Principals, Schedule
1.1(b) attached hereto contains a true, correct and complete list of all
Contracts (and a description of each oral arrangement, if any). Each Contract
is valid, in full force and effect and binding upon Seller and, to the knowledge
of Seller and the Principals, the other parties thereto in accordance with its
terms. Except as set forth on Schedule 2.7 and except as will not result in a
Material Adverse Effect, neither Seller nor, to the knowledge of Seller and the
Principals, any other party is in default under or in arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Contract, nor does any condition exist
that with notice or lapse of time or both would constitute such a default, and
no waiver or indulgence has been granted by any party under any Contract.
Except as set forth on Schedule 2.7, Seller has not received notice of, and each
of Seller and the Principals has no knowledge of, any fact which would result in
a termination, repudiation or breach of any Contract. Seller has provided Buyer
with true and complete copies of all of such Contracts, as amended, other than
Contracts with Subscribers. With respect to Subscriber Contracts, Seller has
provided Buyer with representative forms of such Contracts which Seller
reasonably believes to be the form utilized by it for all such Subscribers.
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2.8 Title. Seller has good and marketable title to all of the Assets free
and clear of all mortgages, pledges, security interests, charges, liens,
restrictions and encumbrances of any kind (collectively, "Liens") whatsoever,
except for the Liens set forth on Schedule 2.8 (other than those Liens which are
marked with an * on such schedule, which shall be released at or prior to the
Closing) which are to be transferred to Buyer in connection with the transfer of
the Assets (the "Permitted Liens"). Upon the sale, assignment, transfer and
delivery of the Assets to Buyer hereunder and under the Seller Documents, there
will be vested in Buyer good, marketable and indefeasible title to the Assets
free and clear of all Liens, except for the Permitted Liens. Except for the
Excluded Assets, the Assets include all of the assets and properties (i) held
for use by Seller to conduct the Business as presently conducted and (ii)
necessary for Buyer to operate the Business in the same manner as such business
is currently operated by Seller. Except as set forth on Schedule 2.8, all of
the tangible Assets, taken as a whole, are in good repair, have been well
maintained and are in good operating condition, ordinary wear and tear excepted,
do not require any material modifications or repairs, and comply in all material
respects with applicable laws, ordinances and regulations. Seller has delivered
complete and true copies of all real property leases (the "Leases") set forth on
Schedule 1.1(b). Except as set forth on Schedule 2.8, Seller holds good, clear,
marketable, valid and enforceable leasehold interest in the real property
subject to the Leases (the "Leased Real Property"), to the knowledge of Seller
and the Principals, subject only to the right of reversion of the landlord or
lessor under the Leases, free and clear of all other prior or subordinate
interests, including, without limitation, mortgages, deeds of trust, ground
leases, leases, subleases, assessments, tenancies, claims, covenants,
conditions, restrictions, easements, judgments or other encumbrances or matters
affecting title, and free of encroachments onto or off of the leased real
property. There are no material defects in the physical condition of any
improvements constituting a part of the Leased Real Property, including, without
limitation, structural elements, mechanical systems, roofs or parking and
loading areas, and all of such improvements, taken as a whole, are in good
operating condition and repair, have been well maintained, ordinary wear and
tear excepted. All water, sewer, gas, electric, telephone, drainage and other
utilities required by law or necessary for the current or planned operation of
the Leased Real Property have been installed and connected pursuant to valid
permits, and are sufficient to service the Leased Real Property.
2.9 No Litigation. Except as set forth in Schedule 2.9, Seller is not now
involved in nor, to the knowledge of Seller and the Principals, is Seller
threatened to be involved in any litigation or legal or other proceedings
related to or affecting the Business or any Asset or which would prevent or
hinder the consummation of the transactions contemplated by this Agreement.
Seller has not been operating the Business under, and the Business is not
subject to, any order, injunction or decree of any court of federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality.
2.10 Employees; Labor Matters.
Seller employs approximately 78 full-time employees and 15 part-time
employees and reasonably believes it generally enjoys good employer-employee
relationships. Set forth on
13
Schedule 2.12 hereto is a list of all such employees, including the name, date
of hire and wages of such employees. To the knowledge of Seller and the
Principals, Seller is not delinquent in payments to any of its employees for any
wages, salaries, commissions, bonuses or other direct compensation for any
services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of the employment of any of said
employees, neither Seller nor Buyer will, by reason of the acquisition
transaction or anything done prior to the Closing, be liable to any of said
employees for any bonus or compensation payments, except as set forth in
Schedule 2.10 and except for accrued sick, vacation and holiday pay, if any.
Seller does not have any policy, practice, plan or program of paying severance
pay or any form of severance compensation in connection with the termination of
employment, except as set forth in such Schedule 2.10. Except as set forth on
Schedule 2.10, Seller is in compliance in all material respects with all
applicable laws and regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices, nor are there any strikes, slowdowns, stoppages of work, or any
other concerted interference with normal operations existing, pending or, to the
knowledge of Seller and the Principals, threatened against or involving Seller.
No question concerning representation exists respecting any group of employees
of Seller. There are no grievances, complaints or charges that have been filed
against Seller under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might have an adverse effect on Seller or
the conduct of its business and no arbitration or similar proceeding is pending
and no claim therefor has been asserted. No collective bargaining agreement is
in effect or is currently being or is about to be negotiated by Seller. Seller
has received no information to indicate that any of its employment policies or
practices is currently being audited or investigated by any federal, state or
local government agency. Seller is, and at all times since November 6, 1986 has
been, in compliance with the requirements of the Immigration Reform Control Act
of 1986.
2.11 Financial Statements. Attached hereto as Schedule 2.11 are copies of
the balance sheet of Seller as at July 31, 1998 (the "Base Balance Sheet") and
the statements of income and expense of Seller for July 31, 1998 (collectively
the "Financial Statements"). The Financial Statements have been prepared in
accordance with Seller's historical accounting practices during the periods
covered thereby (except for the absence of footnotes with respect to unaudited
financials), in all material respects, present fairly and accurately the
financial condition of the Business at the dates of said statements and the
results of operations of the Business for the periods covered thereby. Except
as set forth in Schedule 2.11, as of the date of the Base Balance Sheet (the
"Base Balance Sheet Date"), Seller had no liabilities or obligations of any kind
with respect to the Business, whether accrued, contingent or otherwise, that are
not disclosed and adequately reserved against on the Base Balance Sheet. Except
as set forth in Schedule 2.11, as of the date hereof and at the Closing, Seller
had and will have no liabilities or obligations of any kind with respect to the
Business, whether accrued, contingent or otherwise, that are not disclosed and
adequately reserved against on the Base Balance Sheet, other than immaterial
liabilities incurred in the ordinary course of business which would not be
14
reflected in the Base Balance Sheet under generally accepted accounting
principles, applied consistently.
2.12 Business Since the Base Balance Sheet Date. Since the Base Balance
Sheet Date and except as set forth on Schedule 2.12:
(a) there has been no material adverse change in the Business or in
the Assets, operations or financial condition of the Business;
(b) the Business has, in all material respects, been conducted in the
ordinary course of business and in substantially the same manner as it was
conducted before the date of the Base Balance Sheet Date;
(c) there has not been any material obligation or liability
(contingent or other) incurred by Seller with respect to the Business, whether
or not incurred in the ordinary course of business;
(d) there has not been any purchase, sale or other disposition, or any
agreement or other arrangement, oral or written, for the purchase, sale or other
disposition, of any material properties or assets of the Business, whether or
not in the ordinary course of business;
(e) there has not been any mortgage, encumbrance or lien placed on any
of the Assets, nor any payment or discharge of a material lien or liability of
Seller which was not reflected on the Base Balance Sheet;
(f) there has not been any damage, destruction or loss, whether or not
covered by insurance, adversely affecting the Business or Assets;
(g) there has not been any change in the collection, payment and
accounting policies used by Seller in the Business; and
(h) there has not been any agreement or understanding, whether in
writing or otherwise, for Seller to take any of the actions specified above.
2.13 Licenses. As of the date of this Agreement, Seller is the holder of
all licenses, permits and authorizations with respect to the Business (the
"Authorizations"). The Authorizations constitute all of the licenses, permits
and authorizations required for operation of the Business as now operated. All
of the Authorizations are in full force and effect and, to the knowledge of
Seller and the Principals, no licenses, permits or authorizations of any
governmental department or agency are required for the operation of the Business
which have not been duly obtained. As of the date hereof, there is not pending
or, to the knowledge of Seller and the Principals, threatened any action by or
before any governmental agency to revoke, cancel, rescind or modify any of the
Authorizations.
