MERGER AGREEMENT
AMONG
ROCKY MOUNTAIN INTERNET, INC.,
A DELAWARE CORPORATION,
RMI ACQUISITION SUBSIDIARY, INC.,
A WASHINGTON CORPORATION,
APPLICATION METHODS, INCORPORATED,
A WASHINGTON CORPORATION,
AND
XXXXXX X. XXXXXXXXX,
XXXXXXX X. XXXXX
AND
XXXXXX XXXXXXX,
SHAREHOLDERS
JUNE 30, 1998
TABLE OF CONTENTS
1. Definitions
2. Basic Transaction
(a) The Merger
(b) The Closing
(c) Actions at the Closing
(d) Effect of Merger
(e) Conversion of Securities
(f) Merger Consideration
(g) Closing of Transfer Records
3. Representations and Warranties Concerning Shareholders
(a) Authorization of Transaction
(b) Application Methods Shares
(c) Receipt of Disclosure Documents
(d) Risk of Loss
(e) Ability to Evaluate Risks and Merits
(f) Suitability of Investment
(g) INTENTIONALLY DELETED
(h) Access to Information
(i) Potential Lack of Liquidity
(j) Lack of Transferability
(k) Shareholders Not Subject to Backup Withholding
(l) Restrictive Legend
(m) Investment Intent
(n) No Intention to Transfer Securities
(o) INTENTIONALLY DELETED
(p) Legal, Accounting and Other Fees and Expenses
4. Representations and Warranties Concerning Application Methods
(a) Organization, Qualification and Corporate Power
(b) Capitalization
(c) Noncontravention
(d) Authorization of Transaction
(e) Title to Assets
(f) Subsidiaries
(g) Financial Statements
(h) Events Subsequent to March 31, 1998
(i) Undisclosed Liabilities
i
(j) Legal Compliance
(k) Tax Matters
(l) Real Property
(m) Intellectual Property
(n) Tangible Assets
(o) Inventory
(p) Contracts
(q) Notes and Accounts Receivable
(r) Powers of Attorney
(s) Insurance
(t) Litigation
(u) Product Warranty
(v) Product Liability
(w) Employees
(x) Employee Benefits
(y) Guaranties
(z) Environmental, Health and Safety Matters
(aa) Certain Business Relationships with Application Methods
(bb) Brokers' Fees
(cc) Representations Regarding Code Sections 368(a)(1)(A) and 368 (a)(2)(E)
(dd) Disclosure
5. Representations and Warranties of RMI and Subsidiary
(a) Organization
(b) Authorization of Transaction
(c) Noncontravention
(d) Brokers' Fees
(e) Expenses
(f) Representations regarding Code Sections 368(a)(1)(A) and 368(a)(2)(E)
6. INTENTIONALLY DELETED
7. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Non-Solicitation
(f) Covenant Not to Compete
(g) Certain Limitation of RMI Shares
(h) Effectiveness of Registration Statement
ii
8. Conditions to Obligation to Close
(a) Conditions to Obligation of RMI and Subsidiary
(b) Conditions of Obligation of Shareholders and Application Methods
9. Remedies for Breaches of This Agreement
(a) Survival of Representations and Warranties
(b) Indemnification Provisions for Benefit of RMI and Subsidiary
(c) Indemnification Provisions for Benefit of Shareholders
(d) Matters Involving Third Parties
(e) Remedies
(f) Limitations on Indemnification
(g) Shareholders Payment Obligations for Indemnification
(h) Other Indemnification Provisions
10. Tax Matters
(a) Tax Return Filing Obligation
(b) Cooperation on Tax Matters
(c) Certain Taxes
11. INTENTIONALLY DELETED
12. Defined Terms
13. Miscellaneous
(a) Press Releases and Public Announcements
(b) No Third-Party Beneficiaries
(c) Entire Agreement
(d) Succession and Assignment
(e) Counterparts
(f) Headings
(g) Notices
(h) Governing Law
(i) Amendments and Waivers
(j) Severability
(k) Construction
(l) Incorporation of Exhibits and Schedules
(m) Submission to Jurisdiction
Exhibit A - Articles and Plan of Merger
Exhibit B - Application Methods and Shareholders Closing Certificate
Exhibit C - RMI and Subsidiary Closing Certificate
iii
Disclosure Schedule - Exceptions to Representations and Warranties
iv
MERGER AGREEMENT
This Merger Agreement ("Agreement") is entered into on June 30, 1998, by
and among Rocky Mountain Internet, Inc., a Delaware corporation ("RMI"), RMI
Acquisition Subsidiary, Inc., a Washington corporation and a wholly-owned
subsidiary of RMI (the "SUBSIDIARY"), Application Methods, Incorporated, a
Washington corporation ("Application Methods") and Xxxxxx X. Xxxxxxxxx, Xxxxxxx
X. Xxxxx and Xxxxxx Xxxxxxx, the Shareholders of Application Methods
(collectively, the "SHAREHOLDERS"). RMI, Subsidiary, Application Methods and
Shareholders are collectively referred to herein as the "PARTIES".
This Agreement contemplates a transaction in which RMI through Subsidiary
will acquire all of the outstanding capital stock of Application Methods for
common stock of RMI delivered to Shareholders through a reverse subsidiary
merger intended to qualify as a reorganization within the meaning of Section
368(a)(1) of the Code where Subsidiary is merged with and into Application
Methods.
The parties acknowledge that prior to the execution of this Agreement and
the Closing contemplated hereby, the Shareholders will cause e-SELL Commerce
Systems, Inc., a Washington corporation, ("e-SELL"), to merge with and into
Applications Methods in a merger intended by the shareholders to qualify as a
reorganization within the meaning of section 368(a)(1) of the Code. The
Shareholders acknowledge that e-SELL was incorporated on December 9, 1997 and
operated as a separate entity under the control of the Shareholders from January
1, 1998 until the merger with Application Methods. The Parties intend any
representations and warranties of Application Methods and of the Shareholders
herein, that may be applicable to the operations of e-SELL during the period of
its independent operation, shall include representations and warranties with
respect to e-SELL to be within the representation and warranties of Application
Methods and the Shareholders given with respect to Application Methods.
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. Capitalized terms used in this Agreement have the
meaning provided in the above preface or in Section 12 below.
2. BASIC TRANSACTION.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, Subsidiary will merge with and into Application Methods (the
"MERGER") at the Effective Time. Application Methods shall be the corporation
surviving the Merger ("SURVIVING CORPORATION").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of RMI's counsel,
Minor & Xxxxx, P.C., 000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx and
by facsimile and telephone with such of the
Parties who are not present at the place of Closing, commencing at 9:00 a.m.
local time on the date hereof, or such other date as the Parties may mutually
determine (the "CLOSING DATE").
(c) ACTIONS AT THE CLOSING. At the Closing, (i) Application Methods will
deliver to RMI and Subsidiary the various certificates, instruments, and
documents referred to in Sections 4(a) and 8(a) below, (ii) RMI and Subsidiary
will deliver to Application Methods the various certificates, instruments, and
documents referred to in Section 8(b) below, (iii) Application Methods and
Subsidiary will file with the Secretary of State of the State of Washington
Articles of Merger substantially in the form attached hereto as EXHIBIT A or
such other form as required by the State of Washington and mutually acceptable
to the parties (collectively the "ARTICLES OF MERGER").
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
Application Methods and Subsidiary file the Articles of Merger with the
Secretary of State of the State of Washington (the "EFFECTIVE TIME"). The
Merger shall have the effect set forth in the Washington Business
Corporation 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 Application Methods or
Subsidiary in order to carry out and effectuate the transactions
contemplated by this Agreement.
(ii) ARTICLES OF INCORPORATION. The Articles of Incorporation of
the Surviving Corporation shall be unchanged by the merger.
(iii) BYLAWS. The Bylaws of the Surviving Corporation shall be
unchanged by the merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of
Subsidiary shall become the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office).
(e) CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any further action on the part of RMI, Subsidiary,
Application Methods or Shareholders, the shares of capital stock of Subsidiary
and Application Methods shall be cancelled or converted as follows:
(i) CAPITAL STOCK OF SUBSIDIARY. Each issued and outstanding
share of capital stock of Subsidiary shall continue to be issued and
outstanding and shall be converted into one share of validly issued,
fully paid and non-assessable common stock of the Surviving Corporation.
Each stock certificate of Subsidiary evidencing ownership of any such
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shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.
(ii) CANCELLATION OF CERTAIN SHARES OF CAPITAL STOCK OF
APPLICATION METHODS. All Application Methods Shares that are owned
directly or indirectly by Application Methods shall be cancelled and no
stock of RMI or other consideration shall be delivered in exchange
therefor.
(iii) CONVERSION OF APPLICATION METHODS SHARES. Each Application
Methods Share (other that the shares cancelled pursuant to Section
2(e)(ii) above) that is issued and outstanding immediately prior to the
Effective Time shall automatically be converted into the right to receive
the Merger Consideration and then cancelled and retired, without any
action on the part of the holders thereof, and each holder of a
certificate representing such Application Methods Shares shall cease to
have any rights with respect thereto, except the right to receive the
Merger Consideration to be paid or issued in consideration therefor upon
the surrender of such certificates representing Application Methods
Shares.
