Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ROCKY MOUNTAIN INTERNET, INC.
D/B/A XXX.XXX
AND
IDEALDIAL CORPORATION
AND
XXXXXXX XXXXX
JUNE 11, 1999
TABLE OF CONTENTS
1. Definitions
2. Basic Transaction
(a) The Merger
(b) The Closing
(c) Actions at the Closing
(d) Effect of Merger
(e) Procedure for Payment
(f) Closing of Transfer Records
3. Representations and Warranties of the Company and the Shareholder
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Subsidiaries
(d) Authorization of Transaction
(e) Noncontravention
(f) Financial Statements
(g) Events Subsequent to Most Recent Fiscal Year End
(h) Undisclosed Liabilities
(i) Legal Compliance
(j) Finder Fees
(k) Continuity of Interest
(l) Title to Assets
(m) Real Property
(n) Intellectual Property
(o) Tangible Assets
(p) Inventory
(q) Contracts
(r) Notes and Accounts Receivable
(s) Powers of Attorney
(t) Insurance
(u) Litigation
(v) Warranties
(w) Employees
(x) Employee Benefits
(y) Tax Matters
(z) Guaranties
(aa) Environment, Health, and Safety Matters
(bb) State PUC Authorizations and FCC Authorizations
(cc) Certain Business Relationships with the Company
(dd) Investment
(ee) Year 2000 Compliant
(ff) Company Shares
2
(gg) Disclosure
4. Representations and Warranties of the Buyer
(a) Organization
(b) Capitalization
(c) Authorization of Transaction
(d) Noncontravention
(e) Brokers' Fees
(f) Continuity of Business Enterprise
(g) Disclosure
(h) SEC Documents
5. Covenants
(a) General
(b) Notices and Consents
(c) Regulatory Matters and Approvals
(d) Operation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
(h) Continuity of Business Enterprise
(i) Legend
(j) Registration Rights Agreement
6. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Company
7. Termination
(a) Termination of Agreement
(b) Effect of Termination
8. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Covenant Not to Compete
(f) Survival of Representations and Warranties
(g) Indemnification Provisions for Benefit of the Buyer
(h) Indemnification Provisions for Benefit of the Shareholder
(i) Matters Involving Third Parties
(j) Other Indemnification Provisions
9. Additional Agreements
(a) Escrow Fund
(b) Liquidation of the Company
10. Miscellaneous
(a) Press Releases and Public Announcements
(b) No Third Party Beneficiaries
(c) Entire Agreement
3
(d) Succession and Assignment
(e) Counterparts
(f) Headings
(g) Notices
(h) Governing Law
(i) Dispute Resolution
(j) Amendments and Waivers
(k) Severability
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
Exhibit A--Certificate of Merger
Exhibit B--Articles of Merger
Exhibit C--Third-Parties
Exhibit D--Lock-Up Agreement
Exhibit E--Permitted Transferees
Exhibit F--Financial Statements
Exhibit G--Registration Rights Agreement
Exhibit H--Form of Opinion of Counsel to the Company
Exhibit I--Shareholder Personal Guarantees
Exhibit J--Form of Opinion of Counsel to the Buyer
Exhibit K--Form of Escrow Agreement
Exhibit L--Accounts Receivable
Exhibit M--Litigation
Exhibit N--Pre-Closing Transactions
Disclosure Schedule--Exceptions to Representations and Warranties
4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
as of this 11th day of June, 1999 by and among ROCKY MOUNTAIN INTERNET, INC.,
a Delaware corporation d/b/a XXX.XXX (the "Buyer"), IDEALDIAL CORPORATION, a
Colorado corporation (the "Company"), and Xxxxxxx Xxxxx ("Shareholder"). The
Buyer, the Company and the Shareholder are referred to collectively herein as
the "Parties".
This Agreement contemplates a tax-free merger of the Company with
and into the Buyer in a reorganization pursuant to Code Section 368(a)(1)(A).
The Shareholder will receive capital stock in the Buyer in exchange for the
capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ACCOUNTS RECEIVABLE" has the meaning set forth in Section 9(b)(i)
below.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorney's fees and
expenses.
"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(a) or any similar group defined under a similar provision
of state, local, or foreign law.
"AGREEMENT" has the mean set forth in the preface above.
"ARTICLES OF MERGER" has the meaning set forth in Section 2(c) below.
"ASSUMED LIABILITIES" has the meaning set forth in Section 3(h)
below.
"BUYER" has the meaning set forth in the preface above.
"BUYER SEC FILINGS" has the meaning set forth in Section 3(dd) below.
5
"BUYER SHARE" means any share of the common stock, $0.001 par value
per share, of the Buyer.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2(c)
below.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLORADO BUSINESS CORPORATION ACT" means the Business Corporation
Act of the State of Colorado, as amended.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY SHARE" means any share of the Common Stock, $.01 par value
per share, of the Company.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Parties that is not already generally available
to the public.
"CONVERSION RATIO" has the meaning set forth in Section 2(d)(v)
below.
"CURRENT ASSETS" means cash, investments, inventory, current
accounts receivable for customer accounts (with balances of ninety (90) days
or less), and prepaid expenses generated in the Ordinary Course of Business,
as reflected on the balance sheet of the Most Recent Financial Statements.
"CURRENT LIABILITIES" means accounts payable, accrued expenses,
accrued but unpaid taxes, deferred revenues, unearned income, and other
current Liabilities (except the current portion of any bank debt) incurred in
the Ordinary Course of Business, as reflected on the balance sheet of the
Most Recent Financial Statements.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Reg. Section 1.1502-13.
"DELAWARE GENERAL CORPORATION LAW" means the General Corporation Law
of the State of Delaware, as amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an
6
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit or other retirement, bonus, or incentive plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution
or protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or
cleanup of any hazardous materials, substances or wastes, chemical substances
or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, each as amended and as now or hereafter in effect.
"ESCROW AGENT" has the meaning set forth in Section 2(d)(viii) below.
"ESCROW AGREEMENT" has the meaning set forth in Section 9(a) below.
"ESCROW FUND" has the meaning set forth in Section 9(a) below.
"ESCROW SHARES" has the meaning set forth in Section 2(d)(viii)
below.
"ESCROW TERM" has the meaning set forth in Section (d)(viii) below.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXCHANGE AGENT" has the meaning set forth in Section 2(e) below.
"FCC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by the Federal
Communications Commission or similar federal governmental agency to provide
the telecommunications services currently provided by the Company and to
conduct its business as it is currently conducted.
"FINANCIAL STATEMENTS" have the meaning set forth in Section 3(f)
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 8(i)(i)
below.
7
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(i)(i)
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) all trademarks,
service marks, trade dress, logos, trade names, and corporate 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 mask works and all applications, registrations,
and renewals in connection therewith, (e) 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), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge 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.
