STOCK PURCHASE AGREEMENT
BETWEEN
XXXXXXX X. XXXXXX
AND
ROCKY MOUNTAIN INTERNET, INC.
OCTOBER 1, 1997
STOCK PURCHASE AGREEMENT
This Agreement is made as of October 1, 1997 between Xxxxxxx X. Xxxxxx
(the "Purchaser") and Rocky Mountain Internet, Inc., a Delaware corporation
(the "Company").
SECTION 1
Definitions
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages (including consequential damages), dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses (including costs of investigation
and defense), and fees, including court costs and attorneys' fees and
expenses, but not including any special, indirect, or incidental damages or
damages resulting from lost profits.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local, or foreign law.
"APPLICABLE RATE" means 8% per annum.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or reasonably could form the basis
for any specified consequence.
"BEST EFFORTS" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock of the Company, $0.001 par value
per share.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Company and its Subsidiaries that is not
already generally available to the public.
"CONTROLLED GROUP OF CORPORATIONS" means the Controlled Group of
Corporations (as such term is defined in Code Section 1563) of which the
Company is the common parent.
"DOCUMENTS" has the meaning set forth in Section 5.3(b) below.
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"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or Material fringe
benefit plan or program.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENT" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"ENVIRONMENTAL LAW" means any federal, state, local, municipal, foreign,
international, multinational, or other order, constitution, law, ordinance,
principle of common law, regulation, statute, or treaty that requires or
relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for
injuries done to public assets.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section 4.8 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.4 below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.4 below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) the names "Rocky
Mountain Internet, Inc." and "Rocky Mountain Internet," all fictional
business names, all registered and unregistered trademarks, service marks,
and applications, trade dress, logos, and trade names, together with all
translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier
lists, pricing and cost information, and business and marketing plans and
proposals), (e) all computer software licensed or owned by the Company
(including data and related documentation), (f) all other proprietary rights,
and (g) all copies and tangible embodiments thereof (in whatever form or
medium).
"KNOWLEDGE" means, with respect to the Company, actual knowledge of any
of Xxxxx X. Xxxxxx, Xxx X. Xxxxxx, Xxxxxxx Xxxxxxx, Xxxxx X. Xxxxx, Xxxxx X.
Loud, Xxxxxxx X. Xxxx, Xxxxx X. Xxxxxxxx, and D. Xxxx Xxxxxxx, after
reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL" or "MATERIAL" means material in relation to the business,
operations, affairs, financial conditions, or properties of the Company and
its Subsidiaries, taken as a whole.
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"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
4.8 below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section 4.8
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 4.8
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"OCCUPATIONAL SAFETY AND HEALTH LAW" means any federal, state, local,
municipal, foreign, international, multinational, or other administrative
order, constitution, law, ordinance, principle of common law, regulation,
statute, or treaty designed to provide safe and healthful working conditions
and to reduce occupational safety and health hazards, and any program,
whether governmental or private (including those promulgated or sponsored by
industry associations and insurance companies), designed to provide safe and
healthful working conditions.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice.
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, a limited liability partnership, a limited liability
limited partnership, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"PURCHASE PRICE" has the meaning set forth in Section 2.2 below.
"PURCHASER" has the meaning set forth in the preface above.
"REGISTRATION AGREEMENT" means that certain agreement of even date
herewith between the Company and the Purchaser pursuant to which the Company
has agreed to register the Shares, the Warrants, and the shares of Common
Stock issuable upon exercise of the Warrants for resale by the Purchaser.
"REPORTABLE EVENT" has the meaning set forth in ERISA Section 4043.
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments
under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
"SHARES" has the meaning set forth in Section 2.1 below.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof, dated on or after
December 31, 1987.
"THIRD PARTY CLAIM" has the meaning set forth in Section 9.4 below.
"WARRANT AGREEMENT" means that certain agreement of even date herewith
between the Company and the Purchaser pursuant to which the Company has
agreed to issue the Warrants to the Purchaser.
"WARRANTS" means the warrants to purchase 4,000,000 shares of Common
Stock for an exercise price of $1.90 per share, subject to adjustment, which
Warrants are issuable to the Purchaser pursuant to the Warrant Agreement.
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SECTION 2
Issuance, Purchase, and Sale of Common Stock and Warrants
2.1 ISSUANCE AND DELIVERY OF SHARES. Contemporaneously with the
execution of this Agreement, the Company has (i) issued 1,225,000 shares (the
"Shares") of its Common Stock, $0.001 par value per share, to the Purchaser
in such denominations as the Purchaser has determined; and (ii) entered into
the Warrant Agreement with the Purchaser.
2.2 PURCHASE AND SALE OF SHARES AND WARRANTS. Contemporaneously with the
execution of this Agreement, the Purchaser has purchased from the Company the
Shares and the Warrants for the purchase price of $2,450,000, by delivery and
tender of a certified or official bank check (the "Purchase Price").