(f) MERGER CONSIDERATION. Shareholders shall receive consideration for
the Merger ("Merger Consideration") based upon an agreed upon RMI Share price of
$8.73 per share as follows:
(i) RMI SHARES AT CLOSING. Subject to the terms and conditions
of this Section and as soon as practicable after Closing, RMI will cause
RMI common stock to be delivered to the Shareholders as follows (the
"CLOSING PURCHASE PRICE"):
Xxxxxx Xxxxxxxxx 95,075 shares of RMI Registrable Shares, and
142,612 shares of RMI Restricted Closing Shares;
Xxxxxxx X. Xxxxx 2,291 shares of RMI Registrable Shares, and
3,436 shares of RMI Restricted Closing Shares;
and
Xxxxxx Xxxxxxx 17,182 shares of RMI Registrable Shares, and
25,773 shares of RMI Restricted Closing Shares.
Of the RMI Shares to be received at Closing, 114,548 shares will be registered
in RMI's Registration Statement currently in review on Form S-1 ("REGISTRABLE
SHARES"). To accomplish this registration, RMI will use its best efforts to
amend the current Form S-1 by August 25, 1998, to include the Shareholders as
selling shareholders as to the number of Registrable Shares allocated to such
shareholder above and to cause the Registration Statement to become effective
before the close of business Pacific Daylight Time on September 30, 1998. The
Shareholders acknowledge and understand that RMI is involved in one or more
confidential negotiations to obtain significant debt financing for its corporate
and strategic purposes. The Shareholders
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further acknowledge and understand that any one or more of several factors or
circumstances relating to such financing, including but not limited to, the
progress of the negotiations for obtaining such financing, the requirements
or demands of the person(s) that may provide such financing, or the schedule
that may ultimately be agreed to for obtaining such financing, may result in
the Registration Statement not being effective by September 30, 1998,
notwithstanding the use by RMI of its best efforts to cause the Registration
Statement to be declared effective by such date. The balance of the 171,821
RMI Shares issued as Closing Purchase Price will not be registered and will
have no rights to registration and will be "restricted" as that term is
defined in Rule 144 of the Securities Act ("RESTRICTED CLOSING SHARES").
In the event that the Registrable Shares are not registered for resale
by the close of business on September 30, 1998, the Shareholders shall have
piggyback rights to register their Registrable Shares in the next registration
statement filed by RMI except for a registration statement filed on Form S-4 or
Form S-8 or other similar inappropriate forms.
(ii) EARN-OUT CONTINGENT SHARES. In addition, the Shareholders will
be entitled to receive an additional number of shares of RMI common stock
(the "CONTINGENT PURCHASE PRICE") to be earned, if at all, based upon
Surviving Corporation obtaining certain financial performance criteria over
the three (3) year period following closing ("EARN OUT PERIOD") as set forth
below. The Contingent Purchase Price would be earned, if at all, in six (6)
month intervals during the Earn Out Period. For each such six (6) month
period beginning the first day of the first full month after closing, RMI
would issue, within forty-five (45) days of the close of such period, that
number of shares of RMI common stock equal to thirty percent (30%) of the net
income before taxes of the Surviving Corporation as determined in accordance
with generally accepted accounting principles ("GAAP"), not to exceed in
total over the Earn Out Period, Two Million Five Hundred Thousand and
No/Dollars ($2,500,000). Any and all RMI common shares issued as the
Contingent Purchase Price will not be registered and will have no rights to
registration and will be "restricted" as that term is defined in Rule 144 of
the Securities Act. RMI common shares to be issued as the Contingent
Purchase Price will be valued based upon the average closing price of the RMI
common stock, rounded to two (2) decimal places, as reported on the NASDAQ
SmallCap National Market or National Market System or other national exchange
then listing RMI Shares for each of the twenty (20) consecutive trading days
for the period ending prior to the end of any six (6) month interval in which
Contingent Purchase Price is earned. No fractional shares of RMI stock (and
no scrip certificates thereof) shall be issued, and any fractional share
interests which would otherwise be issued shall be rounded to the nearest
whole share. If at any time during the Earn Out Period less than Two Million
Five Hundred Thousand and No/Dollars ($2,500,000) of the Contingent Purchase
Price, if any, has been paid to the Shareholders and RMI merges or
consolidates with any other entity in a transaction in which RMI is not the
surviving corporation (other than a merger intended to qualify under section
368(a)(1)(F) of the Code) (a "DISAPPEARING MERGER"), RMI shall notify the
Shareholders, not less than 30 days prior to the Disappearing Merger, of the
possibility of a transaction, including the nature of any consideration that
the Shareholders might receive in satisfaction of any remaining
4
Continent Purchase Price obligation upon consummation of the Disappearing
Merger; provided, however, that RMI shall not be required to notify the
Shareholders if such notification is prohibited by law or pursuant to the
terms of any confidentiality agreement between RMI and another party to the
Disappearing Merger.
(iii) ALLOCATION OF CONTINGENT PURCHASE PRICE. If shares of
RMI common stock are issued as the Contingent Purchase Price, such shares
shall be allocated among the Shareholders as follows:
Xxxxxx Xxxxxxxxx 83% of the Contingent Purchase Shares;
Xxxxxxx X. Xxxxx 2% of the
Contingent Purchase Shares; and
Xxxxxx Xxxxxxx 15% of the
Contingent Purchase Shares.
(iv) CERTAIN LIMITATION OF RMI SHARES. Each Shareholder
shall comply with the limitations set forth in Section 7(g) of this
Agreement.
(g) CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Application Methods Shares outstanding prior to
the Effective Time shall not be made on the stock transfer books of the
Surviving Corporation. If any certificates representing such shares are so
presented to the Surviving Corporation, they shall be cancelled and the only
right of the holder of such Certificate shall be to share in the Merger
Consideration.
3. REPRESENTATIONS AND WARRANTIES CONCERNING SHAREHOLDERS. To induce
RMI and Subsidiary to enter into this Agreement and consummate this
transaction, each of the Shareholders represents and warrants to RMI and
Subsidiary that the statements contained in this Section 3 are true, correct
and complete as of the date of this Agreement, except as set forth in the
Disclosure Schedule delivered by Shareholders to RMI and Subsidiary on the
date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"). Nothing
in a particular section of the Disclosure Schedule shall be deemed adequate
to disclose an exception to another representation or warranty made in this
Merger Agreement, unless such section of the Disclosure Schedule identifies
the exception with particularity which shall include specific cross
references. The Disclosure Schedule will be arranged in Sections
corresponding to the lettered and numbered paragraphs and subparagraphs
contained in this Section 3.
(a) AUTHORIZATION OF TRANSACTION. Shareholders have the legal
capacity and the full power and authority to execute and deliver this
Agreement and to perform the obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of each of the
Shareholders,
5
enforceable in accordance with its terms and conditions. Shareholders need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(b) APPLICATION METHODS SHARES. Each individual Shareholder holds of
record and owns beneficially all of the Application Methods Shares set forth
next to his name in Section 3(b) of the Disclosure Schedule, free and clear
of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, security interests,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Shareholders, and each individual Shareholder, are not
individually or collectively a party to any option, warrant, purchase right,
or other contract or commitment that could require Application Methods or
Shareholders to sell, transfer, or otherwise dispose of any capital stock of
Application Methods (other than this Agreement). Shareholders, and each
individual Shareholder, are not individually or collectively a party to any
voting trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of Application Methods.
(c) RECEIPT OF DISCLOSURE DOCUMENTS. The Shareholders have received
and reviewed, and understand the information contained in, the documents
identified below filed by RMI (collectively, the "Disclosure Documents"). In
evaluating the suitability of the Merger and the resulting acquisition of the
Registrable Shares and all other RMI Shares and rights, whether contingent or
fixed, to receive RMI Shares (collectively the "SECURITIES") (the Merger and
resulting acquisition of the Securities hereinafter referred to as the
"INVESTMENT IN THE SECURITIES"), the Shareholders have not relied upon any
representations or other information (whether oral or written) from RMI, its
officers, directors, or employees or from any other person other than as set
forth in the Disclosure Documents and except in connection with such
inquiries as are contemplated in subsection (h) below.
The Disclosure Documents are: (i) RMI's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1996 and the consolidated financial
statements and schedules of RMI included therein, audited by Xxxxx, Xxxxx &
Xxxxxx, Certified Public Accountants, and McGladrey & Xxxxxx, LLP, Certified
Public Accountants, as set forth in their reports with respect thereto, as
amended by Form 10-KSB/Amendment No. 1, filed April 18, 1997 and Form
10-KSB/A-2, filed April 30, 1997; (ii) RMI's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997; (iii) RMI's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1997; (iv) RMI's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1997; (v) RMI's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997; (vi) RMI's Quarterly
Report on Form 10-QSB for the quarter ended March 31, 1998; (vii) RMI's
Current Report on Form 8-K filed January 28, 1997 (date of event reported:
January 21, 1997); (viii) RMI's Current Report on Form 8-K filed March 24,
1997 (date of event reported: March 21, 1997); (ix) RMI's Current Report on
Form 8-K filed August 21, 1997 (date of event reported: August 15, 1997); (x)
RMI's Current Report on Form 8-K filed October 1, 1997 (date of event
reported: September 17, 1997) (xi) RMI's
6
Current Report on Form 8-K filed October 6, 1997 (date of event reported:
October 1, 1997); (xii) definitive Proxy Statement dated February 13, 1998;
(xiii) RMI's Form S-1 Registration Statement filed May 15, 1998; (xiv) RMI's
Current Report on Form 8-K filed June 11, 1998 (date of event reported: June
5, 1998); and (xv) such other documents filed by RMI prior to Closing.
