-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECD0zSn34sLRp9vOX1TczfiWzrI+/pBZ8pvIsD+BHwi5DEawjgFOyqE2GlVbehOV zTxFu+UOXO/ucQjH7cGjYg== 0000950132-98-000775.txt : 19981012 0000950132-98-000775.hdr.sgml : 19981012 ACCESSION NUMBER: 0000950132-98-000775 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981009 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIN COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001020391 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 251795265 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-21395 FILM NUMBER: 98722911 BUSINESS ADDRESS: STREET 1: 400 GREENTREE COMMONS STREET 2: 381 MANSFIELD AVENUE CITY: PITTSBURGH STATE: PA ZIP: 15220 BUSINESS PHONE: 4129288800 MAIL ADDRESS: STREET 1: 400 GREENTREE COMMONS STREET 2: 381 MANSFIELD AVENUE CITY: PITTSBURGH STATE: PA ZIP: 15220 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8 - K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 30, 1998 Allin Communications Corporation (Exact Name of Registrant as Specified in its Charter) Delaware (State of Other Jurisdiction of Incorporation) 0-21395 21-1795265 (Commission File Number) (IRS Employer Identification No.) 400 Greentree Commons, 381 Mansfield Avenue Pittsburgh, Pennsylvania 15220-2751 (Address of Principal Executive Offices) (Zip Code) (412) 928-8800 (Registrant's Telephone Number, Including Area Code) Statements contained in this report that utilize terms such as expects or anticipates are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbors created thereby. These statements are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that they will prove to be accurate. Factors which could cause actual results to differ include the Company's limited operating history, the effect of recent losses and accumulated deficit, limitations on the Company's ability to implement its acquisition strategy, dependence on key personnel, the need for management of growth and competitive market conditions. These are representative of factors which could affect the outcome of the forward looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates and general domestic and international economic conditions. The Company undertakes no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise. Item 2. Acquisition or Disposition of Assets The SportsWave, Inc. Disposition On September 30, 1998 (the "Closing Date"), Allin Communications Corporation (the "Company") sold all of the issued and outstanding capital stock of SportsWave, Inc. ("SportsWave"), a Pennsylvania corporation, to Lighthouse Holdings, Inc., a Delaware corporation ("Lighthouse"), pursuant to the terms of a Stock Purchase Agreement (the "SportsWave Stock Purchase Agreement") between the Company and Lighthouse. SportsWave provides sports marketing and promotion services including promotions and premiums, corporate incentive programs, event marketing, licensing and memorabilia. The Company's marketing strategy is now focused on providing technology consulting and development services specializing in Windows NT-based software development, engineering, and network integration services. The sports marketing business conducted by SportsWave was no longer consistent with the Company's strategic focus, which resulted in the Company's efforts to dispose of the sports marketing segment of its business. The Company utilized the majority of the proceeds from the sale of SportsWave to repay a portion of notes payable related to its August 1998 acquisition of KCS Computer Services, Inc., which provides information technology consulting and development services. See Payment of Note Payable Related to Acquisition of KCS Computer Services, Inc. below under Item 5. Other Events. The SportsWave Stock Purchase Agreement provides for the payment by Lighthouse to the Company of $3,443,512. The sale proceeds are based on a purchase price of $3,500,000, as determined by negotiation between the Company and Lighthouse, less an estimated unearned revenue adjustment, as discussed below, of $56,488 related to certain sports marketing programs to be completed subsequent to the sale of SportsWave. Sale proceeds consisted of: (a) $2,943,512 in cash as of the closing of the sale of SportsWave. Such funds were received by the Company on October 1, 1998. See Payment of Note Payable Related to Acquisition of KCS Computer Services, Inc. below under Item 5. Other Events. (b) A promissory note in the principal amount of $500,000 bearing interest at the rate of 8.5% per annum, with principal and interest due and payable on December 31, 1998. The unearned revenue adjustment, for the applicable programs, compares program cash receipts as of September 30, 1998 in proportion to total contract amounts to program cash disbursements as of that date in proportion to total estimated program cost of sales. The estimated adjustment equaled the difference in percentages between the receipts and disbursements ratios, times the sum of the contract amounts of the applicable programs. The estimated adjustment resulted in a reduction to the purchase price since the receipts ratio was in excess of the disbursements ratio. The Company is required to submit a final calculation of the unearned revenue adjustment within ninety days of Closing Date. Within ten days of submission of the final schedule, subject to a specified resolution process in the event of disagreement, the Company or Lighthouse, as applicable, is required to remit to the other party any amount due on account of a difference between the estimated and final unearned revenue adjustment. The Chief Executive Officer of Lighthouse is Terence M. Graunke, who was a beneficial owner of greater than five percent of the Company's common stock as of March 17, 1998. To the best of the Company's knowledge, Mr. Graunke is no longer a beneficial owner of greater than five percent of the Company's common stock. Settlement of Contingent Liability Related to the Company's Acquisition of SportsWave The Company acquired all of the issued and outstanding shares of capital stock of SportsWave on November 6, 1996 pursuant to a Stock Purchase agreement by and among the Company, International Sports Marketing, Inc. (former name of SportsWave), and the former shareholders of SportsWave, Henry Posner, Jr., Thomas D. Wright, Michael J. Fetchko, James C. Roddey, Richard W. Talarico, and John F. Hensler. In addition to a cash payment at the time of acquisition of $2,400,000, the agreement for the Company's acquisition of SportsWave included provisions for contingent earn-out payments up to a maximum of an additional $2,400,000. An interim contingent payment was to have been made in an amount equal to the amount by which six times the sum of SportsWave's operating income (as defined in the Agreement) for 1997 and 1998 divided by three exceeded $2,400,000. A final payment was to have been made in an amount equal to the amount by which six times the sum of SportsWave's operating income for 1997, 1998 and 1999 divided by three exceeded the sum of $2,400,000 plus any interim payment made. For purposes of the agreement, SportsWave had operating income of approximately $579,000 for 1997 and $292,000 during the six months ended June 30, 1998. In order to facilitate the sale of SportsWave to Lighthouse, the Company and the former shareholders of SportsWave agreed to a settlement of any contingent liability related to the earn-out provisions of the original stock purchase agreement. On October 6, 1998, the Company made aggregate payments of $600,000 to the former SportsWave shareholders in full settlement of any claims to interim or final earn-out payments that may have been due in the future. The former shareholders of SportsWave include several persons related to the Company. Henry Posner, Jr. is a beneficial owner of greater than five percent of the Company's common stock. James C. Roddey is a director of the Company. Richard W. Talarico is Chairman of the Board of Directors and Chief Executive Officer of the Company. Transition Services Agreement In connection with the SportsWave Stock Purchase Agreement, the Company and SportsWave executed a Transition Services Agreement, which provides for the Company to continue to provide certain accounting and administrative services to SportsWave subsequent to the sale of its stock to Lighthouse. The Company is required to continue to provide accounting services including accounts receivable, accounts payable, payroll and general ledger preparation. The Company is also required to provide administrative services including employee benefits management, clerical support, computer systems support and use of certain office equipment. SportsWave's employees will continue to utilize a portion of the Company's office space while the agreement is in effect. The Transition Services Agreement will be in effect for an initial term from October 1, 1998 to December 31, 1998, unless Lighthouse elects to terminate the agreement earlier upon seven days prior notice. Subsequent to December 31, 1998, services will be provided on a month-to-month basis, but services will be terminable by either party on thirty days prior notice. SportsWave is required to pay the Company $5,000 per month during the period October to December 1998 for the accounting and administrative services to be provided under this agreement. There will be no occupancy charge for usage of the Company's office space during this time period. If the Transition Services Agreement remains in effect subsequent to December 31, 1998, SportsWave will be required to pay the Company $10,000 per month for accounting and administrative services and $4,500 per month for occupancy charges. Item 5. Other Events S&T Bank Loan and Security Agreement On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking association, entered into a Loan and Security Agreement (the "S&T Loan Agreement"), under which S&T Bank has agreed to extend the Company a revolving credit loan. The maximum borrowing availability under the S&T Loan Agreement is the lesser of $5,000,000 or eighty-five percent of the aggregate gross amount of trade accounts receivable aged sixty days or less from the date of invoice. Accounts receivable qualifying for inclusion in the borrowing base will be net of any prepayments, progress payments, deposits or retention and must not be subject to any prior assignment, claim, lien, or security interest. The expiration date of the S&T Loan Agreement is September 30, 1999. Borrowings may be made under the S&T Loan Agreement for general working capital purposes, and to repay a portion of certain indebtedness incurred by the Company in connection with its acquisition of KCS Computer Services, Inc. in August 1998. On October 2, 1998, the Company borrowed $1,000,000 under the S&T Loan Agreement, which was used to repay a portion of the outstanding acquisition related debt. See Payment of Note Payable Related to Acquisition of KCS Computer Services, Inc. below. Loans made under the S&T Loan Agreement bear interest at the bank's prime interest rate plus one percent. The applicable interest rate shall increase or decease from time to time as S&T Bank's prime rate changes. Interest payments due on any outstanding loan balances are to be made monthly on the first day of the month. The principal will be due at maturity, although any outstanding principal balances may be repaid in whole or part at any time without penalty. The S&T Loan Agreement includes provisions granting S&T Bank a security interest in certain assets of the Company including the accounts receivable, equipment, lease rights for real property, and inventory of the Company and its subsidiaries. The Company and its subsidiaries, except for Kent Consulting Group, Inc. and Allin Holdings Corporation, are required to maintain depository accounts with S&T Bank, in which accounts the bank will have a collateral interest. The S&T Loan Agreement includes various covenants relating to various matters affecting the Company including insurance coverage, financial accounting practices, audit rights, prohibited transactions, dividends and stock purchases, which are disclosed in their entirety in the text of the S&T Loan Agreement attached as an exhibit to this Report on Form 8-K. The covenant concerning dividends and purchases of stock prohibits the Company from declaring or paying cash dividends or redeeming, purchasing or otherwise acquiring outstanding shares of any class of the Company's stock, except for dividends payable in the ordinary course of business on the Company's Series B preferred shares or such distributions made from time to time to compensate the Company's shareholders for income taxes attributed to them with respect to the Company's financial performance. The covenants also include a cash flow to interest ratio of not less than 1.0 to 1.0. Cash flow is defined as operating income before depreciation, amortization and interest. The S&T Loan Agreement also includes reporting requirements regarding annual and monthly financial reports, accounts receivable and payable statements, weekly borrowing base certificates and audit reports. Payment of Note Payable Related to Acquistion of KCS Computer Services, Inc. On October 2, 1998, the Company paid in full an outstanding secured promissory note payable to James S. Kelly, Jr. in the principal amount of $6,200,000 plus accrued interest of $43,126. The note payable was a component of the purchase consideration for the Company's acquisition of KCS Computer Services, Inc. in August 1998. The sources of funds for repayment of the promissory note were $2,843,512 from proceeds received for the Company's sale of SportsWave, $1,000,000 borrowed under a loan agreement with S&T Bank, and $2,399,614 from the Company's working capital. Item 7. Financial Statements and Exhibits (a) Pro Forma Financial Information (b) Exhibits 2.1 Stock Purchase Agreement dated as of September 30, 1998 by and between Allin Communications Corporation and Lighthouse Holdings, Inc. 4 Loan and Security Agreement dated as of October 1, 1998 by and between Allin Communications Corporation and S&T Bank, a Pennsylvania banking association 10.1 Transition Services Agreement dated as of September 30, 1998 by and between Allin Communications Corporation and SportsWave, Inc. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following Pro Forma Condensed Consolidated Financial Statements of Allin Communications Corporation (the "Company") are based on its historical financial statements, adjusted to give effect to the sale of its wholly-owned subsidiary, SportsWave, Inc. ("SportsWave"). The Pro Forma Condensed Consolidated Financial Statements of Operations for the years ended December 31, 1996 and 1997 and for the six months ended June 30, 1998 assume that such divestiture had occurred on November 6, 1996, which was the date of the Company's acquisition of SportsWave. The Pro Forma Condensed Consolidated Financial Statements reflect the estimated gain on disposal of SportsWave as gain realized on disposal of a segment since SportsWave's operations comprised the entirety of the Company's sports marketing business. A pro forma statement of operations is not presented for the third complete fiscal year prior to disposal, however, because the Company did not own SportsWave during 1995. The following Pro Forma Condensed Consolidated Financial Statements of the Company do not give effect to the Company's August 1998 purchase of KCS Computer Services, Inc., since the acquisition occurred subsequent to the periods presented. The pro forma condensed consolidated financial information reflects certain assumptions described above and in Notes to Pro Forma Condensed Consolidated Financial Statements of Operations below. The pro forma financial information does not purport to present what the Company's results of operations would actually have been if the divestiture of SportsWave had occurred on the assumed date, as specified above, or to project the Company's financial condition or results of operations for any future period. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 (Unaudited) (Dollars in thousands)
Consolidated Allin Communications Pro Forma Pro Forma Corporation Adjustments Consolidated -------------- --------------- -------------- ASSETS: Current Assets: Cash and cash equivalents $ 5,111 $ 2,944 (1) $ 8,055 Accounts receivable 2,594 (982) (2) 1,612 Notes receivable 500 (1) 500 Inventory 1,858 1,858 Prepaid Expenses 337 (162) (2) 175 ---------------- ---------------- Total current assets 9,900 12,200 Property and equipment, net 4,635 (70) (2) 4,565 Other assets 4,303 (2,022) (2) 2,281 ---------------- ---------------- Total assets $ 18,838 $ 19,046 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY: Notes and accounts payable $ 679 $ 522 (2)(4) $ 1,201 Accrued liabilities 1,349 (98) (2) 1,251 Current portion of deferred revenue 905 (724) (2) 181 ---------------- ---------------- Total current liabilities 2,933 2,633 Non-current portion of deferred revenue 424 (424) (2) - Series A convertible, redeemable preferred stock 2,500 2,500 Shareholder's equity 12,981 932 (3) 13,913 ---------------- ---------------- Total liabilities and shareholders' equity $ 18,838 $ 19,046 ================ ================ The accompanying notes are an integral part of these financial statements.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (Unaudited) (Dollars in thousands, except per share data)
Consolidated Allin Communications Pro Forma Pro Forma Corporation Adjustments Consolidated ------------------- ------------------- ------------------- Revenue $ 1,344 $ (233) (1) $ 1,111 Cost of sales 818 (173) (1) 645 -------------------- -------------------- Gross profit 526 466 Selling, general & administrative 8,049 (216) (1) 7,833 -------------------- -------------------- Loss from operations (7,523) (7,367) Interest expense (income), net 797 (20) (1) (3) 777 -------------------- -------------------- Loss before income tax expense (8,320) (8,144) Income tax expense 27 (5) (1) 22 -------------------- -------------------- Loss before disposal of segment (8,347) (8,166) Gain on disposal of segment - 713 (2) 713 -------------------- -------------------- Net loss $ (8,347) $ (7,453) ==================== ==================== Net loss per common share - basic and diluted $ (2.94) $ (2.63) -------------------- -------------------- Weighted average shares outstanding - basic and diluted 2,834,565 2,834,565 -------------------- -------------------- The accompanying notes are an integral part of these financial statements.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (Unaudited) (Dollars in thousands, except per share data)
Consolidated Allin Communications Pro Forma Pro Forma Corporation Adjustments Consolidated -------------------- -------------------- -------------------- Revenue $ 13,187 $ (3,590) (1) $ 9,597 Cost of sales 8,103 (2,115) (1) 5,988 --------------------- --------------------- Gross profit 5,084 3,609 Selling, general & administrative 16,164 (1,647) (1) 14,517 --------------------- --------------------- Loss from operations (11,080) (10,908) Interest expense (income), net (425) (172) (1) (3) (597) --------------------- --------------------- Loss before income tax expense (10,655) (10,311) Income tax expense 48 (3) (1) 45 --------------------- --------------------- Net loss $ (10,703) $ (10,356) ===================== ===================== Net loss per common share - basic and diluted $ (2.08) $ (2.01) --------------------- --------------------- Weighted average shares outstanding - basic and diluted 5,157,399 5,157,399 --------------------- --------------------- The accompanying notes are an integral part of these financial statements.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited) (Dollars in thousands, except per share data)
Consolidated Allin Communications Pro Forma Pro Forma Corporation Adjustments Consolidated ------------------- ------------------- -------------------- Revenue $ 7,089 $ (2,061) (1) $ 5,028 Cost of sales 3,603 (1,191) (1) 2,412 -------------------- --------------------- Gross profit 3,486 2,616 Selling, general & administrative 6,079 (599) (1) 5,480 -------------------- --------------------- Loss from operations (2,593) (2,864) Interest expense (income), net (121) (86) (1) (3) (207) -------------------- --------------------- Loss before income tax expense (2,472) (2,657) Income tax expense 6 6 -------------------- --------------------- Net loss $ (2,478) $ (2,663) ==================== ===================== Net loss per common share - basic and $ (0.48) $ (0.52) diluted -------------------- --------------------- Weighted average shares outstanding - and diluted 5,157,399 5,157,399 -------------------- --------------------- The accompanying notes are an integral part of these financial statements.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) The pro forma adjustments to the condensed consolidated balance sheets are as follows: (1) To record the sale proceeds received from Lighthouse Holdings, Inc. ("Lighthouse") for all of the issued and outstanding shares of SportsWave as if the proceeds had been received as of June 30, 1998. Proceeds include receipt of cash in the amount of $2,944 and a note receivable in the amount of $500. (2) To remove the assets and liabilities of SportsWave, as of June 30, 1998, which were included in the Company's consolidated balance sheet as of that date, but which are assumed to be transferred to Lighthouse. Assets assumed transferred to Lighthouse include SportsWave's accounts receivable, prepaid expenses, property and equipment, net of accumulated depreciation, and other asset balances. Other assets consists primarily of intangible assets related to the Company's purchase of SportsWave, net of accumulated amortization, and long-term portion of prepaid expenses. Liabilities assumed transferred to Lighthouse include accounts payable, accrued expenses and the current and long-term portions of deferred revenue. SportsWave's cash balance as of June 30, 1998 is assumed to be utilized to repay a portion of the intercompany balance due the Company. (3) To adjust shareholder's equity to reflect an estimated gain on the disposal of SportsWave of $932. The pro forma balance sheet presentation assumes the disposal of SportsWave occurred as of June 30, 1998. The assumed gain was estimated by comparing the sale proceeds, as identified in Note (1) above, less a liability to the former shareholders of SportsWave, as discussed in Note (4), to the Company's recorded investment in SportsWave. The recorded investment reflects the Company's original purchase at cost, adjustment for its equity basis ownership interest in SportsWave's results of operations from acquisition through June 30, 1998, plus the Company's intercompany receivable balance from SportsWave, net of SportsWave's June 30, 1998 cash which is assumed to be utilized to repay a portion of the intercompany balance. The Company had sufficient federal and state net operating loss carryforwards as of the actual date of disposal of SportsWave, September 30, 1998, to offset the estimated gain to be recorded on disposal. Consequently, no provision for income taxes is expected to be recorded in connection with the gain and therefore no provision for income taxes related to the gain on disposal has been reflected in the pro forma condensed consolidated financial statements. (4) To record a liability for $600 to reflect the Company's settlement of any contingent liability owed the former shareholders of SportsWave related to the earn-out provisions of the original stock purchase agreement. The pro forma adjustments to the condensed consolidated statements of operations are as follows: (1) To remove the revenue, cost of sales, selling, general & administrative expenses, interest income and income tax expenses applicable to the operations of SportsWave for the periods presented. (2) To reflect an assumed gain on disposal of SportsWave of $713 as of the beginning of the income statement periods presented. The gain is reflected as if the disposal had occurred as of November 6, 1996, which was the Company's date of acquisition of SportsWave. The assumed gain was estimated by comparing the sale proceeds, less a liability to the former shareholders of SportsWave, as discussed in Note (4) to pro forma balance sheet, to the Company's recorded investment in SportsWave. The recorded investment reflects the Company's original purchase at cost, net of SportsWave's November 6, 1996 cash balance which is assumed to be retained by the Company. As discussed above in Note (3) to pro forma balance sheet, no provision for income taxes has been reflected for the gain on disposal because the Company has sufficient federal and state net operating loss carryforwards as of actual date of disposal to offset the estimated gain. (3) To reflect interest income based on estimated money market rates for the assumed cash receipt of $2,944 at closing of disposal of SportsWave and $500 three months later, to reflect the three month maturity of the promissory note received from Lighthouse in connection with the sale of SportsWave. Assumed additional interest income is $23 and $184 for the years ended December 31, 1996 and 1997, respectively, and $94 for the six months ended June 30, 1998. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIN COMMUNICATIONS CORPORATION Date: October 8, 1998 By: /s/ Richard W. Talarico ----------------------- Richard W. Talarico Chairman and Chief Executive Officer EXHIBIT INDEX 2.1 Stock Purchase Agreement dated as of September 30, 1998 by and between Allin Communications Corporation and Lighthouse Holdings, Inc. 4 Loan and Security Agreement dated as of October 1, 1998 by and between Allin Communications Corporation and S&T Bank, a Pennsylvania banking association 10.1 Transition Services Agreement dated as of September 30, 1998 by and between Allin Communications Corporation and SportsWave, Inc. EX-2.1 2 STOCK PURCHASE AGREEMENT Exhibit 2.1 STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 30, 1998 By and Between ALLIN COMMUNICATIONS CORPORATION and LIGHTHOUSE HOLDINGS, INC. TABLE OF CONTENTS -----------------
Page --- PREAMBLE............................................................. 1 ARTICLE 1 SALE OF STOCK........................................................ 1 ARTICLE 2 CONSIDERATION AND MANNER OF PAYMENT.................................. 1 2.1 Purchase Price............................................ 1 2.2 Payment of Purchase Price................................. 2 2.3 Unearned Revenue Adjustment............................... 2 2.4 Closing Expenses and Related Taxes........................ 3 ARTICLE 3 SELLER'S REPRESENTATIONS AND WARRANTIES.............................. 4 3.1 Seller's Authority........................................ 4 3.2 Organization and Qualification of the Company............. 4 3.3 Subsidiaries.............................................. 4 3.4 Articles of Incorporation, By-Laws, Officers and Directors 4 3.5 Capital Stock, Title to the Shares........................ 4 3.6 Options, etc.............................................. 5 3.7 Financial Statements...................................... 5 3.8 Absence of Undisclosed Liabilities........................ 5 3.9 Accounts Receivable and Accounts Payable.................. 6 3.10 Taxes..................................................... 6 3.11 Material Contracts........................................ 8 3.12 Real Property............................................. 8 3.13 Personal Property......................................... 9 3.14 Litigation................................................ 9 3.15 Compliance with Applicable Laws........................... 9 3.16 Intellectual Property..................................... 10 3.17 Transaction Not a Breach.................................. 10 3.18 Conduct of Business....................................... 11 3.19 Insurance Policies........................................ 12 3.20 Bank Accounts, Powers of Attorney......................... 12 3.21 Licenses and Permits...................................... 12 3.22 Employee Benefit Plans.................................... 13 3.23 Interest of the Company in Customers, etc................. 14 3.24 Health, Safety and Environment............................ 14 3.25 Salaries.................................................. 15 3.26 Personnel Agreements, Plans and Arrangements.............. 15 3.27 Workers Compensation...................................... 16 3.28 Customers................................................. 16 3.29 Affiliate Transactions.................................... 16 3.30 Independent Contractors................................... 16 3.31 Brokers................................................... 17 3.32 No Misrepresentation...................................... 17