"LITIGATION" has the meaning set forth in Section 9(b)(ii) below.
"LOCK-UP AGREEMENT" has the meaning set forth in Section 2(d)(ix).
"LOCK-UP PERIOD" has the meaning set forth in Section 2(d)(ix).
"LOCK-UP SHARES" has the meaning set forth in Section 2(d)(ix).
"LONG-TERM LIABILITIES" means any term loans (bank debt, lines of
credit, and other Liabilities, including any current portion thereof),
capital leases, operating leases and other Liabilities, regardless of whether
reflected on the balance sheet of the Most Recent Financial Statements.
"MERGER" has the meaning set forth in Section 2(a) below.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
Section 3(f) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
3(f) below.
8
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section
3(f) below.
"MULTIEMPLOYEE PLAN" has the meaning set forth in ERISA Section
3(37).
"NET WORKING CAPITAL" means the difference between the Company's
Current Assets and its Current Liabilities.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, 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).
"PRE-CLOSING TRANSACTIONS" has the meaning set forth in Section
9(b)(iii) below.
"PURCHASE PRICE" has the meaning set forth in Section 2(d)(v) below.
"RECURRING REVENUE RATE" means the recurring revenue rate of the
Company for the Most Recent Fiscal Month End, as determined by accrual based
accounting procedures in accordance with GAAP.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in Section
5(k) below.
"REQUISITE COMPANY'S SHAREHOLDER APPROVAL" means the affirmative
vote of the Shareholder in favor of this Agreement and the Merger.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" has the meaning set forth in Section 4(g) below.
"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.
"SHAREHOLDER" has the meaning set forth in the preface above.
9
"SHAREHOLDER PERSONAL GUARANTEES" has the meaning set forth in
Section 6(a)(xi) 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.
"STATE PUC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by any state or local
regulatory authority to provide the telecommunications services currently
provided by the Company and to conduct its business as it is currently
conducted.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a)
below.
"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 returns or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(i)(i)
below.
2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, the Company will merge with and into the Buyer (the "Merger") at
the Effective Time. The Buyer shall be the corporation surviving the Merger
(the "Surviving Corporation").
(b) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Rocky
Mountain Internet, Inc., 000 00xx Xxxxxx, Xxxxx Xxxxx, 00xx Xxxxx, Xxxxxx,
Xxxxxxxx 00000, commencing at 10:00 a.m. local time on the earlier of (i) the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or (ii) June 11, 1999 (the "Closing Date");
PROVIDED, HOWEVER, that such Closing Date may be further extended upon mutual
agreement of the Parties.
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Company and the
Shareholder will deliver to the Buyer the various certificates, instruments, and
documents referred to in Section 6(a) below,
10
(ii) the Buyer will deliver to the Company and the Shareholder the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) the Buyer and the Company will file with the (A) Secretary of State of
the State of Delaware a Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger"), and (B) file with the Secretary of
State of the State of Colorado Articles of Merger in the form attached hereto
as Exhibit B (the "Articles of Merger") and (iv) the Buyer will deliver to
the Exchange Agent in the manner provided below in this Section 2 the
certificates evidencing the Buyer Shares issued in the Merger.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
(the "Effective Time") the Buyer and the Company file (a) the
Certificate of Merger with the Secretary of State of the State of
Delaware, and (b) the Articles of Merger with the Secretary of State of
the State of Colorado. The Merger shall have the effect set forth in
the Delaware General Corporation Law and the Colorado Business
Corporations Act. The Surviving Corporation may, at any time after the
Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either the Buyer or the Company
in order to carry out and effectuate the transactions contemplated by
this Agreement.
(ii) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of the Buyer in effect at and as of the Effective Time
will remain the Certificate of Incorporation of the Surviving
Corporation without any modification or amendment in the Merger.
(iii) BYLAWS. The Bylaws of the Buyer in effect at and as of
the Effective Time will remain the Bylaws of the Surviving Corporation
without any modification or amendment in the Merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of the
Buyer in office at and as of the Effective Time will remain the
directors and officers of the Surviving Corporation (retaining their
respective positions and terms of office).
(v) CONVERSION OF COMPANY SHARES. At the Closing, each Company
Share shall be converted into the right to receive the number of the
Buyer Shares equal to two million, eight hundred thousand and no/100ths
dollars ($2,800,000) (the "Purchase Price") divided by the average
closing price per share of the Buyer Shares for the ten (10) day period
ending on the day prior to the Closing Date (the "Closing Market
Price") divided by the number of the Company Shares outstanding (the
ratio of Buyer Shares to Company Shares is referred to herein as the
"Conversion Ratio"); PROVIDED, HOWEVER, that the Conversion Ratio shall
be subject to adjustment in the event of any adjustment in the Purchase
Price as contemplated under Section 2(d)(vi) below, or any stock split,
stock dividend, reverse stock split, or other change in the number of
Company Shares outstanding. No Company Share shall be deemed to be
outstanding or to have any rights other than those set forth above in
this Section 2(d)(v) after the Effective Time.
(vi) ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price set
forth in Section 2(d)(v)
11
above is based upon a Recurring Revenue Rate of seven hundred thousand
and no/100ths dollars ($700,000.00) and the status of the Company's Net
Working Capital and Long Term Liabilities. The Purchase Price is
subject to adjustment as follows:
(A) In the event that the Recurring Revenue Rate
exceeds or is less than seven hundred thousand and no/100ths
dollars ($700,000.00), the Purchase Price shall be increased
or reduced, whichever may be the case, by four dollars ($4.00)
for each dollar that the Recurring Revenue Rate exceeds or is
less than such amount;
(B) In the event that the Company's Net Working
Capital is positive or negative, whichever may be the case,
[subject to a $350,000 Net Working Capital allowance], the
Purchase Price shall be increased or reduced dollar for dollar
in an amount equal to the positive or negative Net Working
Capital; and
(C) The Purchase Price shall be reduced dollar for
dollar by the amount equal to the difference of any Long Term
Liabilities assumed by the Buyer at the Closing less reserves
held by the third-parties listed on Exhibit C attached hereto.
In the event of any adjustment to the Purchase Price, under
this Section 2(d)(vi), the Conversion Ratio shall be adjusted
accordingly.
(vii) BUYER SHARES. Each Buyer Share issued and outstanding at
and as of the Effective Time will remain issued and outstanding. Fifty
percent (50%) of the Buyer's Shares to be issued in connection with the
Merger will be unregistered under the Securities Act and state
securities laws and "restricted securities", as defined in Rule 144 of
the Securities Act, when issued. Such Buyer Shares shall be registered
under the Securities Act by the Buyer within the time frames delineated
in Section 2(d)(viii) and 2(d)(ix) below.