SECTION 3
Acknowledgments of Receipt
The Company hereby acknowledges receipt of the Purchase Price. The
Purchaser hereby acknowledges receipt of the Shares.
SECTION 4
Representations and Warranties of the Company
The Company represents and warrants to the Purchaser that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement, except as set forth in the disclosure schedule delivered by the
Company to the Purchaser on the date hereof and initialed by the Parties (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule is arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
4.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the
Company and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries is duly authorized
to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each of the Company and
its Subsidiaries has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it
is engaged and in which it presently proposes to engage and to own and use
the properties owned and used by it. Section 4.1 of the Disclosure Schedule
lists the
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directors and officers of each of the Company and its Subsidiaries. The
Company has delivered to the Purchaser correct and complete copies of the
charter and bylaws of each of the Company and its Subsidiaries (as amended to
date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), copies of the contents of which were given to counsel by the
Company, contain a complete summary of all Material actions taken by the
Company since the time of incorporation and reflect all transactions referred
to in such minutes accurately in all Material respects. The stock
certificate books and the stock record books of each of the Company and its
Subsidiaries are correct and complete. None of the Company and its
Subsidiaries is in default under or in violation of any Material provision of
its charter or bylaws.
4.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, par value $0.001 per share, of
which 5,390,729 shares are issued and outstanding, and 1,000,000 shares of
Preferred Stock, par value $0.001 per share, of which 250,000 shares have
been designated "Series A Convertible Preferred Stock" (herein, "Series A
Preferred") and of which 92,500 shares are issued and outstanding. The
outstanding shares have been duly authorized and validly issued, and are
fully paid and nonassessable. The Company has reserved 92,500 shares of its
Common Stock for issuance upon conversion of the Series A Preferred, 552,300
shares of Common Stock for issuance to employees, consultants, or directors
under stock plans or arrangements approved by the Board of Directors, and
2,231,983 shares for issuance upon conversion of outstanding common stock
purchase warrants, options (other than options granted to employees,
consultants, or directors under stock plans or arrangements approved by the
Board of Directors), and other derivative securities, and pursuant to
antidilution provisions of currently outstanding securities (including
derivative securities). Options to purchase 514,437 shares of Common Stock
are issued and outstanding under the Company's 1996 Employees' Stock Option
Plan. Options to purchase 4,500 shares of Common Stock are issued and
outstanding under the Company's 1996 Non-Employees Directors' Stock Option
Plan. Options to purchase 40,370 shares of Common Stock are issued and
outstanding under the Company's 1997 Non-Qualified Stock Option Plan. All
outstanding securities of the Company were issued in substantial compliance
with applicable federal and state securities laws. Section 4.2(a) of the
Disclosure Schedule is a shareholders' list containing the names and stock
ownership of all record holders of the Company's Common Stock as of September
30, 1997. Section 4.2(b) of the Disclosure Schedule lists all authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock and the record owners of all such authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that are outstanding. Section 4.2(c) of the
Disclosure Schedule lists all outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company and all outstanding awards thereunder. Except as set forth in this
Agreement and Section 4.2 of the Disclosure Schedule, the Company is not
under any obligation to register any of its currently outstanding securities
or any of its securities that may hereafter be issued. To the Knowledge of
the Company, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
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4.3 AUTHORIZATION. All corporate action on the part of the Company and
its directors and shareholders necessary for the authorization, execution,
delivery, and performance of this Agreement by the Company, the
authorization, sale, issuance, and delivery of the Shares, and the
performance of all of the Company's obligations hereunder has been taken.
This Agreement constitutes a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as such enforcement may be
limited by the application of bankruptcy, insolvency, reorganization, and
other laws of general applicability relating to creditors' rights and by
general principles of equity. The Shares are validly issued, fully paid, and
nonassessable and free of any liens or encumbrances, other than any liens or
encumbrances created by or imposed upon the holders thereof through no action
of the Company; provided, however, that the Shares will be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein. The Shares are not subject to any preemptive rights or rights
of first refusal.
4.4 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, (i)
violates any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Company and its
Subsidiaries is subject or any provision of the charter or bylaws of any of
the Company and its Subsidiaries or (ii) conflicts with, results in a breach
of, constitutes a default under, results in the acceleration of, creates in
any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any of the Company and its Subsidiaries is a party
or by which it is bound or to which any of its assets is subject (or results
in the imposition of any Security Interest upon any of its assets). None of
the Company and its Subsidiaries has been required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate
the transactions contemplated by this Agreement.
4.5 BROKERS' FEES. None of the Company and its Subsidiaries has any
Liability or obligation to pay any fees or commissions to any broker, finder,
or agent with respect to the transactions contemplated by this Agreement.
4.6 TITLE TO ASSETS. Except as disclosed in Section 4.6 of the
Disclosure Schedule, the Company and its Subsidiaries have good and
marketable title to, or a valid leasehold interest in, the properties and
assets (other than Intellectual Property) used by them, located on their
premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of
the Most Recent Balance Sheet.