i ARTICLE 4 BUYER'S REPRESENTATIONS AND WARRANTIES............................... 17 4.1 Organization.............................................. 17 4.2 Authorization............................................. 17 4.3 Transaction Not a Breach.................................. 17 4.4 Acquisition of Shares for Investment...................... 18 4.5 No Misrepresentation...................................... 18 ARTICLE 5 CLOSING.............................................................. 18 5.1 Time and Place............................................ 18 5.2 Deliveries of Seller...................................... 18 5.3 Deliveries of Buyer....................................... 20 ARTICLE 6 COVENANTS AFTER CLOSING.............................................. 21 6.1 Liability for Taxes....................................... 21 6.2 Indemnification........................................... 22 6.3 Restrictive Covenants..................................... 26 6.4 Other Contracts and Permits............................... 28 ARTICLE 7 MISCELLANEOUS........................................................ 29 7.1 Notices, Consents, etc.................................... 29 7.2 Public Announcements...................................... 30 7.3 Severability.............................................. 30 7.4 Amendment and Waiver...................................... 30 7.5 Documents................................................. 30 7.6 Counterparts.............................................. 30 7.7 Expenses.................................................. 30 7.8 Construction.............................................. 30 7.9 Headings.................................................. 30 7.10 Assignment................................................ 31 7.11 Definitions............................................... 31 7.12 Entire Agreement.......................................... 32 7.13 Third Parties............................................. 32 7.14 Interpretative Matters.................................... 33 7.15 Knowledge................................................. 33 7.16 No Strict Construction.................................... 33 SCHEDULES............................................................ 35 EXHIBITS............................................................. 34
ii GLOSSARY OF DEFINED TERMS "Accountants"........................................................ Section 2.3 "Affiliate".......................................................... Section 7.11 "Affiliate Transactions"............................................. Section 3.29 "Affiliated Group"................................................... Section 7.11 "Agreement".......................................................... Introduction "Business"........................................................... Preamble "Buyer".............................................................. Introduction "Buyer Indemnified Party"............................................ Section 6.2.1 "Buyer Taxes"........................................................ Section 6.1 "Closing"............................................................ Section 5.1 "Closing Date"....................................................... Section 5.1 "Code"............................................................... Section 7.11 "Company"............................................................ Preamble "Confidential Information"........................................... Section 6.3.4 "Defense Counsel".................................................... Section 6.2.3 "Defense Notice"..................................................... Section 6.2.3 "Direct Claims"...................................................... Section 6.2.4 "Employee Benefit Plans"............................................. Section 3.22 "Environmental and Safety Requirements".............................. Section 3.24 "ERISA".............................................................. Section 7.11 "Financial Statements"............................................... Section 3.7 "GAAP"............................................................... Section 7.11 "Hazardous Wastes"................................................... Section 7.11 "Indefinite Claim"................................................... Section 6.2.6 "Indemnified Party".................................................. Section 6.2.3 "Independent Contractors"............................................ Section 3.30
iii "Indemnifying Party"................................................. Section 6.2.3 "Liens".............................................................. Section 7.11 "Losses"............................................................. Section 6.2.1 "Material Contracts"................................................. Section 3.11 "Note".............................................................. Section 2.2 "Permits"........................................................... Section 3.21 "Person"........................................................... Section 7.11 "Plan Affiliate"................................................... Section 3.22 "Proprietary Rights"............................................... Section 7.11 "Protest Notice"................................................... Section 2.3 "Purchase Price"................................................... Section 2.1 "Real Property".................................................... Section 3.12 "Restricted Period"................................................ Section 6.3.2 "Rules"............................................................ Section 3.17 "Seller"........................................................... Introduction "Seller Indemnified Party"......................................... Section 6.2.2 "Seller Taxes"..................................................... Section 6.1 "Shares"........................................................... Preamble "Special Claim".................................................... Section 6.2.6 "Tax".............................................................. Section 7.11 "Tax Returns"...................................................... Section 7.11 "Territory"........................................................ Section 6.3.2 "Third Party Claim"................................................ Section 6.2.3 "Transaction Documents"............................................ Section 7.11 "Transition Services Agreement".................................... Section 5.2 "Unaudited Financial Statements"................................... Section 3.7
iv "Unearned Revenue Adjustment"...................................... Section 2.3 "Unearned Revenue Amount".......................................... Section 2.3 "Unearned Revenue Schedule"........................................ Section 2.3
v STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of September 30, 1998, by and among ALLIN COMMUNICATIONS CORPORATION, a Delaware corporation ("Seller"), and LIGHTHOUSE HOLDINGS, INC., a Delaware corporation ("Buyer"). PREAMBLE -------- A. Sportswave, Inc. d/b/a International Sports Marketing, a Pennsylvania corporation (the "Company"), is engaged in the business of sports marketing and promotion (the "Business"). B. Seller owns all of the issued and outstanding capital stock of the Company (the "Shares") and, accordingly, controls the business and operations of the Company. C. Seller desires to sell to Buyer, and Buyer desires to purchase from Seller, the Shares on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual covenants of the parties as hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 --------- SALE OF STOCK ------------- Seller, in reliance upon the representations and warranties of Buyer contained herein and on the terms and conditions herein set forth, hereby agrees to sell, assign, transfer, convey and deliver to Buyer at the Closing all of its right, title and interest in and to all of the Shares. Buyer, in reliance upon the representations and warranties of Seller contained herein and on the terms and conditions herein set forth, hereby agrees to purchase the Shares from Seller at the Closing for a purchase price as provided in Article 2 hereof. ARTICLE 2 --------- CONSIDERATION AND MANNER OF PAYMENT ----------------------------------- 2.1 Purchase Price. The aggregate purchase price for the Shares -------------- (the "Purchase Price") is $3,500,000, payable in accordance with Section 2.2 and subject to adjustment as set forth in Section 2.3. The Purchase Price shall be allocated to the assets of the Company by Buyer and Seller, in accordance with applicable requirements of the Code and reflecting the fair market value of the various Company assets, within 30 days after the Closing Date. These allocations shall be binding on all parties for Federal and State income tax purposes in connection with this Agreement, and shall be consistently reflected by each party on its Tax Returns. Such allocation of the Purchase Price shall be included herein as Schedule 2.1. ------------ 2.2 Payment of Purchase Price. The Purchase Price shall be payable ------------------------- at the Closing as follows: (a) Buyer shall pay to Seller, by wire transfer of immediately available funds to an account of Seller at a bank or banks specified by Seller, an amount equal to $3,000,000 less the Estimated Adjustment to the extent it is a decrease to the Purchase Price or plus the Estimated Adjustment to the extent it is an increase to the Purchase Price. (b) Buyer shall deliver the duly executed Promissory Note, in substantially the form of Exhibit A attached hereto (the "Note"), in the original principal --------- amount of $500,000. 2.3 Unearned Revenue Adjustment. Notwithstanding anything to the --------------------------- contrary contained herein, the Purchase Price shall be (a) reduced on a dollar for dollar basis to the extent that the Unearned Revenue Amount of the Company as of the Closing Date is less than $56,488, determined as set forth below, or (b) increased on a dollar for dollar basis to the extent that the Unearned Revenue Amount is greater than $56,488 (either such adjustment, the "Unearned Revenue Adjustment"). (a) Definition. For purposes of this Agreement, the term "Unearned Revenue ---------- Amount" shall be determined as of the Closing Date in a manner consistent with Exhibit B, and shall include all accounts for which unearned revenue --------- is currently recorded on the books of the Company. (b) Estimated Adjustment. Within seven business days prior to the Closing, but -------------------- in no event less than three business days prior to the Seller, Seller shall deliver to the Buyer a certificate of the chief financial officer of the Company which contains Seller's good faith best estimate of the Unearned Revenue Amount and any resulting Unearned Revenue Adjustment expected on the Closing Date ("Estimated Adjustment"), which Estimated Adjustment shall be reasonably acceptable to Buyer. (c) Unearned Revenue Schedule. As soon as practicable, but not later than 90 ------------------------- days after the Closing Date, the Company shall prepare and deliver to Seller a schedule setting forth the Company's Unearned Revenue Amount and the Unearned Revenue Adjustment, if any (the "Unearned Revenue Schedule"). (d) Protest Notice. Within 10 days of the delivery of the Unearned Revenue -------------- Schedule, Seller may deliver written notice (the "Protest Notice") to Buyer of any objections, and the basis therefor, which Seller may have to the Unearned Revenue Schedule. The failure of Seller to deliver such Protest Notice within the prescribed time period will constitute Seller's acceptance of the Unearned Revenue Schedule as determined by Buyer. Upon receipt of the Unearned Revenue Schedule, Seller and its representatives shall be given unrestricted access to all of the Company's books and records during reasonable business hours for the purpose of verifying the Unearned Revenue Schedule. (e) Resolution of Seller's Protest. If Seller and Buyer are unable to resolve ------------------------------ any disagreements with respect to the Unearned Revenue Schedule within 20 days following Buyer's receipt of the Protest Notice, then the items in dispute will be referred to Arthur Andersen L.L.P. (the "Accountants") for final determination within 45 days, which determination shall be final and binding on both Buyer and Seller. Seller, on the one hand, and Buyer, on the other hand, shall bear the fees and expenses of the Accountants equally. (f) Payment. Within 10 days of the final determination of the Unearned Revenue ------- Adjustment, payment of the Unearned Revenue Adjustment shall be paid as follows: (i) in the event of a Unearned Revenue Adjustment that is a decrease to the Purchase Price, Seller shall pay Buyer an amount equal to such Unearned Revenue Adjustment, to be paid by Seller in immediately available funds within ten days of the final determination of the Unearned Revenue Adjustment or (ii) in the event of a Unearned Revenue Adjustment that is an increase to the Purchase Price, Buyer shall pay Seller an amount equal to such Unearned Revenue Adjustment, to be paid by Buyer in immediately available funds within ten days of the final determination of the Unearned Revenue Adjustment. (g) Cooperation of Auditors. Seller and Seller's accountants and other ----------------------- representatives shall fully cooperate with Buyer and Arthur Andersen, L.L.P. and other representatives of the Company in preparation of the Unearned Revenue Schedule, including, without limitation, by providing access to workpapers relevant to the Closing Unearned Revenue Schedule as well as the books and records related thereto (subject to providing any "hold harmless" letters or similar agreements requested by such representatives). 2.4 Closing Expenses and Related Taxes. Seller shall pay at the ---------------------------------- Closing any stamp or other sales, transfer or transaction tax imposed under the laws of the United States or any state, county, municipality or other subdivision thereof on the sale of the Shares by Seller to Buyer. 2 ARTICLE 3 --------- SELLER'S REPRESENTATIONS AND WARRANTIES --------------------------------------- Seller represents and warrants to Buyer as follows: 3.1 Seller's Authority. Seller has full power, right and authority ------------------ to enter into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. This Agreement and each of the Transaction Documents to which Seller is a party have been duly executed and delivered by Seller and constitute the valid and binding obligations of Seller and are enforceable against Seller in accordance with their respective terms. Except as set forth on Schedule 3.1, no permits, approvals or consents of or ------------ notifications to (a) any governmental entities or (b) any other Persons are necessary in connection with the execution, delivery and performance by Seller of this Agreement and the Transaction Documents and the consummation by Seller of the transactions contemplated hereby and thereby. 3.2 Organization and Qualification of the Company. The Company is a --------------------------------------------- corporation duly organized, validly existing, and in good standing under the laws of the State of Pennsylvania. The Company has full power and authority to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. The Company is duly qualified to do business and is in good standing as a foreign corporation in the jurisdictions listed on Schedule 3.2 and there are no other ------------ jurisdictions in which its conduct of the Business or its ownership of assets requires such qualification under applicable law. 3.3 Subsidiaries. The Company has no subsidiaries and does not own, ------------ directly or indirectly, any stock, partnership interest, joint venture interest or other equity interest in any other Person. 3.4 Articles of Incorporation, By-Laws, Officers and Directors. ---------------------------------------------------------- Complete and correct copies of the Company's charter documents and all amendments thereof to date, certified by the Secretary of State of Pennsylvania, and the by-laws as amended to date, certified by an officer of the Company have been delivered to Buyer. Schedule 3.4 contains a complete and correct list of ------------ all of the officers and directors of the Company. The minute books of the Company contain complete and correct copies of the minutes of each meeting and each action by written consent of its Board of Directors or shareholders and the stock ledger of the Company contains a complete and correct record of all issuances and transfers of capital stock of the Company. 3.5 Capital Stock, Title to the Shares. Schedule 3.5 sets forth the ---------------------------------- ------------ entire authorized capital stock and the total number of issued and outstanding shares of capital stock of the Company. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and non-assessable and are owned, beneficially and of record, by Seller and no Shares are subject to, nor have been issued in violation of preemptive rights. All issuances, sales and repurchases by the Company of its Shares have been effected in compliance with all applicable laws, including, without limitation, applicable federal and state securities laws. Seller has good and marketable title to the Shares, free and clear of any Liens whatsoever. Upon consummation of the transactions provided for in this Agreement in accordance with the terms hereof, Seller will deliver good and marketable title to all of the Shares, free and clear of any Liens whatsoever, other than transfer restrictions under federal and state securities laws. 3.6 Options, etc The Company does not have outstanding any stock or ------------ other securities convertible into or exchangeable for shares of its capital stock or containing profit participation features, and the Company does not have outstanding any options, warrants or rights to subscribe for or to purchase its capital stock or any stock or securities convertible into or exchangeable for its capital stock. The Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any warrants, options or other rights to acquire its capital stock. There are no voting agreements, voting trusts or other agreements (including, without limitation, contractual or statutory preemptive rights or cumulative voting rights), commitments or understandings with respect to the voting or transfer of the capital stock of the Company. 3.7 Financial Statements. Schedule 3.7 contains the following -------------------- ------------ financial statements of the Company (the "Financial Statements"): 3 (a) the audited consolidated balance sheet of the Company as of December 31, 1997, 1996 and 1995 and the related statements of income and cash flows for the fiscal years then ended and the auditor's reports and opinions thereon; and (b) the unaudited consolidated balance sheet of the Company as of August 31, 1998 and the related statement of income for the eight months, then ended (the "Unaudited Financial Statement"). Each of the Financial Statements is complete and correct in all material respects, is consistent with the books and records of the Company (which, in turn, are accurate and complete in all material respects) and fairly presents the Company's financial condition, assets and liabilities as of its respective date and the results of operations and cash flows for the period related thereto in accordance with GAAP consistently applied throughout the period covered thereby, except that the Unaudited Financial Statements lack the footnote disclosure and normal recurring accruals otherwise required by GAAP, none of which, if provided, would reflect a material adverse change in the operations or financial condition of the Company. Copies of all items that relate to the Business in the management letters received by the Company from its certified public accountant in connection with each of the audits for the years ended December 31, 1995, 1996 and 1997 have been provided to Buyer. 3.8 Absence of Undisclosed Liabilities. The Company does not have ---------------------------------- any material debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due) arising out of transactions entered into, at or prior to the Closing, or any transaction, series of transactions, action or inaction at or prior to the Closing, or any state of facts or condition existing at or prior to the Closing (regardless of when such liability or obligation is asserted), including, without limitation, liabilities or obligations on account of Taxes or governmental charges or penalties, interest or fines thereon or in respect thereof, except (a) to the extent specifically reflected and accrued for or reserved against in the Financial Statements, (b) for liabilities specifically delineated on Schedule 3.8, or (c) for liabilities ------------ and obligations which have arisen after August 31, 1998 in the ordinary course of business consistent with past custom and practice (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement, claim or lawsuit). 3.9 Accounts Receivable and Accounts Payable ---------------------------------------- (a) All of the Company's accounts receivable reflected on the Financial Statements have arisen in bona-fide arms length transactions in the ordinary course of business and, except for immaterial amounts, are valid and binding obligations of the account debtors, subject to the allowance for doubtful accounts on such Financial Statements, and are collectible in the ordinary course of business. (b) Except for intercompany payables which will be discharged at or prior to the Closing, all of the Company's accounts payable reflected on the Financial Statements have arisen in bona-fide arms length transactions in the ordinary course of business and, prior to Closing, the Company has been paying its accounts payable in the ordinary course, consistent with past practice. 3.10 Taxes. ----- I. Filing of Returns. Except as set forth in Schedule 3.10 (although such ----------------- ------------- exceptions shall be indemnifiable hereunder), the Company has properly completed and filed on a timely basis and in correct form all Tax Returns required to be filed on or prior to the date hereof. As of the time of filing, the foregoing Tax Returns reflected, in all material respects, the facts regarding the income, business, assets, operations, activities, status, or other matters of the Company or any other information required to be shown thereon. In particular, the foregoing returns are not subject to penalties under Section 6662 of the Code, relating to accuracy-related penalties (or any corresponding provision of the state, local or foreign Tax law) or any predecessor provision of law. An extension of time within which to file any Tax Return that has not been filed has not been requested or granted. (b) Payment of Taxes. With respect to all amounts in respect of Taxes imposed ---------------- on the Company or for which the Company is or could be liable, whether to taxing authorities (as, for example, under law) or to 4 other persons or entities (as, for example, under tax allocation agreements), with respect to all taxable periods or portions of periods ending on or before the Closing Date, except as set forth on Schedule 3.10 ------------- (although such exceptions are indemnifiable hereunder) all applicable tax laws and agreements have been fully complied with, and all such amounts required to be paid by the Company to taxing authorities or others on or before the date hereof have been paid. (c) Audit History. No issues have ben raised (and are currently pending) by ------------- any taxing authority in connection with any of the Tax Returns. No waivers of statutes of limitation with respect to the Tax Returns have been given by or requested from the Company. All deficiencies asserted or assessments made as a result of any examinations have been fully paid or settled. (d) Liens. There are no liens for Taxes (other than for current Taxes not yet ----- due and payable) on the assets of the Company. (e) Tax-Sharing or Allocation Agreements. The Company is not a party to or ------------------------------------ bound by (nor will the Company become a party to or bound by) any tax- indemnity, tax-sharing, or tax-allocation agreement. (f) Prior Affiliated Groups. Except for the Affiliated Group of which Seller ----------------------- is presently a member, the Company has never been a member of an Affiliated Group. (g) Tax Elections. All material elections with respect to Taxes affecting the ------------- Company as of the date hereof are set forth in Schedule 3.10. ------------- (h) Section 341(f) Consent. The Company has not filed a consent pursuant to ---------------------- the collapsible corporation provisions of Section 341(f) of the Code (or any corresponding provision of state, local, or foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any corresponding provision of state, local, or foreign income tax law) apply to any disposition of any asset owned by it. (i) Safe Harbor Lease Property. None of the assets of the Company is property -------------------------- that the Company is required to treat as being owned by any other person pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of the Code. (j) Adjustments Under Section 481. The Company has not agreed to make nor is ----------------------------- it required to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise. (k) Parachute Payment. The Company is not a party to any agreement, contract, ----------------- arrangement, or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. (l) U.S. Real Property Holding Corporation. The Company is not and has not -------------------------------------- been a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. (m) Foreign Person. The Seller is not a person other than a United States -------------- person within the meaning of the Code, and is not subject to withholding under Section 1445 of the Code. (n) No Withholding. The transaction contemplated herein is not subject to the -------------- tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code, or of any other provision of law. (o) Permanent Establishment. The Company does not have and has not had a ----------------------- permanent establishment in any foreign country, as defined in any applicable tax treaty or convention between the United States and such foreign country. 5 (p) Existing Partnerships. The Company is not a party to any joint venture, --------------------- partnership, or other arrangement or contract that could be treated as a partnership for federal income tax purposes. (q) Section 338(h)(10) Election. Seller represents that it filed a --------------------------- consolidated federal income tax return with the Company for the taxable year immediately preceding the current taxable year and that Seller is eligible to make an election under Section 338(h)(10) of the Code (and any comparable election under state or local tax law) with respect to the Company. 3.11 Material Contracts. Schedule 3.11 is a correct and complete ------------------ ------------- list of every material contract, agreement, relationship or commitment, written or oral, to which the Company is a party or by which it is bound which (i) requires aggregate future payments in excess of $50,000, (ii) has a term or effective period longer than one year in duration or (iii) contains non- competition or non-solicitation covenants or similar restrictions of the Company (collectively, the "Material Contracts"), correct and complete copies of which previously have been furnished to Buyer. The Company is not in default, nor has any event occurred which with the giving of notice or the passage of time or both would constitute a default, under any Material Contract or any other material obligation owed by the Company, and, to the knowledge of Seller, no event has occurred which with the giving of notice or the passage of time or both would constitute a default by any other party to any such Material Contract or obligation. Each of the Material Contracts is in full force and effect, is valid and enforceable in accordance with its terms and is not subject to any claims, charges, set-offs or defenses. Each Material Contact was effected on market terms in arms-length negotiations. 3.12 Real Property. The Company does not own any real property. The ------------- Company has valid leasehold interests in all of the real property which they hold under the leases described in Schedule 3.12 (collectively, the "Real ------------- Property"), in each case free and clear of all Liens, except as set forth on Schedule 3.12. The Real Property constitutes all real properties used or - ------------- occupied by the Company in connection with the Business or reflected on the Financial Statements. With respect to the Real Property: (a) the Company has all easements and rights necessary to conduct the Business; (b) no portion thereof is subject to any pending or, to the knowledge of Seller, threatened condemnation proceeding or proceeding by any public authority; (c) the buildings, plants and structures, including, without limitation, heating, ventilation and air conditioning systems, roof, foundation and floors, are in good operating condition and repair, subject only to ordinary wear and tear, and are not in violation of any zoning or other Rules; (d) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party or parties the right of use or occupancy of any portion of any parcel of Real Property; and (e) the Real Property is supplied with utilities and other services necessary for the operation of such facilities. 