(viii) ESCROW OF BUYER SHARES. At and as of the Effective
Time, to secure its obligations under Section 8 below, and as more
fully described in Section 9 below, the Company shall deposit with an
escrow agent (the "Escrow Agent") that number of the Buyer Shares equal
to fifteen percent (15%) of the Buyer Shares payable to the Company
hereunder (the "Escrow Shares"), which Escrow Shares shall be held by
the Escrow for eighteen (18) months after the Effective Time (the
"Escrow Term"). The Escrow Shares shall be registered under the
Securities Act on or prior to the expiration of the Escrow Term
pursuant to the Registration Rights Agreement. Such Escrow Shares shall
be included in the Buyer Shares described in Section 2(d)(vii) above.
(ix) LOCK-UP OF BUYER SHARES. That number of the Buyer Shares
equal to thirty-five percent (35%) of the Buyer Shares payable to the
Company hereunder (the "Lock-Up Shares") shall be subject to a lock-up
agreement, in the form attached hereto as Exhibit D (the "Lock-Up
Agreement"), prohibiting the sale or other disposition of such Buyer
Shares for twelve (12) months after the Effective Time (the "Lock-Up
Period"); PROVIDED, HOWEVER, that the Shareholder may transfer a
portion of the Buyer Shares to the persons set
12
forth on Exhibit E attached hereto if such persons agree to execute the
Lock-Up Agreement. The Lock-Up Shares shall be registered under the
Securities Act by the Buyer on or prior to expiration of the Lock-Up
Period. Such Lock-Up Shares shall be included in the Buyer Shares
described in Section 2(d)(vii) above.
(e) PROCEDURE FOR PAYMENT.
(i) Subject to Section (d) above, immediately after the
Effective Time, (A) the Buyer will furnish to American Securities
Transfer & Trust, Inc. (the "Exchange Agent") a stock certificate
(issued in the name of the Exchange Agent or its nominee) representing
that number of Buyer Shares equal to the product of (I) the Conversion
Ratio times (II) the number of outstanding Company Shares and (B) the
Buyer will cause the Exchange Agent to mail a letter of transmittal
(with instructions for its use) to each record holder of outstanding
Company Shares for the holder to use in surrendering the certificates
which represented his/her or its Company Shares in exchange for a
certificate representing the number of Buyer Shares to which he/she or
it is entitled.
(ii) The Buyer will not pay any dividend or make any
distribution on Buyer Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Company Shares
until the holder surrenders for exchange his/her or its certificates
which represented Company Shares. The Buyer instead will pay the
dividend or make the distribution to the Exchange Agent in trust for
the benefit of the holder pending surrender and exchange. The Buyer
will cause the Exchange Agent to make prompt payment of any cash the
Exchange Agent receives from the Buyer as a dividend or distribution to
the holders of outstanding Company Shares as necessary. In no event,
however, will any holder of outstanding Company Shares be entitled to
any interest or earnings on any dividend or distribution pending
receipt of the Buyer Shares.
(iii) The Buyer may cause the Exchange Agent to return any
Buyer Shares and any dividends and distributions thereon remaining
unclaimed one hundred and eighty (180) days after the Effective Time,
and thereafter each remaining record holder of outstanding Company
Shares shall be entitled to look to the Buyer (subject to abandoned
property, escheat and other similar laws) as a general creditor thereof
with respect to the Buyer Shares and dividends and distributions
thereon to which he/she or it is entitled upon surrender of his/her or
its certificates.
(iv) The Buyer and the Company shall bear all charges and
expenses of the Exchange Agent equally.
(f) CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Company Shares outstanding prior to the Effective
Time shall not be made on the stock transfer books of the Surviving Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER.
Each of the Company and the Shareholder represents and warrants to the Buyer
that the statements contained in
13
this Section 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 3.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is
a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. The Company is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required except where the lack of
such qualification would not have a material adverse effect on the financial
condition of the Company taken as a whole or on the ability of the Parties to
consummate the transactions contemplated by this Agreement. The Company has
full corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it.
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 14,000,000 Company Shares, of which 12,467,000 Company
Shares are issued and outstanding and no Company Shares are held in treasury.
All of the issued and outstanding Company Shares have been duly authorized
and are validly issued, fully paid, and nonassessable. There are no
outstanding or 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. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
with respect to the Company.
(c) SUBSIDIARIES. The Company does not now have, nor has it ever
had, any Subsidiaries.
(d) AUTHORIZATION OF TRANSACTION. The Company has full corporate
power and authority, and the Shareholder has full individual power and
authority, to execute and deliver this Agreement and to perform their
respective obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of each of the Company and of the Shareholder,
enforceable in accordance with its terms and conditions, except: (a) as may
be limited by bankruptcy, reorganization, insolvency and similar laws of
general application relating to or affecting the enforcement of creditors'
rights or the relief of debtors; and (b) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(e) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which either the Company or the
Shareholder is subject, or any provision of the charter or bylaws of the
Company or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease,
14
license, instrument or other arrangement to which either the Company or the
Shareholder is a party or by which it or they are bound or to which any of
its or their assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where such conflict, breach,
default, acceleration, termination, modification, cancellation, or failure to
give notice would not have a material adverse effect on the financial
condition of the Company or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Other than in connection with
the provisions of the Delaware General Corporation Law, the Colorado Business
Corporation Act, the Securities Exchange Act, the Securities Act, and the
state securities laws, neither the Company nor the Shareholder need 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, other than
notices or filings that have been made, authorizations, consents or approvals
that have been obtained, or where the failure to give notice, to file, or to
obtain any authorization, consent or approval would not have a material
adverse effect on the financial condition of the Company or on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
(f) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the
following financial statements (collectively the "Financial Statements") of
the Company: (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, 1997 and 1998 (the "Most Recent Fiscal Year End") for the
Company; and (ii) unaudited balance sheets and statements of income, changes
in stockholders' equity, and cash flow as of and for the month ended April
30, 1999 (the "Most Recent Fiscal Month End") for the Company (collectively,
the "Most Recent Financial Statements"). 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 as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company (which books and records
are correct and complete); 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.
(g) EVENTS SUBSEQUENT TO MOST RECENT FISCAL MONTH END. Since the
Most Recent Fiscal Month End, there has not been any material adverse change
in the business, financial condition, operations, results of operations, or
future prospects of the Company taken as a whole.
(h) UNDISCLOSED LIABILITIES. The Company has no Liability except for
(i) Liabilities set forth on the face of the balance sheet dated as of the
Most Recent Financial Statements, or (ii) Liabilities which have arisen after
the date of 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) (collectively the "Assumed Liabilities").
(i) LEGAL COMPLIANCE. The Company, and its predecessors and
Affiliates, have complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all
15
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, except where failure
to comply would not have a material adverse effect upon the financial
condition of the Company.