4.7 SUBSIDIARIES. Section 4.7 of the Disclosure Schedule sets forth for
each Subsidiary of the Company (i) its name and jurisdiction of
incorporation, (ii) the number of shares of authorized capital stock of each
class of its capital stock, (iii) the number of issued and outstanding shares
of each class of its capital stock, the names of the holders thereof, and the
number of shares held by each such holder, and (iv) the number of shares of
its capital stock held in treasury. The Company holds of record and owns
beneficially all of the outstanding shares of each Subsidiary of the Company,
free and clear of any restrictions on transfer (other than
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restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. There are no outstanding or
authorized options, warrants, purchase rights, conversion rights, exchange
rights, or other contracts or commitments that could require any of the
Company's Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock or that could require any Subsidiary of the Company to issue, sell, or
otherwise cause to become outstanding any of its own capital stock. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of the Company.
Except as disclosed in Section 4.7 of the Disclosure Schedule, none of the
Company and its Subsidiaries controls directly or indirectly or has any
direct or indirect equity participation in any corporation, partnership,
trust, or other business association that is not a Subsidiary of the Company.
4.8 FINANCIAL STATEMENTS. Disclosed in Section 4.8 of the Disclosure
Schedule are the following financial statements (collectively the "Financial
Statements"): (i) audited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1994, 1995, and 1996 (the "Most Recent Fiscal Year End") for the
Company and its Subsidiaries; and (ii) unaudited balance sheets and
statements of income, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") as of and for the 8 months ended August
31, 1997 (the "Most Recent Fiscal Month End") for the Company and its
Subsidiaries. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial
condition of the Company and its Subsidiaries as of such dates and the
results of operations of the Company and its Subsidiaries for such periods,
are correct and complete in all Material respects, and are consistent with
the books and records of the Company and its Subsidiaries (which books and
records are correct and complete in all Material respects); provided,
however, that the Most Recent Financial Statements are subject to normal
year-end adjustments (which will not be Material individually or in the
aggregate) and lack footnotes and other presentation items.
4.9 EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
Recent Fiscal Year End, there has not been any Material adverse change in the
business, financial condition, operations, results of operations, or future
prospects of any of the Company and its Subsidiaries. Without limiting the
generality of the foregoing, since that date, except as disclosed in Section
4.9 of the Disclosure Schedule:
(a) none of the Company and its Subsidiaries has sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other
than for a fair consideration in the Ordinary Course of Business;
(b) none of the Company and its Subsidiaries has entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) either involving more than $5,000 or
outside the Ordinary Course of Business;
(c) no party (including any of the Company and its Subsidiaries) has
accelerated, terminated, modified, or canceled any agreement, contract,
lease, or license (or series of
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related agreements, contracts, leases, and licenses) involving more than
$5,000 to which any of the Company and its Subsidiaries is a party or by
which any of them is bound;
(d) none of the Company and its Subsidiaries has imposed any Security
Interest upon any of its assets, tangible or intangible;
(e) none of the Company and its Subsidiaries has made any capital
expenditure (or series of related capital expenditures) either involving
more than $5,000 or outside the Ordinary Course of Business;
(f) none of the Company and its Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the securities or assets
of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $5,000 or outside the Ordinary
Course of Business;
(g) none of the Company and its Subsidiaries has issued any note,
bond, or other debt security or created, incurred, assumed, or guaranteed
any indebtedness for borrowed money or capitalized lease obligation either
involving more than $3,000 individually or $5,000 in the aggregate;
(h) none of the Company and its Subsidiaries has delayed or postponed
the payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(i) none of the Company and its Subsidiaries has canceled,
compromised, waived, or released any right or claim (or series of related
rights and claims) either involving more than $5,000 or outside the
Ordinary Course of Business;
(j) none of the Company and its Subsidiaries has granted any license
or sublicense of any rights under or with respect to any Intellectual
Property other than to customers in the Ordinary Course of Business;
(k) there has been no change made or authorized in the charter or
bylaws of any of the Company and its Subsidiaries;
(l) none of the Company and its Subsidiaries has issued, sold, or
otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(m) none of the Company and its Subsidiaries has declared, set aside,
or paid any dividend or made any distribution with respect to its capital
stock (whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
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(n) none of the Company and its Subsidiaries has experienced any
Material damage, destruction, or loss (whether or not covered by insurance)
to its property;
(o) none of the Company and its Subsidiaries has made any loan to, or
entered into any other transaction with, any of its directors, officers,
and employees other than travel advances and office advances made in the
ordinary course of business;
(p) none of the Company and its Subsidiaries has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(q) none of the Company and its Subsidiaries has granted any increase
in the base compensation of any of its directors, officers, and employees
outside the Ordinary Course of Business;
(r) none of the Company and its Subsidiaries has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect
to any other Employee Benefit Plan);
(s) none of the Company and its Subsidiaries has made any other change
in employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(t) none of the Company and its Subsidiaries has made or pledged to
make any charitable or other capital contribution outside the Ordinary
Course of Business;
(u) there has not been any other Material occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving any of the Company and its Subsidiaries; and
(v) none of the Company and its Subsidiaries has committed to any of
the foregoing.