3.13 Personal Property. Except for such liens the discharges of ----------------- which will be delivered at the Closing, the Company has good and marketable title to, or a valid leasehold interest all tangible and intangible assets, property and rights used by the Company in connection with the Business or shown on the Unaudited Financial Statements (except to the extent that assets have after the date hereof been disposed of in the ordinary course of business), in each case, free and clear of any Liens. As of the Closing, except as set forth on Schedule 3.13, the assets and leasehold interests owned by the Company will ------------- include all tangible and intangible assets, properties and rights used in, or reasonably necessary for, or material to, the operation of the Business as currently conducted, as conducted during the previous twelve months and as currently proposed to be conducted. All items of tangible personal property used by the Company are in good condition and repair and none of such personal property requires any repair or replacement except for maintenance in the ordinary course of business. Except as set forth on Schedule 3.13, none of the ------------- personal property of the Company is held under any lease, security agreement, conditional sales contract or other title retention or security arrangement or is located other than on the premises of the Company. 3.14 Litigation. There is no suit, action, proceeding, ---------- investigation, claim or order pending or, to the knowledge of Seller, threatened against the Company (or pending or, threatened against any of the officers, directors or key employees of the Company with respect to their business or proposed business activities), or to which the Company is otherwise a party, which if adversely determined would adversely affect the Company, its assets or the Business, before any court, or before any governmental department, commission, board, agency, or instrumentality, nor, is there any reasonable basis for any such action, proceeding or investigation. The Company is not subject to any judgment, order or decree of any court or governmental agency, neither the Company nor Seller has received any opinion or memorandum or legal advice from legal counsel retained by the Company or Seller to the effect that either such party is exposed, from a legal standpoint, to any liability which may be material to its business, and the Company has not 6 engaged in any legal action to recover monies due it or for damages sustained by it. Schedule 3.14 sets forth all closed litigation matters with respect to the ------------- Company to which the Company was a party during the five years preceding the date hereof, the date such litigation was commenced and concluded, and the nature of the resolution thereof (including amounts paid in settlement or judgment). 3.15 Compliance with Applicable Laws. The Company is not in ------------------------------- violation of any law, regulation or requirement applicable to it or the conduct, ownership, use, occupancy or operation of the Business or the Real Property, nor has the Company or Seller received notice (written or oral) of any such violation. 3.16 Intellectual Property. Schedule 3.16 contains a complete and --------------------- ------------- correct list of all patented and registered Proprietary Rights owned by the Company and all pending applications for the registration of other Proprietary Rights owned or filed by the Company. Schedule 3.16 also contains a complete ------------- and correct list of all trade or corporate names used by the Company and a complete and correct list of all licenses and other rights granted by the Company to any third party with respect to Proprietary Rights and licenses and other rights granted by any third party to the Company. Except as set forth on Schedule 3.16, (a) the Company owns and possesses all right, title and interest - ------------- in and to, or has a valid license to use, all of the Proprietary Rights necessary for the operation of the Business as presently conducted and none of such Proprietary Rights has been abandoned; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any such Proprietary Rights has been made, is currently outstanding or, to the knowledge of Seller, threatened, and, to the knowledge of Seller, there is no reasonable basis for any such claim; (c) neither the Company nor Seller nor any registered agent of the Company or Seller has received any notices of, nor has any knowledge of any reasonable basis for an allegation of, any infringement or misappropriation by, or conflict with, any third party with respect to such Proprietary Rights, nor has the Company, Seller or any registered agent of the Company or Seller received any claims of infringement or misappropriation of or other conflict with any Proprietary Rights of any third party; and (d) the Company has not infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties, and neither the Company nor Seller has any knowledge of infringement, misappropriation or conflict which will occur as a result of the continued operation the Company's Business as presently conducted or as currently proposed by the Company to be conducted. 3.17 Transaction Not a Breach. Neither the execution and delivery of ------------------------ this Agreement and the Transaction Documents by Seller nor the performance by it of the transactions contemplated hereby or thereby will: (a) violate or conflict with or result in a breach of any provision of any law, statute, rule, regulation, order, permit, judgment, injunction, decree or other decision (collectively, "Rules") of any court or other tribunal or any governmental entity or agency binding on Seller or the Company or their respective properties, or conflict with or result in the breach of any of the terms, conditions or provisions thereof; (b) constitute a default under the charter documents or the by-laws of the Company or of any Material Contract; (c) constitute an event which would permit any party to terminate, or accelerate the maturity of any indebtedness or other obligation under, any Material Contract; (d) result in the creation or imposition of any Lien upon any of the Company's capital stock or assets; (e) require any authorization, consent, approval, exemption or other action by, or notice to, any court or administrative or governmental body pursuant to the charter or by-laws of any of the Company or any Rules; or (f) create an obligation on the part of the Company or Seller to pay any bonus, transaction fee or other amount to any Person. 3.18 Conduct of Business. ------------------- 7 (a) Conduct of Ordinary Course. Except as set forth on Schedule 3.18 -------------------------- ------------- or as otherwise provided in this Agreement, since July 31, 1998, the Company has conducted its business only in the ordinary course of business consistent with past custom and practice, and has incurred no liabilities other than in the ordinary course of business consistent with past custom and practice and there has been no material adverse change in the assets, condition (financial or otherwise), operating results, employee or customer relations, business activities or business prospects of the Company. Without limitation of the foregoing and except as set forth on Schedule -------- 3.18, since July 31, 1998, the Company has not: ---- (i) sold, assigned or transferred any of the assets of the Business or mortgaged, pledged or subjected them to any Lien, charge or other restriction, except for Liens for current property taxes not yet due and payable; (ii) sold, assigned, transferred, abandoned or permitted to lapse any licenses or permits which, individually or in the aggregate, are material to the Business or any portion thereof, or any of the Proprietary Rights or other intangible assets, or disclosed any material proprietary confidential information to any person, granted any license or sublicense of any rights under or with respect to any Proprietary Rights; (iii) made or granted any increase in, or amended or terminated, any existing plan, program, policy or arrangement, including, without limitation, any Employee Benefit Plan or arrangement or adopted any new Employee Benefit Plan or arrangement, or entered into any new collective bargaining agreement or multiemployer plan; (iv) conducted their cash management customs and practices (including the timing of collection of receivables and payment of payables and other current liabilities) and maintained its books and records other than in the usual and ordinary course of business consistent with past custom and practice; (v) made any loans or advances to, or guarantees for the benefit of, or entered into any transaction with any employee, officer or director; (vi) suffered any extraordinary loss, damage, destruction or casualty loss to the Business or waived any rights of material value, whether or not covered by insurance and whether or not in the ordinary course of business; (vii) received notification that any material customer will stop or decrease in any material respect the rate of business done with the Company; (viii) declared, set aside or paid any dividend or distribution of cash or other property to any shareholder or purchased, redeemed or otherwise acquired any shares of its capital stock, or made any other payments to any shareholder; provided, however, that, notwithstanding any such distributions set forth in Schedule 3.18, on the Closing Date, the Company shall cash sufficient ------------- to cover all outstanding checks, drafts or other withdrawals on the Company's accounts; (ix) amended or authorized the amendment of its charter documents or by-laws; (x) entered into any other material transaction, other than in the ordinary course of business consistent with past custom and practice; or (xi) committed to any of the foregoing. (b) No Illegal Payments. The Company has not at any time made, or ------------------- committed to make, any payments for illegal political contributions or made any bribes, kickback payments or other illegal payments to any of their customers, employees, agents, representatives or any other Person. 8 3.19 Insurance Policies. Schedule 3.19 is a correct and complete list and ------------------ ------------- description, including policy numbers, coverage, and deductibles, of all insurance policies and binders owned by the Company, correct and complete copies of which policies or binders have previously been delivered to Buyer. Such policies are in full force and effect, and the Company is not in default under any of them. The Company has not received any notice of cancellation or intent to cancel or increase or intent to increase premiums with respect to such insurance policies nor, to the knowledge of Seller, is there any basis for any such action. Schedule 3.19 also contains a list of all pending claims with any ------------- insurance company and any instances within the previous three years of a denial of coverage of the Company by any insurance company. 3.20 Bank Accounts, Powers of Attorney. Schedule 3.20 is a complete and --------------------------------- ------------- correct list of each bank in which the Company has an account or safe deposit box, the number of each such account or box and the names of all persons authorized to draw thereon or to have access thereto. Schedule 3.20 also ------------- includes a complete and correct list of all outstanding powers of attorney executed on behalf of the Company. 3.21 Licenses and Permits. The Company holds all the permits, licenses, -------------------- franchises and approvals of governmental authorities and agencies necessary or material for the current conduct, ownership, use, occupancy or operation of the Business or the Real Property, all of which are identified on Schedule 3.21 ------------- ("Permits"). The Company is in compliance in all material respects with such Permits, all of which are in full force and effect, and neither the Company nor Seller has received any notices (written or oral) to the contrary. 3.22 Employee Benefit Plans. ---------------------- (a) Except as set forth in Schedule 3.22, neither the Company nor any ------------- current or former Plan Affiliate has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to any "employee pension benefit plan" (as defined in Section 3(2) of ERISA), "employee welfare benefit plan" (as defined in Section 3(1) of ERISA), "multi-employer plan" (as defined in Section 3(37) of ERISA), plan of deferred compensation, medical plan, life insurance plan, long-term disability plan, dental plan or welfare plan, personnel policy (including, without limitation, vacation time, holiday pay, bonus programs, moving expense reimbursement programs and sick leave), excess benefit plan, bonus or incentive plan (including, but not limited to, stock options, restricted stock, stock bonus and deferred bonus plans), salary reduction agreement, change-of-control agreement, employment agreement, consulting agreement or any other benefit, program or contract (collectively, "Employee Benefit Plans"), whether or not written or pursuant to a collective bargaining agreement, which could give rise to or result in the Company having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due. (b) Seller has delivered to Buyer with respect to each written Employee Benefit Plan a complete and accurate copy of: (i) each plan document and summary plan description; (ii) each Form 5500 Annual Report, if applicable, for the three (3) most recent years; (iii) each material letter, ruling or notice issued by a governmental entity or agency, including the most recent letter of determination from the Internal Revenue Service; and (iv) the latest financial statements and latest prepared actuarial reports for any employee pension benefit plans. (c) To the extent required by ERISA and the Code, each Employee Benefit Plan: (i) has been and currently complies in form and in operation in all respects with all applicable requirements of ERISA and the Code, all Rules and its terms (except as otherwise required by law); (ii) has been and is operated in compliance with applicable Rules in such a manner as to qualify, when appropriate, for both Federal and state purposes, for income tax exclusion to its participants, tax-exempt income for its funding vehicle, and the allowance of deductions and credits with respect to contributions thereto; and (iii) where appropriate, has received a favorable letter of determination from the Internal Revenue Service on which it may rely. (d) With respect to each Employee Benefit Plan, there are no suits, actions proceedings, investigations, claims or orders pending or, to the knowledge of Seller, threatened with respect to the assets thereof, and, to the knowledge of Seller, there are no facts which could reasonably be expected to give rise to 9 any liability, suit, action, proceeding or claim against any Employee Benefit Plan, any fiduciary or plan administrator or other Person dealing with any Employee Benefit Plan or the assets of such plan. No "prohibited transaction" as defined in Section 4975 of the Code and Section 406 of the Code has occurred (except a prohibited transaction to which any exemption is applicable). (e) All contributions, payments, premiums, expenses, reimbursements or accruals for all periods ending prior to or as of the Closing for each Employee Benefit Plan shall have been made to the extent required by such Employee Benefit Plan or accrued on the Closing Balance Sheet to the extent required by GAAP and no such plan otherwise has (and could not reasonably be expected to have) any unfunded liability (including for periods from the first day of the current plan year to the Closing) which is not reflected on the Financial Statements. (f) Neither the Company nor any Plan Affiliate has at any time participated in, made contributions to or had any other liability with respect to any Employee Benefit Plan which (i) is or was a "multiemployer plan" as defined in Section 4001 of ERISA, a "multiemployer plan" within the meaning of Section 3(37) of ERISA, a "multiple employer plan" within the meaning of Section 413(c) of the Code or a "multiple employer welfare arrangement" within the meaning of Section 3(40) of ERISA, (ii) otherwise is or was an "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) that is subject to Title IV of ERISA, or (iii) provides medical, health or life insurance for or on behalf of current or future retirees or former employees (except for limited continued medical benefit coverage required to be provided under Section 4980 of the Code and Part 6 of Subtitle B of Title I of ERISA). As used herein, "Plan Affiliate" shall refer to any trade or business, whether or not incorporated, under common control with the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA. 3.23 Interest of the Company in Customers, etc Except as set forth on ----------------------------------------- Schedule 3.23, none of the Company, Seller or any of their respective ------------- Affiliates has any direct or indirect interest in any competitor or customer of the Business or in any Person from whom or to whom the Company leases any real or personal property or in any other Person with whom the Company has any business relationship. 3.24 Health, Safety and Environment. ------------------------------ (a) The Company is in compliance with all applicable Federal, state and local laws, rules, regulations, ordinances and requirements relating to public health and safety, worker health and safety and pollution and protection of the environment, all as amended or hereafter amended ("Environmental and Safety Requirements"), and the Company possesses all permits, licenses and certificates, and have filed all notices or applications, required thereby. (b) The Company has never generated, transported, treated, stored, or disposed of any Hazardous Wastes at any site, location or facility and no such Hazardous Wastes are present on, in or under the Real Property, and the Real Property does not contain (including, without limitation, containment by means of any underground storage tank) any Hazardous Waste. (c) The Company has not been subject to, or received any notice (written or oral) of any private, administrative or judicial action, or any notice (written or oral) of any intended private, administrative, or judicial action relating to the presence or alleged presence of Hazardous Wastes in, under or upon any Real Property owned or used by the Company, and, to the knowledge of Seller, there is no reasonable basis for any such notice or action, and there are no pending or threatened actions or proceedings (or notices of potential actions or proceedings) from any governmental agency or any other entity regarding any matter relating to health, safety or protection of the environment. (d) No facts, events or conditions with respect to the past or present operations or facilities of the Company or the Business exist which could reasonably be expected to interfere with or prevent continued compliance with, or could give rise to any common law or statutory liability or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation against or involving the Company or the Business under 10 any Environmental and Safety Requirement based on any such fact, event or circumstance, including, without limitation, liability for cleanup costs, personal injury or property damage. 3.25 Salaries. Schedule 3.25 is a true, complete and correct list setting -------- ------------- forth as of August 31, 1998 (i) the names and current compensation rate and compensation of all individuals employed by the Company on a salaried basis, (ii) the names and current compensation rate of all individuals employed by the Company on an hourly or piecework basis and (iii) the names and total annual compensation for all independent contractors who render services on a regular basis to the Company whose current annual compensation is in excess of $20,000. Except as set forth in Schedule 3.25, no person listed thereon will have -------------- received any bonus or increase in compensation since August 31, 1998, and there has been no "general increase" in the compensation or rate of compensation payable to any employees of the Company since August 31, 1998, nor since that date has there been any promise to the employees listed on Schedule 3.25 orally ------------- or in writing of any bonus or increase in compensation, whether or not legally binding, except for increases in the ordinary course of business consistent with the Company's past compensation practices and obligations incurred under existing bonus, insurance, pension or other employee benefit plans described on Schedule 3.22. - ------------- 3.26 Personnel Agreements, Plans and Arrangements. Except as set forth on -------------------------------------------- Schedule 3.26, the Company is not a party to or obligated in connection with the - ------------- Business with respect to any (a) outstanding contracts with current or former employees, agents, consultants, advisers, salespersons, sales representatives, distributors, sales agents, independent contractors, or dealers, or (b) collective bargaining agreements or contracts with any labor union or other representative of employees or any employee benefits provided for by any such agreement, correct and complete copies of which previously have been furnished to Buyer. No strike, union organizational activity, allegation, charge or complaint of employment discrimination or other similar occurrence has occurred or is pending or, to the knowledge of Seller, threatened against the Company nor does the Company or Seller know any basis for any such allegation, charge, or complaint. To the knowledge of Seller, the Company has complied with all applicable laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining, sexual harassment, employment discrimination and the payment of social security and other taxes and no officer, director, shareholder, or other agent or representative of the Company has taken any action that could give rise to a cause of action against the Company under such laws. There are no administrative charges or court complaints pending or, to the knowledge of Seller, threatened against the Company before the U.S. Equal Employment Opportunity Commission or any state or federal court or agency concerning alleged employment discrimination or any other matters relating to the employment of labor. 3.27 Workers Compensation. Schedule 3.27 sets forth all expenses, -------------------- ------------- obligations, duties and liabilities relating to any claims by employees and former employees (including dependents and spouses) of the Company or Plan Affiliate (or predecessors) made since December 31, 1996, and the extent of any specific accrual on or reserve therefor set forth on the Financial Statements, for costs, expenses and other liabilities under any workers compensation laws, regulations, requirements or programs. No claims, injuries, fact, event or condition exists which would give rise to a material claim by employees and former employees (including dependents and spouses) of the Company or Plan Affiliates under any workers compensation laws, regulations, requirements or programs or for any other medical costs and expenses. 3.28 Customers. Schedule 3.28 is a complete and correct list of the ten --------- ------------- largest customers of the Company (in terms of the dollar volume of each of the Company's sales made or services provided to such customers during the twelve months ended August 31, 1998). In the last twelve months, no such customer has cancelled or otherwise terminated or threatened to cancel or terminate, its contract, agreement or arrangement (written or oral) with the Company. Except as set forth on Schedule 3.28, the Company has not received any notice, nor does ------------- Seller have any knowledge, that any such customer intends to cancel or otherwise modify its relationship with the Company. 3.29 Affiliate Transactions. Schedule 3.29 sets forth the parties to and ---------------------- ------------- the date, nature and amount of each transaction involving the transfer of any cash, property or rights to or from the Company from, to or for the benefit of any Affiliate or former Affiliate of the Company ("Affiliate Transactions") during the period commencing January 1, 1997 through the date hereof and any existing commitments of the Company to engage in the future in any Affiliate Transactions. Each Affiliate Transaction was effected on terms equivalent to those which would have been established in an arms-length negotiation. 11 3.30 Independent Contractors. The Company has never treated any of its ----------------------- independent contractors ("Independent Contractors") as an employee for any period and has never been required to file any federal tax returns for any of its Independent Contractors. 3.31 Brokers None of Seller, the Company and any Affiliate thereof has ------- employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses in connection with the transactions contemplated by this Agreement. 3.32 No Misrepresentation. None of the representations and warranties of -------------------- Seller set forth in this Agreement, in any of the certificates, schedules, lists, documents, exhibits, or other instruments delivered, or to be delivered, to Buyer as contemplated by any provision hereof (including, without limitation, the Transaction Documents), contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. There is no material fact which has not been disclosed to Buyer which materially adversely affects or could reasonably be anticipated to materially adversely affect the Business or Seller's ability to consummate the transactions contemplated hereby. ARTICLE 4 --------- BUYER'S REPRESENTATIONS AND WARRANTIES -------------------------------------- Buyer hereby represents and warrants to Seller as follows: 4.1 Organization. Buyer is a corporation duly organized, validly existing ------------ and in good standing under the laws of the State of Delaware. 4.2 Authorization. Buyer has full power, right and authority to enter ------------- into and perform its obligations under this Agreement and each of the Transaction Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the Transaction Documents to which it is a party by Buyer have been duly and properly authorized by all requisite company action in accordance with applicable law and with the Certificate of Incorporation and the by-laws of Buyer. This Agreement and the Transaction Documents to which Buyer is a party have been duly executed and delivered by Buyer and are the valid and binding obligation of Buyer and are enforceable against Buyer in accordance with their respective terms. No permits, approvals or consents of or notifications to (i) any governmental entities or (ii) any other Persons are necessary in connection with the execution, delivery and performance by Buyer of this Agreement and the Transaction Documents and the consummation by Buyer of the transactions contemplated hereby or thereby. 4.3 Transaction Not a Breach. Neither the execution and delivery of this ------------------------ Agreement and the Transaction Documents to which Buyer is a party nor the performance by Buyer of its obligations hereunder or thereunder will: (i) violate or conflict with or result in a breach of any provision of any Rules of any court or other tribunal or any governmental entity or agency binding on Buyer or conflict with or result in the breach of any of the terms, conditions or provisions thereof; (ii) constitute a default under the Certificate of Incorporation or by-laws of Buyer or any material contract, agreement, mortgage, note, bond, license or other instrument or obligation of any nature to which Buyer is a party or by which Buyer, its assets or property is bound; (iii) constitute an event which would permit any party to terminate, or accelerate the maturity of any indebtedness or other obligation under, any material contract, agreement, indenture, mortgage, note, bond, license or other instrument to which Buyer is a party or by which Buyer or Buyer's properties is bound or subject; (iv) result in the creation or imposition of any Lien upon Buyer's capital stock or assets; or (v) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to the Certificate of Incorporation and the bylaws of Buyer. No permits, approvals or consents of or notifications to any persons or governmental entities (other than to any state's securities commission or division as to Seller) are necessary in connection with the execution and delivery by Buyer of this Agreement or the Transaction Documents to which Buyer is a party or the payment by Buyer of the Purchase Price, it being understood that Buyer makes no representation or warranty with respect to permits, approvals or consents necessary to operate the Company or conduct the Business on or after the Closing. 12 4.4 Acquisition of Shares for Investment. Buyer is acquiring the Shares ------------------------------------ for investment and not with a view toward, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares. Buyer agrees that the Shares may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of (i) without registration under the Securities Act of 1933, as amended, except pursuant to an exemption from such registration under such Act and (ii) except in accordance with any applicable provisions of state securities laws. 4.5 No Misrepresentation. None of the representations and warranties of -------------------- Buyer set forth in this Agreement or in any of the certificates, schedules, lists, documents, exhibits, or other instruments delivered, or to be delivered, to Seller as contemplated by any provision hereof (including, without limitation, the Transaction Documents), contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. ARTICLE 5 --------- CLOSING ------- 5.1 Time and Place. The closing of the transactions that are the subject -------------- of this Agreement (the "Closing") shall occur at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661 at 10:00 a.m. on September 30, 1998, or at such other time and date as the parties mutually agree (the "Closing Date"). 