The Shareholders understand and acknowledge that the Proxy Statement
and Form S-1 Registration Statement referred to above include financial
statements as of, and for the periods ended, December 31, 1996, March 31,
1997, June 30, 1997, and September 30, 1997, which financial statements
restated results of operations and balance sheets previously contained in
RMI's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996, Quarterly Report on Form 10-QSB for the quarter ended March 31, 1997,
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997, and
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997.
(d) RISK OF LOSS. Except for the Registrable Shares, each of the
Shareholders represents as to himself that he is in a financial position to
hold the Securities for an indefinite period of time and is able to bear the
economic risk and withstand a complete loss of his investment in the
Securities.
(e) ABILITY TO EVALUATE RISKS AND MERITS. The Shareholders, either
alone or with the assistance of the Shareholders' own professional advisors,
have such knowledge and experience in financial and business matters that the
Shareholders are capable of evaluating the merits and risks of an investment
in the Securities and have the capacity to protect the Shareholders' own
individual interests in connection with an investment in the Securities and
each Shareholder has the net worth to undertake such risks.
(f) SUITABILITY OF INVESTMENT. The Shareholders have obtained, to
the extent the Shareholders deem necessary, each individual Shareholder's own
personal professional advice with respect to the risks inherent in the
investment in the Securities and the suitability of an investment in the
Securities in light of each individual Shareholder's financial condition and
investment needs.
(g) INTENTIONALLY DELETED
(h) ACCESS TO INFORMATION. The Shareholders have been given access to
the Disclosure Documents of RMI and have utilized such access to the
Shareholders' satisfaction, for the purposes of asking questions and
receiving answers concerning the terms and conditions of the Merger
(including the offering of the Securities in connection with the Merger) or
verifying the information included in the Disclosure Documents and obtaining
any of the documents described in the Disclosure Documents. Each of the
Shareholders has been given the opportunity to ask questions of, and to
receive answers from, representatives of RMI to
7
obtain information concerning the Merger and to receive any additional verbal
information, to the extent reasonably available, necessary to verify the
accuracy of information provided in the Disclosure Documents.
(i) POTENTIAL LACK OF LIQUIDITY. The Shareholders recognize that RMI
has not been profitable since its inception and that an investment in the
Securities involves a high degree of risk, including, but not limited to, the
risk of loss of 100% of the Shareholders' investment in the Securities; and
the Shareholders further recognize that trading in RMI's common stock has
been inactive until only recently. There can be no assurance that an active
market can or will be maintained for the trading of the Securities. The
Shareholders may, therefore, find it difficult to dispose of the Securities.
(j) LACK OF TRANSFERABILITY. The Shareholders realize that (i) the
investment in the Securities, excluding the Registrable Shares, is a
long-term investment; (ii) the purchaser of the Securities must bear the
economic risk of investment for an indefinite period of time because the
Securities have not been and, other than the Registrable Shares, upon
effectiveness, will not be registered under the Securities Act, or under the
securities laws of any state and, therefore, other than the Registrable
Shares, upon effectiveness, such Securities cannot be resold unless they are
subsequently registered under said laws or exemptions from such registrations
are available; (iii) the transferability of such Securities, other than the
Registrable Shares, upon effectiveness, is restricted and requires conformity
with the restrictions contained in subsection (m) and Section 7(g) below; and
(iv) legends will be placed on the certificate(s) representing the Securities
referring to the applicable restrictions on transferability.
(k) SHAREHOLDERS NOT SUBJECT TO BACKUP WITHHOLDING. Each
Shareholder, individually and on his own behalf, certifies, under penalty of
perjury, that he is not subject to the backup withholding provisions of
Section 3406 of the Code.
(l) RESTRICTIVE LEGEND. The Shareholders acknowledge and understand
that a legend will be placed on any certificate representing the Securities
(including any Registrable Shares prior to the time that Registrable Shares
are registered) substantially to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A
CURRENT AND EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT WITH
RESPECT TO SUCH SECURITIES, OR EXCEPT (i) IN A TRANSACTION REGISTERED
UNDER THE ACT, (ii) IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE
8
ACT OR (iii) FOLLOWING RECEIPT OF AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER
THE ACT.
(m) INVESTMENT INTENT. The Shareholders have been advised that the
Securities have not been and, other than the Registrable Shares, will not be
registered under the Securities Act, or applicable state securities laws, that
the Securities are being offered and sold pursuant to and in reliance on
exemptions from the registration requirements of such laws, and RMI's reliance
upon such exemptions is predicated in part on the Shareholders' representations
as contained herein. The Shareholders represent and warrant that, other than
the Registrable Shares, the Securities are being acquired for the Shareholders'
individual accounts, for investment purposes only, and without the intention of
reselling or redistributing the same other than in accordance with Section
2(f)(i) of this Agreement, transactions not involving a "sale" as that term is
defined in and interpreted under Section 2(a)(3) of the Securities Act or as
disclosed on Sections 3(m) and 4(p), number 8, of the Disclosure Schedule, and
except for the foregoing, the Shareholders have made no agreement with others
regarding any of the Securities; and the Shareholders' financial condition is
such that it is not likely that it will be necessary to dispose of any
Securities other than the Registrable Shares in the foreseeable future. The
Shareholders further represent and agree that if, contrary to the foregoing
intentions, the Shareholders should later desire to dispose of or transfer any
of the Securities other than the Securities to be registered, in any manner,
they shall not do so except (i) in a transaction registered under the Securities
Act, (ii) in a transaction exempt from the registration requirements of the
Securities Act, or (iii) following receipt of an opinion of counsel satisfactory
to the issuer to the effect that registration is not required under the
Securities Act.
(n) NO INTENTION TO TRANSFER SECURITIES. Except with respect to the
Registrable Shares, transactions not involving a "sale" as that term is defined
in and interpreted under Section 2(a)(3) of the Securities Act and as disclosed
on Sections 3(m) and 4(p), number 8, of the Disclosure Schedule, the
Shareholders represent and warrant that the Securities are being acquired by the
Shareholders in the individual Shareholder's name solely for the individual
Shareholder's own beneficial interest and not as nominee for, or on behalf of,
or for the beneficial interest of, or with the intention to transfer to, any
other person, trust, or organization.
(o) INTENTIONALLY DELETED.
(p) LEGAL, ACCOUNTING AND OTHER FEES AND EXPENSES. Shareholders
acknowledge that all of Application Method's legal, accounting and other fees,
costs and expenses associated with this transaction shall be paid by the
individual Shareholders and shall not be the obligation of Application Methods
except that RMI shall be responsible for up to $6,000 to be used for 1996
audited Financial Statements to be prepared by the accountant for Application
Methods.
9
In addition, the Shareholders shall be solely responsible for any and all
brokerage or finder's fees as a result of this Merger, including but not
limited to any and all amounts owed to Windswept Capital LLC. This
representation is made without regard to the limitations on indemnification
set forth in Section 9(f) of this Agreement.
4. REPRESENTATIONS AND WARRANTIES CONCERNING APPLICATION METHODS. To
induce RMI and Subsidiary to enter into this Agreement and consummate this
transaction, each of the Shareholders, jointly and severally, represent and
warrant to RMI and Subsidiary that the statements contained in this Section 4
are true, correct and complete as of the date of this Agreement as set forth
in the Disclosure Schedule delivered by Shareholders to RMI and Subsidiary on
the date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE").
Nothing in a particular section of the Disclosure Schedule shall be deemed
adequate to disclose an exception to another representation or warranty made
in this Merger Agreement, unless such section of the Disclosure Schedule
identifies the exception with particularity which shall include any specific
cross-references. The Disclosure Schedule will be arranged in Sections
corresponding to the lettered and numbered paragraphs and subparagraphs
contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Application
Methods is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Application
Methods is duly authorized to conduct business and is in good standing under
the laws of each jurisdiction where such qualification is required other than
where the failure to be duly qualified would not have a material adverse
effect. Application Methods has full power and authority and all material
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it
other than where the failure to have such would not have a material adverse
effect. Section 4(a) of the Disclosure Schedule lists the directors and
officers of Application Methods. Shareholders have delivered to RMI and
Subsidiary true, correct and complete copies of (i) Application Method's
Articles of Incorporation, as certified by the Secretary of State of the
State of Washington within sixty (60) days of Closing, and recertified by the
Chief Executive Officer of Application Methods on the Closing Date, (ii)
bylaws (as amended to date) as certified by the Chief Executive Officer of
Application Methods on the Closing Date, (iii) minute books (containing the
records of meetings of the Shareholders, the board of directors, and any
committees of the board of directors) as certified by the Chief Executive
Officer of Application Methods on the Closing Date, and (iv) stock
certificate books, and stock record books of Application Methods, as
certified by the Chief Executive Officer on the Closing Date. Application
Methods is not in default under or in violation of any provision of its
Articles of Incorporation or bylaws. Application Methods has no
predecessors, except e-SELL.
(b) CAPITALIZATION. The entire authorized capital stock of Application
Methods consists of 50,000 Application Methods Shares, of which 1,000
Application Methods Shares are issued and outstanding. All of the issued and
outstanding Application Methods Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by
10
Shareholders as set forth in Section 4(b) of the Disclosure Schedule. There
are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or commitments that could require Application Methods to issue, purchase,
acquire, sell, or 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 Application Methods. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the capital stock of Application Methods.