15
2.14 Approvals; Consents. Except as set forth on Schedule 2.14 attached
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by Seller in connection with the execution and delivery of this Agreement
and the Seller Documents and the consummation of the transactions contemplated
hereby and thereby.
2.15 Customers and Suppliers. Seller reasonably believes that its
relations with its customers and suppliers, including its Subscribers, taken as
a whole, are good and there are not pending or, to Seller's knowledge,
threatened claims or controversies with any customer or suppliers, or any
Subscribers, that is material to the Assets or the Business.
2.16 Subscribers. Schedule 2.16(a) attached hereto sets forth, as of the
date hereof, the Subscribers of the Business as listed by class and type. For
purposes of this Agreement, the term "Subscriber" shall mean any active
subscriber to Internet services offered by Seller in the Business who has
subscribed to a service for at least one month and has paid at least one bill,
including, without limitation, any person who receives dial-up Internet access
through the Business (a "Dial-up Subscriber"), any person who receives Internet
access from Seller offering higher data transmission rates than available from
dial-up access (a "Dedicated Subscriber"), any Subscriber who has an integrated
services digital network account ("ISDN Subscriber"), and any person with a web
page on Seller's server and to whom Seller provides Internet access (a "Web-
hosting Subscriber"). Set forth on Schedule 2.16(b) attached hereto is a
listing of all such accounts which receive complimentary Internet services or
Internet services at a discounted rate in connection with extraordinary
promotions offered by Seller outside the ordinary course of business.
2.17 Brokers. Except for Corporate Development Resources, Inc. ("CDR"),
whose fees shall be paid by Seller at or before Closing, Seller has not retained
any broker or finder or other person who would have any valid claim against any
of the parties to this Agreement for a commission or brokerage fee in connection
with this Agreement or the transactions contemplated hereby.
2.18 Collectibility of Accounts Receivable. Subject to the provisions of
Section 1.12, all of the Accounts Receivable of Seller which are aged less than
thirty (30) days as of the Closing Date are or will be as of the Closing Date
bona fide, valid and enforceable claims, and, to the knowledge of Seller and the
Principals, subject to no setoff or counterclaim. Seller has no accounts or
loans receivable from any person, firm or corporation which is affiliated with
Seller or from any director, officer or employee of Seller, or from any of their
respective spouses or family members.
2.19 Banking Relations. All of the arrangements which Seller has with any
banking institution are summarized in Schedule 2.19, indicating with respect to
each of such arrangements the type of arrangement maintained (such as checking
account, borrowing arrangements, safe deposit box, etc.) and the person or
persons authorized in respect thereof. To the knowledge of Seller and the
Principals, Schedule 2.19 hereto sets forth all of the
16
guarantees of Seller's indebtedness and liabilities related to the Business or
the Assets by the Principals (the "Guarantees"), all of which shall be
discharged at the Closing. Buyer and Seller agree that in the event Seller
notifies Buyer, after the Closing, of the existence of any personal guarantees
of Seller's indebtedness or obligations with respect to the Business or the
Assets which exist as of the Closing Date and of which the Seller has no
knowledge, Buyer shall use reasonable best efforts to assist Seller, and Seller
shall use reasonable best efforts to assist Buyer, following the Closing to
discharge such guarantees.
2.20 Intellectual Property.
(a) Set forth on Schedule 2.20 hereto are all computer programs and
related documentation sold, marketed, licensed and distributed by Seller (the
"Products"). All of the Intellectual Property of Seller is set forth on
Schedule 2.20 attached hereto. For purposes hereof, the term "Intellectual
Property" includes: (i) all patents, patent applications, patent rights, and
inventions and discoveries and invention disclosures (whether or not patented)
(collectively, "Patents"); (ii) the name "EXEC-PC", all trade names including
"EXEC-PC Interactive", trade dress, logos, packaging design, slogans, Internet
domain names, registered and unregistered trademarks and service marks and
applications (collectively, "Marks"); (iii) all copyrights in both published and
unpublished works, including, without limitation, all compilations, databases
and computer programs, and all copyright registrations and applications, and all
derivatives, translations, adaptations and combinations of the above
(collectively, "Copyrights"); (iv) all know-how, trade secrets, confidential or
proprietary information, customer lists, IP addresses, research in progress,
algorithms, data, designs, processes, formulae, drawings, schematics,
blueprints, flow charts, models, prototypes, techniques, Beta testing procedures
and Beta testing results (collectively, "Trade Secrets"); (v) Seller's web-sites
(including the domain name "www.execpc.com" and any other similar domain names);
(vi) all goodwill, franchises, licenses, permits, consents, approvals, technical
information, telephone numbers, and claims of infringement against third parties
(the "Rights"); and (vii) all contracts relating to the Products and the
Intellectual Property to which Seller is a party or is bound, including, without
limitation, all nondisclosure and/or confidentiality agreements entered into by
persons in connection with disclosures by Seller (collectively,"Assigned
Contracts").
(b) Except as described in Schedule 2.20, to the knowledge of Seller
and the Principals, Seller has exclusive ownership of, and has good, valid and
marketable title to, all of the Intellectual Property, free and clear of any
Liens, and has the right to use all of the Intellectual Property without payment
to any third party. Except as set forth on Schedule 2.14 and Schedule 2.20,
Seller's rights in all of such Intellectual Property are freely transferable
subject to filing documents of transfer. There are no claims or demands pending
or, to the knowledge of Seller and the Principals, threatened of any other
person pertaining to any of such Intellectual Property and no proceedings have
been instituted, or are pending or, to the knowledge of Seller and the
Principals, threatened against Seller and/or its officers, employees and
consultants which challenge the validity and enforceability of Seller's rights
in respect of the Intellectual Property. The Intellectual Property constitutes
all of the assets of Seller used in
17
designing, creating and developing the Products, and represent all of such
Intellectual Property necessary for the operation of Seller's Business as
currently conducted.
All former and current employees, consultants and contractors of Seller
have executed written instruments with Seller that assign to Seller all rights
to any inventions, improvements, discoveries, or information relating to the
business of Seller. No employee, consultant or contractor of Seller has entered
into any agreement that restricts or limits in any way the scope or type of work
in which the employee, consultant or contractor may be engaged or requires the
employee, consultant or contractor to transfer, assign, or disclose information
concerning his work to anyone other than Seller.
(c) Schedule 2.20 sets forth a complete and accurate list and summary
description of all of Seller's Patents, if any. Any issued Patents are
currently in compliance with formal legal requirements (including without
limitation payment of filing, examination and maintenance fees and proofs of
working or use), are valid and enforceable, and are not subject to any
maintenance fees or taxes or actions falling due within ninety (90) days after
the Closing Date. In each case where a Patent is held by Seller by assignment,
the assignment has been duly recorded with the U.S. Patent and Trademark Office
and all other jurisdictions of registration. No Patent has been or is now
involved in any interference, reissue, re-examination or opposition proceeding.
To the knowledge of Seller and the Principals, there is no potentially
interfering Patent of any third party. Any products made, used or sold under
the Patents have been marked with the proper patent notice.
(d) Schedule 2.20 sets forth a complete and accurate list and summary
description of all of Seller's Marks. All Marks that have been registered with
the United States Patent and Trademark Office and/or any other jurisdiction are
currently in compliance with formal legal requirements (including, without
limitation, the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety (90) days after the Closing Date. In each case where a Trademark is held
by Seller by assignment, the assignment has been duly recorded with the U.S.
Patent and Trademark Office and all other jurisdictions of registration. No
Mark has been or is now involved in any opposition, invalidation or cancellation
proceeding and, to the knowledge of Seller and the Principals, no such action is
threatened with respect to any of the Marks. All products and materials
containing a Mark bear the proper notice where permitted by law.
(e) Schedule 2.20 sets forth a complete and accurate list and summary
description of all of Seller's Copyrights. All the Copyrights have been
registered with the United States Copyright Office and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any fees or taxes or actions falling due within ninety (90) days
after the Closing Date. In each case where a Copyright is held by Seller by
assignment, the assignment has been duly recorded with the U.S. Copyright Office
and all other jurisdictions of registration. None of the source or object code,
algorithms, or structure included in the Products is copied from, based upon, or
derived from any other source or
18
object code, algorithm or structure in violation of the rights of any third
party. Any substantial similarity of the Products to any computer program owned
by any third party did not result from the Products being copied from, based
upon, or derived from any such computer software program in violation of the
rights of any third party. All copies of works encompassed by the Copyrights
have been marked with the proper copyright notice.