5.2 Deliveries of Seller. At the Closing, Seller will execute and -------------------- deliver, or cause to be executed and delivered, to Buyer: (a) Stock Certificates. Certificates representing the Shares, ------------------ endorsed over to Buyer or accompanied by duly executed stock powers; (b) Resolutions. A copy of a resolution of the Board of Directors of ----------- Seller, certified by the secretary thereof as having been duly and validly adopted and being in full force and effect, authorizing execution and delivery of this Agreement and performance of the transactions contemplated hereby by Seller; (c) Corporate Documents. The charter documents of the Company, ------------------- certified by the Secretary of State of Pennsylvania, as of a date not more than ten days prior to the Closing Date, and the by-laws of the Company, certified in each case by the secretary of the Company as in effect at the Closing; (d) Certificates of Good Standing. Certificates of Good Standing, ----------------------------- dated not more than 15 days prior to the Closing Date, with respect to the Company, issued by the Secretary of State of Pennsylvania and by the Secretary of State of each jurisdiction in which the Company is qualified to do business as a foreign corporation as set forth in Schedule 3.2; ------------ (e) Books and Records. All of the minutes books, stock ledgers and ----------------- similar corporate records of the Company; (f) Evidence of Lien Discharge. Evidence of the release or discharge -------------------------- of such financing statements, judgments, or other Liens on or against the Company and outstanding guarantees by the Company as Buyer directs, in form and substance satisfactory to Buyer at the Closing. (g) Consents. Evidence that all consents, approvals, or -------- authorizations of or notifications to any third parties (including governmental agencies), if any, required to sell and assign the Shares and to consummate the transactions contemplated hereby have been obtained by Seller (including, without limitation, those consents, approvals or authorizations set forth on Schedule 3.1). ------------ (h) Opinion of Counsel. An opinion of counsel for Seller, dated as of ------------------ the Closing Date, substantially in the form of Exhibit C; --------- 13 (i) Transition Services Agreement. Transition Services Agreement ----------------------------- between Buyer and Seller ("Transition Services Agreement"), substantially in the form of Exhibit D, duly executed by Seller; --------- (j) Resignations of Officers and Directors. Instruments evidencing -------------------------------------- the resignation of each director and officer of the Company, duly executed by each such individual; (k) Satisfaction of Seller Obligations Under Employment Contracts. ------------------------------------------------------------- Evidence of full and complete pay-out under 1997 Stock Plan of Seller pursuant to all outstanding employment agreements of the Company, in form and substance satisfactory to Buyer; and (l) Other Documents. Such other documents and instruments as Buyer or --------------- its counsel reasonably shall deem necessary to consummate the transactions contemplated hereby. All documents delivered to Buyer shall be in form and substance reasonably satisfactory to Katten Muchin & Zavis, counsel for Buyer. 5.3 Deliveries of Buyer. At the Closing, Buyer will deliver to Seller ------------------- simultaneously with delivery of the items referred to in Section 5.2: (a) Payment of the Purchase Price. Bank wire transfers as provided in ----------------------------- Section 2.2 and the Note; (b) Resolutions. A copy of a resolution of the Board of Directors of ----------- Buyer, certified by the secretary thereof as having been duly and validly adopted and being in full force and effect, authorizing execution and delivery of this Agreement and performance of the transactions contemplated hereby by Buyer; (c) Company Documents. The Articles of Incorporation of Buyer, ----------------- certified by the Secretary of State of Delaware, as of a date not more than 15 days prior to the Closing Date, certified by the secretary of Buyer as in effect at the Closing; (d) Good Standing Certificate. A Certificate of Good Standing dated ------------------------- not more than 15 days prior to the Closing Date, with respect to Buyer, issued by the Secretary of State of Delaware; (e) Opinion of Counsel. An opinion of counsel for Buyer dated as of ------------------ the Closing Date, substantially in the form of Exhibit E; --------- (f) Transition Services Agreement. Transition Services Agreement, ----------------------------- duly executed by Buyer; and (g) Other Documents. Such other documents and instruments as Seller --------------- or its counsel reasonably shall deem necessary to consummate the transactions contemplated hereby. All documents delivered to Seller shall be in form and substance reasonably satisfactory to Eckert, Seamans, Cherin & Mellott, LLC, counsel for Seller. 14 ARTICLE 6 --------- COVENANTS AFTER CLOSING ----------------------- 6.1 Liability for Taxes. The following provisions shall govern the ------------------- allocation of responsibility as between Buyer and Seller for certain tax matters following the Closing Date: (a) Allocation of Taxes. Notwithstanding anything herein to the ------------------- contrary, Seller shall be responsible for all Taxes imposed on the Company or any Affiliated Group in which the Company is or was a member for all taxable periods, or portions of taxable periods, ending before or as of the close of business on the Closing Date including, without limitation, any Taxes resulting from the election under Section 338(h)(10) of the Code (the "Seller Taxes"). Buyer shall be responsible for all Taxes imposed on the Company or any Affiliated Group in which the Company is a member for all taxable periods, or portions of taxable periods, beginning the day after the Closing Date (the "Buyer Taxes"). Whenever in accordance with this Section 6.1, Buyer shall be required to pay Seller the Buyer Taxes or Seller shall be required to pay Buyer the Seller Taxes, subject to the parties' right to dispute the amount of such Taxes in good faith with the appropriate taxing authority, such payments shall be made the later of ten days after requested or ten days before the requesting party is required to pay or cause to be paid the related Tax liability and the parties shall treat any such payments as a purchase price adjustment for tax purposes. Where the Seller Taxes are calculated on the basis of a period which includes the day after the Closing Date, such Seller Taxes shall be calculated on the basis of the taxable income of the Company as though the taxable year of the Company terminated at the close of business on the Closing Date. (b) Returns for Tax Periods Ending Before or as of the Closing Date. --------------------------------------------------------------- Buyer shall file (or cause to be filed) any Tax Returns of the Company for Tax periods ending before or as of the Closing Date for which Tax Returns shall not have been filed before the Closing Date. Such Tax Returns shall be prepared on a basis consistent with past practice to the extent such past practice is consistent with all federal, state, local and foreign Tax laws, rules and regulations. Seller shall be entitled to receive copies of, and have its accountants review, such Tax Returns prior to their filing. (c) Returns for Tax Periods Beginning Before and Ending After the ------------------------------------------------------------- Closing Date. Buyer shall file (or cause to be filed) any Tax Returns of ------------ the Company for Tax periods which begin before the Closing Date and end after the Closing Date. Such Tax Returns shall be prepared on a basis consistent with past practice to the extent such past practice is consistent with all federal, state, local and foreign Tax laws, rules and regulations. (d) Retention of Records. Each of Buyer, the Company and Seller shall -------------------- retain all books, records and other data pertaining to Tax matters for all open periods through the Closing Date. In particular, Seller, the Company and Buyer shall retain all Tax Returns, schedules and work papers, and all material records and other documents relating thereto with respect to the operations of the Company prior to the Closing Date, until the expiration of the statute of limitations (and, to the extent notified by Buyer or Seller, any extensions thereof) of the respective Tax periods. (e) Code Section 338(h)(10). Seller agrees to cooperate with Buyer, ----------------------- at Buyer's written request, in making an election under Section 338(h)(10) of the Code and making any corresponding elections under any State or local income tax law. (f) Cooperation. Buyer covenants and agrees that subsequent to the ----------- Closing, upon reasonable notice and during normal business hours, Buyer will give Seller and its representatives information relevant to the Company to the extent necessary to enable Seller to prepare its Tax Returns, and to secure any information which it requires in connection with the audit of any Tax Return filed by it. 6.2 Indemnification. --------------- 15 6.2.1 Indemnification by Seller. From and after the Closing, Seller ------------------------- agrees to indemnify, defend and save Buyer and the Company and their respective Affiliates and Plan Affiliates, and each of their respective officers, directors, employees, agents, Employee Benefit Plans, and fiduciaries, plan administrators or other parties dealing with any such plans (each, a "Buyer Indemnified Party"), forever harmless from and against, and to promptly pay to a Buyer Indemnified Party or reimburse a Buyer Indemnified Party for, any and all liabilities (whether contingent, fixed or unfixed, liquidated or unliquidated, or otherwise), obligations, deficiencies, demands, claims, suits, actions, or causes of action, assessments, losses, costs, expenses, interest, fines, penalties, actual or punitive damages or costs or expenses of any and all investigations, proceedings, judgments, environmental analyses, remediations, settlements and compromises (including fees and expenses of attorneys, accountants and other experts) (individually and collectively, the "Losses") actually sustained or incurred by any Buyer Indemnified Party relating to, resulting from, arising out of or otherwise by virtue of any of the following: (a) any misrepresentation or breach of a representation or warranty made herein or in the Transaction Documents by Seller, or non-compliance with or breach by Seller of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by Seller or any of its Affiliates; (b) any violations of, or obligations under, Environmental and Safety Requirements or Rules relating to acts, omissions, circumstances or conditions existing on or prior to the Closing Date, whether or not such acts, omissions, circumstances or conditions constituted a violation of Environmental and Safety Requirements or Rules, as the case may be, as then in effect; (c) any action, demand, proceeding, investigation or claim (whenever made) by any third party (including governmental agencies) against or affecting Buyer or the Company which, if successful, would give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations, warranties or covenants of Seller; (d) any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between the claimant and Seller; (e) any claim for payment of Taxes against Buyer for which Seller is liable pursuant to Section 6.1(a); or (f) any claim relating to (i) Section 3(f) of that certain Employment Agreement, dated as of June 1, 1997, by and between the Company and Patrick Zabrow, (ii) Section 3(g) of that certain Employment Agreement, dated as of April 21, 1997, by and between the Company and Thomas Jacobs, and (iii) that certain Employment Agreement, dated as of December 11, 1997, by and between Seller and Michael Fetchko. 6.2.2 Indemnification by Buyer. From and after the Closing, Buyer ------------------------ and the Company, jointly and severally, agree to indemnify, defend and save Seller and its Affiliates, and their respective officers, directors, employees and agents (each, a "Seller Indemnified Party") forever harmless from and against, and to promptly pay to a Seller Indemnified Party or reimburse a Seller Indemnified Party for, any and all Losses actually sustained or incurred by any Seller Indemnified Party relating to, resulting from, arising out of or otherwise by virtue of any of the following: (a) any misrepresentation or breach of a representation or warranty made herein or in the Transaction Documents by Buyer, or non-compliance with or breach by Buyer of any of the covenants or agreements contained in this Agreement or the Transaction Documents to be performed by Buyer or any of its Affiliates; (b) any action, demand, proceeding, investigation or claim (whenever made) by any third party (including governmental agencies) against or affecting Seller which, if successful, would give rise to or evidence the existence of or relate to a misrepresentation or breach of any of the representations, warranties or covenants of Buyer; 16 (c) any claim for payment of fees and/or expenses as a broker or finder in connection with the origin, negotiation, execution or consummation of this Agreement based upon any alleged agreement between the claimant and Buyer; or (d) any claim for payment of Taxes against Seller for which Buyer is liable pursuant to Section 6.1(a). 6.2.3 Indemnification Procedure for Third Party Claims. In the event ------------------------------------------------ that subsequent to the Closing any person or entity entitled to indemnification under this Agreement (an "Indemnified Party") asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any entity that is not a party to this Agreement or an Affiliate of a party to this Agreement (including, but not limited to any domestic or foreign court or governmental authority, federal, state or local) (a "Third Party Claim") against such Indemnified Party, against which a party to this Agreement is required to provide indemnification under this Agreement (an "Indemnifying Party"), the Indemnified Party shall give written notice together with a statement of any available information regarding such claim to the Indemnifying Party within 60 days after learning of such claim (or within such shorter time as may be necessary to give the Indemnifying Party a reasonable opportunity to respond to such claim). The Indemnifying Party shall have the right, upon written notice to the Indemnified Party (the "Defense Notice") within 30 days after receipt from the Indemnified Party of notice of such claim, which notice by the Indemnifying Party shall specify the counsel it will appoint to defend such claim ("Defense Counsel"), to conduct at its expense the defense against such claim in its own name, or if necessary in the name of the Indemnified Party; provided, however, that the Indemnified Party shall have the right to approve the Defense Counsel, which approval shall not be unreasonably withheld, and in the event the Indemnifying Party and the Indemnified Party cannot agree upon such counsel within ten days after the Defense Notice is provided, then the Indemnifying Party shall propose an alternate Defense Counsel, which shall be subject again to the Indemnified Party's approval. If the parties still fail to agree on Defense Counsel, then, at such time, they shall mutually agree in good faith on a procedure to determine the Defense Counsel. (a) In the event that the Indemnifying Party shall fail to give the Defense Notice, it shall be deemed to have elected not to conduct the defense of the subject claim, and in such event the Indemnified Party shall have the right to conduct such defense in good faith and to compromise and settle the claim without prior consent of the Indemnifying Party and the Indemnifying Party will be liable for all costs, expenses, settlement amounts or other Losses paid or incurred in connection therewith. (b) In the event that the Indemnifying Party does deliver a Defense Notice and thereby elects to conduct the defense of the subject claim, the Indemnified Party will cooperate with and make available to the Indemnifying Party such assistance and materials as it may reasonably request, all at the expense of the Indemnifying Party, and the Indemnified Party shall have the right at its expense to participate in the defense assisted by counsel of its own choosing, provided that the Indemnified Party shall have the right to compromise and settle the claim only with the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. (c) Without the prior written consent of the Indemnified Party, the Indemnifying Party will not enter into any settlement of any Third Party Claim or cease to defend against such claim, if pursuant to or as a result of such settlement or cessation, (i) injunctive or other equitable relief would be imposed against the Indemnified Party, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Indemnified Party for which the Indemnified Party is not entitled to indemnification hereunder. (d) The Indemnifying Party shall not be entitled to control, and the Indemnified Party shall be entitled to have sole control over, the defense or settlement of any claim to the extent that claim seeks an order, injunction or other equitable relief against the Indemnified Party which, if successful, could materially interfere with the business, operations, assets, condition (financial or otherwise) or prospects of the Indemnified Party (and the cost of such defense shall constitute an amount for which the Indemnified Party is entitled to indemnification hereunder). 17 (e) If a firm decision is made to settle a Third Party Claim, which offer the Indemnifying Party is permitted to settle under this Section 6.2.3, and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party will give written notice to the Indemnified Party to that effect. If the Indemnified Party fails to consent to such firm offer within 15 calendar days after its receipt of such notice, the Indemnified Party may continue to contest or defend such Third Party Claim and, in such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will not exceed the amount of such settlement offer, plus costs and expenses paid or incurred by the Indemnified Party through the end of such 15-day period. (f) Any judgment entered or settlement agreed upon in the manner provided herein shall be binding upon the Indemnifying Party, and shall conclusively be deemed to be an obligation with respect to which the Indemnified Party is entitled to prompt indemnification hereunder. 6.2.4 Direct Claims. It is the intent of the parties hereto that all ------------- direct claims by an Indemnified Party against a party hereto not arising out of Third Party Claims ("Direct Claims") shall be subject to and benefit from the terms of this Section 6.2. Any Direct Claim under this Section 6.2 by an Indemnified Party for indemnification other than indemnification against a Third Party Claim will be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, and the Indemnifying Party will have a period of 30 calendar days within which to satisfy such Direct Claims. If the Indemnifying Party does not so respond within such 30 calendar day period, the Indemnifying Party will be deemed to have rejected such claim, in which event the Indemnified Party will be free to pursue such remedies as may be available to the Indemnified Party under this Section 6.2 or otherwise, at law or in equity. Any claim by an Indemnified Party arising out of a claim by an entity that is not a party to this Agreement or an Affiliate of a party to this Agreement shall in the first instance be dealt with as a Third Party Claim pursuant to the procedures set forth in Section 6.2.3. 6.2.5 Failure to Give Timely Notice. A failure by an Indemnified ----------------------------- Party to give timely, complete or accurate notice as provided in this Section 6.2 will not affect the rights or obligations of any party hereunder except and only to the extent that, as a result of such failure, any party entitled to receive such notice was deprived of its right to recover any payment under its applicable insurance coverage or was otherwise directly and materially damaged as a result of such failure to give timely notice. 6.2.6 Survival of Representations, Warranties and Covenants; Time ----------------------------------------------------------- Limits on Indemnification Obligations. Notwithstanding any right of Buyer to - ------------------------------------- fully investigate the affairs of Seller and the Business, and notwithstanding any knowledge of facts determined or determinable by Buyer pursuant to such investigation or right of investigation, Buyer has the right to rely fully upon the representations, warranties, covenants and agreements of Seller contained in this Agreement or in any certificate delivered pursuant to any of the foregoing. All such representations, warranties, covenants and agreements shall survive the execution and delivery of this Agreement and the Closing hereunder for a period of 18 months from the Closing Date; provided that (i) Indefinite Claims will survive indefinitely, (ii) Special Claims will survive until the date that all claims against any Buyer Indemnified Party which could give rise to a Special Claim are barred by all applicable statutes of limitations and (iii) any covenants or Transaction Document specifying a time period for such covenant or Transaction Document, shall survive in accordance with its terms; provided that any claim asserted by an Indemnified Party on or prior to the expiration of the applicable period specified above under Section 6.2.3 hereof shall survive indefinitely. (a) "Indefinite Claim" means any claim hereunder whether indemnification or otherwise based upon, arising out of or otherwise in respect of any breach of any representation, warranty, covenant or agreement of Seller contained in Sections 3.1, 3.2, 3.5 or 3.6. (b) "Special Claim" means any claim hereunder whether indemnification or otherwise based upon, arising out of or otherwise in respect of (i) any inaccuracy or omission in or any breach of any representation, warranty, covenant or agreement of Seller contained in Sections 3.10, 3.18(a)(iv), 3.18(a)(viii), 3.22, 3.24 or 3.31 or otherwise concerning Taxes, or (ii) indemnification under Section 6.2.1(b), (d) or (f). 6.2.7 Limitation on Seller's Indemnification Obligations. -------------------------------------------------- Notwithstanding any other provision contained herein, Seller shall have no indemnification obligation hereunder for Losses until such time as the aggregate value of such Losses equals or exceeds $75,000, at which time Seller shall be liable for all such Losses up to a maximum 18 indemnification obligation for such Losses hereunder equal to the Purchase Price. Notwithstanding the foregoing, the limitations contained in this Section 6.2.7 shall not apply to Indefinite Claims and Special Claims. 6.2.8 Fraud. In the case of fraud by Seller in the making of ----- representations and warranties or in the failure of covenants herein, Buyer shall have all remedies available at law and at equity without giving effect to any of the limitations set forth in Section 6.2.6 or Section 6.2.7. 6.3 Restrictive Covenants. --------------------- 6.3.1 Seller's Acknowledgement. Seller agrees and acknowledges that ------------------------ in order to assure Buyer that the Company will retain its value and that of the Business as a going concern, it is necessary that Seller undertakes not to utilize its special knowledge of the Business and their relationships with customers to compete with Buyer. 6.3.2 Non-Compete. Seller hereby agrees that for a period commencing ----------- on the date hereof and ending five years from the Closing Date (the "Restricted Period"), Seller will not, directly or indirectly, as employee, agent, consultant, stockholder, director, manager, co-partner or in any other individual or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for (alone or in association with any person, firm, corporation or entity), or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the Business anywhere in United States (the "Territory"). With respect to the Territory, Seller specifically acknowledges that the Business has heretofore been conducted throughout the United States. 6.3.3 Non-Solicitation. Without limiting the generality of the ---------------- provisions of Section 6.3.2 above, Seller hereby agrees that, during the Restricted Period, it shall not, directly or indirectly, solicit, or participate as employee, agent, consultant, stockholder, director, manager, partner or in any other individual or representative capacity in any business which solicits, business from any person, firm, corporation or other entity which is or was a customer of the Business during the two year period preceding the date of such solicitation, or from any successor in interest to any such person, firm, corporation or other entity for the purpose of securing business or contracts related to the Business. 6.3.4 Confidential Information. During the term of this Agreement ------------------------ and thereafter, Seller shall keep secret and retain in strictest confidence, and shall not, without the prior written consent of Buyer or as otherwise required pursuant to law, furnish, make available or disclose to any third party or use for the benefit of itself or any third party, any Confidential Information. As used in this Section 6.3.4, "Confidential Information" shall mean any information relating to the business or affairs of Buyer, the Company or the Business, including but not limited to information relating to financial statements, customer identities, potential customers, employees, servicing methods, equipment, programs, strategies and information, analyses, profit margins or other proprietary information used by Buyer or the Company in connection with the Business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes generally known in the industry through no wrongful act on the part of Seller. Seller acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 6.3.5 Interference with Relationships. During the Restricted Period, ------------------------------- Seller shall not, directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other individual or representative capacity: (i) without the prior written consent of Buyer, employ, or engage, recruit or solicit for employment or engagement, any person who is (or was within six months of the date such employment, engagement or solicitation commences or occurs, as the case may be) employed or engaged by the Company or Buyer, or otherwise seek to influence or alter any such person's relationship with the Company or Buyer; provided, however, that if the Company is relocated outside the greater Pittsburgh metropolitan area during the Restricted Period, this restriction shall not apply, or (ii) solicit or encourage any present or future customer of the Company or Buyer to terminate or otherwise alter his, her or its relationship with Buyer. 6.3.6 Blue-Pencil. If any court of competent jurisdiction shall at ----------- any time deem the term of any particular restrictive covenant contained in this Section 6.3 too lengthy or the Territory too extensive, the other provisions of this Section 6.3 shall nevertheless stand, the Restricted Period shall be deemed to be the longest period permissible by law under the circumstances and the Territory shall be deemed to comprise the largest territory 19 permissible by law under the circumstances. The court in each case shall reduce the Restricted Period and/or Territory to permissible duration or size. 6.3.7 Property of the Business. All memoranda, notes, lists, records ------------------------ and other documentation or papers (and all copies thereof except as may be necessary to retain for purposes related solely to consolidated structure of Seller), including such items stored in computer memories, or microfiche or by any other means, which will become Buyer's property (after the consummation of transactions contemplated by this Agreement), are and shall be Buyer's property and shall be delivered to Buyer promptly on the request of Buyer. 6.3.8 Remedies. Seller acknowledges and agrees that the covenants -------- set forth in this Section 6.3 hereof are reasonable and necessary for the protection of Buyer's business interests, that irreparable injury will result to Buyer if Seller breaches any of the terms of this Section 6.3, and that in the event of Seller's actual or threatened breach of any of the provisions contained in this Section 6.3, Buyer will have no adequate remedy at law. Seller accordingly agrees that in the event of any actual or threatened breach by it of any of the provisions contained in this Section 6.3, Buyer shall be entitled to such injunctive and other equitable relief, without the necessity of showing actual monetary damages, as may be deemed necessary or appropriate by a court of competent jurisdiction. Nothing contained herein shall be construed as prohibiting Buyer from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove. 6.4 Other Contracts and Permits. To the extent that any contracts or --------------------------- permits that relate to the Business or the Company are not in the name of the Company or do not otherwise inure to the benefit of the Company but are in the name of Seller or any Affiliate of Seller or otherwise inure to the benefit of Seller or any Affiliate of Seller and without in any way limiting Seller's obligations pursuant to this Agreement, Seller shall (i) use its best efforts to ensure that such contracts or permits are transferred to the Company, (ii) cooperate with Buyer and the Company in any arrangement designed to provide the Company and Buyer with the rights and benefits of such contracts and permits and (iii) enforce such contracts on behalf of the Company and Buyer. 