4.10 UNDISCLOSED LIABILITIES. Except as disclosed in Section 4.10 of the
Disclosure Schedule, none of the Company and its Subsidiaries has any liability
(and there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any liability ), except for (i) liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto), and (ii)
liabilities that have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
4.11 LEGAL COMPLIANCE. Each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has substantially complied with all
applicable laws (including
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Material rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
4.12 TAX MATTERS.
(a) Except as disclosed in Section 4.12 of the Disclosure Schedule,
each of the Company and its Subsidiaries has filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by any of the Company and its Subsidiaries
(whether or not shown on any Tax Return) have been paid. None of the
Company and its Subsidiaries currently is the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made by
an authority in a jurisdiction where any of the Company and its
Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of any of the Company and its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax, except
Taxes not yet due and payable.
(b) Each of the Company and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(c) To the Knowledge of the Company, there is no Basis for any Tax
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any Tax
Liability of any of the Company and its Subsidiaries either (A) claimed or
raised by any Tax authority in writing or (B) as to which any of the
directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has Knowledge based upon personal contact with
any agent of such authority. Section 4.12 of the Disclosure Schedule lists
all federal, state, local, and foreign income Tax Returns filed with
respect to any of the Company and its Subsidiaries for taxable periods
ended on or after December 31, 1992, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to the Purchaser correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the
Company and its Subsidiaries since December 31, 1993.
(d) Except as disclosed in Section 4.12 of the Disclosure Schedule,
none of the Company and its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(e) None of the Company and its Subsidiaries has filed a consent under
Code Section 341(f) concerning collapsible corporations. None of the
Company and its Subsidiaries has made any payments, is obligated to make
any payments, or is a party to
-12-
any agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Code Section 280G. None of
the Company and its Subsidiaries has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). None of the
Company and its Subsidiaries is a party to any Tax allocation or sharing
agreement. None of the Company and its Subsidiaries (A) has been a member
of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company) or (B) has
any Liability for the Taxes of any Person (other than any of the Company
and its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(f) The unpaid Taxes of the Company and its Subsidiaries (A) did not,
as of the Most Recent Fiscal Month End, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) will not exceed the reserve for Taxes established on the books and
records of the Company as of the date hereof in accordance with the
Ordinary Course of Business of the Company and its Subsidiaries in filing
their Tax Returns.
4.13. SECURITIES ACT AND EXCHANGE ACT FILINGS. Section 4.13 of the
Disclosure Schedule lists all registration statements (including amendments
thereto) filed with the Securities and Exchange Commission under the Securities
Act or the Securities Exchange Act and all reports (including amendments
thereto) filed with the Securities and Exchange Commission under the Securities
Exchange Act. The Company has made available to the Purchaser correct and
complete copies of all such registration statements and reports. Such
registration statements and reports do not contain any untrue statement of a
Material fact or omit to state any Material fact necessary in order to make the
statements contained therein not misleading.
4.14 REAL PROPERTY. Neither the Company nor any of its Subsidiaries owns
any real property.
(a) Neither the Company nor any of its Subsidiaries owns any real
property.
(b) Section 4.14(b) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to any of the Company and its
Subsidiaries. The Company has delivered to the Purchaser correct and
complete copies of the leases and subleases listed in Section 4.14(b) of
the Disclosure Schedule (as amended to date). With respect to each lease
and sublease listed in Section 4.14(b) of the Disclosure Schedule:
(1) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
-13-
(2) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(3) the Company is not and, to the Knowledge of the Company, no
other party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(4) the Company has not and, to the Knowledge of the Company, no
other party to the lease or sublease has repudiated any provision
thereof;
(5) to the Knowledge of the Company, there are no disputes, oral
agreements, or forbearance programs in effect as to the lease or
sublease;
(6) with respect to each sublease, the representations and
warranties set forth in subsections (1) through (5) above are true and
correct with respect to the underlying lease;
(7) none of the Company and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(8) to the Knowledge of the Company, all facilities leased or
subleased thereunder have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations;
(9) to the Knowledge of the Company, all facilities leased
or subleased thereunder are supplied with utilities and other services
necessary for the operation of said facilities, including all
specialized needs due to the nature of the Company's business; and
(10) to the Knowledge of the Company, the owner of the facility
leased or subleased has good and marketable title to the parcel of
real property, free and clear of any Security Interest, easement,
covenant, or other restriction, except for installments of special
easements not yet delinquent and recorded easements, covenants, and
other restrictions which do not impair the current use, occupancy,
value, or marketability of title of the property subject thereto.