(f) Seller has taken all reasonable security measures (including,
without limitation, entering into appropriate confidentiality and nondisclosure
agreements with all officers, directors, employees, consultants and contractors
of Seller and any other persons with access to the Trade Secrets) to protect the
secrecy, confidentiality and value of all Trade Secrets. To the knowledge of
Seller and the Principals, there has not been any breach by any party to any
such confidentiality or non-disclosure agreement. The Trade Secrets have not
been disclosed by Seller to any person or entity other than employees or
contractors of Seller who had a need to know and use the Trade Secrets in the
course of their employment or contract performance. Except as set forth on
Schedule 2.20, (i) Seller has not directly or indirectly granted any rights or
interests in the source code of the Products, and (ii) since Seller developed
the source code of the Products, Seller has not provided, licensed or disclosed
the source code of the Products to any person or entity. Seller has the right
to use, free and clear of claims of third parties, all Trade Secrets. To the
knowledge of Seller and the Principals, there is not any assertion that the use
by Seller of any Trade Secret violates the rights of any third party.
(g) To the knowledge of Seller and the Principals, Seller has the
exclusive right to use, license, distribute, transfer and bring infringement
actions with respect to the Intellectual Property. Except as set forth on
Schedule 2.20, Seller (i) has not licensed or granted to anyone rights of any
nature to use any of its Intellectual Property and (ii) is not obligated to and
does not pay royalties or other fees to anyone for its ownership, use, license
or transfer of any of its Intellectual Property.
(h) All licenses or other agreements under which Seller is granted
rights by others in Intellectual Property are listed in Schedule 2.20. Except
as set forth on Schedule 2.20, all such licenses or other agreements are in full
force and effect, to the knowledge of Seller and the Principals there is no
material default by any party thereto, and all of the rights of Seller
thereunder are freely assignable. True and complete copies of all such licenses
or other agreements, and any amendments thereto, have been provided to Buyer,
and Seller has no reason to believe that the licensors under the licenses and
other agreements under which Seller is granted rights and has granted rights to
others do not have and did not have all requisite power and authority to grant
the rights purported to be conferred thereby.
(i) All licenses or other agreements under which Seller has granted
rights to others in Intellectual Property are listed in Schedule 2.20. All such
licenses or other agreements are in full force and effect, and to the knowledge
of Seller and the Principals there is no material default by any party thereto.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to Buyer.
19
(j) Seller has no obligation to any other person to maintain, modify,
improve or upgrade the Products other than in the ordinary course of business
consistent with past practices of Seller.
(k) None of the Products manufactured and sold, nor any process or
know-how used, by Seller infringes or is alleged to infringe any patent,
trademark, service mark, trade name, copyright or other proprietary right or is
a derivative work based on the work of any other person.
(l) Except as set forth on Schedule 2.9, there are no (i) actions,
suits, claims, investigations or other proceedings involving the Products, the
Intellectual Property, or the Rights by or before any governmental authority or
arbitrator pending or, to the knowledge of Seller and the Principals, threatened
against Seller, or (ii) judgments, decrees, injunctions, or orders involving the
Products, the Intellectual Property or the Rights of any governmental authority
or arbitrator against Seller. Seller is not in default under any such judgment,
decree, injunction or order.
(m) The Products perform in accordance with their published
specifications and documentation and as Seller has warranted to its customers.
Seller has reviewed the areas within its businesses and operations which could
be adversely affected by, and has developed a program to address on a timely
basis, the "Year 2000 Problem" (i.e., the risk that applications used by Seller
or its suppliers and/or providers may be unable to recognize and properly
perform date-sensitive functions involving certain dates prior to and any date
after December 31, 1999). Seller reasonably believes that the "Year 2000
Problem" will not have a Material Adverse Effect.
2.21 Absence of Restrictions. Seller has not entered into any other
agreement or arrangement with any other party with respect to the sale, transfer
or any other disposition of the Business or the Assets, in whole or in part.
2.22 Permits; Burdensome Agreements. Schedule 2.22 lists all permits,
registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for Seller to conduct its Business. Seller has obtained
all such Approvals, which are valid and in full force and effect, and is
operating in compliance therewith. Such Approvals include, but are not limited
to, those required under federal, state or local statutes, ordinances, orders,
requirements, rules, regulations, or laws pertaining to environmental
protection, public health and safety, worker health and safety, buildings,
highways or zoning. Except as disclosed in Schedule 2.22 and Schedule 2.14 and
except as contemplated in Section 4.4, such Approvals will be available and
assigned to Buyer and remain in full force and effect upon Buyer's purchase of
the Assets, and no further Approvals will be required in order for Buyer to
conduct the business currently conducted by Seller subsequent to the Closing.
Except as disclosed in Schedule 2.22 or in any other schedule hereto, to the
knowledge of Seller and the Principals, Seller is not subject to or
20
bound by any agreement, arrangement, judgment, decree or order which may have a
Material Adverse Effect.
2.23 Transactions with Interested Persons. Except as set forth in Schedule
2.23 hereto, neither Seller, nor any stockholder, officer, supervisory employee
or director of Seller or, to the knowledge of Seller or the Principals, any of
their respective spouses or family members owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of
Seller, or any organization which has a material contract or arrangement with
Seller.
2.24 Employee Benefit Programs.
(a) Schedule 2.24 lists every Employee Program (as defined below) that
has been maintained (as defined below) by Seller at any time during the three-
year period ending on the Closing Date.
(b) Each Employee Program which has ever been maintained by Seller or
an Affiliate (as defined below) and which has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable
determination or approval letter from the Internal Revenue Service ("IRS")
regarding its qualification under such section and has, in fact, been
continuously qualified under the applicable section of the Code since the
effective date of such Employee Program through and including the Closing Date
(or if earlier, the date that all of such Employee Program's assets were
distributed). No material event or omission has occurred which would cause any
such Employee Program to lose its qualification under the applicable Code
section.
(c) Seller does not know, and has no reason to know, of any material
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by Seller. With respect to any Employee Program ever
maintained by Seller or any Affiliate, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly (including, without
limitation, through any obligation of indemnification or contribution), in any
taxes, penalties or other liability to Buyer. No litigation, arbitration, or
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or, to the
knowledge of Seller or the Principals, threatened with respect to any such
Employee Program.
(d) Neither Seller nor any Affiliate (i) has ever maintained any
Employee Program which has been subject to Title IV of ERISA (including, but not
limited to, any Multiemployer Plan (as defined below)) or (ii) has ever provided
health care or any other non-pension benefits to any employees after their
employment is terminated (other than as
21
required by part 6 of subtitle B of title I of ERISA) or has ever promised to
provide such post-termination benefits.
(e) With respect to each Employee Program maintained by Seller within
the three (3) years preceding the Closing, complete and correct copies of the
following documents (if applicable to such Employee Program) have previously
been delivered to Buyer: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended; (ii) the most
recent IRS determination or approval letter with respect to such Employee
Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) all other materials reasonably necessary for Buyer to
perform any of its responsibilities with respect to any Employee Program
subsequent to the Closing (including, without limitation, health care
continuation requirements).
(f) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA; and (B) all stock or cash option plans, restricted
stock plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income
arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a
reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity, or their spouses, dependents, or
beneficiaries.
(iii) An entity is an "Affiliate" of Seller if it would have ever
been considered a single employer with Seller under ERISA Section 4001(b)
or part of the same "controlled group" as Seller for purposes of ERISA
Section 302(d)(8)(C).
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(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which
is maintained pursuant to one or more collective bargaining agreements.
2.25 Environmental Matters.
(a) Except as set forth in Schedule 2.25, (i) Seller has never
generated, transported, used, stored, treated, disposed of, or managed any
Hazardous Waste (as defined below); (ii) to the knowledge of Seller and the
Principals, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by Seller, or has ever been located in
the soil or groundwater at any such site; (iii) to the knowledge of Seller and
the Principals, no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by Seller for treatment,
storage, or disposal at any other place; (iv) to the knowledge of Seller and the
Principals, Seller does not presently own, operate, lease, or use, nor has it
previously owned, operated, leased, or used any site on which underground
storage tanks are or were located; and (v) to the knowledge of Seller and the
Principals, no lien has ever been imposed by any governmental agency on any
property, facility, machinery, or equipment owned, operated, leased, or used by
Seller in connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.25, (i) to the knowledge of
Seller and the Principals, Seller has no liability under, nor has it ever
violated, any Environmental Law (as defined below); (ii) to the knowledge of
Seller and the Principals, Seller, any property owned, operated, leased, or used
by Seller, and any facilities and operations thereon are presently in compliance
with all applicable Environmental Laws; (iii) Seller has never entered into or
been subject to any judgment, consent decree, compliance order, or
administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) Seller has no knowledge or reason to know that any
of the items enumerated in clause (iii) of this subsection will be forthcoming.