20 ARTICLE 7 --------- MISCELLANEOUS ------------- 7.1 Notices, Consents, etc Any notices, consents or other communication ---------------------- required to be sent or given hereunder by any of the parties shall in every case be in writing and shall be deemed properly served if (a) delivered personally, (b) sent by registered or certified mail, in all such cases with first class postage prepaid, return receipt requested, (c) delivered by a recognized overnight courier service, or (d) sent by facsimile transmission to the parties at the addresses as set forth below or at such other addresses as may be furnished in writing. (a) If to Seller: Allin Communications Corporation 300 Greentree Commons 381 Mansfield Avenue Pittsburgh, Pennsylvania 15220 Attention: Richard Talarico, Chairman Facsimile No.: (412) 928-0225 with a copy to: Eckert, Seamans, Cherin & Mellott, LLC 600 Grant Street, 42nd Floor Pittsburgh, Pennsylvania 15219 Attention: Lou Moraytis Facsimile No.: (412) 566-6099 (b) If to Buyer: Lighthouse Holdings, Inc. 676 N. Michigan Avenue, Suite 3410 Chicago, Illinois 60661 Attention: Terence M. Graunke Facsimile No.: (312) 640-7068 with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attention: Herbert S. Wander, Esq. Julie Kunetka, Esq. Facsimile No.: (312) 902-1061 Date of service of such notice shall be (w) the date such notice is personally delivered, (x) three days after the date of mailing if sent by certified or registered mail, (y) one day after date of delivery to the overnight courier if sent by overnight courier or (z) the next succeeding business day after transmission by facsimile. 7.2 Public Announcements. Unless otherwise required by law, no party -------------------- shall make any public announcement or filing with respect to the transactions provided for herein without the prior consent of the other party hereto. To the extent reasonably feasible, any press release or other announcement or notice regarding the transactions contemplated by this Agreement shall be made jointly by the parties. 21 7.3 Severability. The unenforceability or invalidity of any provision of ------------ this Agreement shall not affect the enforceability or validity of any other provision. 7.4 Amendment and Waiver This Agreement may be amended, or any provision ---------------------- of this Agreement may be waived, provided that any such amendment or waiver will be binding on Buyer only if such amendment or waiver is set forth in a writing executed by Buyer, and provided that any such amendment or waiver will be binding upon Seller only if such Amendment or waiver is set forth in a writing executed by Seller. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. 7.5 Documents. Each party will execute all documents and take such other --------- actions as any other party may reasonably request in order to consummate the transactions provided for herein and to accomplish the purposes of this Agreement. 7.6 Counterparts. This Agreement may be executed simultaneously in two or ------------ more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other. 7.7 Expenses. Except as paid prior to the date hereof or otherwise -------- specifically provided herein, each of the parties shall pay all costs and expenses incurred or to be incurred by it, him or her, as the case may be, in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement. 7.8 Construction. This Agreement shall be construed and enforced in ------------ accordance with, and all questions concerning the construction, validity, interpretation and performance of this Agreement shall be governed by, the laws of the State of Illinois, without giving effect to provisions thereof regarding conflict of laws. 7.9 Headings. The subject headings of Articles and Sections of this -------- Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 7.10 Assignment. This Agreement will be binding upon and inure to the ---------- benefit of the parties hereto and their respective successors and permitted assigns, but will not be assignable or delegable by Seller without the prior written consent of Buyer. Buyer may assign its rights and delegate its responsibilities, liabilities and obligations under this Agreement. 7.11 Definitions. For purposes of this Agreement, the following terms have ----------- the meaning set forth below: "Affiliate" means an affiliate as defined in Rule 405 under the Securities Act of 1933, as amended, and includes any past and present Affiliate of a Person. "Affiliated Group" means an affiliated group as defined in Section 1504 of the Code (or analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law). "Code" means the Internal Revenue Code of 1986, as amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "GAAP" means 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 any successor authority) that are applicable as the date of determination, consistently applied. 22 "Hazardous Wastes" means (A) hazardous materials, hazardous substances, extremely hazardous substances or hazardous wastes, as those terms are defined by the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (S)9601 et seq., the Resource Conservation -- ---- and Recovery Act, 42 U.S.C. (S)6901 et seq., and any other Environmental -- ---- and Safety Requirements; (B) petroleum, including without limitation, crude oil or any fraction thereof which is liquid at standard conditions of temperature and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute); (C) any radioactive material, including, without limitation, any source, special nuclear, or by-product material as defined in 42 U.S.C. (S)2011 et seq.; (D) asbestos in any form or condition; and -- ---- (E) any other material, substance or waste to which liability or standards of conduct may be imposed under any Environmental and Safety Requirements. "Liens" means any claims, liens, charges, restrictions, options, preemptive rights, mortgages, hypothecations, assessments, pledges, encumbrances or security interests of any kind or nature whatsoever. "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, corporation, entity or government (whether Federal, state, county, city or otherwise, including, without limitation, any instrumentality, division, agency or department thereof). "Proprietary Rights" means all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and franchisee, customer and supplier lists and related information and all other proprietary rights. "Tax" means any federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto). "Tax Returns" means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting Schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Transaction Documents" means all agreements and instruments contemplated by and being delivered pursuant to or in connection with this Agreement. 7.12 Entire Agreement. This Agreement, the preamble, the schedules and the ---------------- exhibits attached to this Agreement (all of which shall be deemed incorporated in the Agreement and made a part hereof) set forth the entire understanding of the parties with respect to the subject matter hereof, and shall not be modified or affected by any offer, proposal, statement or representation, oral or written, made by or for any party in connection with the negotiation of the terms hereof, and may be modified only by instruments signed by all of the parties hereto. 7.13 Third Parties. Nothing herein expressed or implied is intended or ------------- shall be construed to confer upon or give to any person or entity, other than the parties to this Agreement and their respective permitted successors and assigns, any rights or remedies under or by reason of this Agreement. 23 7.14 Interpretative Matters. Unless the context otherwise requires, (a) all ---------------------- references to Articles, Sections or Schedules are to Articles, Sections or Schedules in this Agreement, (b) each accounting term not otherwise defined in this Agreement has the meaning assigned to it in accordance with GAAP, and (c) words in the singular or plural include the singular and plural and pronouns stated in either the masculine, the feminine or neuter gender shall include the masculine, feminine and neuter. 7.15 Knowledge. Where any representation or warranty of Seller contained --------- in this Agreement is expressly qualified by reference "to the knowledge of," it refers to the knowledge of Seller and all officers, directors and managers of the Company as to the existence or absence of facts that are the subject of such representations and warranties, it being understood that such parties have not made any other independent investigation or consulted with any outside third parties, other than the Company's accountants and legal counsel; provided that where such phase is used to qualify representations and warranties regarding any Rules, Seller shall be deemed to know all material Rules applicable to the Company and the Business. 7.16 No Strict Construction. The language used in this Agreement will be ---------------------- deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. SELLER: ALLIN COMMUNICATIONS CORPORATION By: /s/ Richard W. Talarico ----------------------- Name: Richard W. Talarico ------------------- Title: CEO/Chairman ------------ BUYER: LIGHTHOUSE HOLDINGS, INC. By: /s/ Terence M. Graunke ------------------------ Terence M. Graunke Chief Executive Officer 25
SCHEDULES --------- Schedule 2.1 -- Schedule of Allocation of Purchase Price Schedule 3.1 -- Schedule of Consents Schedule 3.2 -- Schedule of States of Qualification Schedule 3.4 -- Schedule of Officers and Directors Schedule 3.5 -- Schedule of Capital Stock Schedule 3.7 -- Schedule of Financial Statements Schedule 3.8 -- Schedule of Undisclosed Liabilities Schedule 3.10 -- Schedule of Certain Tax Matters Schedule 3.11 -- Schedule of Material Contracts Schedule 3.12 -- Schedule of Real Property Schedule 3.13 -- Schedule of Personal Property Leases Schedule 3.14 -- Schedule of Closed Litigation Matters Schedule 3.16 -- Schedule of Intellectual Property Schedule 3.18 -- Schedule of Conduct of Ordinary Business Schedule 3.19 -- Schedule of Insurance Policies and Claims Schedule 3.20 -- Schedule of Bank Accounts and Powers of Attorney Schedule 3.21 -- Schedule of Licenses and Permits Schedule 3.22 -- Schedule of Employee Benefit Plans Schedule 3.23 -- Schedule of Certain Interests of the Company Schedule 3.25 -- Schedule of Salaries Schedule 3.26 -- Schedule of Personnel Arrangements Schedule 3.27 -- Schedule of Workers Compensation Schedule 3.28 -- Schedule of Customers Schedule 3.29 -- Schedule of Affiliate Transactions
26
EXHIBITS -------- Exhibit A - Form of Promissory Note Exhibit B - Unearned Revenue Amount Exhibit C - Form of Opinion of Seller's Counsel Exhibit D - Form of Transition Services Agreement Exhibit E - Form of Opinion of Buyer's Counsel
(Pursuant to Regulation S-K, Item 601(b)(2), Registrant agrees to furnish supplementally a copy of the schedules and exhibits to this agreement to the Securities Exchange Commission upon request.) 27 EX-4 3 LOAN AND SECURITY AGREEMENT Exhibit 4 LOAN AND SECURITY AGREEMENT --------------------------- THIS LOAN AND SECURITY AGREEMENT, dated as of October 1, 1998, by and between Allin Communications Corporation, a Delaware corporation, Allin Interactive Corporation, a Delaware corporation, Allin Digital Imaging Corp., a Delaware corporation, Kent Consulting Group, Inc., a California corporation, Netright, Inc., a California corporation, Allin Holdings Corporation, a Delaware corporation, and KCS Computer Services, Inc., a Pennsylvania corporation, all with their current mailing address being c/o Allin Communications Corporation, 400 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220-2751 (collectively, jointly and severally, hereinafter called the "Borrower") A N D S&T BANK, a Pennsylvania banking association, with its principal office located at 800 Philadelphia Street, Indiana, Pennsylvania 15701, (the "Bank"); RECITALS: The Borrower has requested that the Bank extend credit to the Borrower as described in this Agreement. The Bank is willing to extend such credit to the Borrower on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants contained in this Agreement, and intending to be legally bound, the parties agree as follows (all capitalized terms used herein, to the extent not defined in the section of the Agreement wherein first used, are defined in Article IX "Definitions", herein): ARTICLE I THE LOAN FACILITY ----------------- 1.1 Revolving Credit Loans. Subject to the terms and conditions and ---------------------- relying upon the representations and warranties set forth in this Agreement, including the Borrower's Data Report and the other Loan Documents, the Bank agrees to make loans (the "Revolving Credit Loans") to the Borrower at any time or from time to time on or after the date of this Agreement and to and including the day immediately preceding the Expiration Date in an aggregate principal amount not exceeding at any one time outstanding the Borrowing Base (as described in Section 1.2 of this Agreement). If at any time the sum of all Revolving Credit Loans outstanding exceeds the Borrowing Base, the Borrower shall immediately repay to the Bank, in funds immediately available, the amount of such excess together with all accrued interest on the amount of such repayment. The obligations of the Borrower to repay the unpaid principal amount of the Revolving Credit Loans and to pay interest on the unpaid principal amount will be evidenced in part by a revolving credit note of the Borrower in substantially the form attached as Exhibit A to this Agreement, or by any --------- extension, renewal, refinancing, or refunding in whole or in part, of such revolving credit note. The Borrower shall use the proceeds of the Revolving Credit Loans to satisfy a portion of that certain seller's note to James S. Kelly, Jr. in the original principal amount of $6,200,000.00 and for general working capital purposes. 1.2 Borrowing Base. -------------- 1 (a) Borrowing Base Calculation. The maximum borrowing availability -------------------------- under this Agreement applicable to the Revolving Credit Loans shall be equal on any day during the term of this Agreement to the lesser of (i) Five Million Dollars ($5,000,000.00), or (ii) eighty-five percent (85%) of the aggregate gross amount of Qualified Accounts (the lesser of the amounts described in clauses (i) and (ii) of this sentence is sometimes referred to in this Agreement as the "Borrowing Base"). (b) "Qualified Accounts" means an account receivable, net of any ------------------ prepayments, progress payments, deposits and retentions, owing to the Borrower which met the specifications established from time to time by the Bank, in its sole and absolute discretion, at the time it came into existence and continues to meet such specifications until it is collected in full. As of the date of this Agreement, an account receivable, to be a Qualified Account, must meet the following specifications at the time it comes into existence and continue to meet such specifications until it is collected in full: (i) The account is not more than sixty (60) days from the date of the invoice on net thirty (30) days or similar commercially reasonable terms or more than ninety (90) days from the date of invoice for Allin Interactive Corporation invoices; (ii) The account arose from the performance of services or an outright sale of goods by the Borrower in the ordinary course of the Borrower's business and such goods have been shipped, or services provided, to the account debtor and the Borrower has possession of, or, if requested by Bank, has delivered to the Bank, in the case of goods, shipping and delivery receipts evidencing such shipment and, in the case of services, receipts or other evidence satisfactory to the Bank that such services have been provided; (iii) The account is not subject to any prior assignment, claim, lien, or security interest, and the Borrower will not make any further assignment of the account or create any further security interest in the account, nor permit its rights in the account to be reached by attachment, levy, garnishment or other judicial process. (iv) The account is not subject to setoff, credit, allowance or adjustment by the account debtor, except discounts allowed for prompt payment, and the account debtor has not complained as to his liability on the account and has not returned, or retained the right to return, any of the goods from the sale of which the account arose; (v) The account does not arise from a sale of goods that are delivered or to be delivered outside the United States of America, unless the account debtor of Allin Interactive Corporation is domiciled in the United States of America; or from a sale of goods to an account debtor domiciled outside of the United States of America unless the Borrower has arranged letter of credit facilities satisfactory to the Bank in its discretion; (vi) The account arose in the ordinary course of the Borrower's business and did not arise from the performance of services or a sale of goods to a supplier, an employee or an Affiliate of the Borrower; (vii) The account does not arise with respect to an account debtor from whom fifty percent (50%) or more of the accounts are more than sixty (60) days from the date of the invoice on net thirty (30) days or similar commercially reasonable terms; (viii) The account does not arise out of contracts with the United States or any State or political subdivision thereof, any department, agency, or instrumentality of the United States, any State or any political subdivision, unless the Borrower has executed any instruments and taken any steps required by the Bank in order that all monies due and to become due under such contracts shall be assigned to the Bank and notice thereof given to the government to the extent required under the Federal Assignment of Claims Act or under any similar State or local law; (ix) The account does not arise with respect to an account debtor located in New Jersey or Minnesota (or any other state which enacts a similar filing requirement) if the Borrower has not filed a 2 Notice of Business Activities Report with the New Jersey Division of Taxation or made the requisite filings with the appropriate authorities in Minnesota (or any such other state), for the current year; (x) The account does not constitute a finance charge or lease receivable; (xi) No notice of bankruptcy, insolvency or material adverse change of the account debtor has been received by or is known to the Borrower; (xii) The Account does not relate to or arise from a service or maintenance contract for future services or an obligation to supply goods or materials which has a term for performance of more than thirty (30) days, except that Accounts for goods and services to be provided by Allin Interactive Corporation may extend a term for performance not to exceed ninety (90) days; and (xiii) The Bank has not notified the Borrower that the Bank has determined that in its discretion the account or account debtor is unsatisfactory. The Bank may require that certain reserves be established against certain accounts receivable from time to time. (c) Account Warranties. With respect to all accounts from time to time ------------------ scheduled, listed or referred to in any certificate, statement or report delivered to the Bank as "Qualified Accounts", the Borrower warrants and represents to the Bank that (i) the accounts satisfy all specifications at that time established by the Bank for Qualified Accounts; (ii) the accounts are genuine, are in all respects what they purport to be, and are not evidenced by a note, instrument or judgment; (iii) no payments have been or will be made on the accounts except payments delivered to the Bank pursuant to this Agreement; and (iv) there are no facts, events or occurrences which in any way impair the validity or enforcement of any account or tend to reduce the amount payable under any account as shown on statements delivered to the Bank with respect to any account. The Borrower shall immediately notify the Bank in the event that any such account ceases to satisfy the above representations and warranties. 1.3 Making of Revolving Credit Loans. On any Business Day when the -------------------------------- Borrower desires that the Bank make a Revolving Credit Loan, the Borrower shall provide notice to the Bank by completing, executing and delivering to the Bank, by 11:00 a.m. Eastern Standard Time, a completed Borrowing Base Certificate, on the Bank's then standard form (the "Borrowing Base Certificate"), setting forth the borrowing base calculations for the Borrower (the "Borrowing Base Calculations"), together with the appropriate backup documentation and evidence and, if necessary to revise or update information provided in the Borrower's Data Report. Subject to the terms and conditions of this Agreement, upon the Bank's review, approval and processing of the Borrowing Base Certificate and any other information requested by the Bank, Bank shall make the proceeds of the Revolving Credit Loan available to the Borrower at the Bank's office. The Bank shall have no obligation to make any Revolving Credit Loan for so long as any Event of Default (as defined in Article VII hereof) or any Potential Default shall have occurred and shall be continuing. 1.4 Interest Rate ------------- (a) Interest Rate on Revolving Credit Loans. The unpaid principal --------------------------------------- amount of the Revolving Credit Loans shall bear interest for each day until due at a rate per year equal to the Prime Rate for such day plus one percent (1.0%), such interest rate to change automatically from time to time effective as of the effective date of each change in the Prime Rate, without notice to Borrower (the "Applicable Interest Rate"). If the Prime Rate is no longer available, Bank shall choose a new rate which is based on comparable information, in its reasonable discretion. (b) Interest After Default. After the principal amount of any part of ---------------------- the Loans shall have become due (at maturity, by acceleration or otherwise) or upon the occurrence of one or more of the Events of Default (and for so long as any such Event of Default shall continue), as compensation to the Bank for the increased cost of administering the Loans, the Loans will bear interest for each day until paid (before and after judgment) at a 3 rate per year which will be two percent (2.0%) above the then effective Applicable Interest Rate, but not to exceed the highest rate permitted by law. (c) Usury. In the event the rates of interest provided for in this ----- Agreement (including any Supplement) are finally determined by an Official Body to exceed the maximum rate of interest permitted by applicable usury or similar Laws, their or its application will be suspended and there will be charged instead the maximum rate of interest permitted by such Laws. (d) Computation of Interest. Interest on the Loans shall be computed ----------------------- on the basis of a 365 day year and the actual number of days elapsed in a period during which it accrues. In computing interest on any Loan, the date of the making of the Loan shall be included and the date of payment shall be excluded if payment is received on or before the time specified in the following section. The Borrower shall, however, be charged for one day's interest for any Loan made and repaid in the same day. 1.5 Payments. Borrower shall pay monthly installments of interest only on -------- the principal amount outstanding under the Loan, commencing on the later of (i) November 1, 1998 or (ii) the first day of the first month following any advance of the proceeds of the Loan, and continuing until the Expiration Date, as hereinafter defined. If not sooner paid, the entire unpaid principal balance of the Loan, together with all accrued but unpaid interest thereon and all other sums and costs advanced, incurred or otherwise outstanding hereunder, shall be immediately due and payable on the Expiration Date. All payments to be made in respect of principal, interest, fees or other amounts due from the Borrower under this Agreement or under the Notes are payable at 12:00 noon, Eastern Standard Time, on the day when due, without presentment, demand, protest or notice of any kind, all of which are expressly waived, and an action for the payments will accrue immediately. All such payments must be made to the Bank at its Office in U.S. dollars and in funds immediately available at such Office, without setoff, counterclaim or other deduction of any nature. Interest on the Loans will be due and payable on the first day of each month in arrears, commencing on November 1, 1998. All such payments shall be applied to accrued and unpaid interest, outstanding principal and other sums due under this Agreement in such order as the Bank, in its sole discretion, shall elect. On or after the fifteenth day after any such payment shall be due, the Bank may, but shall not be obligated to deduct the amount of such payment from any disbursement account maintained by the Borrower with the Bank. 1.6 Indemnity. The Borrower will indemnify the Bank against any loss or --------- expense which the Bank sustains or incurs as a consequence of an Event of Default, including, without limitation, any failure of the Borrower to pay when due (by demand or otherwise) any principal, interest, commitment fee or any other amount due under this Agreement or the other Loan Documents. If the Bank sustains or incurs any such loss or expense it will from time to time notify the Borrower in writing of the amount determined in good faith by the Bank (which determination will be presumptively deemed correct absent manifest error), to be necessary to indemnify the Bank for the loss or expense. Any amount payable to the Bank under this Section will bear interest at the Prime Rate plus three percent (3.0%) per year until paid (before and after judgment). 1.7 Commitment Fee. Bank acknowledges that Borrower has paid to it a -------------- Commitment Fee equal to Thirty Five Thousand Dollars ($35,000.00). ARTICLE II SECURITY AGREEMENT ------------------ 2.1 Security Interest. ----------------- (a) As security for the full and timely payment of the Bank Debt (as hereinafter defined in Section 2.1(c)) in accordance with the terms of the Notes and of this Agreement and the performance of the obligations of the Borrower under this Agreement and the other Loan Documents, the Borrower agrees that the Bank shall have, and the Borrower grants to and creates in favor of the Bank, a security interest under the Code in and to such of the Collateral (as hereinafter defined in Section 2.1(d)) as is now or in the future owned or acquired by the Borrower. 