(j) FINDER FEES. The Company has employed Xxxx Xxxxx as a finder in
connection with the transactions contemplated by this Agreement. The Buyer
shall be responsible for the payment of any fees or commissions to such
finder pursuant to an agreement previously executed with such finder.
(k) CONTINUITY OF INTEREST. The Shareholder has no present plan,
intention, or arrangement to dispose of any of the Buyer Shares received in
the Merger to persons related to Buyer (as defined in paragraph (e)(3) of
Reg. Section 1:368-1).
(l) TITLE TO ASSETS. Except as reflected otherwise on the Most
Recent Financial Statements, the Company has good and marketable title to, or
a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Financial Statements 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 Financial Statements.
(m) REAL PROPERTY. The Company does not own any interest in any real
property. Section 3(m) of the Disclosure Schedule lists and describes briefly
all real property leased or subleased to the Company. The Company has
delivered to the Buyer correct and complete copies of the leases and
subleases listed in Section 3(m) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in Section 3(m) of the
Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, except where the
illegality, invalidity, non-binding nature, unenforceability
or ineffectiveness would not have a material adverse effect on
the financial condition of the Company;
(ii) 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, except where the illegality, invalidity,
non-binding nature, unenforceability or ineffectiveness would
not have a material adverse effect on the financial condition
of the Company;
(iii) no 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;
(iv) no party to the lease or sublease has repudiated
any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect
16
as to the lease or sublease;
(vi) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(vii) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(viii) 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; and
(ix) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for
the operation of said facilities.
(n) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary or currently used in the operation of the business of the
Company as presently conducted. Each item of Intellectual Property
owned or used by the Company immediately prior to the Closing hereunder
will be owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder. The Company
has taken all necessary and desirable action to maintain and protect
each item of Intellectual Property that it owns or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties. The Company has never received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including
any claim that any of the Company must license or refrain from using
any Intellectual Property rights of any third party). To the Knowledge
of the Company and the Shareholder, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of the Company.
(iii) Section 3(n)(iii) of the Disclosure Schedule identifies
each patent, trademark, tradename, service xxxx, or other registration
which has been issued to the Company with respect to any of its
Intellectual Property, identifies each pending application or
application for registration which the Company has made with respect to
any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to any
third party with respect to any of its Intellectual Property (together
with any exceptions). The Company has delivered to the Buyer correct
and complete copies of all such patents, trademarks, tradenames,
services marks, and other registrations, applications, licenses,
agreements, and permissions (as amended to date) and has made
17
available to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. With respect to each item of Intellectual Property
required to be identified in Section 3(n)(iii) of the Disclosure
Schedule:
(A) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) the Company has not agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 3(n)(iv) of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that
the Company uses pursuant to license, sublicense, agreement, or
permission. The Company has delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 3(n)(iv) of the
Disclosure Schedule.
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and
in full force and effect;
(B) the license, sublicense, agreement, or permission
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) 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;
(D) no party to the license, sublicense, agreement,
or permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
18
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or is threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual
Property; and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(v) The Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual Property
rights of third parties as a result of the continued operation of its business
as presently conducted.
(o) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its business as presently 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.
(p) INVENTORY. The inventory of the Company consists of equipment,
raw materials, supplies, parts, and goods, all of which is merchantable and
fit for the purpose for which it was procured or manufactured, and a material
portion of which is neither obsolete, damaged, or defective, subject only to
the reserve for inventory writedown set forth on the face of the Most Recent
Financial Statements (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom
and practice of the Company.
(q) CONTRACTS. Section 3(q) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company is a party:
(i) 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 $10,000 annually;
(ii) any agreement (or group of related agreements) for the
purchase or sale of equipment, raw materials, 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, result in a material loss to the Company, or involve
consideration in excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(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;
19
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving the Shareholder;
(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 severance
benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any agreement under which the consequences of a default
or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company; 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 Buyer a correct and complete copy of
each written agreement listed in Section 3(q) of the Disclosure Schedule and a
written summary setting forth the terms and conditions of each oral agreement
referred to in Section 3(q) 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) no 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) no party has repudiated any provision
of the agreement, except where the illegality, invalidity, non-binding nature,
unenforceability, failure to be in full force and effect, breach, default,
termination, modification, acceleration or repudiation would not have a material
adverse effect on the financial condition of the Company.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
the Company are reflected properly on their books and records, are valid
receivables subject to no setoffs or counterclaims, are current and collectible,
and to the Knowledge of the Company and the Shareholders, will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Financial
Statements (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company.
20
(s) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
(t) INSURANCE. Section 3(t) 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 the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time since Company's
incorporation:
(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 any 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) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past five (5)
years by insurance in scope and amount customary and reasonable for the business
in which it has engaged during the aforementioned period. Section 3(t) of the
Disclosure Schedule describes any self-insurance arrangements affecting any of
the Company.
(u) LITIGATION. Except as set forth in Section 3(u) of the Disclosure
Statement, the Company is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge, nor is it a party or, to the Knowledge of the
Company and the Shareholder, is 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. The Company and the Shareholder do not
have any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(v) WARRANTIES. Each product or service, sold, leased, or delivered by
the Company has been in conformity with all applicable contractual commitments
and all express and implied
21
warranties, and the Company has no 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)
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for warranty claims set forth on the face of the
Most Recent Financial Statements (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company. No product or service, sold,
leased, or delivered by the Company is subject to any guaranty, warranty, or
other indemnity beyond the applicable standard terms and conditions of sale
or lease. Section 3(v) of the Disclosure Schedule includes copies of the
standard terms and conditions of sale or lease for the (containing applicable
guaranty, warranty, and indemnity provisions).
(w) EMPLOYEES. To the Knowledge of the Company and the Shareholder,
no executive, key employee, or group of employees, has any plans to terminate
employment with the Company. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Company has not committed any unfair labor practice. The
Company and the Shareholder have no Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of the Company.
(x) EMPLOYEE BENEFITS. The Company has no Employee Benefit Plan that
it maintains or to which it contributes, nor does it have any obligation to
contribute to any Employee Benefit Plan.
(y) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company currently is not the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, member, or other third
party.
(iii) The Company does not expect any 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 the
Company either (A) claimed or raised by any authority in writing or (B)
as to which the Company or the Shareholder have Knowledge based upon
personal contact with any agent of such authority. The Company has
delivered to the Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company covering calendar years
1995, 1996, 1997, and 1998.
22
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The unpaid Taxes of the Company (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 balance sheet of the Most Recent Fiscal Month End (rather than
in any notes thereto) and (B) do not exceed that reserve as adjusted
for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company in filing their Tax Returns.