4.15 INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property used in the
-14-
operation of the businesses of the Company and its Subsidiaries as
presently conducted and as presently proposed to be conducted. Each item
of Intellectual Property owned or used by any of the Company and its
Subsidiaries immediately prior to the date hereof will be owned or
available for use by the Company or the Subsidiary on identical terms and
conditions immediately subsequent to the date hereof. Each of the Company
and its Subsidiaries has taken all commercially reasonable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(b) None of the Company and its Subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and, to the Knowledge of the
Company, neither the Company nor any of its Subsidiaries has ever received
any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that any of the Company and its Subsidiaries must license or refrain
from using any Intellectual Property rights of any third party). To the
Knowledge of the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of the Company and its Subsidiaries.
(c) Section 4.15(c) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that any of the Company
and its Subsidiaries uses pursuant to license, sublicense, agreement, or
permission. With respect to each item of Intellectual Property required to
be identified in Section 4.15(c) of the Disclosure Schedule:
(1) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect as it applies to the Company;
(2) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms as it applies to the Company following
the date hereof;
(3) to the Knowledge of the Company, no party to the license,
sublicense, agreement, or permission is in breach or default, and no
event has occurred which with notice or lapse of time would constitute
a breach or default or permit termination, modification, or
acceleration thereunder;
(4) to the Knowledge of the Company, no party to the license,
sublicense, agreement, or permission has repudiated any provision
thereof;
(5) with respect to each sublicense, the representations and
warranties set forth in subsections (1) through (4) above are true and
correct with respect to the underlying license;
-15-
(6) to the Knowledge of the Company, the underlying item of
Intellectual Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(7) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Company, is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
(8) none of the Company and its Subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(d) To the Knowledge of the Company, the continued operation of the
business of the Company and its Subsidiaries will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties.
4.16 TANGIBLE ASSETS. The Company and its Subsidiaries own or lease all
buildings, machinery, equipment, and other tangible assets reasonably necessary
for the conduct of their businesses as presently conducted and as presently
proposed to be conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it presently is used and presently is
proposed to be used.
4.17 INVENTORY. The inventory of the Company and its Subsidiaries is fit
for the purpose for which it was procured, and all of it is substantially free
from damage and defects.
4.18 CONTRACTS. Section 4.18 of the Disclosure Schedule lists the following
contracts (other than contracts described in Sections 4.14 and 4.15(c)) and
other agreements to which any of the Company and its Subsidiaries is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $5,000 per annum;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of
which will extend over a period of more than one year, will result in a
Material loss to any of the Company and its Subsidiaries, or involves
consideration in excess of $5,000;
(iii) any agreement concerning a partnership, joint venture,
collaborative enterprise, and all similar entities and ventures in which
the Company is an interest and similar agreements to which the Company is a
party;
-16-
(iv) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $10,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Company and its Affiliates (other
than the Company and its Subsidiaries);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other Material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $5,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned funds of any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any other agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of any of
the Company and its Subsidiaries; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Company has delivered to the Purchaser a correct and complete copy of
each written agreement listed in Section 4.18 of the Disclosure Schedule (as
amended to date) and a written summary setting forth the Material terms and
conditions of each oral agreement referred to in Section 4.18 of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) the Company is not, and, to the Knowledge, of the
Company, no other party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) the
Company has not, and, to the Knowledge of the Company, no other party has
repudiated any provision of the agreement.
4.19 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Company and its Subsidiaries are reflected properly on their books and
records in accordance with GAAP, are valid receivables subject to no setoffs or
counterclaims, are current and collectible, and will
-17-
be collected in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) as adjusted through the date
hereof in accordance with the Ordinary Course of Business of the Company and its
Subsidiaries.
4.20 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of any of the Company and its Subsidiaries.
4.21 INSURANCE. Section 4.21 of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of the Company and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past three years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor the Subsidiary is, and, to the Knowledge of
the Company, no other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; and (D) neither the Company nor the Subsidiary has, and, to the
Knowledge of the Company, no other party to the policy has repudiated any
provision thereof. Each of the Company and its Subsidiaries has been covered
during the past three years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Section 4.21 of the Disclosure Schedule describes any self-insurance
arrangements affecting any of the Company and its Subsidiaries.
4.22 LITIGATION. Section 4.22 of the Disclosure Schedule sets forth each
instance in which any of the Company and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party or, to the Knowledge of the Company, is
-18-
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. Except as disclosed in Section 4.22 of the Disclosure Schedule,
none of the actions, suits, proceedings, hearings, and investigations set forth
in Section 4.22 of the Disclosure Schedule could result in any material adverse
change in the business, financial condition, operations, results of operations,
or future prospects of any of the Company and its Subsidiaries.
4.23 PRODUCT WARRANTY. Each product sold, leased, or delivered by any of
the Company and its Subsidiaries has been in conformity with all applicable
contractual commitments, and none of the Company and its Subsidiaries has any
Liability (and, to the Knowledge of the Company, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
for replacement or repair thereof or other damages in connection therewith. No
product sold, leased, or delivered by any of the Company and its Subsidiaries is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Section 4.23 of the Disclosure
Schedule includes copies of the standard terms and conditions of sale or lease
for each of the Company and its Subsidiaries (containing applicable guaranty,
warranty, and indemnity provisions).