(c) Except as set forth in Schedule 2.25 hereto, to the knowledge of
Seller and the Principals, no site owned, operated, leased, or used by Seller
contains any asbestos or asbestos-containing material, any polychlorinated
biphenyls (PCBs) or equipment containing PCBs, or any urea formaldehyde foam
insulation.
(d) Seller has provided to Buyer copies of all documents, records, and
information held by Seller concerning any environmental or health and safety
matter relevant to Seller, whether generated by Seller or others, including,
without limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans, and reports, correspondence, permits,
23
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
(e) For purposes of this Section 2.25, (i) "Hazardous Material" shall
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance, or by-law at the
foreign, federal, state, or local level, whether existing as of the date hereof,
previously enforced, or subsequently enacted; and (iv) "Seller" shall mean and
include Seller and all other entities for whose conduct Seller is or may be held
responsible under any Environmental Law.
2.26 HSR Matters. Neither Seller nor any "ultimate parent entity" (as such
term is defined in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act")) of Seller had
"annual net sales" (as defined in the HSR Act) for the previous fiscal year or
"total assets" (as defined in the HSR Act) as of the date hereof, equal to or
greater than $10,000,000.
2.27 Disclosure. To the knowledge of Seller and the Principals, the
representations, warranties and statements contained in this Agreement and in
the certificates, exhibits and schedules delivered by Seller and the Principals
to Buyer pursuant to this Agreement do not contain any untrue statement of a
material fact, and, when taken together, do not omit to state a material fact
required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to Seller or
the Principals which presently or may in the future have a Material Adverse
Affect which have not been specifically disclosed herein or in a Schedule
furnished herewith, other than general economic or regulatory conditions
affecting the Internet services industry generally.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BUYER. As a material inducement
to Seller entering into this Agreement, Buyer hereby represents and warrants to
Seller as follows:
3.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Michigan. Buyer has all
requisite power and authority to conduct its business as it is now conducted and
to own, lease and operate its properties and assets.
3.2 Required Action. All actions and proceedings necessary to be taken by
or on the part of Buyer in connection with the transactions contemplated by this
Agreement have been duly and validly taken, and this Agreement and each other
agreement, document and instrument to be executed and delivered by or on behalf
of Buyer pursuant to, or as
24
contemplated by, this Agreement (collectively, the "Buyer Documents") has been
duly and validly authorized, executed and delivered by Buyer. Buyer has full
right, authority, power and capacity to execute and deliver this Agreement and
each other Buyer Document and to carry out the transactions contemplated hereby
and thereby. This Agreement and each other Buyer Document constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligations
of Buyer enforceable in accordance with its respective terms.
3.3 No Conflicts. The execution, delivery and performance by Buyer of
this Agreement and each other Buyer Document does not and will not (a) violate
any provision of the Articles of Incorporation or by-laws of Buyer, as amended
to date, (b) constitute a violation of, or conflict with or result in any breach
of, acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which Buyer is a party or by which it is
bound, (c) violate any judgment, decree, order, statute, rule or regulation
applicable to Buyer, (d) require Buyer to obtain any approval, consent or waiver
of, or to make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made. The officers who execute this Agreement and
the other Buyer Documents contemplated hereby on behalf of Buyer have and shall
have all requisite power to do so in the name of and on behalf of Buyer.
SECTION 4. COVENANTS OF SELLER. Seller covenants and agrees that, from the
date hereof until consummation of the transactions contemplated hereby at the
Closing, Seller shall:
4.1 Access to Premises and Records. Seller shall give Buyer and its
representatives, at reasonable times and with reasonable prior notice, free
access to the properties, books and records of the Business and to the Assets
and will furnish to Buyer and its representatives such information regarding the
Business and the Assets as Buyer or its representatives may from time to time
reasonably request in order that Buyer may have full opportunity to make a
diligent investigation consistent with this Agreement; provided, however, that
Buyer's activities shall not unreasonably disrupt the business or operations of
Seller. In addition to, and not in limitation of the foregoing, Seller shall
provide Buyer with access to and copies of the records of all: (a) Accounts
Receivable, (b) Subscriber billing, (c) pre-paid accounts, (d) accounts for
which no remuneration is received by Seller and (e) general reports with respect
to each category of service provided by the Business.
4.2 Continuity and Maintenance of Operations of the Business. Except as
to actions which Buyer has been advised and to which Buyer has consented to in
writing, and except as specifically permitted or required by this Agreement,
Seller shall:
(a) Operate the Business in the ordinary course consistent with past
practices, use its commercially reasonable efforts to keep available the
services of the employees who are involved in the operation of the Business, and
use reasonable best efforts to preserve any beneficial business relationships
with Subscribers, customers, suppliers and others having business dealings with
Seller relating to the Business;
25
(b) Use and operate the Assets in a manner consistent with past
practice and maintain the Assets in good operating condition, ordinary wear and
tear excepted;
(c) Maintain adequate inventories of spare Equipment consistent with
past practices;
(d) Maintain insurance upon the Assets in such amounts and types as in
effect on the date of this Agreement as set forth in Schedule 2.6 attached
hereto;
(e) Keep all of its business books, records and files in the ordinary
course of business in accordance with past practices, and provide Buyer with
access thereto upon its reasonable request; provided, however, that such access
does not unreasonably disrupt the business or operations of Seller;
(f) Continue to implement its procedures for disconnection and
discontinuance of service to subscribers whose accounts are delinquent in
accordance with those in effect on the date of this Agreement;
(g) Perform and comply in all material respects with the terms of the
Contracts and keep such Contracts in full force and effect; and
(h) Use commercially reasonable efforts to preserve the goodwill of
the Business.
4.3 Negative Covenants. Seller shall not, without the prior written
consent of Buyer:
(a) Sell, transfer, lease, assign or otherwise dispose of, or agree to
sell, transfer, lease, assign or otherwise dispose of, any Assets;
(b) Enter into any contract or commitment for the acquisition of goods
or services relating to the Business (other than in the ordinary course of
business) or which otherwise obligates Seller to perform in full or in part
beyond the Closing Date;
(c) Hire any new employees or enter into any employment arrangements
or otherwise increase the salary or compensation of any existing employees;
(d) Renegotiate, modify, amend or terminate any Contract (other than
Contracts with respect to Seller's Dial-up and Dedicated Subscribers);
(e) Create, assume, or permit to exist, or agree to incur, assume or
acquire, any Lien, claim or liability on the Assets;
26
(f) Make any modifications or changes to the existing rate schedules
or product offerings in effect with respect to the Business;
(g) Offer or employ any sales discounts, free services or other
extraordinary marketing practices or extraordinary promotions outside the
ordinary course of business and not consistent with Seller's past practices;
(h) Take any actions or permit its employees and agents to take any
actions which would materially interfere with or preclude the transactions
contemplated by this Agreement; and
(i) Cause or permit the provision for any new and material pension,
retirement or other employment benefits for employees who perform services in
connection with the conduct of the Business or any material increase in any
existing benefits (other than as required by law).
4.4 Consents.
(a) Seller will use its reasonable best efforts to obtain, with
Buyer's assistance, as soon as practicable and at its expense, the consent of
all third parties under the Contracts for which the prior approval of such third
party is required pursuant to the terms of the Contract (each a "Restricted
Contract," and together the "Restricted Contracts"), in form and substance
reasonably satisfactory to Buyer. If any such consent or approval is not
obtained, or if any approval, consent or authorization for the Authorizations
described in Section 2.13 and 2.14 hereof is not obtained ("Restricted
Authorizations"), and the parties nonetheless consummate the transactions
contemplated hereby, Seller shall use reasonable best efforts to obtain such
consent after the Closing and secure an arrangement satisfactory to Buyer to
provide Buyer with the benefits of such Restricted Authorization or Restricted
Contract after Closing until such consent is obtained; provided, however, that
"reasonable best efforts" for these purposes shall not require Seller to
undertake extraordinary or unreasonable measures to obtain such authorizations,
approvals and consents, including, without limitation, the initiation or
prosecution of legal proceedings or the payment of fees in excess of customary
filing and processing fees. If Seller shall have complied with this Section
4.4(a), Buyer shall have no right to terminate this Agreement or to seek
indemnification or other remedies from Seller as a result of any failure by the
parties to obtain any such authorization, consent or approval or to provide any
such alternative arrangement with respect to any Restricted Contract or
Restricted Authorization.