4 (b) The security interest in the Collateral granted to the Bank in this Agreement shall be a perfected first priority security interest in the Collateral, prior and superior to the rights of all third parties in the Collateral existing on the date of this Agreement or arising after the date of this Agreement, except as otherwise provided in this Agreement. The Borrower has not and shall not grant any other security interest to any other party other than Bank in the Collateral currently located or to be located on cruise ships, but no representation is made as to the perfection of said security interest. (c) "Bank Debt" means (i) all indebtedness, both principal and interest, of the Borrower to the Bank now or after the date of this Agreement evidenced by any Notes executed and delivered by the Borrower in connection with this Agreement (including any Supplement), (ii) all other debts, liabilities, duties and obligations of the Borrower to the Bank now existing, and as the same shall be modified or amended, whether arising under or in connection with the Loan Documents or arising under any other agreement, instrument or undertaking made by or for the benefit of the Borrower to or for the benefit of the Bank including, without limitation, all reimbursement and other obligations arising under or with respect to the Letters of Credit, (iii) all costs and expenses incurred by the Bank in the collection of any of the indebtedness described in this paragraph or in connection with the enforcement of any of the duties and obligations of the Borrower to the Bank described in this paragraph, including reasonable attorneys' fees and legal expenses, and (iv) all future advances made by the Bank for the maintenance, protection, preservation or enforcement of, or realization upon, the Collateral or any portion of the Collateral, including advances for storage, transportation charges, taxes, insurance, repairs and the like. (d) "Collateral" shall mean collectively the Accounts, Chattel Paper, Documents, Equipment, General Intangibles, Instruments, Inventory, and Proceeds of each of them. "Accounts" shall have the meaning given to that term in the Code and shall include without limitation all rights of the Borrower, whenever acquired, to payment for goods sold or leased or for services rendered, whether or not earned by performance. "Chattel Paper" shall have the meaning given to that term in the Code and shall include without limitation all writings owned by the Borrower, whenever acquired, which evidence both a monetary obligation and a security interest in or a lease of specific goods. "Documents" shall have the meaning given to that term in the Code and shall include without limitation all warehouse receipts (as defined by the Code) and other documents of title (as defined by the Code) owned by the Borrower, whenever acquired. "Equipment" shall have the meaning given to that term in the Code and shall include without limitation all machinery, equipment, motor vehicles, furniture and fixtures now owned or hereafter acquired by the Borrower and used or acquired for use in the business of the Borrower, together with all accessions thereto and all substitutions and replacements thereof and parts therefor, and includes, but is not limited to, all such property listed in Schedule 2 of this Agreement. "General Intangibles" shall have the meaning given to that term in the Code and shall include without limitation all leases under which the Borrower now or in the future leases and or obtains a right to occupy or use real or personal property, or both, and all of the Borrower's other contract rights, whenever acquired, and customer lists, choses in action, claims (including claims for indemnification), books, records, patents and patent applications, copyrights and copyright applications, trademarks, trade names, trade styles, trademark applications, blueprints, drawings, designs and plans, trade secrets, methods, processes, contracts, licenses, license agreements, formulae, tax and any other types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer information, software, records and data, whenever acquired. "Instrument" shall have the meaning given to that term in the Code and shall include without limitation all negotiable instruments (as defined in the Code), all certificated securities (as defined in the Code) and all other writings which evidence a right to the payment of money, now or after the date of this Agreement owned by the Borrower, whenever acquired. "Inventory" shall have the meaning given to that term in the Code and shall include without limitation all goods and equipment owned by the Borrower, whenever acquired and wherever located, held for sale, rental, or lease or furnished or to be furnished under contracts of service, and all raw materials, work in process and materials owned by the Borrower and used or consumed in the Borrower's business whenever acquired and wherever located. "Proceeds" shall have the meaning given to that term in the Code and shall include without limitation whatever is received when Collateral or Proceeds is sold, exchanged, collected or otherwise disposed of, whether cash or non--cash, and includes without limitation proceeds of insurance payable by reason of loss of or damage to Collateral. 5 2.2 Provisions Applicable to the Collateral. The Bank and the Borrower --------------------------------------- agree that the following provisions shall be applicable to the Collateral: (a) The Borrower currently maintains its chief executive offices at the address set forth in the Borrower's Data Report, and shall not move the location of its chief executive offices without prior written notification to the Bank. The Borrower covenants and agrees that at all times during the term of this Agreement it shall keep accurate and complete books and records concerning the Collateral that is now or in the future owned or acquired by the Borrower, in accordance with GAAP, at such chief executive office, and at no other location without the prior written consent of the Bank. (b) The Borrower shall at all times during the term of this Agreement keep the Inventory that is now owned or acquired after the date of this Agreement by the Borrower at its various locations described in the Borrower's Data Report or, upon written notice to the Bank, at such other locations for which the Bank has filed financing statements, and at no other location without the prior written consent of the Bank, except that the Borrower shall have the right, until one or more Events of Default shall occur and after the expiration of the applicable notice or grace period, if any, to sell or otherwise dispose of Inventory in the ordinary course of business. (c) The Borrower will not change its name without prior written notice to the Bank. The Borrower's Data Report sets forth all of the trade names used by the Borrower. Without prior written notification to the Bank, the Borrower will not commence any use of any other trade name. (d) Promptly upon request of the Bank from time to time, the Borrower shall furnish Bank with all documents, contracts, chattel paper, instruments and other writings pertaining to the Borrower's contracts or the performance of the Borrower's contracts, at such times and in such form and detail as Bank may request. (e) Promptly upon request of the Bank from time to time, the Borrower shall deliver to the Bank possession of all Chattel Paper, Documents and Instruments together with any endorsement or assignment deemed necessary or advisable by the Bank. (f) Until such time as the Bank exercises its right to effect direct collection of the Accounts and the Chattel Paper and to effect the enforcement of the Borrower's contract rights, the Borrower assumes full responsibility for taking any and all steps to preserve rights in respect of its Accounts, its Chattel Paper and its contracts against other parties. 2.3 Actions with Respect to Accounts. The Borrower irrevocably makes, -------------------------------- constitutes and appoints the Bank (and any of the Bank's designated officers, employees or agents) as the Borrower's true and lawful attorney-in--fact with power to sign the Borrower's name and to take any of the following actions, in its name or the name of the Bank, as the Bank may determine, at any time upon the occurrence and during the continuance of an Event of Default, (except as expressly limited in this Section) without notice to the Borrower and at the Borrower's expense: (a) verify the validity and amount of, or any other matter relating to, the Collateral by mail, telephone, telegraph or otherwise; (b) notify all account debtors that the Accounts have been assigned to the Bank and that the Bank has a security interest in the Accounts; (c) direct all account debtors to make payment of all Accounts directly to the Bank; (d) take control in any manner of any cash or non--cash items of payments or proceeds of Accounts; (e) notify the United States Postal Service to change the address for delivery of mail addressed to the Borrower to such address as the Bank may designate; (f) receive, open and dispose of all mail addressed to the Borrower (any sums received pursuant to the exercise of the rights provided in this Section shall be deposited in the cash collateral account described in the following section); (g) take control in any manner of any rejected, returned, stopped in transit or repossessed goods relating to Accounts; and (h) upon the occurrence of an Event of Default, enforce payment of and collect any Accounts, by legal proceedings or otherwise, and for such purpose the Bank may (i) exercise all of the Borrower's rights and remedies with respect to the collection of Accounts; (ii) settle, adjust, compromise, extend, renew, discharge or release Accounts; and (iii) take all other actions necessary or desirable to protect the Borrower's interest in the Accounts. The Borrower ratifies and approves all acts of said attorneys and agrees that said attorneys shall not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, except for gross negligence or willful misconduct of such attorney. This power, being coupled with an interest, is 6 irrevocable until the Bank Debt is paid in full and the Borrower shall have performed all of its obligations under this Agreement. The Borrower further agrees to use its best efforts to assist the Bank in the collection and enforcement of the Accounts and will not hinder, delay or impede the Bank in any manner in its collection and enforcement of the Accounts. 2.4 Cash Collateral Account. The Borrower shall cause to be opened and ----------------------- maintained with Bank a noninterest bearing deposit account or accounts (collectively, the "Cash Collateral Account"), and Borrower shall deposit, in such account all cash proceeds of the Collateral, including, without limitation, collections on the Accounts received at each of the lockboxes and blocked accounts maintained by the Bank. Funds deposited in the Cash Collateral Account shall be deemed collected only when actually accepted by Bank. All cash proceeds of the Collateral received directly by the Borrower shall be held by the Borrower in trust for the benefit of the Bank, shall be segregated from all other funds of the Borrower and shall, within one business day after receipt, be paid over to the Bank in the same form as so received (with any necessary endorsement or assignment) for deposit into the Cash Collateral Account. The Bank shall have sole dominion and control over all items and funds in the Cash Collateral Account and such items and funds may be withdrawn only by the Bank and the Borrower shall have no control over or withdrawal rights in respect of the Cash Collateral Account. The Bank may, in its discretion, release to the Borrower from time to time, all or any part of the collected funds deposited in the Cash Collateral Account, but the Bank shall otherwise apply all or any part of the collected funds on deposit in the Cash Collateral Account to the payment of the Bank Debt whether on account of principal or interest or otherwise as the Bank in its discretion may elect, until the Bank Debt is fully paid. So long as no Event of Default has occurred and is continuing, cash proceeds of the Collateral located in California shall not be received at the lockbox account maintained by the Bank, but shall be collected by Borrower and maintained in Borrower's own account. 2.5 Preservation and Protection of Security Interest. The Borrower ------------------------------------------------ covenants and agrees that at all times during the term of this Agreement it will have good and marketable title to the Collateral from time to time owned or acquired by the Borrower, free and clear of all Liens, except those permitted under this Agreement. The Borrower covenants and agrees that it shall not permit any levy or attachment to be made against the Collateral or any portion of the Collateral. The Borrower shall faithfully preserve and protect the Bank's security interest in the Collateral. The Borrower shall, at its own cost and expense, do all such acts and things and shall execute and deliver all such other instruments and documents, including further security agreements, continuation statements, pledges, endorsements, assignments and notices, as the Bank in its discretion, may deem necessary or advisable from time to time in order to perfect and preserve the priority of such security interest. Upon the occurrence and during the continuance of an Event of Default, the Borrower irrevocably appoints the Bank (and any of the Bank's designated officers, employees or agents) as the attorney-in-fact of the Borrower to do all acts and things which the Bank may deem necessary or advisable from time to time to preserve, perfect and continue perfected the Bank's security interest in the Collateral in accordance with the requirements of this Agreement. 2.6 Maintenance and Repair. The Borrower shall maintain the Fixtures, ---------------------- Equipment and Inventory, and every portion thereof, in good condition, repair and working order, reasonable wear and tear alone excepted. 2.7 Preservation of Collateral in the Bank's Possession. Unless the Bank --------------------------------------------------- has acted with gross negligence or willful misconduct, the Bank shall be deemed to have exercised reasonable care in the custody and preservation of such of the Collateral as may come into its possession from time to time. This Agreement is not intended and shall not be construed to obligate the Bank to take any action whatsoever with respect to the Collateral or to incur expenses or perform or discharge any obligation, duty or liability of the Borrower. ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to the Bank, that except as may otherwise be disclosed on the Borrower's Data Report delivered to the Bank in connection with this Agreement, on and as of the date of this Agreement and the date of each Loan: 7 3.1 Corporate Organization and Authority: Approvals. Each entity ----------------------------------------------- comprising the Borrower (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) is duly qualified or licensed to do business as a foreign corporation and is in good standing in all jurisdictions in which the ownership of its properties or the nature of its activities or both makes such qualification or licensing necessary; (c) has all requisite power, authority, licenses and permits to own and operate its properties and to carry on its business as now conducted; and (d) has corporate power and authority to execute, deliver and perform this Agreement and the other Loan Documents executed by the Borrower. The execution, delivery and performance of this Agreement and the other Loan Documents has been duly and validly authorized by all necessary corporate proceedings on the part of the Borrower and is not subject to any authorizations, consents, approvals, licenses or filings with any Official Body. 3.2 Execution and Binding Effect. This Agreement and the other Loan ---------------------------- Documents to which the Borrower is a party have been duly and validly executed and delivered by the Borrower and each such document or agreement constitutes a legal, valid and binding obligation of the Borrower enforceable in accordance with its terms. 3.3 Absence of Conflicts. The execution, delivery and performance of this -------------------- Agreement and the other Loan Documents will not (a) violate any Law or any order or injunction of any Official Body, or (b) result in a breach of or a default under the certificate or articles of incorporation or by-laws of the Borrower or any agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties (now owned or acquired in the future) may be subject. 3.4 Ownership and Control. The outstanding shares of the Borrower's --------------------- capital stock have been duly authorized and validly issued and are fully paid and nonassessable. The Borrower, other than Allin Communications Corporation, which is a publicly traded company, is 100% owned by Allin Communications Corporation. Except as publicly disclosed or as disclosed of the Borrower's Data Report with respect to Allin Communications Corporation, and except for options issued to employees or consultants pursuant to an employee stock option plan, there are no outstanding options, rights and warrants issued by the Borrower for the acquisition of shares of the capital stock of the Borrower. There are no options, sale agreements, pledges, proxies, voting trusts, powers of attorney or other agreements or instruments binding upon any of the Borrower's shareholders with respect to ownership of or voting rights with respect to shares of the capital stock of the Borrower, except as set forth on Schedule 1 hereto and in the first sentence of this Section 3.4. 3.5 Subsidiaries. The Borrower has disclosed to Lender the existence of ------------ all Subsidiaries or Affiliates of Borrower. 3.6 Financial Statements. All financial statements of the Borrower -------------------- (including the notes) delivered to the Bank present fairly the financial condition of the Borrower as of the end of the specified fiscal periods and the results of its operations and the changes in financial position for the fiscal periods then ended, all in conformity with GAAP applied on a basis consistent with that of the preceding fiscal periods. 3.7 Taxes. All taxes, assessments, fees and other governmental charges ----- upon the Borrower or upon any of its properties, incomes, sales or franchises which are due and payable have been paid and all tax returns for such taxes have been properly prepared, executed and filed. The reserves and provisions for taxes on the books of the Borrower are adequate for all open years and for its current fiscal period. 3.8 Contracts. The Borrower is not a party to or subject to any agreement, --------- lease or instrument of any kind other than agreements, leases or instruments which are not, singly or in the aggregate, material to the assets, business, operations or financial condition of the Borrower. The Borrower is not in default of or in breach of any agreement, lease or instrument to which the Borrower is a party or by which it or any of its properties (now owned or acquired in the future) may be subject or bound. 3.9 Litigation. There is no pending, contemplated or threatened action, ---------- suit or proceeding by or before any Official Body against or affecting the Borrower, at law or equity. 8 3.10 Compliance with Laws. The Borrower is not in violation of or subject -------------------- to any material contingent liability on account of any Law. 3.11 Pension Plans. (a) Each Plan has been and will be maintained and ------------- funded in accordance with its terms and with all provisions of ERISA and other applicable laws; (b) no termination or other event exists or has occurred with respect to the Plan which has resulted, or may result, in any liability to the Pension Benefit Guaranty Corporation (the "PBGC") or any other Official Body; and (c) no withdrawal, either complete or partial, has occurred or commenced with respect to any multi--employer Plan, and there exists no intent to withdraw either completely or partially from any multi--employer Plan. 3.12 Patents, Licenses, Franchises. No patent, trademark, service mark, ----------------------------- trade name, copyright, license, franchise or permit or right with respect to the foregoing is of material importance to the business of Borrower, and there is no reason known to Borrower to anticipate any material liability of the Borrower in respect of any claim of infringement of any kind. 3.13 Environmental Matters. (a) Neither the Borrower nor any of its --------------------- Affiliates is in violation of any Law concerning or relating to the environment or the existence, generation, storage, transportation or disposal of any material or substance regulated by any such Law (collectively referred to in this Section as the "Environmental Laws"); (b) neither the Borrower nor any of its Affiliates, directors, officers, employees, agents or independent contractors, nor, to the best knowledge of the Borrower after due inquiry, any predecessor person or entity, at such location has arranged, by contract, agreement or otherwise, (i) for the disposal or treatment of, or (ii) with a transporter for the transport for disposal or treatment of, any substance or material regulated by an Environmental Law at or to any location identified under an Environmental Law concerning cleanup of waste disposal sites; (c) neither the Borrower nor any of its Affiliates is an "owner" or "operator" of a "facility", as defined under any Environmental Law; and (d) neither the Borrower nor any of its Affiliates "owned" or "operated" any "facility" at the time any hazardous substances were disposed of within the meaning of any Environmental Law. 3.14 Margin Stock. The Borrower will not make any borrowing under this ------------ Agreement for the purpose of buying or carrying any "margin stock", as such term is used in Regulation U and related regulations of the Board of Governors of the Federal Reserve System, as amended from time to time. The Borrower does not own any "margin stock". The Borrower is not engaged in the business of extending credit to others for such purpose, and no part of the proceeds of any borrowing under this Agreement will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock". 3.15 No Event of Default: No Material Adverse Change. No event has ----------------------------------------------- occurred and is continuing and no condition exists which constitutes an Event of Default or Potential Default. Since the date of the Borrower's last fiscal year end financial statement delivered to the Bank, there has been no material adverse change in the assets, business, operations or financial condition of the Borrower. 3.16 Accurate and Complete Disclosure. No representation or warranty made -------------------------------- by the Borrower under this Agreement, the Borrower's Data Report or the other Loan Documents and no statement made by the Borrower in any financial statement (furnished pursuant to this Agreement or otherwise), certificate, report, exhibit or document furnished by the Borrower to the Bank pursuant to or in connection with this Agreement is false or misleading in any material respect (including by omission of material information necessary to make such representation, warranty or statement not misleading). The Borrower has disclosed to the Bank in writing every fact known to the Borrower which materially and adversely affects, and would reasonably be expected to materially and adversely affect, the assets, business, operations or financial condition of the Borrower or the ability of the Borrower to perform its obligations under this Agreement and the other Loan Documents. 3.17 Title to Property. The Borrower has good and marketable title in fee ----------------- simple to all real and personal property purported to be owned by it and good and marketable title to all other property purported to be owned by it, including that reflected in the most recent balance sheet referred to in subsection 3.6 or submitted pursuant to Article 9 IV hereof (except as sold or otherwise disposed of in the ordinary course of business), subject only to Permitted Liens, if any. 3.18 Liens. Encumbrances and Judgments. There are no security interests, --------------------------------- liens, mortgages or encumbrances upon or against the property of or any unsatisfied judgments entered against the Borrower except Permitted Liens. 3.19 Tax Returns and Taxes. The Borrower has filed all federal, state and --------------------- local tax returns and other reports it was required by law to file prior to the date hereof and which were material to the conduct its respective businesses, has paid or caused to be paid all taxes, assessments and other governmental charges that were due and payable prior to the date hereof, and has made adequate provision in its financial statements for the payment of such taxes, assessments and other charges accruing but not yet payable; the Borrower has no knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments or charges which is not provided for on its books. 3.20 Year 2000: To the best of Borrower's knowledge, all software utilized --------- in the conduct of the Borrower's business will have appropriate capabilities and compatibility for operation to handle calendar dates falling on or after January 1, 2000, and all information pertaining to such calendar dates, in the same manner and with the same functionality as the software does respecting calendar dates falling on or before December 31, 1999. Further, the Borrower warrants and represents that, to the best of Borrower's knowledge, the data-related user interface functions, data-fields, and data-related program instructions and functions of the software include the indication of the century. ARTICLE IV FINANCIAL REPORTING AND INFORMATION REQUIREMENTS. ------------------------------------------------- 4.1 (a) Annual Financial Reports. As soon as practicable, and in any event ------------------------ within one hundred twenty (120) days after the close of each fiscal year of the Borrower, the Borrower will furnish to the Bank statements of income, retained earnings and cash flow of the Borrower for such fiscal year and a balance sheet of the Borrower as of the close of such fiscal year, and notes to each, all in reasonable detail, setting forth in comparative form the corresponding figures for the preceding fiscal year, with such statements and balance sheet to be audited by independent certified public accountants of recognized standing selected by the Borrower and satisfactory to the Bank. The certificate or report of such accountants shall be free of any exception or qualifications not acceptable to the Bank and shall in any event contain a written statement of such accountants substantially to the effect that such accountants prepared such statements and balance sheet in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding fiscal year (except for changes in application in which such accountants concur). 4.2 Monthly Reports. As soon as practicable, and in any event within --------------- thirty (30) days after the close of each calendar month during the term of this Agreement, the Borrower will furnish to the Bank consolidated statements of income and cash flow for the Borrower for such month and for the portion of the fiscal year to the end of such month, and a balance sheet of the Borrower as of the close of such month, all in reasonable detail and in conformity with generally accepted accounting principles applied in a manner consistent with that of the most recent reviewed financial statements furnished to the Bank. 4.3 Accounts Receivable and Accounts Payable Statements. Within thirty --------------------------------------------------- (30) days after the end of each calendar month, the Borrower will deliver to the Bank a schedule of the accounts receivable and accounts payable of the Borrower, including the aging thereof by open invoice and by invoice date. The Borrower shall also provide the Bank with all information requested by the Bank with respect to any account debtor, including, without limitation, all invoices and customer statements rendered to such account debtor. 4.4 Intentionally omitted. ---------------------- 10 4.5 Borrowing Base Certificates. As often as the Bank shall from time to --------------------------- time request and in any event at least once each week, the Borrower will deliver to the Bank a Borrowing Base Certificate, on the Bank's standard form, as may be changed from time to time by Bank, as delivered to the Borrower, with all blanks completed, and such other reports of sales, collections, credit adjustments and other information pertaining to Accounts as the Bank shall from time to time request. 4.6 Audit Reports. Promptly upon receipt thereof, the Borrower will ------------- deliver to the Bank one copy of each audit report submitted to the Borrower by independent accountants, including "comment" or management letters, in connection with any annual, interim or special audit report made by them of the books of the Borrower. 4.7 Notice of Certain Events. Promptly upon becoming aware of the ------------------------ occurrence or existence of any such event or circumstance, the Borrower will give the Bank telephonic or telegraphic notice (with written confirmation sent on the same or next Business Day) of (a) any Event of Default or Potential Default; (b) any material adverse change in the assets, business, operations or financial condition of the Borrower or any development or occurrence which would materially and adversely affect the ability of the Borrower to perform its obligations under this Agreement; and (c) the existence or threat of any proceedings by or before any Official Body against or affecting the Borrower. 