4.24 PRODUCT LIABILITY. None of the Company and its Subsidiaries has any
Liability (and, to the Knowledge of the Company, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product sold, leased, or delivered by any
of the Company and its Subsidiaries.
4.25 EMPLOYEES. Except as disclosed in Section 4.25 of the Disclosure, to
the Knowledge of the Company, no executive, key employee, or group of employees
has any plans to terminate employment with any of the Company and its
Subsidiaries. None of the Company and its Subsidiaries is a party to or bound
by any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. None of the Company and its Subsidiaries has committed any
unfair labor practice. To the Knowledge of the Company, the is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of any of the Company and its
Subsidiaries. To the Knowledge of the Company, no employee of the Company is in
violation of any term of any employment agreement, patent disclosure agreement,
or any other agreement relating to the relationship of such employee with the
Company or any other party because of the nature of the business conducted or to
be conducted by the Company.
4.26 EMPLOYEE BENEFITS.
(a) Section 4.26 of the Disclosure Schedule lists each Employee
Benefit Plan that any of the Company and the Controlled Group of Companies
maintains or to which any of the Company and its Subsidiaries contributes.
-19-
(1) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
Material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(2) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title 1 of ERISA and of Code Section 4980B have been
met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(b) With respect to each Employee Benefit Plan that any of the
Company, its Subsidiaries, and the Controlled Group of Corporations (which
includes the Company and its Subsidiaries) maintains or ever has maintained
or to which any of them contributes, ever has contributed, or ever has been
required to contribute, there have been no Material Prohibited Transactions
with respect to any such Employee Benefit Plan. No Fiduciary has any
Material Liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of the assets
of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine claims for
benefits) is pending or threatened. None of the directors and officers
(and employees with responsibility for employee benefits matters) of the
Company and its Subsidiaries has any Knowledge of any Basis for any such
action, suit, proceeding, hearing, or investigation.
(c) None of the Company and the other members of the Controlled Group
of Corporations that includes the Company contributes to, ever has
contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal Liability)
under any Multiemployer Plan.
(d) None of the Company and the Controlled Group of Companies
maintains or ever has maintained or contributes, ever has contributed, or
ever has been required to contribute to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other welfare-type benefits
for current or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code Section 4980B).
4.27 GUARANTIES. None of the Company and its Subsidiaries is a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of
any other Person.
-20-
4.28 ENVIRONMENT, HEALTH, AND SAFETY.
(a) To the Knowledge of the Company, each of the Company and its
Subsidiaries has complied with all Environmental Laws and all Occupational
Safety and Health Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed
or commenced against any of them alleging any failure so to comply. To the
Knowledge of the Company, without limiting the generality of the preceding
sentence, each of the Company and its Subsidiaries has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental Laws and all Occupational Safety and Health Laws.
(b) To the Knowledge of the Company, none of the Company and its
Subsidiaries has any Liability for any illness of or personal injury to any
employee or other individual for any reason under any Environmental Laws
and all Occupational Safety and Health Law.
4.29 CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY AND ITS SUBSIDIARIES.
None of the Company and its Affiliates has been involved in any business
arrangement or relationship with each other or with any of the Company's
Subsidiaries within the past 12 months, and none of the Company's Affiliates
owns any asset, tangible or intangible, which is used in the business of any of
the Company and its Subsidiaries.
4.30 DISCLOSURE. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a Material fact or omit to
state any Material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
SECTION 5
Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to the Company with respect
to the purchase of the Shares and Warrants as follows:
5.1 ACCREDITED INVESTOR. The Purchaser is an Accredited Investor.
5.2 INVESTMENT. The Purchaser is acquiring the Shares for investment for
his own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any unregistered distribution thereof.
5.3 RESTRICTED SECURITIES. The Purchaser understands and acknowledges that
the Shares are not being registered under the Securities Act or relevant state
securities laws, but are being offered and sold pursuant to exemptions from such
registrations, and that the Purchaser may not
-21-
sell, transfer, assign, convey, pledge, hypothecate, or otherwise dispose of
any of the Shares in any manner without first obtaining (i) an opinion of
counsel satisfactory to the Company that such proposed disposition or
transfer lawfully may be made without the registration of the Shares for such
purpose pursuant to the Securities Act, as then amended, and applicable state
securities laws; or (ii) such registration. In furtherance thereof, the
Purchaser represents and warrants to and agrees with the Company that the
Purchaser:
(a) has the financial ability to bear the economic risk for the
investment in the Shares, has adequate means for providing for his current
needs and contingencies, and has no need for liquidity with respect to the
investment in the Shares;
(b) has been furnished with a copy of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, Forms 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and Current Report on Form
8-K dated August 15, 1997 (collectively, the "Documents") and has evaluated
the risks of a purchase of the Shares based on the information contained
therein and in this Agreement;
(c) has been given the opportunity to ask questions of, and receive
answers from, the management of the Company concerning the terms,
conditions, and other matters pertaining to the investment in the Shares
and has been given the opportunity to obtain such additional information
necessary to verify the accuracy of the information contained in the
Documents;
(d) except as described in Section 5.3(c), the Purchaser has not been
furnished with any oral or written representation or oral or written
information in connection with the offering of the Shares; and
(e) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an
acquisition of the Shares and of making an informed investment decision
with respect thereto.