(b) Notwithstanding the foregoing, with respect to the Restricted
Authorizations and the Restricted Contracts which have been marked with a * on
Schedule 2.14 (the "Material Restricted Authorizations" and the "Material
Restricted Contracts", respectively), Buyer and Seller agree that it shall be a
condition to Buyer's obligation to consummate the transactions contemplated
hereby that Seller obtain the consents to the assignment thereof; provided,
however, that with respect to the Material Restricted
27
Contracts with M&I First National Leasing Corp., Fleet Capital, 3Com Credit
Corporation and Ameritech Credit Corporation set forth on Schedule 2.14 (the
"Material Leases"), if the consent to the assignment of such Material Leases is
not obtained, in form and substance reasonably satisfactory to Buyer, prior to
October 1, 1998, then Buyer and Seller agree that such Material Leases will be
paid-in-full by Buyer at the Closing, including payment of all interest,
prepayment and termination penalties, and other charges related thereto, without
any further liability of Seller and the Principals to Buyer under such Material
Leases after the Closing (it being understood by the parties that the adjustment
to the Purchase Price as contemplated by Section 1.6(b) shall still apply).
(c) Nothing in this Agreement will constitute a transfer or an
attempted transfer of any Restricted Authorization or Restricted Contract which
by its terms or under applicable law or governmental rules or regulations
requires the consent or approval of a third party (including, without
limitation, a governmental authority) unless such consent or approval shall have
been obtained.
4.5 Notification of Certain Matters. Seller shall promptly notify Buyer
of (i) any fact, event, circumstances or action the existence or occurrence of
which would cause any of Seller's representations or warranties under this
Agreement, or the disclosures in any schedules or exhibits attached hereto, not
to be true in any material respect and (ii) any failure on its part to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement. Seller shall promptly
notify buyer in writing of the assertion, commencement or threat of any claim,
litigation, proceeding or investigation in which Seller is a party or in which
the Assets or Business may be affected and which could reasonably be expected to
be material or which relates to the transactions contemplated hereby. Prior to
the Closing, the Seller may modify, supplement or amend the Schedules. The
parties agree that Buyer shall be deemed to have waived, and Seller shall have
no obligation to indemnify Buyer with respect to, any breach by Seller of any
warranties and representations of Seller under this Agreement disclosed in any
modification, supplement or amendment in the Schedules made pursuant hereto,
except for such breaches of representations and warranties which are the result
of a breach or default by Seller with respect to any covenant of Seller made in
Section 4 of this Agreement, unless the Buyer shall notify Seller within three
(3) days of receipt thereof or at Closing, whichever is earlier, of Buyer's
election to terminate this Agreement, in which case Buyer shall be permitted to
terminate this Agreement as provided in Section 8.3 without either party having
any liability to the other party for indemnification or otherwise. If Buyer
does not so notify Seller, the Schedules shall be deemed modified by the
information disclosed in any such supplement or amendment and the same shall be
incorporated in the Schedules by reference.
4.6 Adverse Change. Seller shall promptly notify Buyer in writing of any
materially adverse developments affecting the Assets or the Business which
become known to Seller, including, without limitation, (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting any of the Assets or the Business, (ii) any material notice
of violation, forfeiture or complaint under any material Contract, or (iii)
28
anything which, if not corrected prior to the Closing Date, would prevent Seller
from fulfilling any condition to Closing described in Section 6 hereof.
4.7 No Solicitation. Seller shall not, and Seller shall cause its
officers, employees, stockholders, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
Seller) and all other employees who perform services with respect to the
operation of the Business not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal with respect to the
Assets or the Business, or engage in any negotiations concerning, or provide to
any other person any information or data relating to, the Business, the Assets
or Seller for the purpose of, or have any discussions with, any person relating
to, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any effort or attempt by
any other person to seek or effect a transaction, or enter into a transaction
with any person or persons, other than Buyer, concerning the possible sale of
the Assets or Business, or the capital stock of Seller. Seller shall promptly
inform Buyer of any such inquiries or proposals and provide all pertinent
documentation related thereto.
4.8 Cooperation. Seller shall use its commercially reasonable efforts to
take all steps within its power and will cooperate with Buyer to cause to be
fulfilled those of the conditions to Buyer's obligations to consummate the
transactions contemplated by this Agreement that are dependent upon its actions,
and to execute and deliver such instruments and take such other reasonable
actions as may be necessary or appropriate in order to carry out the intent of
this Agreement and consummate the transactions contemplated hereby. Without
limiting the foregoing, Seller shall cooperate with all reasonable requests of
Buyer and its counsel in connection with Buyer's due diligence investigation of
the Business and Assets.
4.9 Expenses. Seller shall bear its own expenses incurred in connection
with the negotiation and preparation of this Agreement and in connection with
all obligations required to be performed by it under this Agreement.
4.10 Financial Information. Seller shall, as promptly as practical after
such information becomes available, deliver to Buyer copies of Seller's monthly
unaudited financial statements, prepared in accordance with Seller's historical
accounting practices, and in form and presentation as is reasonably acceptable
to Buyer.
4.11 Consummation of Agreement. Subject to the provisions of Section 8 of
this Agreement: (a) Seller shall use its reasonable best efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement, and to cause the transactions contemplated by this
Agreement to be fully carried out on or before September 30, 1998; and (b)
Seller shall not take any action or omit to take any action that would or could
reasonably be expected to (i) result in any of the representations and
warranties of Seller being or becoming untrue in any respect that would cause
Section 6.1 not to be satisfied, (ii) result in
29
any conditions to Closing set forth in Section 6 of this Agreement not to be
satisfied, or (iii) result in a material violation of any provision of this
Agreement.
4.12 Confidentiality. Seller agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Buyer with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Buyer's industry or which has been disclosed to Seller by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, Seller will return, and cause its respective
officers, members, agents and representatives to return, to Buyer (or certify
that they have destroyed) all copies of such data and information made available
to Seller (and its officers, members, agents and representatives) in connection
with the transaction.
4.13 Guarantees. Seller and the Principals agree to use their respective
reasonable best efforts to assist Buyer in obtaining the release of all
Guarantees.
SECTION 5. COVENANTS OF BUYER. Buyer covenants and agrees that, from the date
hereof until consummation of the transactions contemplated hereby at the
Closing, Buyer shall:
5.1 Cooperation. Buyer shall use its reasonable best efforts to take all
steps within its power and will cooperate with Seller, to cause to be fulfilled
those of the conditions to Seller's obligations to consummate the transactions
contemplated by this Agreement that are dependent upon its actions and to
execute and deliver such instruments and take such other reasonable actions as
may be necessary or appropriate in order to carry out the intent of this
Agreement and consummate the transactions contemplated hereby.
5.2 Notification of Certain Matters. Buyer shall promptly notify Seller
of any fact, event, circumstances or action the existence or occurrence of which
would cause Buyer's representations or warranties under this Agreement not to be
true in any material respect.
5.3 Expenses. Buyer shall bear its own expenses incurred in connection
with the negotiation and preparation of this Agreement and in connection with
all obligations required to be performed by it under this Agreement.
5.4 Consummation of Agreement. Subject to the provisions of Section 8 of
this Agreement: (a) Buyer shall use its reasonable best efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement, and to cause the transactions contemplated by this
Agreement to be fully carried out on or before September 30, 1998; and (b) Buyer
shall not take any action or omit to take any action that would or could
reasonably be expected to (i) result in any of the representations and
warranties of Buyer set forth in this Agreement being or becoming untrue in any
respect that would cause Section 7.1
30
not to be satisfied, (ii) result in any condition to the Closing set forth in
Section 7 not being satisfied, or (iii) result in a material violation of any
provision of this Agreement.
5.5 Confidentiality. Buyer agrees that it and its representatives will
hold in strict confidence, and will not use, any confidential or proprietary
data or information obtained from Seller with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the transactions contemplated hereby. Information generally known in
Seller's industry or which has been disclosed to Buyer by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, Buyer will return, and cause its respective
officers, members, agents and representatives to return, to Seller (or certify
that they have destroyed) all copies of such data and information made available
to Buyer (and its officers, members, agents and representatives) in connection
with the transaction.
5.6 Guarantees. Buyer shall use its reasonable best efforts to assist
Seller and the Principals in obtaining the release of all Guarantees.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. Buyer's obligation to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, unless otherwise waived by Buyer in writing:
6.1 Accuracy of Representations and Warranties. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects at the Closing Date with the same effect as though made at
such time and the representations and warranties of Seller contained in this
Agreement which are qualified by materiality shall be true and correct in all
respects as of the Closing Date with the same effect as though made at such
time.