(c) NONCONTRAVENTION. Except as set forth on Section 4(c) of the
Disclosure Schedule, 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 Application Methods is
subject which would have a material adverse effect or any provision of the
Articles of Incorporation or bylaws of Application Methods 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 Application Methods
is a party or by which it is bound or to which any of its assets is subject
which would have a material adverse effect (or result in the imposition of
any security interest upon any of its assets). Except as set forth on Section
4(c) of the Disclosure Schedule, Application Methods need not give any notice
to, make any filing with, or obtain any authorization, consent or approval of
any governmental agency in order for the Parties to consummate the
transaction contemplated by this Agreement.
(d) AUTHORIZATION OF TRANSACTION. Application Methods has the full power
and authority to execute and deliver this Agreement and to perform the
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Application Methods, enforceable in accordance with its terms and
conditions.
(e) TITLE TO ASSETS. Except as set forth on Section 4(e) of the
Disclosure Schedule, Application Methods 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 March 31, 1998 Balance Sheet or acquired
after the date thereof, free and clear of all security interests, except for
properties and assets disposed of in the Ordinary Course of Business since
the March 31, 1998 Balance Sheet.
(f) SUBSIDIARIES. There are not now nor have there ever been any
subsidiaries of Application Methods.
(g) FINANCIAL STATEMENTS. Application Methods and Shareholders have
provided, copies of the following financial statements (i) audited balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal years ended December 31, 1996 for
11
Application Methods and December 31, 1997 combined for Application Methods
and e-SELL (collectively the "AUDITED FINANCIAL STATEMENTS"); (ii) unaudited
balance sheets and statements of income as of and for the fiscal year ended
December 31, 1995; (iii) unaudited balance sheets and statements of income
for the calendar quarter ended March 31, 1998 and for the five-month period
commencing January 1, 1998 and ending May 31, 1998 combined for Application
Methods and e-SELL, and (iv) accounts payable, accounts receivable, cash
balances, and loan and line of credit balances current within seven (7)
business days of Closing with notes as to any material changes since such
date (the financial statements in subparagraphs (ii)-(iv) are collectively
referred to as the "UNAUDITED FINANCIAL STATEMENTS"). The Audited Financial
Statements and the Unaudited Financial statements are collectively referred
to as the "FINANCIAL STATEMENTS". The Audited 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 Application Methods as of such dates and the results
of operations of Application Methods for such periods. To the Knowledge of
the Shareholders, the Financial Statements are consistent with the books and
records of Application Methods (which books and records have been prepared in
good faith by Application Methods).
(h) EVENTS SUBSEQUENT TO MARCH 31, 1998. Except as set forth on Section
4(h) of the Disclosure Schedule, since March 31, 1998, there has not been any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of Application Methods. Without
limiting the generality of the foregoing since that date:
(i) Application Methods has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) Application Methods has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) involving more than $10,000 or outside the Ordinary
Course of Business;
(iii) Application Methods has not accelerated, terminated, modified,
or cancelled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than
$10,000 to which Application Methods is a party or by which it is bound;
(iv) Application Methods has not imposed any security interest upon
any of its assets, tangible or intangible;
(v) Application Methods has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$10,000 or outside the Ordinary Course of Business;
12
(vi) Application Methods has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and
acquisitions);
(vii) Application Methods has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either
involving more than $10,000 or outside the Ordinary Course of Business;
(viii) Application Methods has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) Application Methods has not cancelled, compromised, waived, or
released any right or claim (or series of related rights and claims);
(x) Application Methods has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property outside the
Ordinary Course of Business;
(xi) there has been no change made or authorized in the Articles of
Incorporation or bylaws of Application Methods;
(xii) Application Methods has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) Application Methods has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiv) Application Methods has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property;
(xv) Application Methods has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) Application Methods has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified
the terms of any existing such contract or agreement outside the Ordinary
Course of Business;
13
(xvii) Application Methods has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) Application Methods has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) Application Methods has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) Application Methods has not made or pledged to make any
charitable or other capital contribution;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving Application Methods; and
(xxii) Application Methods has not committed to any of the
foregoing.
(i) UNDISCLOSED LIABILITIES. Except as set forth on Section 4(i) of the
Disclosure Schedule, Application Methods has no Liability (and there is, to the
Knowledge of the Shareholders, no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
Application Methods giving or that could give rise to any Liability), except for
(i) Liabilities set forth on the face of the March 31, 1998 Balance Sheet and in
any notes, thereto; and, (ii) Liabilities which have arisen after the March 31,
1998 Balance Sheet in the Ordinary Course of Business.
(j) LEGAL COMPLIANCE. To the Knowledge of the Shareholders, Application
Methods' predecessors and Application Methods have complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state or local
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against Application Methods alleging any failure so to comply
other than where the failure to comply would not have a material adverse effect.
(k) TAX MATTERS. Except as set forth on Section 4(k) of the Disclosure
Schedule:
(i) Application Methods has filed all Tax Returns that it was
required to file except where such failure to file would not have a
material adverse effect. All such Tax Returns were true, correct and
complete in all material respects. All Taxes shown as due on such Tax
Returns have been paid. Application Methods currently is not the
beneficiary
14
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
Application Methods 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 Application Methods that arose in connection with
any failure (or alleged failure) to pay any Tax.
(ii) Application Methods has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other
third party.
(iii) Neither Shareholders nor any director or officer (or employee
responsible for Tax matters) of Application Methods expects 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
Application Methods either (A) claimed or raised by any authority in
writing or (B) as to which the Shareholders, directors and officers (and
employees responsible for Tax matters) of Application Methods has
Knowledge based upon personal contact with any agent of such authority.
Section 4(k) of the Disclosure Schedule lists all federal, state, and
local income Tax Returns filed with respect to Application Methods for
taxable periods ended on or after December 31, 1995, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that
currently are the subject of audit. Shareholders have delivered to RMI
correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by Application Methods since December 31, 1995.
(iv) Application Methods 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) Application Methods has not made any payments, is not obligated
to make any payments, or is not a party to any agreement that under
certain circumstances could obligate it to make any payments that will
not be deductible under Section 280G of the Code. Application Methods 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 Section 6662 of the Code. Application Methods
is not a party to any Tax allocation or sharing agreement. Application
Methods (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return or (B) has no Liability for the
Taxes of any Person (except e-SELL) under Reg. Section 1.1502-6 (or any
similar provision of state or local law), as a transferee or successor,
by contract, or otherwise.
(vi) Section 4(k) of the Disclosure Schedule sets forth the
following information with respect to Application Methods as of the most
recent practicable date: (A) the basis of Application Method's assets;
(B) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution
15
allocable to Application Methods; and (C) the amount of
any deferred gain or loss allocable to Application Methods.
(vii) In the reasonable opinion of Application Methods, the unpaid
Taxes of Application Methods (A) did not, as of the March 31, 1998
Balance Sheet, 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 March 31,
1998 Balance Sheet (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
Application Methods in filing its Tax Returns.
(l) REAL PROPERTY.
(i) Application Methods does not own and has never owned any real
property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to Application Methods.
Shareholders have delivered to RMI correct and complete copies of the
leases and subleases listed in Section 4(l)(ii) of the Disclosure
Schedule (as amended to date). Except as set forth on Section 4(l)(ii)
of the Disclosure Schedule, with respect to each lease and sublease
listed in Section 4(l)(ii) of the Disclosure Schedule, to the Knowledge
of the Shareholders:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) 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;
(C) 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;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) Application Methods has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest
in the leasehold or subleasehold;
16
(G) 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;
(H) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of
said facilities; and
(I) the owner of the facility leased or subleased has good
and marketable title to the parcel of real property, free and clear
of any security interest, easement, covenant, or other restriction,
except for installments of special assessments not yet delinquent
and recorded easements, covenants, and other restrictions which do
not impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto.
(m) INTELLECTUAL PROPERTY.
(i) Application Methods owns or has the rights to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary and appropriate for the operation of the business of
Application Methods as presently conducted. Each item of Intellectual
Property owned or used by Application Methods immediately prior to the
Closing hereunder, as set forth on Section 4(m) of the Disclosure
Schedule, will be owned or available for use by RMI, Surviving
Corporation or any affiliate thereof on identical terms and conditions
immediately subsequent to the Closing hereunder. Application Methods
has taken all appropriate actions to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) Application Methods has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and Shareholders have not received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including
any claim that Application Methods must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of
Shareholders, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with (nor has any of
the foregoing been threatened) any Intellectual Property rights of
Application Methods that has not been resolved in the Ordinary Course
of Business without any further obligations to Applications Methods.
(iii) Section 4(m) of the Disclosure Schedule identifies each patent
or registration which has been issued to Application Methods with respect
to any of its Intellectual Property, identifies each pending patent
application or application for registration which Application Methods has
made with respect to any of its Intellectual Property, and
17
identifies each license, agreement, or other permission which Application
Methods has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions) not including any
licenses to products of Application Methods in the Ordinary Course of
Business substantially consistent with the form attached to Section 4(m)
of the Disclosure Schedule. Shareholders have delivered to RMI true,
and complete copies of all such patents, registrations, pending
applications, licenses, agreements, and permissions (as amended to date)
and have made available to RMI true, correct and complete copies of all
other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Section 4(m) of the Disclosure
Schedule also identifies each trade name or unregistered trademark
used by Application Methods in connection with any of its business.
With respect to each item of Intellectual Property required to be
identified in Section 4(m) of the Disclosure Schedule:
(A) Application Methods possesses all right, title, and
interest in and to the item, free and clear of any license, or other
restriction outside the Ordinary Course of Business;
(B) Application Methods possesses all right, title and
interest in and to the item free and clear of any Security Interest;
(C) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(D) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of the Shareholders, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(E) Application Methods has not agreed to indemnify any Person
for or against any interference, infringement, misappropriation, or
other conflict with respect to its Intellectual Property services
and products except as provided in the Ordinary Course of Business.