5.4 VALID AGREEMENT. This Agreement when executed and delivered by the
Purchaser will constitute a valid and legally binding obligation of the
Purchaser, enforceable in accordance with its terms, except as such enforcement
may be limited by the application of bankruptcy, insolvency, reorganization, and
other laws of general applicability relating to creditors' rights.
5.5 BROKERS OR FINDERS. The Company has not incurred and will not incur,
directly or indirectly, as a result of any action taken by such Purchaser, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement.
5.6 DISCLOSURE. The representations and warranties contained in this
Section 5 do not contain any untrue statement of a Material fact or omit to
state any Material fact necessary in order to make the statements and
information contained in this Section 5 not misleading.
-22-
SECTION 6
Actions Taken and Deliveries Made Prior to or Contemporaneously with the
Execution of this Agreement
The following actions have been taken or documents have been delivered,
as the case may be, prior to or contemporaneously with the execution of this
Agreement:
6.1 RESIGNATION OF OFFICERS AND DIRECTORS. Xxx X. Xxxxxx has resigned from
all positions held by him as an officer or director of the Company. Xxxxxx Xxx
Xxxxxxxx has resigned from his position as chairman of the board of directors of
the Company.
6.2 ELECTION OF PURCHASER. The Company has caused the election of the
Purchaser has been appointed as the President, Chief Executive Officer, and
chairman of the board of directors of the Company, and Xxxxxxxx Xxxxx and X. X.
Xxxx have been appointed as directors of the Company.
6.3 OPINION OF COUNSEL. The Purchaser has received from counsel to the
Company an opinion in form satisfactory to the Purchaser
SECTION 7
[RESERVED]
SECTION 8
Post-Closing Covenants
The Parties hereby covenant and agree as follows:
8.1 GENERAL. In the event that at any time after the date hereof any
further action is necessary to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 9 below).
8.2 LITIGATION SUPPORT. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the date hereof
involving any of the Company and its Subsidiaries, the other Party will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and will provide such testimony and access to their
books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 9 below).
-23-
8.3 RULE 144 REPORTING. With a view to making available to the Purchaser
the benefits of certain rules and regulations of the Securities and Exchange
Commission that may permit the sale of the Shares to the public without
registration, the Company agrees to use its Best Efforts to:
(a) make and keep adequate public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the date hereof; and
(b) use its Best Efforts to file with the Securities and Exchange
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act.
SECTION 9
Remedies for Breaches of This Agreement
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the closing of the transactions contemplated by this Agreement
(even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of closing) and continue
in full force and effect for a period of three years thereafter (subject to
the prior expiration of any applicable statutes of limitations), except as to
representations and warranties regarding Tax matters, which shall survive for
a period equal to the longest period provided an any applicable statute of
limitations relating to such Tax matters. The covenants of the Parties set
forth in Section 8 shall survive the date hereof indefinitely.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE PURCHASER. In the
event the Company has breached (or in the event any third party alleges facts
that, if true, would mean the Company has breached) any of its
representations, warranties, or covenants contained herein, and provided that
the Purchaser makes a written claim for indemnification against the Company
within the applicable survival period set forth in Section 9.1, then the
Company agrees to indemnify the Purchaser from and against the entirety of
any Adverse Consequences the Purchaser may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences the
Purchaser may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by
such breach (or alleged breach).
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY. In the event
the Purchaser has breached (or in the event any third party alleges facts
that, if true, would mean the Purchaser has breached) any of his
representations, warranties, or covenants contained herein, and provided that
the Company makes a written claim for indemnification against the Purchaser
within the applicable survival period set forth in Section 9.1, then the
Purchaser agrees to indemnify the Company from and against the entirety of
any Adverse Consequences the Company may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences
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the Company may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by
such breach (or alleged breach).
9.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") that may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 9, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying
the Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is materially prejudiced thereby.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 9.4(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(d) In the event any of the conditions in Section 9.4(b) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it may deem appropriate
(and the Indemnified Party need not consult with,
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or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Party will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including attorneys' fees and expenses), and (C) the
Indemnifying Party will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 9.
(e) Notwithstanding anything contained in this Section 9 to the
contrary, if a full and unconditional settlement offer solely for money
damages is made by the applicable third party involved in the Third Party
Claim, as to which offer the Indemnifying Party notifies the Indemnified
Party in writing of the Indemnifying Party's willingness to accept, and the
Indemnified Party declines to accept such settlement offer, the Indemnified
Party may continue to contest such claim, free of any participation by the
Indemnifying Party, at the Indemnified Party's sole expense, and the amount
of any ultimate liability with respect to which the Indemnifying Party has
any obligation to pay under this Section 9 shall be equal to the lesser of:
(i) the amount of the settlement offer that the Indemnified Party declined
to accept; or (ii) the ultimate loss incurred by the Indemnified Party.