6.2 Performance of Agreements and Deliveries. Seller shall have performed
in all material respects all of its covenants, agreements and obligations under
this Agreement which are to be performed or complied with by Seller prior to or
upon the Closing Date and shall have delivered all documents and items required
to be delivered at or prior to the Closing, including, without limitation:
(a) A certificate, dated the Closing Date, from the President of
Seller to the effect that the conditions set forth in Sections 6.1 and 6.2
have been satisfied;
(b) A certificate, dated the Closing Date, from Seller's Secretary as
to the charter, by-laws, authority and the incumbency of all officers
executing the Seller Documents on behalf of Seller;
31
(c) A certified copy of Seller's Articles of Incorporation from the
Department of Financial Institutions of the State of Wisconsin, including
an Amendment to the Articles of Incorporation and any other required
documentation, all as certified by the Department of Financial Institutions
of the State of Wisconsin, which effectuate a change of Seller's name;
(d) A certificate of status from the Department of Financial
Institutions of the State of Wisconsin;
(e) Evidence, reasonably satisfactory to Buyer, of the removal of the
Principals from any bank, credit card, debit card, cellular phone accounts
and other accounts held in the name of Seller and which are to be assumed
by Buyer; and
(f) Such other certificates and instruments reasonably requested by
Buyer.
6.3 No Material Adverse Effect. None of the schedules, documents or other
information to be furnished by Seller to Buyer pursuant to this Agreement, shall
disclose any fact, circumstance or matter, or any change in or development in
connection with any matter disclosed in the original schedules or documents
previously delivered by Seller to Buyer, which has, or could reasonably be
expected to have, a material adverse effect on the Assets or on the Business;
and there shall have been no other changes or developments affecting either the
Assets or the Business since the Base Balance Sheet Date which have, or could
reasonably be expected to have, a material adverse effect on the Assets or
Business.
6.4 Asset Transfer. Seller shall have delivered to Buyer the following
instruments of transfer and assignment in accordance with the provisions hereof,
transferring to Buyer all of Seller's right, title and interest in and to the
Assets, free and clear of all Liens, except Permitted Liens:
(a) A Bill of Sale in the form attached hereto as Exhibit B;
(b) An Assignment and Assumption Agreement in the form attached hereto
as Exhibit C;
(c) An Assignment of Trademarks in the form attached hereto as Exhibit
D;
(d) An Agreement to Assign Internet Domain Name in the form attached
hereto as Exhibit E;
(e) Certificates of title with respect to all motor vehicles which are
included in the Assets, duly endorsed for transfer by Seller; and
(f) Such other instruments of transfer reasonably requested by Buyer.
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6.5 Assignment of Contracts and Authorizations; Approvals. Subject to the
provisions of Section 4.4 hereof, all Contracts shall have been duly and validly
assigned to Buyer by Seller and all consents and approvals required in
connection with the consummation of the transactions contemplated hereby under
any Material Restricted Contract or Material Restricted Authorization shall have
been obtained in form and substance satisfactory to Buyer and without conditions
materially and adversely affecting Buyer and which do not require Buyer to pay
money to any party to any such Contract or Authorization in excess of amounts
required to be so paid pursuant to the terms and conditions thereof or other
than pursuant to the terms of Section 4.4(b) hereof. Except as contemplated by
Section 4.4(b) hereof, all such Contracts and Authorizations shall remain in
full force and effect and shall not have been amended, modified or repudiated in
any material respect by either party thereto. Neither Seller nor, to the
knowledge of Seller and the Principals, the other party thereto, shall have
breached or defaulted under any Contract or Authorization. Seller shall not
have received notice of or have knowledge of any fact which could reasonably
result in the termination, repudiation or breach of any Contract or
Authorization.
6.6 Escrow Agreement. Seller shall have executed and delivered to Buyer
the Escrow Agreement and such Escrow Agreement shall be in full force and
effect.
6.7 Non-competition Agreement. Seller and each of the Principals shall
have executed and delivered to Buyer a Non-competition Agreement in
substantially the form attached hereto as Exhibit F (the "Non-competition
Agreement"), and such Non-competition Agreement shall be in full force and
effect.
6.8 Employment Agreement. Greg Ryan shall have executed and delivered to
Buyer an Employment Agreement on terms and conditions which are reasonably
satisfactory to Buyer, and such agreement shall be in full force and effect.
6.9 Lease. The lease agreements (the "Leases") between Seller and Mahoney
Properties shall be amended in the form of Exhibit G attached hereto, and such
Leases, as so amended, shall be in full force and effect.
6.10 Release of Liens. Seller shall have obtained and delivered to Buyer
at or prior to the Closing instruments (including UCC-3 termination statements)
releasing any and all Liens on the Assets, other than the Permitted Liens.
6.11 Subscribers. Seller shall have delivered to Buyer a certificate,
dated as of the Closing Date, certifying as to the number and type of
Subscribers delivered at Closing.
6.12 Opinion of Seller's Counsel. Buyer shall have received the opinion or
opinions of Godfrey & Kahn, S.C., counsel for Seller, dated the Closing Date,
substantially in the form of Exhibit H attached hereto.
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6.13 Broker's Fees; Waiver. Seller shall have paid at or prior to the
Closing any and all fees or commissions due to CDR, and CDR shall have provided
Buyer with a release from any liability with respect to any fees or payments to
be made in connection with the transactions contemplated hereby.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions contemplated by this Agreement is subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions, unless waived by Seller in writing:
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in all
material respects at the Closing Date with the same effect as though made at
such time, and the representations and warranties of Buyer contained in this
Agreement which are qualified by materiality shall be true and correct in all
respects as of the Closing Date with the same effect as though made at such
time.
7.2 Performance of Agreement and Deliveries. Buyer shall have performed
in all material respects all of its covenants, agreements and obligations under
this Agreement to be performed or complied with by Buyer prior to or upon the
Closing Date and shall have delivered all documents and items required to be
delivered at or prior to the Closing, including, without limitation:
(a) The tendering of the Purchase Price pursuant to Section 1.5
pending satisfaction of all the conditions set forth in Section 6;
(b) A certificate, dated the Closing Date, from the President of Buyer
to the effect that the conditions set forth in Sections 7.1 and 7.2 have been
satisfied;
(c) A certificate, dated the Closing Date, from Buyer's Secretary as
to the charter, by-laws, authority and the incumbency of all officers executing
the Buyer Documents on behalf of Buyer;
(d) A certified copy of Buyer's charter from the Secretary of State of
the State of Michigan; and
(e) A certificate of good standing from the Secretary of State of the
State of Michigan.
7.3 Escrow Agreement. Buyer shall have executed and delivered to Seller
the Escrow Agreement and such Escrow Agreement shall be in full force and
effect.
7.4 Guarantees. All Guarantees shall be released or Buyer shall have
provided the Principals with an indemnity against any liability or loss with
respect thereto.
34
7.5 Consents. Buyer and Seller shall have either obtained the consent or
approval with respect to the Material Leases or Buyer shall have tendered
payment-in-full for such outstanding liability, including interest, prepayment
and termination penalties and other charges, with respect to such Material
Leases.
SECTION 8. TERMINATION.
8.1 Events of Termination. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing:
(a) By the mutual written consent of Buyer and Seller.
(b) By Seller, if it is not in breach or default hereunder:
(i) if any representation or warranty of Buyer made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Buyer's receipt of a notice from Seller that such
breach exists or has occurred;
(ii) if Buyer shall have defaulted in any material respect in the
performance of any material obligation under this Agreement and such
breach is not cured within thirty (30) days of Buyer's receipt of a
notice from Seller that such default exists or has occurred; and
(iii) if the conditions to Seller's obligations to consummate the
Closing as set forth in Section 7 cannot reasonably be satisfied or
performed on or before September 30, 1998 (unless such failure of
satisfaction, non-compliance or non-performance is the result,
directly or indirectly, of any action or failure to act on the part of
Seller, except as provided in Section 4.4 hereof).
(c) by Buyer, if it is not in breach or default hereunder:
(i) if any representation or warranty of Seller made herein is
untrue in any material respect and such breach is not cured within
thirty (30) days of Seller's receipt of a notice from Buyer that such
breach exists or has occurred;
(ii) if Seller shall have defaulted in any material respect in
the performance of any material obligation under this Agreement and
such breach is not cured within thirty (30) days of Seller's receipt
of a notice from Buyer that such default exists or has occurred; or
(iii) if the conditions to Buyer's obligations to consummate the
Closing as set forth in Section 6 cannot reasonably be satisfied or
performed on or before September 30, 1998 (unless such failure of
satisfaction,
35
non-compliance or non-performance is the result directly or indirectly
of any action or failure to act on the part of Buyer).