(iv) Except for all off-the-shelf third party software used in the
Ordinary Course of Business, which Application Methods and the
Shareholders shall not specifically identify, Section 4(m) of the
Disclosure Schedule identifies each item of Intellectual Property that
any third party owns and that Application Methods uses pursuant to
license, sublicense, agreement, or permission. Shareholder has delivered
to RMI true, 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 4(m) of the Disclosure Schedule:
18
(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;
(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, to the Knowledge
of the Shareholders, is threatened which challenges the legality,
validity, or enforceability of the underlying item of Intellectual
Property; and
(H) Application Methods has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
(v) The Shareholders and Applications Methods do not expect
Application Methods to 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 businesses as
presently conducted.
(n) TANGIBLE ASSETS. Except as set forth on Section 4(n) of the
Disclosure Schedule, Application Methods owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its businesses as presently conducted. Except as set forth on Section 4(n) of
the Disclosure Schedule, each such tangible asset is free from patent
defects, has been maintained in accordance with normal industry practice, is
in good operating condition and repair, and is suitable for the purposes for
which it presently is used, all subject to normal wear and tear.
19
(o) INVENTORY. Except as set forth on Section 4(o) of the Disclosure
Schedule, the inventory of Application Methods consists of certain software
products previously disclosed to RMI which conform in all material respects with
their product description or specifications.
(p) CONTRACTS. Section 4(p) of the Disclosure Schedule lists the
following contracts and other agreements to which Application Methods 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 per annum;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, or the
furnishing or receipt of software or other Intellectual Property, the
performance of which will extend over a period of more than one year,
result in a loss to Application Methods, or involve consideration in
excess of $25,000;
(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;
(v) any agreement concerning confidentiality or noncompetition
currently in effect which are substantially different from the forms
attached to Section 4(p) of the Disclosure Schedule;
(vi) any agreement with Shareholders or Affiliates (other than
Application Methods);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $40,000 or providing severance benefits;
20
(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 an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of
Application Methods; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Shareholders have delivered to RMI a true, correct and complete
copy of each written agreement or form agreement listed in Section 4(p) of
the Disclosure Schedule and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 4(p) of the
Disclosure Schedule. With respect to each such agreement, to the Knowledge of
the Shareholders: (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 in identical terms
following the consummation of the transaction 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.
(q) NOTES AND ACCOUNTS RECEIVABLE. Except as set forth Section 4(q) of
the Disclosure Schedule, all notes and accounts receivable of Application
Methods as of June 20, 1998 are reflected properly on the books and records,
are valid receivables subject to no setoffs or counterclaims, are current
and, to the Knowledge of the Shareholders, will be collected in accordance
with their terms at their recorded amounts consistent with the past debt
payment and collection experience of Application Methods.
(r) POWERS OF ATTORNEY. Except as set forth on Section 4(r) of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of Application Methods.
(s) INSURANCE. Section 4(s) 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 Application Methods has been a party, a
named insured, or otherwise the beneficiary of coverage at any time within the
past two (2) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
21
(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, to the Knowledge of
Shareholders: (A) the policy is legal, valid, binding, enforceable, and in full
force and effect; (B) the policy will continue to be legal, valid, enforceable,
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby; (C) neither Application Methods 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. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting
Application Methods.
(t) LITIGATION. Section 4(t) of the Disclosure Schedule sets forth each
instance in which Application Methods (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of Shareholders, 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 or local
jurisdiction or before any arbitrator. Except as set forth of Section 4(t) of
the Disclosure Schedule, none of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4(t) of the Disclosure Schedule could
reasonably be expected to result in a material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
Application Methods. None of the Shareholders has any reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against Application Methods.
(u) PRODUCT WARRANTY. To the Knowledge of Shareholders, each product
manufactured, sold, licensed, or delivered by Application Methods has been in
conformity with all applicable contractual commitments and all express and
implied warranties, and except as set forth in Section 4(u) of the Disclosure
Schedule, Application Methods has no Liability (and to the Knowledge of
Shareholders, there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
Application Methods giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith. Except as set forth on Section
4(u) of the Disclosure Schedule, no product manufactured, sold, licensed, or
delivered by Application Methods is subject to any guaranty, warranty, or other
indemnity beyond
22
the applicable standard terms and conditions of sale or license. Section 4(u)
of the Disclosure Schedule includes copies of standard terms and conditions
of sale or license for Application Methods (containing applicable guaranty,
warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. To the Knowledge of Shareholders, Application
Methods has no Liability (and there is, to the Knowledge of Shareholders, no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against Application Methods
giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, licensed, or delivered by Application Methods.
(w) EMPLOYEES. To the Knowledge of the Shareholders, no executive, key
employee, or group of employees has any plans to terminate employment with
Application Methods. Application Methods is not a party to or bound by any
collective bargaining agreement, nor has Application Methods experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. Application Methods has not committed any unfair labor
practice. None of the Shareholders has any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of Application Methods.
(x) EMPLOYEE BENEFITS.
(i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that Application Methods maintains or to which Application
Methods contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in
all material respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code Section 4980B
have been met with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or
before the Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance with the
past custom and practice of Application Methods. All
23
premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Section 401(a) and such Plan has been adopted and
maintained under a standardized prototype. To the Knowledge of
Shareholders, there are no facts that would result in
disqualification of any Employee Benefit Plan.
(E) Application Methods has no Employee Benefit Plan which is
a defined benefit Employee Pension Benefit Plan.
(F) Shareholders have delivered to RMI correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, funding agreements and other
relevant correspondence and documents initiating the participation
of Application Methods in its Employee Benefit Plan received by
Application Methods prior to Closing.
(ii) With respect to each Employee Benefit Plan that Application
Methods maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to
contribute there have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. To the Knowledge of Shareholders, no
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan. To the
Knowledge of the Shareholders, no action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened. None of the Shareholders has
any Knowledge of any Basis for any such action, suit, proceeding,
hearing, or investigation.
(iii) Application Methods has never contributed to, or ever has been
required to contribute to any Multi-employer Plan or has any Liability
(including withdrawal Liability) under any Multi-employer Plan.
(iv) Application Methods does not maintain or has never maintained
or contributes, ever has contributed, or ever has been required to
contribute to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Section 4980B).
24
(y) GUARANTIES. Application Methods is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness), of any other
Person, except as set forth on Section 4(y) of the Disclosure Schedule.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. Except as set forth on
Section 4(z) of the Disclosure Schedule to the Knowledge of the Shareholders:
(i) Application Methods has complied and is in compliance with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, Application
Methods has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of its
facilities and the operation of its business Section 4(z)(ii) of the
Disclosure Schedule list all such permits, licenses and other
authorizations.
(iii) Application Methods has not received any written or oral
notice, report or other information regarding any actual or alleged
violation of Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any investigatory,
remedial or corrective obligations, relating to any of them or its
facilities arising under Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or facility owned
or operated by Application Methods: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(v) Application Methods has not treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or
released any substance, including without limitation any hazardous
substance, or owned or operated any property or facility (and no such
property or facility is contaminated by any such substance) in a manner
that has given or would give rise to liabilities, including any liability
for response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for
site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any of the
25
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(vii) Application Methods has not, either expressly or by
operation of law, assumed or undertaken any liability, including without
limitation any obligation for corrective or remedial action, of any other
Person relating to Environmental, Health, and Safety Requirements.
(viii) No facts, events or conditions relating to the past or
present facilities, properties or operations of Application Methods will
prevent, hinder or limit continued compliance with Environmental, Health,
and Safety Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to Environmental, Health, and Safety
Requirements, or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH APPLICATION METHODS. Except
as set forth on Section 4(aa) of the Disclosure Schedule, the Shareholders
and their Affiliates have not been involved in any business arrangement or
relationship with Application Methods within the past twelve (12) months, and
Shareholders and their Affiliates do not own any asset, tangible or
intangible, which is used in the business of Application Methods.
(bb) BROKERS' FEES. Application Methods has no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement. Any
liability for such fees is the sole obligation of the Shareholders.
(cc) REPRESENTATIONS REGARDING CODE SECTIONS 368(a)(1)(A) AND
368(a)(2)(E). Following the transaction contemplated hereby, Surviving
Corporation will hold immediately following the transaction at least seventy
percent (70%) of the fair market value of Application Methods' gross assets
prior to the transaction contemplated hereby and at least ninety percent
(90%) of the fair market value of Application Methods' net assets prior to
the transaction contemplated hereby. For purposes of this representation,
amounts paid by Application Methods or Subsidiary to dissenters, amounts used
by Application Methods or Subsidiary to pay reorganization expenses, and all
redemptions and distributions (except regular and normal dividends) made by
Application Methods will be included as assets of Application Methods or
Subsidiary, respectively, immediately prior to the transaction. Application
Methods is not an investment company as defined in Section 368(a)(2)(F)(iii)
and (iv) of the Code.
26
(dd) DISCLOSURE. The representations and warranties contained in
this Section 4 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. REPRESENTATIONS AND WARRANTIES OF RMI AND SUBSIDIARY. Each of RMI
and Subsidiary represents and warrants to Application Methods and
Shareholders that the statements contained in this Section 5 are true,
correct and complete as of the Closing Date.
(a) ORGANIZATION. Each of RMI and Subsidiary is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. Each of RMI and Subsidiary has 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 each of RMI and Subsidiary enforceable in
accordance with its terms and conditions.