(vi) The Company has not filed a consent under Code Section
341(f). None of the Assumed Liabilities is an obligation to make a
payment that will not be deductible under Code Section 280G. The
Company has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. The Company
is not a party to any Tax allocation or sharing agreement. The Company
(A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return at any time during its existence, and (B)
does not have Liability for the Taxes of any Person (other than any of
the Company) under Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(vii) Section 3(j) of the Disclosure Schedule sets forth the
following information with respect to each of the Company as of the
most recent practicable date (as well as on an estimated pro forma
basis as of the Closing giving effect to the consummation of the
transactions contemplated hereby): (A) the basis of the Company in its
assets; (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess
charitable contribution allocable to the Company; and (C) the amount of
any deferred gain or loss allocable to the Company arising out of any
Deferred Intercompany Transaction.
(z) GUARANTIES. The Company is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(aa) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. The Company, and its
predecessors and Affiliates, have complied and is in compliance with all
Environmental, Health, and Safety Requirements, except where the failure to
comply would not have a material adverse effect on the financial condition of
the Company.
(bb) STATE PUC AUTHORIZATIONS AND FCC AUTHORIZATIONS. The Company
has all State PUC Authorizations and FCC Authorizations necessary and
advisable for the conduct of its business as it is presently conducted, and
as it is presently contemplated to be conducted after the Closing Date by the
Buyer.
23
(cc) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. Neither the
Shareholder, nor his Affiliates, has been involved in any material business
arrangement or relationship with the Company and within the past twelve (12)
months, and neither the Shareholder, nor his Affiliates, owns any material
asset, tangible or intangible, which is used in the business of any of the
Company, except as described in Section 3(cc) of the Disclosure Schedule.
(dd) INVESTMENT. Each of the Company and the Shareholder understands
that (i) certain of the Buyer Shares have not been registered, and will not
be registered, under the Securities Act, or under any state securities laws,
prior to the Closing Date, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering; (ii) the Company is acquiring the Buyer Shares solely for its own
account for investment purposes, and not with a view to the distribution
thereof (except to the Shareholder); (iii) the Company and the Shareholder
are sophisticated investors with knowledge and experience in business and
financial matters; (iv) the Company and the Shareholder have received and
reviewed the Buyer's most recent (A) annual report on Form 10-K, dated March
31, 1999, and (B) quarterly report on Form 10-Q, dated April 28, 1999 (the
"Buyer SEC Filings") have had the opportunity to obtain such additional
information as desired in order to evaluate the merits and the risks inherent
in holding the Buyer Shares; (v) the Company and the Shareholder are able to
bear the economic risk and lack of liquidity inherent in holding the Buyer
Shares; (vi) the Company and the Shareholder, together with their legal, tax
and financial advisors have investigated the Buyer, and its business, and
have negotiated the transactions contemplated herein, and have independently
determined to enter into such transactions; and (vii) the Company and the
Shareholder are Accredited Investors.
(ee) YEAR 2000 COMPLIANT. The Company's products and internal
systems, including hardware, software, firmware, telecommunications systems,
management information systems and other systems, are year 2000 compliant so
that such products and systems accurately process Date Data (including, but
not limited to, calculating, comparing and sequencing) for, into, and between
the twentieth and twenty-first centuries, and the years 1999 and 2000,
including leap-year calculations. The term "Date Data" shall mean any data or
input that includes an indication of or reference to date and that is stored
information and internal to functionality.
(ff) COMPANY SHARES. The Shareholder holds of record, is the sole
beneficial owner of, and has good and marketable title to, the Company Shares
delivered by the Shareholder to the Buyer pursuant to this Agreement, free
and clear of any restrictions on transfer, Taxes, Security Interests,
Liabilities, options, warrants, purchase rights, preemptive rights,
contracts, commitments, equities, claims and demands. The Shareholder is not
a party to any option, warrant, purchase right or other contract or
commitment that could require him to sell, transfer or otherwise dispose of
any capital stock of the Company (other than this Agreement). The Shareholder
is not a party to any voting trust, proxy or other agreement or understanding
with respect to the voting of any capital stock of the Company.
(gg) DISCLOSURE. This Agreement and the Exhibits and Schedules
hereto do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading.
24
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Company and the Shareholder that the statements contained
in this Section 4 are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Section 4.
(a) ORGANIZATION. The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) CAPITALIZATION. The entire authorized capital stock of the Buyer
consists of 25,000,000 Buyer Shares, of which _______________ Buyer Shares
are issued and outstanding and __________ Buyer Shares are held in treasury.
All of the Buyer Shares to be issued in the Merger have been duly authorized
and, upon consummation of the Merger, will be validly issued, fully paid, and
nonassessable.
(c) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions, except: (a) as may
be limited by bankruptcy, reorganization, insolvency and similar laws of
general application relating to or affecting the enforcement of creditors'
rights or the relief of debtors; and (b) that the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(d) NONCONTRAVENTION. To the Knowledge of the Buyer, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of the charter or bylaws of the Buyer
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which the Buyer
is a party or by which it is bound or to which any of its assets is subject,
except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, or failure to give notice would not
have a material adverse effect on the financial condition of the Buyer or on
the ability of the Parties to consummate the transactions contemplated by
this Agreement. To the Knowledge of the Buyer, and other than in connection
with the provisions of the Delaware General Corporation Law, the Colorado
Business Corporation Act, the Securities Exchange Act, the Securities Act,
and the state securities laws, the Buyer does not need 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, except where the failure to
give notice, to file, or to obtain any authorization, consent, or approval
would not have a material
25
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement, other than notices or filings that have been
made, authorizations, consents or approvals that have been obtained or where
the failure to give notice, to file, or to obtain any authorization, consent
or approval would not have a material adverse effect on the financial
condition of the Buyer or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(e) BROKERS' FEES. Except as set forth in Section 3(j) above, the
Buyer does not have any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which any of the Company and its
Subsidiaries could become liable or obligated.
(f) CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention
of the Buyer to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning of
Reg. Section 1.368-1(d).
(g) SEC DOCUMENTS. The Buyer has filed all required reports,
schedules, forms, statements and other documents with the SEC since January
1, 1998 (the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Securities Exchange Act, as the case may be, the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(h) DISCLOSURE. This Agreement and the Exhibits and Schedules hereto
do no contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they will be made, not misleading.
5. COVENANTS. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in Section 6 below).
(b) NOTICES AND CONSENTS. The Company will give any notices to third
parties, and will use its reasonable best efforts to obtain any third party
consents, that the Buyer reasonably may request in connection with the
matters referred to in Section 3(e) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will give
any notices to, make any filings with, and use its reasonable best efforts to
obtain any authorizations, consents, and
26
approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(e), Section 3(bb), and Section 4(d) above.
Without limiting the generality of the foregoing, the Company will take the
steps necessary to adopt this Agreement and approve the Merger in accordance
with the Delaware General Corporation Law and the Colorado Business
Corporation Act.