9.5 DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 9. All
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.
9.6 OTHER INDEMNIFICATION PROVISIONS. In addition to the remedies provided
in Sections 9.2, 9.3, and 9.4 for breaches of any representation, warranty, or
covenant contained in this Agreement, all other statutory, equitable, and common
law remedies shall be available to the Parties.
SECTION 10
Miscellaneous
10.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Colorado, without regard to any provisions
applicable to conflicts of laws.
10.2 [RESERVED]
10.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
The Purchaser may not assign any of his rights to indemnification under this
Agreement. The Company may not assign its rights to indemnification under this
Agreement except by operation of law or in connection with the sale, exchange,
transfer, or other disposition of all or substantially all of its assets.
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10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Warrant Agreement,
and the Registration Agreement constitute the full and entire understanding
and agreement between the Parties with regard to the subjects hereof and
thereof, and neither Party shall be liable or bound to the other Party in any
manner by any warranties, representations, or covenants except as
specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than by a written instrument signed by the
Party against whom enforcement of any such amendment, waiver, discharge, or
termination is sought.
10.5 JURISDICTION; SERVICE OF PROCESS. Any action or proceeding by a
Party seeking to enforce any provision of, or based on any right arising out
of, this Agreement may be brought against the other Party in the courts of
the State of Colorado, City and County of Denver, or, if it has or can
acquire jurisdiction, in the United States District Court for the District of
Colorado, and each of the Parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding
and waives any objection to venue laid therein. Process in any action or
proceeding referred to in the preceding sentence may be served on any Party
anywhere in the world. Each Party agrees that a final judgment in any action
or proceeding so brought shall be conclusive and may be enforced by suit on
the judgment or in any other manner provided by law or at equity.
10.6 WAIVER. Subject to the provisions of Section 9.6, the rights and
remedies of the parties to this Agreement are cumulative and not alternative.
Neither the failure nor any delay by any Party in exercising any right,
power, or privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power, or privilege, and no
single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or
the exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this
Agreement or the documents referred to in this Agreement can be discharged by
one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Party; (b) no waiver that may be
given by a Party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one Party will be deemed to be
a waiver of any obligation of such Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
10.7 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, sent by telecopier, or otherwise delivered
by hand or by a nationally-recognized overnight courier, addressed (a) if to
the Purchaser, at the Purchaser's address or telecopier number set forth
below, or at such other address or telecopier number as the Purchaser shall
have furnished to the Company in writing, or (b) if to the Company, one copy
should be sent to its address or telecopier number set forth below and
addressed to the attention of the Corporate Secretary, or at such other
address or telecopier number as the Company shall have furnished to the
Purchaser.
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Such notices and communications shall be sent or delivered as follows:
If to the Company, to: Rocky Mountain Internet, Inc.
0000 Xxxxxxxxxx Xxxxxx
00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
telephone: 303/000-0000
telecopy 303/672-0711
With a Copy to:
Xxxxxx Xxxxx, Esq.
Xxxxxxx & Xxxxxx, L.L.C.
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
telephone: 303/000-0000
telecopy: 303/298-0940
If to the Purchaser, to: Xxxxxxx X. Xxxxxx
0000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
telephone: 303/000-0000
telecopy: 303/777-4314
With a Copy to:
Xxx X. Xxxxx, Esq.
Minor & Xxxxx, P.C.
000 Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
telephone: 303/000-0000
telecopy: 303/320-6330
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given (x) in the case of
personal delivery or delivery by telecopier, on the date of such delivery and
verified, in the case of telecopier transmission, by confirmation of such
transmission, (y) in the case of a nationally-recognized overnight courier, on
the day such delivery is confirmed by such courier or by the recipient, and (z)
in the case of mailing, on the third business day following that on which the
piece of mail containing such communication has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
10.8 EXPENSES. The Company and the Purchaser shall each bear its or his
own expenses with respect to this Agreement and the transactions contemplated
hereby.
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10.9 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed in
any number of counterparts, each of which may be executed by less than all of
the Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument. Execution of a facsimile copy of this Agreement by any Party and
delivery of a copy this Agreement bearing the facsimile signature of any Party
shall constitute the valid and binding execution and delivery of this Agreement,
and facsimile copies of this Agreement bearing the facsimile signature of any
Party shall constitute an original document enforceable against such Party.
10.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable, or void, this Agreement shall continue in full force and effect
without said provision.
10.10 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
10.11 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
10.12 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
10.13 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
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The foregoing Agreement is hereby executed as of the date first above
written.
PURCHASER
/s/ Xxxxxxx X. Xxxxxx
-------------------------------
Xxxxxxx X. Xxxxxx
COMPANY
Rocky Mountain Internet, Inc., a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
--------------------------
Xxxxx X. Xxxxx
Title: Executive Vice President
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[Exhibits and Disclosure Schedule omitted]