(c) RMI SHARES. The RMI Shares representing the Merger
Consideration, when issued pursuant to this Agreement and in reliance upon
the representations of the Shareholders and Application Methods in Sections 3
and 4, will be validly issued, fully paid and nonassessable.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which RMI or Subsidiary is subject or by
which any of their assets are bound or any provision of their respective
charters or bylaws.
(e) BROKERS' FEES. Neither RMI nor Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
Shareholders could become liable or obligated.
(f) EXPENSES. Each of RMI and Subsidiary acknowledges that all costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and consummation of the transactions contemplated hereby are
the sole responsibility of each such entity and each of RMI and Subsidiary
will pay their respective costs and expenses. This representation is made
without regard to the limitations on indemnification set forth in Section
9(f) of this Agreement.
(g) REPRESENTATIONS REGARDING CODE SECTIONS 368(a)(1)(A) AND
368(a)(2)(E).
(i) Following the transaction contemplated hereby, Surviving
Corporation will hold immediately following the transaction at least
seventy percent (70%) of the fair market value of Application Methods'
gross assets prior to the transaction contemplated hereby and at least
ninety percent (90%) of the fair market value of Application Methods' net
27
assets prior to the transaction contemplated hereby. For purposes of
this representation, amounts paid by Application Methods or Subsidiary to
dissenters, amounts used by Application Methods or Subsidiary to pay
reorganization expenses, and all redemptions and distributions (except
regular and normal dividends) made by Application Methods will be
included as assets of Application Methods or Subsidiary, respectively,
immediately prior to the transaction.
(ii) Prior to the transaction, RMI will be in control of Subsidiary
within the meaning of Section 368(c)(1) of the Code.
(iii) RMI has no plan or intention to issue additional shares of
Surviving Corporation stock that would result in RMI losing control of
Surviving Corporation within the meaning of Section 368(c)(1) of the
Code.
(iv) Except as otherwise provided in this Agreement, RMI has no
plans or intention to reacquire any of the RMI Shares issued pursuant to
this Agreement.
(v) RMI has no plan or intention to sell or otherwise dispose of
any of the assets of Surviving Corporation acquired in the transaction,
except for dispositions made in the ordinary course of business,
transfers of assets to a corporation controlled by RMI or transfers
described in Section 368(a)(2)(c) of the Code.
(vi) Except for transfers of stock to corporations controlled by
RMI, RMI has no plan or intention (A) to liquidate Surviving Corporation;
(B) to merger Surviving Corporation with or into another corporation,
except in accordance with Section 368(a)(1)(F) of the Code, or (C) to
sell or otherwise dispose of the stock of Surviving Corporation except
for transfers to a corporation controlled by RMI or transfers described
in Section 368(a)(2)(c) of the Code.
(vii) Following the transaction, RMI plans to cause Surviving
Corporation to continue its historic business or use a significant
portion of its historic assets in a business.
(viii) RMI is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
6. INTENTIONALLY DELETED.
7. 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
28
action (including the execution and delivery of such further instruments and
documents) as any other Party reasonably may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled
to indemnification therefor under Section 9 below). Shareholders and
Application Methods acknowledge and agree that from and after Closing RMI or
Subsidiary will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating
to Application Methods.
(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 accruing
on or prior to the Closing Date involving Application Methods, each of the
other Parties will cooperate together with their counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 9 below).
(c) TRANSITION. Shareholders will not take any action that is
designed, intended or could reasonably be expected to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of Application Methods from maintaining the same business
relationships with Application Methods after Closing as it maintained with
Application Methods prior to the Closing. Shareholders will refer all
customer inquiries relating to the businesses of Application Methods to RMI
or Subsidiary from and after the Closing.
(d) CONFIDENTIALITY. Each of the Shareholders and Application Methods
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 RMI or destroy, at the request and option
of RMI, all tangible embodiments (and all copies) of the Confidential
Information which are in his or its possession. In the event that any
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, such Shareholder will notify RMI promptly of the request or
requirement so that RMI may seek an appropriate protective order or waive
compliance with the provisions of this Section 7(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, such Shareholder is,
on the advice of counsel, compelled to disclose any Confidential Information
to any tribunal or else stand liable for contempt, such Shareholder may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that such Shareholder shall use his best efforts to obtain, at the request of
RMI, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as
RMI shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public
immediately prior to the time of disclosure.
29
(e) NON-SOLICITATION. Each Shareholder agrees that for a period of
one (1) year after termination of employment with RMI, Surviving Corporation
and/or any affiliate thereof, or if a Shareholder is not continuing
employment with Surviving Corporation, then one (1) year from the date
hereof, he will not, in any manner, whether with or without cause, directly
or indirectly, either as owner, officer, employer, employee, independent
contractor, stockholder, agent, principal, manager, consultant, partner or
otherwise, (i) induce any employees, agent or contractor of RMI, Surviving
Corporation, and/or any affiliate thereof to terminate his, her or its
employment, agency or contractor relationship with RMI, Surviving Corporation
or an affiliate thereof, or (ii) hire or attempt to hire any employees, agent
or contractor of RMI, Surviving Corporation or any affiliate thereof.
EACH SHAREHOLDER AGREES THAT THE COVENANTS MADE IN THIS SECTION ARE
REASONABLE WITH RESPECT TO THEIR DURATION AND PROSCRIPTION. Shareholder
further agrees that the covenants made in this Section shall be construed as
an agreement independent of any other provision of this Agreement. Hence,
the covenants made in this Section shall survive Closing. Moreover, the
existence of any claim or cause of action of Shareholders against RMI,
whether or not predicated upon the terms of this Agreement, shall not
constitute a defense to the enforcement by Application Methods or RMI of
these covenants.
(f) COVENANT NOT TO COMPETE. Each Shareholder agrees that for a
period of the longer of (i) two (2) years from and after Closing or (ii) one
(1) year after termination of employment with RMI, Surviving Corporation
and/or any affiliate thereof ("NON-COMPETITION PERIOD") and within the
Geographical Market, he will not, directly or indirectly, engage in any
competitive business to the Surviving corporation, RMI or any affiliate
thereof; PROVIDED HOWEVER, that if a Shareholder is hired and then
subsequently terminated by RMI, Surviving Corporation and/or any affiliate
thereof without Cause (as defined below), then, during the Non-competition
Period extending beyond two (2) years from and after Closing, the Shareholder
shall be permitted to engage in any capacity in any business or employment
opportunity so long as such Shareholder does not assist, directly or
indirectly, the new business or employer to compete, directly or indirectly,
against Surviving Corporation, RMI or any affiliate thereof in the
Geographical Market.
Notwithstanding anything in this Section 7(f) to the contrary, a
Shareholder shall not be deemed to be in violation of the provisions of this
Section 7(f) solely by reason of the Shareholder's ownership, whether direct
or indirect, of stock in a publicly traded company so long as said ownership
does not exceed five percent (5%) of the outstanding stock of any publicly
traded company.
For purposes of this Section 7(f), "Cause" shall mean: (i)
Shareholder's material failure or refusal to perform the duties of his
employment and/or the provisions of this Agreement after written notice to
Shareholder; (ii) Shareholder's gross negligence or continued negligence in
the
30
performance of such duties, or refusal to abide by or comply with the
reasonable, lawful directives of the board of directors, his superior
officers, or the policies or procedure of RMI, Surviving Corporation or any
affiliate thereof, (iii) Shareholder's willful dishonesty, fraud, or gross
misconduct with respect to the business or affairs of RMI, Surviving
Corporation or any affiliate thereof that, in such entities reasonable
judgment, adversely affects the operations or reputation of RMI, Surviving
Corporation or any affiliate thereof, including but not limited to theft or
embezzlement; or (iv) Shareholder's conviction of a felony or other crime
involving moral turpitude.
Each Shareholder agrees that the covenants made in this Section 7(f)
are reasonable with respect to their duration, geographical area and
proscription. Each Shareholder further agrees that the covenants made in this
Section 7(f) shall be construed as an agreement independent of any other
provision of this Agreement. Hence, the covenants made in this Section 7(f)
shall survive Closing. Moreover, the existence of any claim or cause of
action of any Shareholder against Surviving Corporation and/or RMI, whether
or not predicated upon the terms of this Agreement, shall not constitute a
defense to the enforcement by Surviving Corporation and/or RMI of these
covenants. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 7(f) 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.
(g) CERTAIN LIMITATION OF RMI SHARES. In addition to the
restrictions on transfer set forth in Section 3 hereof, each Shareholder
agrees that in any transaction (i) registered under the Securities Act or
(ii) effected pursuant to Rule 144 under the Securities Act such Shareholder
shall not offer, sell or contract to sell in any calendar week more that
5,000 shares of RMI common stock received by such Shareholder as Closing
Purchase Price, Contingent Purchase Price or from another Shareholder. Each
Shareholder further agrees that as a condition precedent to any transfer,
sale, pledge, hypothecation, granting of any option to purchase, or other
disposition of any shares of RMI common stock by it, except a transfer
pursuant to (i) or (ii) above, it will obtain from the transferee, pledgee or
optionee, as the case may be, a covenant restricting the resale of such
shares of RMI common stock by the transferee in a public transaction to 5,000
shares per calendar week.
(h) EFFECTIVENESS OF REGISTRATION STATEMENT. RMI agrees to maintain
the effectiveness of the S-1 Registration Statement described in Section
2(f)(i) above for a period of at least one (1) year immediately subsequent to
the date on which it becomes effective.