(d) OPERATION OF BUSINESS. The Company will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing:
(i) the Company will not authorize or effect any change in
its articles of incorporation or bylaws;
(ii) the Company will not grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or issue,
sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) the Company will not declare, set aside, or pay any
dividend or distribution with respect to its capital stock (whether in
cash or in kind), or redeem, repurchase, or otherwise acquire any of
its capital stock;
(iv) the Company will not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary
Course of Business;
(v) the Company will not impose any Security Interest upon any
of its assets outside the Ordinary Course of Business;
(vi) the Company will not make any capital investment in, make
any loan to, or acquire the securities or assets of any other Person
outside the Ordinary Course of Business;
(vii) the Company will not make any change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business; and
(viii) the Company will not commit to do any of the foregoing.
(e) FULL ACCESS. The Company and the Shareholder will permit
representatives of the Buyer to have full access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records (including
tax records), contracts, and documents of or pertaining to the Company.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of
any of its own representations and warranties in Section 3 and Section 4
above. No disclosure by any Party pursuant to this Section 5(f), however,
27
shall be deemed to amend or supplement the Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
(g) EXCLUSIVITY. The Company will not solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the Buyer of all or substantially all of the capital stock or assets of the
Company (including any Buyer structured as a merger, consolidation, or share
exchange); PROVIDED, HOWEVER, that the Company, and its directors and
officers will remain free to participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in,
or facilitate in any other manner any effort or attempt by any Person to do
or seek any of the foregoing to the extent their fiduciary duties may
require. The Company shall notify the Buyer immediately if any Person makes
any proposal, offer, inquiry, or contact with respect to any of the foregoing.
(h) CONTINUITY OF BUSINESS ENTERPRISE. The Buyer will continue at
least one significant historic business line of the Company, or use at least
a significant portion of the Company's historic business assets in a
business, in each case within the meaning of Reg. Section 1.368-1(d).
(i) LEGEND. The Company and the Shareholder covenant and agree that
fifty percent (50%) of the Buyer Shares will bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF,
BY ACCEPTING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
ISSUER, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (C)
IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN ACCORDANCE WITH ANY OTHER
EXEMPTION UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS UPON THE DELIVERY OF A LEGAL OPINION, REASONABLY
SATISFACTORY TO THE ISSUER, TO THE FOREGOING EFFECT. THE TRANSFER OF THE
SECURITIES IS ALSO RESTRICTED UNDER THE TERMS OF A REGISTRATION RIGHTS
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF ROCKY
MOUNTAIN INTERNET, INC. D/B/A XXX.XXX.
In addition, those Buyer Shares deposited in the Escrow Fund
pursuant to Section 2(d)(viii) above and Section 9(a) below, shall also bear
the following legend during the Escrow Period:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AS SET FORTH IN THAT AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 11, 1999 BY AND AMONG ROCKY MOUNTAIN INTERNET, INC.,
IDEALDIAL CORPORATION, AND XXXXXXX XXXXX.
28
(j) REGISTRATION RIGHTS AGREEMENT. The Company shall agree, and upon
any distribution of the Buyer Shares to the Shareholder, the Shareholder
shall agree, to become a party to and be bound by a Registration Rights
Agreement in the form attached hereto as Exhibit G (the "Registration Rights
Agreement"), setting forth the terms of ownership of the Buyer Shares;
PROVIDED, HOWEVER, that the Shareholder receiving the Buyer Shares shall not
be entitled to any demand registration rights.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the
Requisite Company's Shareholder Approval;
(ii) the Company and the Shareholder shall have procured all
of the third party consents specified in Section 5(b) above;
(iii) the representations and warranties set forth in Section
3 above shall be true and correct in all material respects at and as of
the Closing Date;
(iv) the Company and the Shareholder shall have performed and
complied with all of its covenants hereunder in all material respects
through the Closing;
(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets, and to operate the former
businesses of the Company, (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(vi) the Company shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above
in Sections 6(a)(i)-(v) is satisfied in all respects;
(vii) this Agreement and the Merger shall have received the
requisite Buyer board of director approval;
(viii) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section 5(c);
(ix) the Buyer shall have received from counsel to the Company
an opinion in form
29
and substance as set forth in Exhibit H attached hereto, addressed to
the Buyer, and dated as of the Closing Date;
(x) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of the Company other
than those whom the Buyer shall have specified in writing to the
Company at least five (5) business days prior to the Closing;
(xi) the Buyer and the Seller shall have used their respective
best efforts to obtain the release of the personal guarantees (or
obligations as a co-maker) provided by the Shareholder relating to the
Company's line of credit, equipment leases, and merchant accounts, as
set forth in Exhibit I hereof (the "Shareholder Personal Guarantees");
and
(xii) all actions to be taken by the Company in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if
it executes a writing so stating at or prior to the Closing. It is agreed
that if the Buyer is informed in writing by the Shareholder or the Company at
or before the time of Closing of any breach or non-fulfillment of any
warranty, representation or covenant by the Shareholder or the Company or
non-fulfillment of any condition, and the Buyer does not elect to terminate
this Agreement and proceeds to consummate Closing hereunder, then the Buyer
shall be deemed to have waived its rights with respect to the applicable
warranty, representation, covenant, or condition.
(b) CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SHAREHOLDER. The
obligation of the Company and the Shareholder to consummate the transactions
to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Surviving
Corporation to own the former assets and to operate the former
businesses, (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(iv) the Buyer shall have delivered to the Company and the
Shareholder a certificate
30
to the effect that each of the conditions specified above in Sections
6(b)(i)-(iii) is satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Company's Shareholder Approval;
(vi) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section 5(c) above;
(vii) the Company shall have received from counsel to the
Buyer an opinion in form and substance as set forth in Exhibit J
attached hereto, addressed to the Company and the Shareholder, and
dated as of the Closing Date;
(viii) the Buyer and the Seller shall have used their
respective best efforts to obtain the release of the Shareholder
Personal Guarantees as set forth in Exhibit I hereof; and
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
The Company and the Shareholder may waive any condition specified in
this Section 6(b) if it executes a writing so stating at or prior to the
Closing. It is agreed that if either the Shareholder or the Company is
informed in writing by the Buyer at or before the time of Closing of any
breach or non-fulfillment of any warranty, representation or covenant by the
Buyer or non-fulfillment of any condition, and the Shareholder and the
Company do not elect to terminate this Agreement and proceeds to consummate
Closing hereunder, then the Shareholder and the Company shall be deemed to
have waived its rights with respect to the applicable warranty,
representation, covenant or condition.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors as
provided below:
(i) the Buyer may terminate this Agreement by giving written
notice to the Company at any time prior to the Effective Time (A) in
the event the Company or the Shareholder have breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer has notified the Company of the breach,
and the breach has continued without cure for a period of thirty (30)
days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 11, 1999 (or such later date as agreed upon
by the Parties pursuant to Section 2(b) above), by reason of the
failure of any condition precedent under Section 6(a) hereof (unless
the failure results primarily from the Buyer breaching any
representation, warranty, or covenant contained in this Agreement);
31
(ii) the Company and the Shareholder may terminate this
Agreement by giving written notice to the Buyer at any time prior to
the Effective Time (A) in the event the Buyer has breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Company has notified the Buyer of the breach,
and the breach has continued without cure for a period of thirty (30)
days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 11, 1999 (or such later date as agreed upon
by the Parties pursuant to Section 2(b) above), by reason of the
failure of any condition precedent under Section 6(b) hereof (unless
the failure results primarily from the Company breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) any Party may terminate this Agreement by giving written
notice to the other Party at any time in the event this Agreement and
the Merger fail to receive either the requisite Buyer board of director
approval or the Requisite Company's Shareholder approval.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 7(a) above, the liability of any Party then in breach
shall be agreed to be the amount of $125,000; PROVIDED, HOWEVER, that the
confidentiality provisions contained in Section 8(d) below shall survive any
such termination.