(d) By either Buyer or Seller (provided such party is not otherwise in
breach or default hereunder) if, as of October 1, 1998, the conditions contained
in Section 6.5 (only with respect to the Material Leases), with respect to
Buyer, and Section 7.5, with respect to Seller, have not been satisfied or
waived.
8.2 Manner of Exercise. In the event of the termination of this Agreement
by either Buyer or Seller pursuant to Section 8.1 notice thereof shall forthwith
be given to the other party in accordance with the provisions set forth in
Section 11 hereto and this Agreement shall terminate and the transactions
contemplated hereunder shall be abandoned without further action by Buyer or
Seller.
8.3 Effect of Termination; Liabilities. In the event of the termination
of this Agreement pursuant to Section 8.1 and prior to the Closing, all
obligations of the parties hereunder (other than pursuant to Sections 4.12 and
5.5 hereof) shall terminate, and neither Seller nor Buyer shall have any further
liability hereunder, including for losses, liabilities, obligations, damages,
deficiencies, actions, suits, proceedings, demands, assessments, orders,
judgments, costs and expenses (including attorneys' fees) of any kind
whatsoever.
SECTION 9. POST-CLOSING COVENANTS; SURVIVAL.
9.1 Use of Trade Names. After the Closing Date, neither Seller, nor any
person controlling, controlled by or under common control with Seller, including
the Principals, will for any reason, directly or indirectly, for itself or any
other person, (a) use the name "EXEC-PC, Inc." or (b) use or disclose any trade
secrets, confidential information, know-how, proprietary information or other
intellectual property of Seller transferred pursuant to this Agreement.
9.2 Post-Closing Transitional Matters. For a period of ninety (90) days
following the Closing, Seller and the Principals shall provide, without
additional cost to Buyer, such assistance as is reasonably requested by Buyer in
order to effect an orderly transition in the ownership and operation of the
Assets; provided, however, that such assistance shall not exceed ten (10) hours
per month, which includes time spent assisting Buyer over the telephone.
9.3 Survival. All representations, warranties, covenants, agreements and
indemnities contained in this Agreement, or in any schedule, exhibit,
certificate, agreement, document or statement delivered pursuant hereto, are
material, shall be deemed to have been relied upon by the parties and, shall
survive the Closing for a period of six (6) months (the "Expiration Date")
regardless of any investigation conducted by or knowledge of any party hereto;
provided, however, that no party shall be entitled to indemnification from the
other party pursuant to Section 10 hereof with respect to any liability, claim
or loss which the other party has actual knowledge of at or prior to the
Closing, whether by reason of any written
36
information or written notice, including, without limitation, facts or
circumstances giving rise to any such liability, claim or loss, furnished to or
discovered by such party or its representatives or disclosed to such party in
this Agreement or in any schedule, exhibit, certificate, agreement or document
delivered pursuant hereto.
SECTION 10. INDEMNIFICATION.
10.1 Indemnification by Seller.
(a) Except as set forth in Section 9.3 hereof, Seller hereby agrees to
indemnify and hold harmless Buyer, its affiliates and its and their respective
directors, officers, stockholders, partners, members, employees, and agents
(individually, a "Buyer Indemnified Party" and collectively, "Buyer Indemnified
Parties"), against and in respect of all losses, liabilities, obligations,
damages, deficiencies, actions, suits, proceedings, demands, assessments,
orders, judgments, costs and expenses (including the reasonable fees,
disbursements and expenses of attorneys and consultants) of any kind or nature
whatsoever, but net of the proceeds from any insurance policies or other third
party reimbursement for such loss, to the extent sustained, suffered or incurred
by or made against any Buyer Indemnified Party, to the extent based upon,
arising out of or in connection with: (i) any breach of any representation or
warranty made by Seller in this Agreement or in any schedule, exhibit,
certificate, agreement or other instrument delivered pursuant to this Agreement;
(ii) any breach of any covenant or agreement made by Seller in this Agreement or
in any schedule, exhibit, certificate, financial statement, agreement or other
instrument delivered pursuant to this Agreement; (iii) any claim made by any
person or entity which relates to the operation of the Assets or the Business
which arises in connection with or on the basis of events, acts, omissions,
conditions or any other state of facts occurring on or existing before the
Closing Date (other than events, acts, omissions, conditions or any other state
of facts which Buyer has been provided specific written notice at or prior to
the Closing); and (iv) any claim which arises in connection with any liability
or obligation of Seller other than the Assumed Liabilities (and the liabilities
or obligations existing as of the Closing Date and the existence of which has
been disclosed by Seller in writing to Buyer).
(b) The following provisions shall apply with respect to this Section
10.1:
(i) all rights to indemnification under this Section 10.1 shall
expire on the Expiration Date and no Buyer Indemnified Party shall have the
right to make any claim hereunder after such date, except that if prior to
the Expiration Date a specific state of facts shall have become known which
may constitute or give rise to any claim as to which indemnity may be
payable and a Buyer Indemnified Party shall have given written notice of
such facts to Seller, then the right to indemnification with respect
thereto shall remain in effect without regard to when such matter shall
have been finally determined and disposed of, according to the date on
which notice of the applicable claim is given;
37
(ii) no indemnification shall be payable to any Buyer
Indemnified Party pursuant to this Section 10.1 with respect to any claim
unless and until the total of all claims for indemnification shall exceed
One Hundred Thousand Dollars ($100,000) in the aggregate, and then only to
the extent of the excess;
(iii) Seller's aggregate liability under this Section 10.1 shall
not exceed One Million Two Hundred Fifty Thousand Dollars ($1,250,000) in
the aggregate (except from claims made with respect to a breach of warranty
or representation under Sections 2.4, 2.8 (title only) and 2.27 (to the
extent, and only to the extent, it relates to matters covered by Section
2.4 or Section 2.8 (title only)), which shall have no limits and which
shall not count against the cap set forth herein);
(iv) a Buyer Indemnified Party shall only be entitled to its
actual, out-of-pocket damages and expenses, and no indemnification shall be
payable under this Section 10.1 for any consequential or special damages or
any expected profits or multiples thereof;
(v) if the Closing occurs, the rights to indemnification set
forth in this Section 10.1 shall be exclusive of all rights to
indemnification or other remedies that any Buyer Indemnified Party would
otherwise have in connection with the matters and transactions contemplated
by this Agreement; and
(vi) all claims for indemnification made under this Section 10.1
shall be recovered solely by proceeding against the Escrow Deposit pursuant
to the terms of the Escrow Agreement and this Section 10.1, and no such
claim may be recovered directly against Seller, its partners, or their
respective affiliates, directors, officers, stockholders, or agents (except
for claims made with respect to a breach of warranty or representation
under Sections 2.4, 2.8 (title only) and 2.27 (to the extent, and only to
the extent, it relates to matters covered by Section 2.4 or 2.8 (title
only))).
10.2 Indemnification by Buyer. Except as set forth in Section 9.3, Buyer
agrees to indemnify and hold harmless Seller and its officers, directors,
stockholders, employees and agents (individually, a "Seller Indemnified Party"
and collectively, "Seller Indemnified Parties") at all times against and in
respect of all losses, liabilities, obligations, damages, deficiencies, actions,
suits, proceedings, demands, assessments, orders, judgments, costs and expenses
(including the reasonable fees, disbursements and expenses of attorneys and
consultants), of any kind or nature whatsoever, to the extent sustained,
suffered or incurred by or made against any Seller Indemnified Party, to the
extent based upon, arising out of or in connection with: (A) any breach of any
representation or warranty made by Buyer in this Agreement or in any schedule,
exhibit, certificate, agreement or other instrument delivered pursuant to this
Agreement; (B) any breach of any covenant or agreement made by Buyer in this
Agreement or in any schedule, exhibit, certificate, agreement or other
instrument delivered pursuant to this Agreement; (C) any claim made against
Seller which relates to, results from or
38
arises out of Buyer's operation of the Assets or the Business from and after the
Closing Date; and (D) the Assumed Liabilities.
10.3 Notice; Defense of Claims.
(a) Notice of Claims. Promptly after receipt by an indemnified party
of notice of any claim, liability or expense to which the indemnification
obligations hereunder would apply, the indemnified party shall give notice
thereof in writing to the indemnifying party, but the omission to so notify the
indemnifying party promptly will not relieve the indemnifying party from any
liability except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice or is
required to pay a greater amount with respect to any such claim or liability as
a result of the failure to provide prompt notice. Such notice shall state the
information then available regarding the amount and nature of such claim,
liability or expense and shall specify the provision or provisions of this
Agreement under which the liability or obligation is asserted.