31
(i) CERTAIN COVENANTS REGARDING CODE SECTIONS 368(a)(1)(A) and
368(a)(2)(E). Unless the auditors or accountants of RMI or an affiliate thereof
determine that there is no reasonable basis for doing so, RMI will file or will
cause to be filed all Tax Returns for all periods beginning after or including
the Closing Date on a basis consistent with the treatment of the merger of
Subsidiary with and into Application Methods as a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. Shareholders
will furnish any information reasonably requested by RMI, its affiliates or
agents to assist RMI in connection with the reporting of the transaction
contemplated by this Agreement.
8. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF RMI AND SUBSIDIARY. The obligation of
each of RMI and Subsidiary to consummate the transactions to be performed by
it in connection with the Closing is subject to satisfaction of the following
conditions:
(i) Application Methods, the Shareholders of Application Methods
and e-SELL and the Shareholders of e-SELL shall have caused e-SELL to
be merged with and into Application Methods with Application Methods as
the surviving corporation;
[INTENTIONALLY LEFT BLANK]
32
(ii) this Agreement and the Merger shall have received the Requisite
Shareholders Approval;
(iii) Application Methods shall have procured all third party
consents as set forth on Section 4(c) of the Disclosure Schedule or that
are otherwise required by this Agreement;
(iv) Application Methods and RMI shall have procured all necessary
government consents, required to permit it to consummate this
transaction;
(v) Shareholders and Application Methods shall have delivered to RMI
and Subsidiary a Disclosure Schedule as of Closing which shall be
acceptable to RMI, in its sole discretion;
(vi) Shareholders and Application Methods shall have performed and
complied with all of their respective covenants hereunder in all material
respects through the Closing;
(vii) Application Methods has not granted any options, warrants, or
other rights to purchase or obtain any of its capital stock or issued,
sold, or otherwise disposed of any of its capital stock, except as set
forth on Section 4(b) of the Disclosure Schedule;
(viii) Application Methods has not declared, set aside, or paid any
dividend or distribution with respect to its capital stock (whether in
cash or in kind), or redeemed, repurchased, or otherwise acquired any of
its capital stock since December 31, 1997, except as disclosed on Section
4(h)(1) of the Disclosure Schedule;
(ix) Application Methods has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation or
created or suffered the creation of any other Liability of Application
Methods liability for borrowing money other than liabilities, except as
disclosed on Section 4(h) of the Disclosure Schedule;
(x) Shareholders shall deliver Financial Statements certified by
each Shareholder as in compliance with Section 4(g) of this Agreement;
(xi) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, or local 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, (C) affect adversely
the right of RMI to own the
33
capital stock of the Surviving Corporation and to control the Surviving
Corporation, (D) affect adversely the right of the Surviving Corporation
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect); or (E)
adversely affect the right of Shareholders to own the RMI Shares
delivered to Shareholders at Closing as part of the Merger Consideration;
(xii) Shareholders shall cause Application Methods to deliver to
RMI and Subsidiary Certificates of the Chief Executive Officer of
Application Methods dated as of Closing certifying that the following
are true, copies or the originals thereof: Articles of Incorporation of
Application Methods,as amended, and certified by the Secretary of State
of Washington after June 1, 1998, bylaws (as amended to date), minute
books (containing the records of meetings of the Shareholders, the
Board of Directors, and any committees of the Board of Directors),
stock certificate books, and stock record books of Application Methods;
(xiii) RMI and Subsidiary shall have received from counsel to
Application Methods an opinion in form and substance satisfactory to RMI
and RMI's counsel for RMI, addressed to RMI and Subsidiary, and dated as
of the Closing Date;
(xiv) Application Methods shall deliver to RMI and Subsidiary a
letter from Xxxxxxxx Xxxxxxxx LLC stating that with respect to the
audited financial statements for the calendar years ending 1996 and 1997,
as the case may be, that the financial statements for each year present
fairly, in all material respects, the financial position of Application
Methods for each of the respective years, and the result of operations
and cash flow for each of the respective years then ended are in
conformity with generally accepted accounting principals (the
"APPLICATION METHODS ACCOUNTANT'S LETTER"). The Application Methods
Accountant's Letter shall authorize RMI to include the above referenced
audited financial statements and the Application Methods Accountant's
Letter in any required filing of RMI to the Security and Exchange
Commission, subject to Shareholders' or Application Methods' review of
such filing. The Application Methods Accountant's Letter shall be
satisfactory to RMI and Subsidiary in form and substance;
(xv) RMI and Subsidiary shall have received the resignations,
effective as of the Closing, of each director and officer of Application
Methods;
(xvi) RMI and Subsidiary shall have completed its due diligence
with respect to Application Methods, to its sole satisfaction;
(xvii) RMI shall have procured the approval of its Board of
Directors of the Merger as contemplated by this Merger Agreement;
(xviii) Shareholders shall cause Application Methods to freeze
contribution to the Application Methods 401(k) Plan contingent on and
effective as of Closing and transfer control of it to the new directors
and officers of Surviving Corporation. No further
34
contributions to or distributions from the 401(k) Plan shall be made
until Application Methods has received written approval from the Internal
Revenue Service; and
(xix) all actions to be taken by Shareholders and Application
Methods 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 satisfactory in form and substance to RMI and Subsidiary.
RMI and Subsidiary may waive any condition specified in this Section
8(a) only if they execute a writing so stating at or prior to the Closing.
RMI and Subsidiary's knowledge of a breach of a representation, warranty or
covenant shall not be considered as a waiver of any of the above conditions.
(b) CONDITIONS TO OBLIGATION OF SHAREHOLDERS AND APPLICATION METHODS.
The obligation of Shareholders and Application Methods to consummate the
transactions to be performed by them in connection with the Closing is
subject to satisfaction of the following conditions:
(i) RMI shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(ii) no action, suit, or proceeding shall be pending 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, including without limitation, RMI's ability to use
its best efforts to amend the current Form S-1 in registration by
August 25, 1998 subject to Section 2(f)(i) above, to include the
Shareholders as selling shareholders as to the Registrable Shares; (B)
cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect); (C) adversely
affect the right of Shareholders to own the RMI Shares delivered to
Shareholders at Closing as part of the Merger Consideration; or (D)
prevent the SEC from declaring the Registration Statement effective;
(iii) RMI shall have procured the approval of its Board of
Directors of the Merger as contemplated by this Merger Agreement;
(iv) Application Methods and Shareholders shall have received
from counsel to RMI and Subsidiary an opinion satisfactory to
Application Methods and Application Methods' counsel, addressed to
Application Methods and Shareholders, and dated as of the Closing
Date, and
(v) all actions to be taken by RMI and Subsidiary 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 Shareholders.
35
Shareholders may waive any condition specified in this Section 8(b) if
they execute a writing so stating at or prior to the Closing.
9. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing hereunder (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of a representation,
warranty or covenant at the time of Closing) and shall continue in full force
and effect until March 31, 2000, PROVIDED, HOWEVER, the representations and
warranties set forth in Sections 4(k), 4(x) and 4(z) hereof shall survive
Closing for a period of time equal to the applicable statute of limitations
plus two (2) months and the representation and warranty set forth in Section
3(b) hereof shall survive Closing forever.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF RMI AND SUBSIDIARY.
Shareholders agree to indemnify RMI and Subsidiary from and against the
entirety of any Adverse Consequences RMI or Subsidiary may suffer (including
any Adverse Consequences suffered in connection with a particular claim after
the making of such claim for indemnification or after the end of any
applicable survival period for such claim) resulting from, arising out of,
relating to, in the nature of, or caused by any of the following:
(i) Shareholders' or Application Method's breach (or the
allegation by any third party of facts that, if true, would mean either
has breached) of any of the representations, warranties, or covenants
contained in this Agreement. For purposes of calculating the amount
of any Adverse Consequences, qualification such as "Knowledge,"
"material," "materiality" or similar qualification, shall be
disregarded;
(ii) any Liability of Application Methods or obligation of any
nature of Application Methods, accruing prior to the Effective Time,
except to the extent such Liability is reflected in the March 31, 1998
Balance Sheet, on the Disclosure Schedule to this Agreement or as
otherwise provided in this Section 9.
(iii) any Liability of Application Methods for (w) any Taxes of
Application Methods with respect to or as result of the merger of
e-SELL with and into Application Methods prior to the execution of this
Agreement, (x) any Taxes of Application Methods with respect to any Tax
year or portion thereof ending on or before December 31, 1997, 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 March 31, 1998 Balance Sheet, (y) any Taxes of e-SELL, and (z) and
any Person (other than Application Methods) for periods ending on or
before the December 31, 1997 for which Application Methods is obligated
under Reg. Section 1.1502-6 (or any similar provision of state, local,
or foreign law) or as a transferee or successor, by contract, or
otherwise. Indemnification under this Section 9(b)(iii) shall be for
the full amount without regard to any Indemnification Threshold; or
36
(vi) any untrue statement of any material fact contained in the
Registration Statement or the prospectus comprising a portion thereof,
or any amendment or supplement thereto, or the omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not materially misleading in light of the
circumstances under which they were made; insofar as such Adverse
Consequences result from or arise out of or are based upon an untrue
statement or omission made in the Registration Statement or the
prospectus comprising a portion thereof, or such amendment or
supplement, in reliance upon and in conformity with information
furnished to RMI by or through a Shareholder.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SHAREHOLDERS. In the
event RMI or Subsidiary breaches any of its representations, warranties, or
covenants contained herein or in the event of any untrue statement of any
material fact contained in the Registration Statement or the prospectus
comprising a portion thereof, or any amendment or supplement thereto, or the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not materially misleading in light
of the circumstances under which they were made, then RMI agrees to indemnify
Shareholders from and against the entirety of any Adverse Consequences
Shareholders may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences suffered in connection
with a particular claim after the making of such claim for indemnification or
after the end of any applicable survival period for such claim) resulting
from, arising out of, relating to, in the nature of, or caused by the breach
(or the alleged breach) or the material misstatement or material omission or
alleged material misstatement or material omission and any actions,
judgements, costs and expenses incident to any of the forgoing; PROVIDED,
HOWEVER, that the Shareholders will not be entitled to indemnification in any
such case to the extent that any such Adverse Consequences result from or
arise out of or are based upon an untrue statement, or alleged untrue
statement, or omission or alleged omission made in the Registration
statement or the prospectus comprising a portion thereof, or such amendment
or supplement, in reliance upon and in conformity with information furnished
to RMI by or through a Shareholder.