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties 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 8(g) or Section (8)(h) below). The Shareholder acknowledges and
agrees that, from and after the Closing, the Buyer will be entitled to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
(b) 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 Closing Date involving the Company, each of the other Parties
will cooperate with the contesting or defending Party and his or its counsel
in the contest or defense, make available his or its personnel, and provide
such testimony and access to his or its 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 8(g) or
Section 8(h) below).
32
(c) TRANSITION. The Shareholder will not take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Buyer after the Closing
as it maintained with the Company prior to the Closing. The Shareholder will
refer to the Buyer all customer inquiries relating to the businesses of the
Buyer from and after the Closing.
(d) CONFIDENTIALITY. The Shareholder will treat and hold as such all
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in
his/her or its possession. In the event that the Shareholder is requested or
required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Shareholder
will notify the Buyer promptly of the request or requirement so that the
Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 8(d). If, in the absence of a protective order or
the receipt of a waiver hereunder, the Shareholder is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal
or else stand liable for contempt, the Shareholder may disclose the
Confidential Information to the tribunal; PROVIDED, HOWEVER, that the
Shareholder shall use his reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate.
(e) COVENANT NOT TO COMPETE. For a period of two (2) years from and
after the Closing Date, the Shareholder will not (i) engage directly or
indirectly in any business that the Company conducts as of the Closing Date
in any geographic area in which the Company conducts that business as of the
Closing Date, or (ii) solicit any employees of the Company retained by the
Buyer after the Closing Date; PROVIDED, HOWEVER, [that the Shareholder shall
not be prohibited from participating in the business of Universal
Communications Network, Inc.; PROVIDED FURTHER, that the Parties acknowledge
that Xxxx Xxxxx is leaving his employment with the Company and will be
participating in the business of Universal Communications Network, Inc.]; and
PROVIDED, FURTHER, that no owner of less than 1% of the outstanding stock of
any publicly traded corporation shall be deemed to engage solely by reason
thereof in any of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 8(e) is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(f) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing (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 two (2) years
thereafter (subject to any applicable statutes of limitations).
33
(g) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(ii) In the event the Shareholder breaches (or in the event
any third party alleges facts that, if true, would mean the Shareholder
has breached) any of his representations, warranties, and covenants
contained in this Agreement, and, if there is an applicable survival
period pursuant to Section 8(f) above, provided that the Buyer makes a
written claim for indemnification against the Shareholder within such
survival period, then the Shareholder agree to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may
suffer through and after the date of the claim for indemnification
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(iii) The Shareholder agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of the Company which is not reflected on the
Most Recent Financial Statements (including any Liability of the
Company that becomes a Liability of the Buyer under any bulk transfer
law of any jurisdiction, under any Environmental, Health, and Safety
Requirements, for unpaid Taxes, or otherwise by operation of law);
(iv) The Shareholder agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of the Company for Taxes of the Company with
respect to any Tax year or portion thereof ending on or before the
Closing Date, to the extent such Taxes are not reflected in the reserve
for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
shown on the face of the Most Recent Financial Statements (rather than
in any notes thereto), as such reserve is adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns and (b) for the
unpaid Taxes of any Person (other than the Company) under Reg.
ss.1.1502-6 (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
34
(h) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SHAREHOLDER.
(i) In the event the Buyer breaches (or in the event any third
party alleges facts that, if true, would mean the Buyer has breached)
any of its representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to
Section 8(f) above, provided that the Shareholder makes a written claim
for indemnification against the Buyer within such survival period, then
the Buyer agrees to indemnify the Shareholder from and against the
entirety of any Adverse Consequences the Shareholder may suffer through
and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach).
(ii) The Buyer agrees to indemnify the Shareholder from and
against the entirety of any Adverse Consequences the Shareholder may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by any Liability assumed by the Buyer pursuant to the Merger
reflected on the Most Recent Financial Statements and the Shareholder
Personal Guarantees.
(i) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof
in writing; PROVIDED, HOWEVER, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) 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
fifteen (15) 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.
35
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(i)(ii)
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).
(iv) In the event any of the conditions in Section 8(i)(ii)
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
reasonably may deem appropriate (and the Indemnified Party need not
consult with, 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 reasonable 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 8(i).
(j) OTHER INDEMNIFICATION PROVISIONS. The indemnification provisions
set forth in Section 8(g), Section 8(h) and Section 8(i) above are in
addition to, and not in derogation of, any statutory, equitable, or common
law remedy (including without limitation any such remedy arising under
Environmental, Health, and Safety Requirements) any Party may have with
respect to the Company, or the transactions contemplated by this Agreement.
The Shareholder hereby agrees that he will not make any claim for
indemnification against any of the Buyer and its Subsidiaries by reason of
the fact that he was a director, officer, employee, or agent of the Company
or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim
is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is pursuant
to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought
by the Buyer against the Shareholder (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
(k) LIMITATIONS ON INDEMNIFICATION OBLIGATIONS. Notwithstanding the
provisions of Section 8(g) through 8(j) above, neither Party shall be
obligated to indemnify the other Party or Parties, as the case may be, from
and against any Adverse Consequences (A) until such Party or Parties have
suffered Adverse Consequences in excess of $10,000 in the aggregate (after
which point, the Indemnifying Party or Parties will be obligated only to
indemnify the indemnified Party or Parties from and against further Adverse
Consequences) or (B) to the extent that such Adverse Consequences exceeds the
Purchase Price; PROVIDED, HOWEVER, that any claims brought by a Party against
another Party or Parties for fraud shall not be subject to the foregoing
limitations.