(b) Third Party Claims. With respect to third party claims, if within
twenty (20) days after receiving the notice described in clause (a) above the
indemnifying party gives (i) written notice to the indemnified party stating
that (A) it would be liable under the provisions hereof for indemnity in the
amount of such claim if such claim were successful and (B) that it disputes and
intends to defend against such claim, liability or expense at its own cost and
expense and (ii) provides reasonable assurance to the indemnified party that
such claim will be promptly paid in full if required, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent of
the indemnified party which consent shall not be unreasonably withheld) and the
indemnified party shall not be required to make any payment with respect to such
claim, liability or expense as long as the indemnifying party is conducting a
good faith and diligent defense at its own expense; provided, however, that the
assumption of defense of any such matters by the indemnifying party shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the indemnifying parties'
obligation to indemnify the indemnified party therefor will be fully satisfied
subject to the limits set forth herein. The indemnifying party shall keep the
indemnified party apprised of the status of the claim, liability or expense and
any resulting suit, proceeding or enforcement action, shall furnish the
indemnified party with all documents and information that the indemnified party
shall reasonably request and shall consult with the indemnified party prior to
acting on major matters, including settlement discussions. Notwithstanding
anything herein stated, the indemnified party shall at all times have the right
to fully participate in such defense at its own expense directly or through
counsel; provided, however, if the named parties to the action or proceeding
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate under applicable
standards of professional conduct, the expense of separate counsel for the
indemnified party shall be paid by the indemnifying party. If no such notice of
intent to dispute and defend is given by the
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indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
(c) Non-Third Party Claims. With respect to non-third party claims,
if within twenty (20) days after receiving the notice described in clause (a)
above the indemnifying party does not give written notice to the indemnified
party that it contests such indemnity, the amount of indemnity payable for such
claim shall be as set forth in the indemnified party's notice, subject to the
limits set forth herein. If the indemnifying party provides written notice to
the indemnified party within such 20-day period that it contests such indemnity,
the parties shall attempt in good faith to reach an agreement with regard
thereto within thirty (30) days of delivery of the indemnifying party's notice.
If the parties cannot reach agreement within such 30-day period, the matter may
be submitted by either party for binding arbitration in accordance with the
provisions of Section 12.10 hereof.
SECTION 11. NOTICES. All notices and other communications required to be given
hereunder, or which may be given pursuant or relative to the provisions hereof,
shall be in writing and shall be deemed to have been given when delivered in
hand or by an overnight courier service, or mailed, postage prepaid, by first
class United States mail, certified return receipt requested, or transmitted by
facsimile (with transmission acknowledgment received, provided written notice
delivered by any of the other means of delivery specified in this Section 11
follows such facsimile), as follows:
If to Seller: EXEC-PC, Inc.
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2105 S. 170th Street
Box 510952
New Berlin, WI 53151
Facsimile: (414) 789-1946
Attn: Robert J. Mahoney
With a copy to: Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
Facsimile: (414) 273-5198
Attn: John A. Dickens, Esq.
40
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If to Buyer: Voyager Information Networks, Inc.
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4660 S. Hagadorn Road
East Lansing, MI 48823
Facsimile: (517) 324-8965
Attn: Christopher Torto
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attn: David F. Dietz, P.C.
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SECTION 12. MISCELLANEOUS.
12.1 Assignability; Binding Effect. This Agreement shall not be assignable
by Buyer or Seller except with the written consent of the other, except that
Buyer may assign its rights hereunder either (i) to any affiliate of Buyer,
provided, however, that no assignment by Buyer shall in any way affect Buyer's
obligations or liabilities under this Agreement and Buyer acknowledges that it
shall remain primarily liable under this Agreement in the event of such an
assignment, (ii) as a result of any merger, reorganization or other
consolidation or (iii) in connection with the granting of a security interest to
its senior lenders. This Agreement shall be binding upon and shall inure to the
benefit of, the parties hereto and their respective successors, and assigns.
12.2 Headings. The subject headings used in this Agreement are included
for purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
12.3 Amendments; Waivers. This Agreement may not be amended or modified,
nor may compliance with any condition or covenant set forth herein be waived,
except by a writing duly and validly executed by Buyer and Seller or, in the
case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any such right,
power or privilege, or any single or partial exercise of any such right, power
or privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
12.4 Bulk Sales Law. Buyer hereby waives compliance by Seller of any
applicable bulk sales law and Seller agrees, to make full and timely payment
when due of all amounts owed by such Seller to its creditors. Except for the
Assumed Liabilities, Seller agrees to indemnify and hold Buyer harmless from,
and reimburse Buyer for, any loss, cost, expense, liability or damage (including
reasonable counsel fees and disbursements and expenses) which Buyer may suffer
or incur by virtue of the non-compliance by Seller with such laws.
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12.5 Entire Agreement. This Agreement, together with the schedules and
exhibits hereto, constitutes the entire agreement between the parties with
respect to the subject matter hereof and there are no warranties,
representations or other agreements between the parties in connection with this
Agreement, except as specifically set forth in this Agreement, and supersedes
and cancels any and all prior or contemporaneous arrangements, understandings
and agreements between them relating to the subject matter hereof, including but
not limited to that certain letter dated July 2, 1998 between Buyer and Seller,
as amended.
12.6 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, then the
remaining provisions of this Agreement (and the remaining portion of any
provision held to be void or unenforceable in part only) shall continue in full
force and effect.
12.7 Governing Law. This Agreement and the transactions contemplated
hereby shall be governed and construed by and enforced in accordance with the
laws of the State of Wisconsin, without regard to conflict of laws principles.
12.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
constitute the same instrument.
12.9 Expenses. Each party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including all fees and expenses of its counsel and
accountants for all activities of such counsel and accountants undertaken
pursuant to this Agreement, whether or not the transactions contemplated hereby
are consummated; provided, however, that in the event a filing is required to be
made pursuant to the HSR Act, Buyer shall pay all expenses associated therewith.
12.10 Dispute Resolution. Any dispute arising out of or relating to this
Agreement or the breach, termination or validity hereof shall be finally settled
by arbitration conducted expeditiously in accordance with the Center for Public
Resources Rules for Nonadministered Arbitration of Business Disputes (the "CPR
Rules"). The Center for Public Resources shall appoint a neutral advisor from
its National CPR Panel. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S)1-16, and judgment upon the award rendered by
the arbitrators may be entered by any court having jurisdiction thereof. The
place of arbitration shall be Chicago, Illinois.
Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:
(a) Mandatory exchange of all relevant documents, to be accomplished
within forty-five (45) days of the initiation of the procedure;
42
(b) No other discovery;
(c) Hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three hours; such hearings to
take place in one or two days at a maximum; and
(d) Decision to be rendered not later than ten (10) days following
such hearings.
Each of the parties hereto (a) hereby unconditionally and irrevocably
submits to the jurisdiction of any United States District Court of competent
jurisdiction located in the State of Michigan for the purpose of enforcing the
award or decision in any such proceeding and (b) hereby waives, and agrees not
to assert in any civil action to enforce the award, any claim that it is not
subject personally to the jurisdiction of the above-named court, that its
property is exempt or immune from attachment or execution, that the civil action
is brought in an inconvenient forum, that the venue of the civil action is
improper or that this Agreement or the subject matter hereof may not be enforced
in or by such court, and (c) hereby waives and agrees not to seek any review by
any court of any other jurisdiction which may be called upon to grant an
enforcement of the judgment of any such court. Each of the parties hereto
hereby consents to service of process by registered mail at the address to which
notices are to be given. Each of the parties hereto agrees that its submission
to jurisdiction and its consent to service of process by mail is made for the
express benefit of the other parties hereto. Final judgment against any party
hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction; provided,
however, that any party may at its option bring suit, or institute other
judicial proceedings, in any state or federal court of the United States or of
any country or place where the other parties or their assets, may be found.
Notwithstanding the foregoing, it is specifically understood and agreed
that certain breaches of this Agreement will result in irreparable injury to the
parties hereto, that the remedies available to the parties at law alone will be
an inadequate remedy for such breach, and that, in addition to any other legal
or equitable remedies which the parties may have, a party may enforce its rights
by an action for specific performance and the parties expressly waive the
defense that a remedy in damages will be adequate.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, Seller, the Principals and Buyer have caused this Asset
Purchase Agreement to be executed as of the date first above written.
SELLER |
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