4.8 Further Information. The Borrower will promptly furnish to the Bank ------------------- such other information, and in such form, as the Bank may reasonably request from time to time. ARTICLE V CONDITIONS OF LENDING --------------------- The obligations of the Bank to make Loans hereunder are subject to the performance by the Borrower of its obligations to be performed hereunder at or prior to the making of any such Loans and to the satisfaction of the following further conditions: 5.1 Conditions as of the Closing Date. As of the Closing Date: --------------------------------- (a) The representations and warranties of the Borrower contained in Article III hereof shall be true and accurate on and as of the date of such Loan hereunder with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date); no Event of Default and no condition, event or action which, with the giving of notice or the lapse of time or both, would constitute an Event of Default shall have occurred and be continuing or shall exist. (b) There shall be delivered to the Bank a certificate dated as of the Closing Date and signed by the Secretary or an Assistant Secretary of the Borrower certifying as to: (i) all corporate action taken by the Borrower relative to the Agreement, the Notes and any other Loan Documents; (ii) the names of the officer or officers of the Borrower authorized to sign the Agreement, the Notes and any other Loan Documents and the true signatures of such officer or officers on which the Bank may conclusively rely; (iii) copies of the articles of incorporation (recently certified by the Secretary of State) and bylaws of the Borrower as in effect on the date of such first Loan; and 11 (iv) a tax lien certificate (recently certified by the Department of Revenue), reflecting no past due taxes; (c) the Borrower shall have delivered to Bank a duly executed Landlord's Waiver in the form of Exhibit "B" hereto with respect to its premises. (d) the Borrower shall have delivered to Bank financial statements for the preceding two months of Borrower's operations evidencing operating conditions satisfactory to the Bank in its discretion. (e) The Bank must be named as loss payee on personal property insurance as its interest appears and a copy naming Bank as loss payee and additional insured thereunder must be delivered to Bank. In addition, Bank shall have received evidence of products liability and other general liability/hazard insurance in an amount deemed sufficient by the Bank. (f) Except as publicly disclosed for Allin Communications Corporation, Bank shall have received a copy of the employment contracts, bonus plans and royalty agreements, between Borrower and any of the executive officers of the Borrower, which must contain terms and conditions acceptable to the Bank and shall be identified on Schedule 1 hereto. (g) Allin Communications Corporation, James Kelly and any other shareholder of Borrower who now or in the future makes a loan to Borrower shall execute and deliver to the Bank a subordination agreement (in form of Exhibit "C"), pursuant to which any loan or loans at any time made by such shareholder to the Borrower shall be subordinated to the prior payment in full of the Borrower's obligations to the Bank (subject to the right of such shareholder to receive current payments of interest as long as no Event of Default has occurred and is continuing). (h) Execution and delivery of Lockbox, Cash Transfer and Advice Agreement in the Form of Exhibit "D"; (i) Delivery of a current financial statement and federal tax returns for each entity comprising the Borrower. (j) All legal details and proceedings in connection with the transactions contemplated by the Agreement and all Loan Documents delivered to the Bank pursuant to this Article V shall be in form and substance satisfactory to the Bank and to Papernick & Gefsky, P.C., counsel for the Bank and the Bank shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Bank and said counsel, as the Bank or said counsel may reasonably request. 5.2 Each Additional Loan. At the time of making each additional Loan -------------------- hereunder: (a) The representations and warranties contained in Article III hereof shall be true on and as of the specific dates or times referred to therein, and the other representations and warranties contained herein shall be true on and as of the date of such additional Loan, with the same effect as though such representations and warranties had been made on and as of such date; no Event of Default and no condition, event, act or omission which, with the giving of notice or the lapse of time or both, would constitute an Event of Default, shall have occurred and be continuing or shall exist; and, if requested by Bank, there shall be delivered to the Bank a certificate, in form and substance satisfactory to the Bank and its counsel, dated the date of such additional Loan and signed by the Chief Executive Officer or the chief financial officer of the Borrower to both such effects. ARTICLE VI COVENANTS --------- 12 The Borrower covenants to the Bank, so long as it may borrow hereunder and until payment in full of the Notes and interest thereon, as follows: 6.1 Preservation of Existence; Franchise and Licenses. The Borrower will ------------------------------------------------- maintain its corporate existence, rights, franchises, licenses and permits in full force and effect. The Borrower will remain in good standing in its jurisdiction of incorporation and will qualify and remain qualified as a foreign corporation in each jurisdiction in which failure to receive or retain qualification would have a material adverse effect on the assets, business, operations or financial condition of the Borrower taken as a whole. 6.2 Insurance. The Borrower will maintain with financially sound and --------- reputable insurers insurance with respect to its properties and business and against such liabilities, casualties and contingencies and of such types and in such amounts as is satisfactory to the Bank and as is customary in the case of corporations or other entities engaged in the same or similar business or having similar properties similarly situated. Risk of loss of, damage to or destruction of the Collateral is on the Borrower. Each of the Borrower's policies of insurance shall contain lender's loss payable clauses in favor of the Borrower and the Bank as their respective interests may appear, shall insure the Bank regardless of the conduct or neglect of the Borrower and shall contain provision for written notification of the Bank thirty (30) days prior to termination of such policy. All such policies, or certificates evidencing the same, shall be deposited with the Bank. If the Borrower fails to effect and keep in full force and effect such insurance or fails to pay the premiums when due, the Bank may (but shall not be obligated to) do so for the account of the Borrower and add the cost thereof to the Bank Debt. The Borrower assigns and sets over to the Bank all monies which may become payable on account of such insurance and directs the insurers to pay the Bank any amount so due. The Bank is irrevocably appointed attorney--in--fact of the Borrower to endorse any draft or check which may be payable to the Borrower in order to collect the proceeds of such insurance. Unless an Event of Default under this Agreement has occurred and is continuing and upon the Borrower's satisfaction of such conditions and requirements regarding the use of the proceeds as the Bank may in its sole discretion impose, the Bank will turn over to the Borrower the proceeds of any such insurance collected by the Bank. Any balance of insurance proceeds remaining in the possession of the Bank after payment in full of the Bank Debt shall be paid over to the Borrower or its order. 6.3 Financial Accounting Practices. The Borrower will make and keep books, ------------------------------ records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain an adequate system of internal accounting controls. 6.4 Intentionally Omitted. ---------------------- 6.5 Accounts Payable. The Borrower will pay or discharge all accounts ---------------- payable, accrued expenses and other current liabilities so that none is outstanding more than one hundred twenty (120) days after the due date for each liability, except current liabilities which are subject to good faith dispute and as to which the Borrower has created adequate reserves on its books. 6.6 Visitation; Audits. The Borrower will permit such persons as the Bank ------------------ may designate to visit and inspect any of the properties of the Borrower to conduct field examinations of the Collateral, to examine, and to make copies and extracts from, the books and records of the Borrower and to discuss its affairs with its officers, key or executive employees and independent accountants at such times and as often as the Bank may request. The Borrower authorizes its officers, employees and independent accountants to discuss with the Bank the affairs of the Borrower. 6.7 Compliance with Laws. The Borrower shall comply with all applicable -------------------- Laws. 6.8 Pension Plans. The Borrower shall (a) keep in full force and effect ------------- any and all Plans which are presently in existence or may, from time to time, come into existence under ERISA, unless such Plans can be terminated without material liability to the Borrower or any subsidiary in connection with such termination; and (b) make contributions to all of the Borrower Plans in a timely manner and comply with all material requirements of ERISA which relate to such Plans. 13 6.9 Continuation with no Change in Business. The Borrower will continue to --------------------------------------- engage in the business and activities as currently conducted by the Borrower and the Borrower will not engage in any other businesses or industries without prior written consent of the Bank. 6.10 Lockbox; Blocked Account. The Borrower shall maintain one or more ------------------------ lockbox accounts or blocked accounts with the Bank whereby all checks, drafts, cash and other remittances to the Borrower in payment of the Borrower's Accounts are deposited pursuant to the terms of the Lockbox, Cash Transfer and Advice Agreement in the form of Exhibit "D" into such lockbox account or accounts or blocked account or accounts and applied to the Loans. 6.11 Management. The Borrower shall maintain the senior executive ---------- management of the Borrower, which shall include the chief executive officer, the chief financial officer and the president of each entity comprising the Borrower, substantially as constituted on the date of this Agreement. 6.12 Prohibited Corporate Transactions. Except as may otherwise be ----------------------------------- permitted herein or in any Supplement, the Borrower shall not at any time (a) create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, except Liens existing on the date of this Agreement, described in the Borrower's Data Report and permitted by the Bank in writing, and Liens in favor of the Bank; (b) create, incur, assume or suffer to exist any Debt, except Bank Debt, Debt existing on the date of this Agreement, described in the Borrower's Data Report and permitted by the Bank in writing, accounts payable and other current items arising out of transactions (other than borrowings) in the ordinary course of business, and loan transactions between entities which comprise the Borrower; (c) directly or indirectly assume, guarantee, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other person, firm or entity, except for guaranties between the entities which comprise the Borrower; (d) make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or any other interest in, or make any capital contribution to, any other person, including any Subsidiary; (e) declare, make, pay, or agree, become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of any shares of the capital stock of the Borrower or on account of the purchase, redemption, retirement or acquisition of any shares of the capital stock (or warrants, options or rights for any shares of the capital stock) of the Borrower, except for current dividends payable in the ordinary course of business on Series B Preferred shares of Allin Communications Corporation; (f) enter into or suffer to remain in effect any agreement to lease, as lessee, any real or personal property except leases existing on the date of this Agreement and described in the Borrower's Data Report, and except as permitted pursuant to paragraph 6.15(f) herein; (g) merge or agree to merge with or into or consolidate with any other person, corporation, firm or other entity or acquire any material portion of the stock or assets or business of any other person, corporation, firm or other entity; (h) sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily (any of the foregoing being referred to in this Section as a "transaction" and any series of related transactions constituting but a single transaction), any of its or their properties or assets, tangible or intangible (including stock of subsidiaries), except for sales of inventory in the ordinary course of business; (i) enter into or carry out any loan, advance or other transaction (including, without limitation, purchasing property or services or selling property or services) with any Affiliate, except transactions between entities which comprise the Borrower, and except transactions with Affiliates if in the ordinary course of business upon terms no less favorable to the Borrower than would be obtained in a comparable arm's--length transaction; or (j) directly or indirectly issue, transfer, sell, pledge or otherwise dispose of any interest in the Borrower. 6.13 Shareholder Debt. The Borrower shall not make any payments, directly ---------------- or indirectly, in cash or in other property or by set--off, counterclaim, recoupment or in any other manner, on or with respect to any of the notes payable to the shareholders of the Borrower relating to notes currently reflected on the balance sheet of the Borrower and notes relating to indebtedness of the Borrower to any of its shareholders arising after the date of this Agreement, provided, that, for so long as no Event of Default shall have occurred and be continuing or shall exist, the Borrower may make payments of interest accrued on such notes at the interest rate reflected on the face of such notes. 14 6.14 Maintenance of Patents, Trademarks. etc. Maintain in full force and --------------------------------------- effect all patents, trademarks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would substantially interfere with the normal operations of the Borrower or adversely affect to a material extent the financial condition, business or operations of the Borrower. 6.15 Negative Covenants. The Borrower covenants that so long as it may ------------------ borrow hereunder and until payment in full of the Notes and interest thereon, it will not, unless otherwise consented to in writing by the Bank: (a) Indebtedness. Create, incur, assume or suffer to exist any ------------ Indebtedness except (i) Indebtedness evidenced by the Note or any other note of the Borrower payable to the order of the Bank; (ii) trade accounts payable, rentals payable under leases other than Capital Leases, which shall be subject to paragraph 6.15(f) hereof, and other Indebtedness incurred in the ordinary course of business and (iii) Indebtedness secured by Permitted Liens; and (iv) Indebtedness, identified, acknowledged and permitted by Articles IV and V hereof. (b) Liens. Create, incur, assume or suffer to exist, or permit, incur, ----- assume or suffer to exist, any mortgage, security interest, lien or encumbrance whatsoever on any of its properties or assets, tangible or intangible, whether now owned or hereafter acquired, except Permitted Liens. (c) Liquidation, Merger, etc. (i) Liquidate or merge or consolidate ------------------------ with or into any other Person or take any action in furtherance thereof; (ii) permit any other Person to consolidate with or merge into it; (iii) sell, convey, assign, lease or otherwise transfer or dispose of, in a single transaction or a series of related transactions, any part of its assets other than in the ordinary course of business; provided that in any given fiscal year, the Borrower may sell or cause to be sold any Fixed Assets having, in the aggregate, a net book value not in excess of ten percent (10%) of Fixed Assets and provided further that sales made by Allin Interactive Corporation, which otherwise comply with the provisions of this Agreement, shall not be subject to this ten percent (10%) limitation; or (iv) enter into any joint venture with any Person. (d) Contingent Indebtedness. Endorse, assume, guarantee, become surety ----------------------- for, or otherwise become or remain directly or contingently liable in connection with the Indebtedness of any other Person (except the Bank and as identified and acknowledged in Articles IV and V above), to do any of the foregoing, except the endorsement of negotiable or other instruments for deposit or collection or similar transactions in each case in the ordinary course of business, and except for guaranties between entities comprising the Borrower. (e) Dividends and Purchase of Stock. Directly or indirectly declare or ------------------------------- pay any dividend, as determined in accordance with GAAP, (except dividends payable solely in shares of the Borrower's own stock) on, or order or make any other distribution on account of, any shares of any class of its stock now or hereafter outstanding, or redeem, purchase or otherwise acquire (except for a consideration consisting solely of shares of its stock), any shares of any class of its stock now or hereafter outstanding, except for current dividends payable in the ordinary course of business on Series B Preferred shares of Allin Communications Corporation, or set aside any sum or property for any such purpose; provided, however, so long as no Event of Default exists or will exist thereafter with the mere passage of time, notice or both, Borrower may make a distribution in an amount and at such times as is reasonably appropriate to compensate Borrower's shareholders for income taxes attributed to them with respect to Borrower's financial performance. (f) Leases. Make or enter into any agreement to rent or lease real or ------ personal property of any other Person, except where amounts due under the terms of all such leases shall not at any time exceed $500,000.00 for the term(s) of such lease(s) and such lease(s) shall include usual and customary terms and shall be entered into in the ordinary course of Borrower's business. (g) Loans and Extensions of Credit. Make or have outstanding any loans ------------------------------ or advances or extensions of credit to any other Person, except loans, advances or extensions of credit between the entities which 15 comprise the Borrower or which are extended under usual and customary terms in the ordinary course of its business. (h) Sale and Lease--Back. Sell, convey, assign or otherwise transfer -------------------- or dispose of any property, real or personal, whether now owned or hereafter acquired, with a view directly or indirectly to the leasing back of the same or of any similar property. (i) Investments. Purchase, invest in or otherwise acquire any interest ----------- in or any equity or debt security of any Person except; (i) debt securities issued by the United States Government or by an agency or instrumentality thereof; (ii) negotiable certificates of deposit issued by any bank organized under the laws of the United States of America, or any bank organized under the laws of any State thereof whose deposits are insured by the Federal Deposit Insurance Corporation; (iii) commercial paper issued by any corporation whose commercial paper is rated not less than Prime-l by Moody's, or A-l by Standard and Poor's; (iv) general obligation bonds of the Commonwealth of Pennsylvania; (v) any investment or interest of the Borrower which exists on the date of this Agreement; and (vi) any investment or deposit in or with Bank. (j) Capital Expenditures. Make any payment on account of the purchase -------------------- or lease of any assets which if purchased would constitute Fixed Assets during any fiscal year commencing with the fiscal year beginning October 1, 1998, in excess of $1,000,000.00 per year in the aggregate for the payment of all Fixed Assets acquired or leased. (k) Intentionally omitted. --------------------- 6.16 Cash Flow Coverage Ratio. The Borrower shall maintain, at all times ------------------------ during the Loan Term, a Cash Flow Coverage of no less than 1.0 to l.0. "Cash Flow Coverage" for these purposes means, for any six-month period during Borrower's fiscal year, (i) the Cash Flow, plus the aggregate interest expense incurred and paid by the Borrower during the period (determined in accordance with GAAP), divided by (ii) the aggregate interest expense incurred and paid by the Borrower during the period (determined in accordance with GAAP). "Cash Flow" for these purposes means the total operating revenues received from the operation of Borrower's business(es) prior to any withdrawal by principals and deductions for interest, depreciation and amortization, less all deductions from income such as administrative and general expenses and repayment of the Loan. ARTICLE VII DEFAULTS -------- 7.1 Events of Default. An Event of Default means the occurrence or ----------------- existence of one or more of the following events or conditions (whatever the reason for such Event of Default and whether voluntary, involuntary or effected by operation of Law): (a) The Borrower shall fail to pay principal or interest on any Note when due or shall fail to pay any other fee, or other amount payable pursuant to this Agreement, any of the other Loan Documents and any other agreement, instrument, document or undertaking arising under or in connection with any of the Bank Debt, when due, and the default continues for fifteen (15) days after the day on which the payment is due; or (b) Any representation or warranty made by the Borrower or any guarantor under this Agreement, the Borrower's Data Report, the other Loan Documents or any statement made by the Borrower or any guarantor in any financial statement, certificate, report, exhibit or document furnished by the Borrower or any guarantor, as the case may be, to the Bank pursuant to this Agreement or the other Loan Documents shall prove to have been false or misleading as of the time when made; or 16 (c) The Bank's security interest in the assets of the Borrower under this Agreement or any of the other Loan Documents is or shall become unperfected; except for the assets of Borrower currently located on cruise ships for which no representation of perfection has been made by Borrower; or (d) The Borrower or any guarantor shall be in default in the performance or observance of any other covenant, agreement or duty under this Agreement, or any of the other Loan Documents or any of the other agreements, instruments, documents or undertaking arising under or in connection with any of the Bank Debt, and such default shall not be remedied for a period of thirty (30) days after written notice thereof by the Bank; or (e) The Borrower shall (i) default (as principal or guarantor or other surety) in any payment of any obligation (or set of related obligations) for borrowed money in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) beyond any period of grace with respect to the payment, or (ii) default in the observance of any other covenant, term or condition contained in any agreement, document or instrument, whether formerly, now or after the date of this Agreement existing between the Borrower and any other person, firm or entity if such breach would have a material adverse affect on the business, profits, assets or condition (financial or other) of the Borrower; or (f) A judgment for the payment of money or a writ or warrant of attachment, garnishment, execution, distraint or similar process shall have been entered or issued against the Borrower or any of its properties and shall remain undischarged or unstayed for a period in excess of sixty (60) days; or (g) The indictment of the Borrower or any guarantor under any criminal statute, or commencement of criminal or civil proceedings against the Borrower or any guarantor pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture of any of the property of the Borrower or any guarantor; (h) A material adverse change shall have occurred in the assets, business, operations or financial condition of the Borrower or the Bank shall have determined that the prospect of payment or performance of any material covenant, agreement or duty under this Agreement, any of the Loan Documents or any of the other agreements, instruments, documents or undertakings arising under or in connection with any of the Bank Debt is impaired in any material respect; or (i) The Borrower shall become insolvent, shall become generally unable to pay its debts as they become due, shall voluntarily suspend transaction of its business, shall make a general assignment for the benefit of creditors, or shall dissolve, wind--up or liquidate itself or any substantial part of its property, or shall take any action in furtherance of any of the foregoing; or (j) A proceeding shall be instituted by or against the Borrower: (i) seeking to have an order for relief entered in respect of the Borrower or seeking a declaration or entailing a finding that the Borrower is insolvent or a similar declaration or finding, or seeking dissolution, winding--up, charter revocation or forfeiture, liquidation, reorganization, arrangement, adjustment, composition or other similar relief with respect to the Borrower or its assets or its debts under any law relating to bankruptcy, insolvency, relief of debtors or protection of creditors, termination of legal entities or any other similar law now or in the future in effect; or (ii) seeking appointment of a receiver, trustee, custodian, liquidator, assignee, sequestrator or other similar official for the Borrower or for all or any substantial part of its or their property. 7.2 Consequences of an Event of Default. ----------------------------------- (a) If an Event of Default specified in subsections (a) through (j) of Section 7.1 of this Agreement occurs and continues or exists, the Bank will be under no further obligation to make Loans and may demand all amounts owing by the Borrower under this Agreement and the other Loan Documents to be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are expressly waived, and an action for any amounts due shall accrue immediately. 17 (b) If an Event of Default occurs or exists, the Bank may, in its sole discretion, reduce the Borrowing Base by adjusting the advance rates or by creating such additional reserves as the Bank shall, in its sole discretion, deem appropriate. (c) If an Event of Default occurs and continues or exists, the Bank may exercise each and every right and remedy granted to the Bank under the Loan Documents and under the Code and under any other applicable Law. All such rights and remedies are cumulative and not exclusive of any rights or remedies which the Bank would otherwise have. 7.3 Remedies with Respect to the Collateral. If any one or more of the --------------------------------------- Events of Default shall occur or shall exist, the Bank may then, or at any time thereafter: (a) foreclose its lien or security interest in the Collateral in any way permitted by law, or upon ten (10) days prior written notice to the Borrower, sell any or all Collateral at private sale at any time or place in one or more sales, at such price or prices and upon such terms, either for cash or on credit, as the Bank, in its sole discretion, may elect, or sell any or all Collateral at public auction, either for cash or on credit, as the Bank, in its sole discretion, may elect, and at any such sale, the Bank may bid for and become the purchaser of any or all such Collateral (pending any such action the Bank may liquidate the Collateral); (b) grant extensions to, or adjust claims of, or make compromises or settlements, with, debtors, guarantors or any other parties with respect to Collateral or any securities, guarantees or insurance applying thereon, without notice to or the consent of the Borrower, without affecting the Borrower's liability under this Agreement or the Notes (the Borrower waives notice of acceptance, of nonpayment, protest or notice of protest for any Accounts, Chattel Paper or any of its contract rights and any other notices to which the Borrower may be entitled); (c) enter any premises where Fixtures, Equipment and/or Inventory are located and take possession and control of such collateral without demand or notice and without prior judicial hearing or legal proceedings, which the Borrower expressly waives; (d) require the Borrower promptly to assemble the Fixtures, Equipment, and Inventory, and make them available to the Bank at a place or places to be designated by the Bank (the right of the Bank under this paragraph to have the Fixtures, Equipment, and Inventory assembled and made available to the Bank is of the essence of this Agreement and the Bank may, at its election, enforce such right by a bill in equity for injunctive relief or specific performance); (e) use and operate under all trade names under which the Borrower does business; and (f) apply the Proceeds of any sale or liquidation of the Collateral, and, subject to Section 6.2 of this Agreement, any Proceeds received by the Bank from insurance, first to the payment of the reasonable costs and expenses incurred by the Bank in connection with such sale or collection, including without limitation reasonable attorneys' fees and legal expenses, second to the payment of the Bank Debt, whether on account of principal or interest or otherwise as the Bank in its sole discretion may elect, and then to pay the balance, if any, to the Borrower or as otherwise required by law. If such Proceeds are insufficient to pay the amounts required by law, the Borrower shall be liable for any deficiency. 7.4 Set-off. If the unpaid principal and or other amount owing by the ------- Borrower under this Agreement or the other Loan Documents or the Bank Debt shall have become due and payable (at maturity, by demand, by acceleration or otherwise), the Bank will have the right, in addition to all other rights and remedies available to it, without notice to the Borrower, to set--off against and to appropriate and apply to such due and payable amounts any debt owing to, and any other funds held in any manner for the account of, the Borrower by the Bank. ARTICLE VIII TERMINATION ----------- 8.1 Termination of Credit Facilities. The credit facilities made available -------------------------------- to the Borrower under this Agreement (including any Supplement) (the "Credit Facilities") are terminable by the Bank at its discretion on the Expiration Date or upon the occurrence of an Event of Default under this Agreement. 