36
9. ADDITIONAL AGREEMENTS.
(a) ESCROW FUND. As security for the indemnity of the Buyer by the
Company and the Shareholder provided for in Section 8 above, the Escrow
Shares shall be registered in the name of the Shareholder, and deposited
(with an executed assignment in blank) with Norwest Bank, N.A. as Escrow
Agent such deposit to constitute an escrow fund (the "Escrow Fund") to be
governed by the terms set forth herein and in the escrow agreement to be
signed by all parties thereto (the "Escrow Agreement"). In the event of any
conflict between the terms of this Agreement and the Escrow Agreement, the
terms of the Escrow Agreement shall govern. All costs and fees of the Escrow
Agent for establishing and administering the Escrow Fund shall be borne
equally by the Parties. Upon compliance with the terms hereof, the Buyer
shall be entitled to obtain indemnity first from the Escrow Fund for all
Adverse Consequences covered by the indemnity provided for in Section 8
above. If the Escrow Fund is not sufficient to cover any such Adverse
Consequences covered by Section 8 above, then the Buyer shall be entitled to
seek payment from the Shareholder. The form of the Escrow Agreement is
attached hereto as Exhibit K.
(b) POSSIBLE BENEFITS TO SHAREHOLDER. The Shareholder shall be
entitled to the following:
(i) Following the Closing, the Shareholder shall be entitled
to receive, and Buyer shall pay to the Shareholder, any revenue
collected with respect to accounts receivable of the Company that are
ninety (90) or more days old as of the Closing Date, as more
particularly described on Exhibit L attached hereto (the "Accounts
Receivable"). In connection herewith, the Shareholder shall have the
right to make reasonable attempts to collect such Accounts Receivable,
and shall have reasonable access to all files and records relating
thereto.
(ii) The Shareholder shall be entitled to any and all monetary
judgments awarded to the Company with respect to two (2) lawsuits
currently pending to which the Company is a party, more particularly
described on Exhibit M attached hereto (the "Litigation"). Other than
as provided for in this subsection, the Buyer shall in no way have any
Liability, obligation, or other responsibility with respect to the
Litigation, whether to the Shareholder or to any of the parties to the
Litigation.
(iii) Notwithstanding Section 5(e) hereof, the Shareholder may
conclude certain transactions on behalf of the Company, as approved in
writing by the Buyer, prior to the Closing Date (the "Pre-Closing
Transactions"). A list of the Pre-Closing Transactions is set forth in
Exhibit N hereto. In consideration therefor, the Buyer shall pay an
amount equal to fifty percent (50%) of the average revenue rate for the
Pre-Closing Transactions in April and May, 2000, multiplied by four
(4). Such payment shall be made at the end of the twelve (12) month
period following the Closing Date, and shall consist of registered
shares of common stock of the Buyer based on the closing price per
share of the Buyer's common stock for the ten (10) day period ending on
the day prior to
37
the first anniversary following the Closing Date.
10. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other
Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case
the disclosing Party will use its reasonable best efforts to advise the other
Party prior to making the disclosure).
(b) 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; PROVIDED, HOWEVER, that (i) the
provisions in Section 2 above concerning issuance of the Buyer Shares are
intended for the benefit of the Shareholder and (ii) the provisions in
Section 8 above concerning insurance and indemnification are intended for the
benefit of the individuals specified therein and their respective legal
representatives.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO THE COMPANY:
IdealDial Corp.
000 00xx Xxxxxx, Xxxxx Xxxxx
Xxxxxx, Xxxxxxxx 00000
38
Attention: Mr. Xxxxxxx Xxxxx
COPY TO:
Xxxxx, Johnson, Robinson, Xxxx & Xxxxxxxxx, P.C.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxx, Esq.
IF TO THE SHAREHOLDER:
Xxxxxxx Xxxxx
0000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
COPY TO:
Xxxxx, Johnson, Robinson, Xxxx & Ragonetti, P.C.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxx, Esq.
IF TO THE BUYER:
Rocky Mountain Internet, Inc.
000 00xx Xxxxxx, Xxxxx Tower, 22nd Floor
Denver, Colorado 80202
Attention: Xx. Xxxxxxx X. Xxxxxx
COPIES TO:
Rocky Mountain Internet, Inc.
000 00xx Xxxxxx, Xxxxx Tower, 22nd Floor
Denver, Colorado 80202
Attention: Xx. Xxxxx X. Xxxxxxx
Holland & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000-0000
Attention: Xx. Xxxxx X. Xxxx
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be
deemed to have been
39
duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Colorado without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Colorado.
(i) DISPUTE RESOLUTION. The Parties hereby covenant and agree that,
except as otherwise set forth in this Agreement, any suit, dispute, claim,
demand, controversy or cause of action of every kind and nature whatsoever,
known or unknown, fixed or contingent, that the Parties may now have or at
any time in the future claim to have based in whole or in part, or arising
from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"Disputes") shall be completely and finally settled by submission of any such
Disputes to arbitration under the Commercial Rules of Arbitration of the
American Arbitration Association ("AAA") then in effect. If the parties to
the Dispute are unable to agree on a single arbitrator, then such binding
arbitration shall be conducted before a panel of three (3) arbitrators that
shall be comprised of one (1) arbitrator designated by each party to the
Dispute and a third arbitrator designated by the two (2) arbitrators selected
by the parties to the Dispute. Unless the parties to the Dispute agree
otherwise, the arbitration proceedings shall take place in Denver, Colorado
and the arbitrator(s) shall apply the law of the State of Colorado, USA, to
all issues in dispute, in accordance with Section 10(i) above. The findings
of the arbitrator(s) shall be final and binding on the parties to the
Dispute. Judgment on such award may be entered in any court of appropriate
jurisdiction, or application may be made to that court for a judicial
acceptance of the award and an order of enforcement, as the Party seeking to
enforce that award may elect. Notwithstanding any applicable rules of
arbitration, all arbitral awards shall be in writing and shall set forth in
particularity the findings of fact and conclusions of law of the arbitrator
or arbitrators.
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; PROVIDED,
HOWEVER, that any amendment effected subsequent to Shareholder approval will
be subject to the restrictions contained in the Delaware General Corporation
Law and the Colorado Business Corporation Act. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and
signed by both of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
40
(l) EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(m) 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
otherwise requires. The word "including" shall mean including without
limitation. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein 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 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.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
*****
41
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
ROCKY MOUNTAIN INTERNET, INC.
D/B/A XXX.XXX
By:
---------------------------
Its: Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
IDEALDIAL CORPORATION
By:
---------------------------
Its:
---------------------------
Title:
-------------------------
SHAREHOLDER:
-------------------------------------
XXXXXXX XXXXX
42