8.2 Effect of Termination. In the event the Credit Facilities are --------------------- terminated for any reason, the outstanding balance of the Revolving Credit Loans and of any other Loan or Loans made pursuant to a Supplement together with any accrued and unpaid interest thereon, any fee payable pursuant to this Agreement, and any other sums then due pursuant to the terms of this Agreement, the other Loan Documents or any other agreement, instrument, or document or undertaking arising under or in connection with the Bank Debt shall be due and payable 18 immediately. Notwithstanding termination of this Agreement or an Event of Default, all covenants and agreements of the Borrower will continue in full force and effect from and after the date of this Agreement until payment in full of all obligations of the Borrower under this Agreement and with respect to the Bank Debt. All obligations of the Borrower to indemnify the Bank expressly provided for in any one or more of the Loan Documents will survive the payment in full of all obligations of the Borrower under this Agreement and the other Loan Documents. ARTICLE IX DEFINITIONS ----------- 9.1 In addition to other words and terms defined elsewhere in this Agreement, the following words and terms have the following meanings, respectively, unless the context otherwise clearly requires: "Affiliate" means any person or entity which directly or indirectly controls, or is controlled by, or is under common control with, the Borrower. For each individual who is an Affiliate within the meaning of the foregoing, the term "Affiliate" shall include any other individual related to such Affiliate by consanguinity within the third degree or in a step or adoptive relationship within such third degree. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person or entity, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Loan and Security Agreement as amended, modified or supplemented from time to time. "Borrower's Data Report" means the Borrower's Data Report, attached hereto as Schedule 2, together with all amendments, supplements and attachments thereto. "Business Day" means any day other than a Saturday, Sunday, public holiday under the laws of the Commonwealth of Pennsylvania or other day on which the Bank is not open for business in Indiana, Pennsylvania. "Capital Lease" or "Capital Leases" means any lease(s) which is, or is required under GAAP to be, capitalized on the balance sheet of Borrower at such time. "Closing Date" means the date hereof. "Code" means the Uniform Commercial Code as in effect on the date of this Agreement and as amended from time to time, of the state or states having jurisdiction with respect to all or any portion of the Collateral from time to time. "Debt" means (i) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations) whether such indebtedness or liability is matured or unmatured, liquidated or unliquidated, direct or contingent, and joint or several; (ii) capitalized lease obligations; (iii) current liabilities in respect of unfunded vested benefits under any Plan; (iv) obligations under letters of credit; (v) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any person or entity, or otherwise to assure a creditor against loss; and (vi) obligations secured by any lien on property owned by such person or entity, whether or not the obligations have been assumed. "Eligible Locations" means each location owned or leased by the Borrower which is described on the Borrower's Data Report and as to which the Bank has received a landlord's waiver or a mortgagee's waiver, as the case may be, satisfactory to the Bank. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as in effect as of the date of this Agreement and as amended from time to time in the future. 19 "Event of Default" means an Event of Default as defined in Article VII hereof. "Expiration Date" means September 30, 1999 unless extended in writing by the Bank. "Fixed Assets" means fixed assets as defined under GAAP. "GAAP" means generally accepted accounting principles (as such principles may change from time to time) applied on a consistent basis (except for changes in application in which the Borrower's independent certified public accountants concur). "Law" means any law (including common law), constitution statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "Letters of Credit" means any one or more documentary or standby letters of credit from time to time issued by the Bank for the account of the Borrower and subject to such terms and conditions as the Bank shall require. "Lien" means any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature, including, but not limited to, any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security. "Loan Document" or "Loan Documents" mean singularly or collectively, as the context may require, (i) this Agreement, (ii) the Note, (iii) the UCC-l financing statements filed in accordance with this Agreement and the other Loan Documents, and (iv) any and all mortgages, deeds of trust, guaranty and suretyship agreements, support agreements, patent security agreements, trademark security agreements, environmental and other indemnity agreements, pledge agreements, collateral assignments and other documents, instruments, certificates, assignments, and agreements executed and delivered in connection with this Agreement, as any of them may be amended, modified, extended or supplemented from time to time. "Loan", "Loans" or "Revolving Credit Loans" mean the loan or loans made by the Bank to the Borrower under this Agreement (including any Supplement) from time to time. "Loan Term" means the period of time commencing on the date hereof and continuing through the Expiration Date. "Note" or "Notes", means the Revolving Credit Note of the Borrower executed and delivered pursuant to this Agreement and any other note or notes executed and delivered pursuant to this Agreement (including any Supplement), together with all extensions, renewals, refinancing or refundings in whole or in part. "Office", when used in connection with the Bank, means its office located at 800 Philadelphia Street, Indiana, Pennsylvania 15701, Attention: Commercial Lending Department, or such other office of the Bank as the Bank may designate in writing from time to time. "Official Body" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal grand jury or arbitrator, in each case whether foreign or domestic. "Permitted Liens" means only those certain liens, permitted in writing by Bank and disclosed by Borrower to Bank on Schedule 2 "Borrower's Data Report", attached hereto and made a part hereof. "Person" means an individual, corporation, partnership, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. 20 "Plan" means any deferred compensation program, including both single and multi-employer plans, subject to Title IV of ERISA and established and maintained for employees of the Borrower or any Subsidiary or any controlled group of trades or businesses under common control as defined respectively in Section 1563 and 414(c) of the Internal Revenue Code of 1986, as amended, of which the Borrower or any Subsidiary is or becomes a part. "Potential Default" means any event or condition which with notice or the passage of time would constitute an Event of Default other than an Event of Default under Subsection 6.1(h) of this Agreement. "Prime Rate" means the interest rate per annum publicly announced from time to time by the Bank as its prime rate. The Prime Rate may be greater or less than other interest rates charged by the Bank to other borrowers and is not solely based or dependent upon the interest rate which the Bank may charge any particular borrower or class of borrowers. "Subsidiary" of any entity comprising the Borrower at any time means any corporation of which a majority of the outstanding capital stock entitled to vote for the election of directors is at such time owned by any entity comprising the Borrower and/or one or more Subsidiaries. "Supplement" means any one or more of the Supplements to Loan and Security Agreement, executed and delivered by and between the Bank and the Borrower to supplement, modify or amend the provisions of this Agreement now or at any time after the date of this Agreement, as each such supplement may be further supplemented, modified or amended. ARTICLE X MISCELLANEOUS ------------- 10.1 Holidays. Whenever any payment or action to be made or taken under -------- this Agreement or under any of the other Loan Documents is stated to be due on a day which is not a Business Day, such payment or action will be made or taken on the next following Business Day and such extension of time will be included in computing interest or fees, if any, in connection with such payment or action. 10.2 Loan Account. The Bank will open and maintain on its books a loan ------------ account (the "Loan Account") with respect to Loans made, repayments, prepayments, the computation and payment of interest and fees and the computation and final payment of all other amounts due and sums paid to the Bank under this Agreement or the other Loan Documents. Except in the case of manifest error in computation, the Loan Account will be presumptively deemed correct (absent manifest error) as to the amount at any time due to the Bank from the Borrower under this Agreement or the other Loan Documents. 10.3 Amendments and Waivers; No Implied Waiver. The Bank and the Borrower ----------------------------------------- may from time to time enter into agreements amending, modifying or supplementing this Agreement or any other Loan Document or changing the rights of the Bank or of the Borrower under this Agreement or under any other Loan Document and the Bank may from time to time grant waivers or consents to a departure from the due performance of the obligations of the Borrower under this Agreement or under any other Loan Document. Any such agreement, waiver or consent must be in writing and will be effective only to the extent specifically set forth in such writing and no such waiver or consent will extend to any other or subsequent Event of Default or Potential Default or impair any right consequent to any other or subsequent Event of Default or Potential Default. No course of dealing and no delay or failure of the Bank in exercising any right, power or privilege under this Agreement or any other Loan Document, or single or partial exercise of any such right, power or privilege, will affect any other or future exercise of any such right, power or privilege or exercise of any other right, power or privilege. 10.4 Notices. All notices, requests, demands, directions and other ------- communications (collectively "notices") under the provisions of this Agreement must be in writing (including telecopied communication) unless otherwise expressly permitted under this Agreement and must be sent by first-class certified or first--class express mail, private overnight or next Business Day courier or by telecopy with confirmation in writing mailed first class, in all cases with charges prepaid, and any such properly given notice will be effective when received. All notices 21 will be sent to the applicable party at the addresses stated in the heading of this Agreement or in accordance with the last unrevoked written direction from such party to the other parties. 10.5 Expenses; Taxes; Attorneys' Fees. The Borrower agrees to pay or cause -------------------------------- to be paid and to save the Bank harmless against liability for the payment of all reasonable out-of-pocket expenses, including, but not limited to fees and expenses of counsel and paralegals for the Bank, incurred by the Bank from time to time (i) arising in connection with the preparation, execution, delivery and performance of this Agreement and the other Loan Documents, whether or not the Revolving Credit Loans are advanced (ii) relating to any requested Supplements, amendments, waivers or consents to this Agreement or any of the other Loan Documents and (iii) arising in connection with the Bank's enforcement or preservation of rights under this Agreement or any of the other Loan Documents or the Bank Debt, including but not limited to such expenses as may be incurred by the Bank in the collection of the outstanding principal amount of the Bank Debt in any proceedings of the type described in the last subsection of Section 7.1 of this Agreement. The Borrower agrees to pay the cost of all lien searches and all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or in the future determined by the Bank to be payable in connection with this Agreement, any other Loan Document or the Bank Debt. 10.6 Severability. The provisions of this Agreement are intended to be ------------ severable. If any provision of this Agreement is held invalid or unenforceable in whole or in part in any jurisdiction, the provision will, as to such jurisdiction, be ineffective to the extent of such invalidity for unenforceability without in any manner affecting the validity or enforceability of the provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction. 10.7 Governing Law. This Agreement will be deemed to be a contract under ------------- the laws of the Commonwealth of Pennsylvania and for all purposes will be governed by and construed and enforced in accordance with the laws of said Commonwealth, except that the Code (including the conflict of law provisions of the Code) shall govern the effect of perfection of the Bank's security interest in the Collateral. 10.8 Consent to Jurisdiction. The Borrower consents to the exclusive ----------------------- jurisdiction and venue of the federal and state courts located in Indiana County, Pennsylvania, in any action on, relating to or mentioning this Agreement, the other Loan Documents, or any one or more of them. 10.9 Participations. The Bank may from time to time sell, assign or grant -------------- one or more participations in all or any part of the Loan made by the Bank or which may be made by the Bank, or its right, title and interest in the Loans or in or to this Agreement, to another lender or financial institution. Bank shall at all times remain lead bank in any participations of the Loan, and Bank shall maintain ownership of at least fifty percent (50%) of the Loan. Except to the extent otherwise required by the context of this Agreement, the word "Bank" where used in this Agreement means and includes any holder of a Note originally issued to the Bank and each such holder of a Note will be bound by and have the benefits of this Agreement, the same as if such holder had been a signatory of this Agreement. In connection with any such sale, assignment or grant of participation, the Bank may make available to any prospective purchaser, assignee or participant any information relative to the Borrower in the Bank's possession, subject to a confidentiality agreement to be approved by Bank. 10.10 Successors and Assigns: The words "Bank" and "Borrower" include ---------------------- singular or plural, individual or corporate, and their respective heirs, successors and assigns, as the case may be. In the event Borrower consists of two or more individuals or two or more entities, all its obligations and liabilities hereunder shall be joint and several. Notwithstanding the foregoing, Borrower may not assign this Agreement, the Loan Documents, or the Loan, in whole or in part. 10.11 Miscellaneous. This Agreement and the other Loan Documents supersede ------------- all prior understandings and agreements, whether written or oral, among the parties relating to the transactions provided for in this Agreement and the other Loan Documents. Each Supplement now or at any time in the future attached to this Agreement is incorporated into and made a part of this Agreement, effective as of the date of such Supplement. The section headings contained in this Agreement are for convenience only and do not limit or define or affect the 22 construction or interpretation of this Agreement in any respect. This Agreement may be executed in separate counterparts each of which, when so executed, will be deemed an original, but each such counterpart will constitute but one and the same instrument. This Agreement will be binding upon and inure to the benefit of the Bank, the Borrower and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of the Bank. The rights and benefits of this Agreement and the other Loan Documents are not intended to, and shall not, inure to the benefit of any third party. 10.12 WAIVER OF TRIAL BY JURY. ----------------------- THE BORROWER AND THE BANK EXPRESSLY, INITIAL: KNOWINGLY AND VOLUNTARILY WAIVE ALL BENEFIT AND ADVANTAGE OF ANY RIGHT TO A TRIAL BY JURY, AND AGREE THAT THEY WILL NOT AT ANY TIME INSIST UPON, OR PLEAD OR IN ANY MANNER WHATSOEVER CLAIM OR TAKE THE BENEFIT OR ADVANTAGE OF A TRIAL BY JURY IN ANY ACTION ARISING IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS. 23 IN WITNESS WHEREOF, and intending to be legally bound, the parties, by their duly authorized officers, have executed and delivered this Agreement as of the date set forth at the beginning of this Agreement. ATTEST: ALLIN COMMUNICATIONS CORPORATION /s/ Louis Moraytis By:/s/ Dean C. Praskach - ---------------------------- --------------------- Witness Title: Vice President - Finance ALLIN INTERACTIVE CORPORATION /s/ Louis Moraytis By:: /s/ Dean C. Praskach - ---------------------------- -------------------- Witness Title: Vice President - Finance ALLIN DIGITAL IMAGING CORP. /s/ Louis Moraytis By:: /s/ Dean C. Praskach - ---------------------------- -------------------- Witness Title: Vice President - Finance KENT CONSULTING GROUP, INC. /s/ Louis Moraytis By: /s/ Dean C. Praskach - ---------------------------- --------------------- Witness Title: Vice President - Finance NETRIGHT, INC. /s/ Louis Moraytis By: /s/ Dean C. Praskach - ---------------------------- -------------------- Witness Title: Vice President - Finance ALLIN HOLDINGS CORPORATION /s/ Louis Moraytis By: /s/ Dean C. Praskach - ---------------------------- -------------------- Witness Title: Vice President - Finance 24 KCS COMPUTER SERVICES, INC. /s/ Louis Moraytis By: /s/ Dean C. Praskach - ---------------------------- --------------------- Witness Title: Vice President - Finance ATTEST: S & T BANK /s/ Diane K. Wohlfarth By: /s/ David G. Antolik - ---------------------------- -------------------- Title: Vice President, Commercial Loan Officer (Pursuant to Regulation S-K, Item 601(b)(2), Registrant agrees to furnish supplementally a copy of the exhibits and schedules to this agreement to the Securities Exchange Commission upon request.) 25 EX-10.1 4 TRANSITION SERVICES AGREEMENT Exhibit 10.1 TRANSITION SERVICES AGREEMENT THIS TRANSITION SERVICES AGREEMENT (this "Agreement") is made and entered into as of the 30th day of September, 1998, by and between Allin Communications Corporation, a Delaware corporation with an address at 400 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220 ("Allin"), and SportsWave, Inc., a Pennsylvania corporation with an address at 400 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, Pennsylvania 15220 ("SportsWave"). RECITALS A. Prior to the date of this Agreement, SportsWave was a wholly owned subsidiary of Allin occupying the same facilities with Allin in Greentree Commons and sharing equipment and administrative services. B. Contemporaneously with this Agreement, Allin is selling all of its common stock in SportsWave (the "Transaction") to Lighthouse Holdings, Inc., a Delaware corporation ("Lighthouse"), pursuant to that certain Stock Purchase Agreement, dated as of the date hereof, between Allin and Lighthouse (the "Stock Purchase Agreement"). C. In connection with the Transaction and pursuant to the Stock Purchase Agreement, Lighthouse and SportsWave desire, and Allin has agreed, to have Allin provide SportsWave with the services specified herein in order to assist SportsWave in the transition from wholly owned subsidiary of Allin to an independently owned and operated entity of Lighthouse, all on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises contained herein and intending to be legally bound thereby, the parties hereto agree as follows: Section 1. Definitions. --------- ----------- (a) Facilities. "Facilities" means collectively the space occupied, ---------- utilities used or consumed and real property or other facilities rented, licensed, purchased or used by Allin at 400 Greentree Commons, 381 Mansfield Avenue, Pittsburgh, or at other offices or real estate locations as may be owned, rented, licensed or occupied by Allin during the term of this Agreement. (b) Equipment. "Equipment" means collectively all equipment, machinery, --------- furniture, fixtures, computers, communications equipment, office equipment and other personal property (excluding supplies) used in the business of Allin and SportsWave and owned or leased by Allin. 1 (c) Administrative Services. "Administrative Services" means ----------------------- collectively the provision by Allin to SportsWave of all of those administrative and accounting services previously rendered by Allin to SportsWave, such as those services set forth on Schedule A, attached hereto. The Administrative ---------- Services shall not include any senior management functions, financial planning or budgeting or any tax or year-end accounting service. Section 2. Provision of Services; Use of Facilities and Equipment. --------- ------------------------------------------------------ (a) For the period of time extending from October 1, 1998, to December 31, 1998, and thereafter on a month-to-month basis until either party provides the other with at least thirty (30) days written notice of its election to terminate this Agreement, Allin shall provide SportsWave the Administrative Services and full use of its Facilities and Equipment, subject to the terms and conditions of this Agreement. (b) Allin shall perform the Administrative Services in a manner consistent with, and substantially similar in nature and quality to, the same services provided to SportsWave by Allin prior to the date hereof. Allin also shall assist Lighthouse and SportsWave, as appropriate, in transferring data to Lighthouse and SportsWave from Allin's systems and establishing interconnection between systems and otherwise transferring the operation of the Administrative Services to Lighthouse or SportsWave. (c) Notwithstanding anything contained herein to the contrary, Lighthouse or SportsWave may, upon seven (7) days prior notice, terminate all or any of the Administrative Services or use of the Facilities or Equipment. (d) Allin, in connection with the provision of the Administrative Services, shall provide Lighthouse and SportsWave with access, during normal business hours, to its administrative personnel subject to their reasonable availability so long as such access does not interfere with the conduct of Allin's operations. Section 3. Compensation. --------- ------------ (a) As compensation for the Administrative Services and use of the Facilities and Equipment, SportsWave shall pay to Allin a fee of $5000.00 per month, payable in advance each month, until December 31, 1998. For the period beginning January 1, 1999, SportsWave shall pay to Allin a fee of $10,000.00 per month, payable in advance each month. (b) As additional compensation for the use of the Facilities under this Agreement, SportsWave shall pay to Allin a fee of $4,500.00 per month, payable in advance, beginning January 1, 1999, and continuing thereafter until this Agreement is terminated as provided herein. 2 (c) In addition to the foregoing fees, SportsWave shall reimburse Allin for any out-of-pocket expenses paid to third parties incurred in connection with the provision of the Administrative Services or use of the Facilities and Equipment under this Agreement, including, but not limited to, long distance telephone charges, postage, courier and overnight express delivery services. Section 4. Benefits. --------- -------- For the period of time extending to the earlier of the termination of this Agreement or December 31, 1998, Allin shall continue to carry all employee benefits provided prior to the date hereof (except 401(k)) including, health, dental, disability and life insurance benefits for SportsWave employees, and SportsWave shall reimburse Allin for all actual costs, fees and expenses associated therewith. Section 5. Indemnity. --------- --------- (a) SportsWave shall indemnify and hold Allin, its employees, officers, managers, equity holders, agents and servants harmless from any and all claims, suits, demands, losses and liabilities arising under or related to this Agreement and paid by Allin to a third party, except as may arise from the gross negligence or willful misconduct of, or intentional breach of this Agreement by Allin, its employees, officers, managers, equity holders, agents or servants. (b) Allin shall indemnify and hold SportsWave, its employers, officers, managers, equity holders, agents and servants harmless from any and all claims, suits, demands, losses and liabilities arising under or related to this Agreement and paid by SportsWave to a third party to the extend caused by Allin's gross negligence, willful misconduct or intentional breach of this Agreement or that of its employees, officers, managers, equity holders, agents or servants. (c) The procedure set forth governing indemnities in Section 6.2 of the Stock Purchase Agreement shall be used regarding claims for indemnity under this Agreement. Section 6. Consequential and Other Damages. --------- ------------------------------- Neither party shall be liable to the other party for any special, indirect, incidental or consequential damages whatsoever which in any way arise out of, relate to, or are a consequent of, each party's or its employees' performance or nonperformance under this Agreement. Section 7. Relationship. --------- ------------ Allin and SportsWave shall in no event be construed as joint venturers or partners of each other as a consequence of the relationship contemplated under this Agreement. Neither Allin nor SportsWave shall have the power to bind or obligate the other. Section 8. General Matters. --------- --------------- (a) Captions. The captions utilized in this Agreement are for the -------- purposes of identification only and shall not control or affect the meaning or construction of any of the provisions hereof. (b) Integration. This Agreement constitutes the entire agreement ----------- between the parties with respect to the subject matter hereof and will supersede all previous negotiations, representations, commitments and writings. (c) Modification and Waiver. This Agreement may not be amended, ----------------------- released, discharged, rescinded or abandoned, except by a written agreement duly executed by each of the parties hereto. The 3 failure of any party hereto at any time to enforce any of the provisions of this Agreement will in no way constitute or be construed as a waiver of such provision or of any other provision hereof, nor in any way affect the validity of, or the right thereafter to enforce, each and every provision of this Agreement. (d) Governing Law. This Agreement and its validity, construction, ------------- administration and all rights hereunder, will be governed by the laws of Illinois without regard to its conflict of laws provisions. (e) Severability. The invalidity or unenforceability of any particular ------------ provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. (f) Notices. All notices required or permitted hereunder shall be in ------- writing and shall be deemed to have been sufficiently given when sent and delivered in accordance with Section 7.1 of the Stock Purchase Agreement. (g) Counterparts. This Agreement may be executed simultaneously in ------------ several counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument. (h) Non-Assignability. Except as otherwise provided in this Section ----------------- 8(h), this Agreement shall not be assigned, conveyed or otherwise transferred by the parties hereto without the prior written consent of the parties hereto. Notwithstanding the foregoing, nothing herein shall prohibit (i) SportsWave from assigning any of their rights hereunder to any one or more of its affiliates or (ii) Allin from utilizing the services of any third party customarily utilized in connection with the provisions of this Agreement or otherwise used by Allin in the ordinary course of business for performance of similar functions. 4 IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have executed this Agreement as of the date first above written. ALLIN COMMUNICATIONS CORPORATION By: /s/ Richard W. Talarico ----------------------------- Richard W. Talarico, President SPORTSWAVE, INC. By: /s/ Terence M. Graunke ----------------------------- Terence M. Graunke, Chief Executive Officer 5 SCHEDULE A 1. All daily and monthly accounting functions including accounts receivable, accounts payable, payroll and general ledger. 2. All human resources functions including benefits management. 3. Clerical services including reception and overflow administrative/clerical support. 4. Maintain and support the existing computer system and network infrastructure. 5. Use of copy machines and other office equipment. 6 -----END PRIVACY-ENHANCED MESSAGE-----