(d) 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 9, 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) days after the Indemnified Party has given notice of the
Third
37
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 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.
Notwithstanding anything herein to the contrary, 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).
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 9(d)(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 and
(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
unreasonably withheld, conditioned or delayed).
(iv) In the event any of the conditions in Section 9(d)(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 provided the Indemnified Party
shall consult with any Indemnifying Party in connection therewith
provided such consultation shall not be deemed to require consent of
the Indemnifying Party), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable and documented
attorneys' fees and expenses), and (C) the Indemnifying Party will
remain responsible for any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided
in this Section 9.
(e) REMEDIES. The foregoing indemnification provisions 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
Application Methods, or the transactions contemplated by this Agreement.
Without limiting the generality of the foregoing, RMI and Subsidiary shall be
entitled, but not required, to setoff any amounts due to either entity
pursuant to this Section 9 against any and all amounts payable to
Shareholders under this Agreement or otherwise.
38
(f) LIMITATIONS ON INDEMNIFICATION. Except as otherwise provided in
Sections 9(b)(ii) and (iii) of this Agreement, no Party to this Agreement
shall be required to indemnify the other Party under this Section 9 unless
and until the total amount of any individual indemnification claim is equal
to or exceeds Ten Thousand and No/100 Dollars ($10,000) per claim ("Claim
Threshold"), or multiple indemnification claims equal to or exceeding
$50,000.00 in the aggregate ("Aggregate Threshold") (the Claim Threshold and
Aggregate Threshold are individually and collectively referred to as
"Indemnification Threshold"). If the respective Indemnification Threshold is
reached, all indemnification Liability above such respective Indemnification
Threshold shall be assessed against a Party so as to exclude all Liability up
to the Indemnification Threshold. The aggregate amount of Shareholders'
liability under this Section 9(f) shall not exceed Two Million Five Hundred
Thousand Dollars ($2,500,000.00), ("Indemnification Cap"). Notwithstanding
the forgoing Section 9(f), there shall be no Indemnification Threshold or
Indemnification Cap for Adverse Consequences as a result of a breach of the
representation and warranty set forth in Section 3(b).
(g) SHAREHOLDERS PAYMENT OBLIGATIONS FOR INDEMNIFICATION. In the
event the Shareholders are required to satisfy an indemnification obligation
under this Section 9, the Shareholders, at their option, shall be entitled to
satisfy any such indemnification obligation by payment of cash or of RMI
Shares having a market value based upon the average closing price of the RMI
common stock, rounded to two (2) decimal places, as reported on the NASDAQ
SmallCap National Market or National Market System or other national exchange
then listing RMI Shares for each of the twenty (20) consecutive trading days
for the period ending on the date of payment.
(h) OTHER INDEMNIFICATION PROVISIONS. Each of the Shareholders hereby
agrees that they will not make any claim for indemnification against
Application Methods, which shall include without limitation e-SELL prior to
the merger with Application Methods, by reason of the fact that such
Shareholder was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity prior to closing
(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 RMI against such Shareholders (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
10. TAX MATTERS. The following provisions shall govern the allocation
of responsibility as between RMI and Shareholders for certain tax matters
following the Closing Date:
(a) TAX RETURN FILING OBLIGATION. Subject to the Tax Liability
allocation in Section 9(b)(iii), RMI shall prepare or cause to be prepared
and file or cause to be filed any Tax Returns of Application Methods for all
periods ending on or after December 31, 1997 for which such Tax Returns are
not required, by extension or otherwise, to be filed on or before the Closing
Date. RMI shall permit Shareholders to review and comment on each such Tax
Return described in the preceding sentence prior to filing. Shareholders
shall prepare or cause to be prepared and shall file or cause to be filed any
Tax Returns of e-SELL. Shareholder shall permit RMI to review and
39
comment on each such Tax Return described in the preceding sentence prior to
filing. Nothing in the Section 10(a) shall modify the effect of the
Liability and indemnification of Taxes set forth in Section 9(b)(iii).
(b) COOPERATION ON TAX MATTERS.
(i) RMI, Surviving Corporation and Shareholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this Section and
any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder. Application Methods and Shareholders shall provide to RMI
all books and records with respect to Tax matters pertinent to
Application Methods relating to any taxable period beginning before the
Closing Date and RMI agrees to retain such books and records until the
expiration of the applicable statute of limitations (and, to the extent
notified by Shareholders, any extensions thereof of the respective
taxable periods), and to abide by all record retention agreements
entered into with any taxing authority.
(ii) RMI, Surviving Corporation and Shareholders further agree,
upon request, to use their best efforts to obtain any certificate or
other document from any governmental authority or any other Person as
may be necessary to mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) RMI, Surviving Corporation and Shareholders further agree,
upon request, to provide the other party with all information that
either party may be required to report pursuant to Section 6043 of the
Code and all Treasury Department Regulations promulgated thereunder.
(c) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by
Shareholders when due, and Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes and
fees, and, if required by applicable law, RMI will, and will cause its
affiliates to, join in the execution of any such Tax Returns and other
documentation.
11. INTENTIONALLY DELETED.
12 . DEFINED TERMS.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages,
40
dues, penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses, interest and fees, including
court costs and reasonable and documented attorneys' 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
Section 1504(a) of the Code or any similar group defined under a similar
provision of federal, state or local law.
"APPLICATION METHODS" has the meaning set forth in the preface above.
"APPLICATION METHODS ACCOUNTANT'S LETTER" has the meaning set forth in
Section 8(a)(xiv).
"APPLICATION METHODS SHARE" means any share of the common stock, no
par value per share, of Application Methods.
"ARTICLES OF MERGER" has the meaning set forth in Section 2(c).
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"CLOSING" has the meaning set forth in Section 2(c).
"CLOSING DATE" has the meaning set forth in Section 2(c).
"CODE" means the Internal Revenue Code of 1986 and any regulation
thereunder, as amended from time to time.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of Application Methods that is not already generally
available to the public.
"DISCLOSURE SCHEDULE" has the meaning set forth in Sections 3 and 4.
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i).
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or
arrangement which is an Employee Pension Benefit Plan, (c) qualified defined
benefit retirement plan or arrangement which is an Employee Pension Benefit
Plan (including any Multi-employer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
41
"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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FIDUCIARY" has the meaning set forth in ERISA Section 3(21).
"FINANCIAL STATEMENT" has the meaning set forth in Section 4(g).
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GEOGRAPHICAL MARKET" means the United States, Mexico and Canada.
Shareholders hereby acknowledge that RMI is a full service, national
communications company providing Internet access, local telephone service and
IP telephony long distance service, Web development and hosting, network
management, system integration and co-location services to clients and
customers throughout the United States. Shareholders further acknowledge
that RMI plans expansions into the international market, including Mexico and
Canada, and continued growth both within and outside the United States.
Shareholders further acknowledge that RMI's acquisition of Application
Methods as contemplated by the Merger Agreement evidences RMI's intent to
integrate Application Methods and its operations as an integral part of RMI's
plans for growth and expansion.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9(d).
"INDEMNIFYING PARTY" has the meaning set forth in Section 9(d).
"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,
42
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).
"KNOWLEDGE" means actual knowledge after reasonable inquiry of
relevant employees or advisors of Application Methods, RMI or Subsidiary, as
the case may, whose knowledge is at issue.
"LIABILITY" means any liability (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.
"MERGER" has the meaning set forth in Section 2(a).
"MERGER CONSIDERATION" has the meaning set forth in Section 2(f).
"MULTI-EMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"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).
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Section
406 and Code Section 4975.
"REQUISITE SHAREHOLDERS APPROVAL" means the affirmative vote of the
holders of Application Methods Shares.
"RMI" has the meaning set forth in the preface above.
"RMI SHARES" means the shares of common stock, $0.001 par value per
share, of RMI.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
43
"SHAREHOLDERS" has the meaning set forth in the preface.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a).
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 9(d).
13. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Unless required by any
federal, state or local law or by any regulation including but not limited to
the Securities and Exchange Commission, as determined by counsel for RMI, no
Party shall issue any statement or communication to the public, regarding
this proposed transaction without the consent of the parties hereto. In the
event such disclosure is required by law or by regulation, the disclosing
party shall use reasonable efforts to provide the non-disclosing party with
notice.
(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.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes
any prior understandings, agreements, or representations by or among 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 his or its rights, interests, or obligations hereunder without the
prior written approval of RMI and Application Methods.
(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.
44
(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 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 RMI: Rocky Mountain Internet, Inc .
Xxxxxxx X. Xxxxxx, President, CEO and Chairman
0000 00xx Xxxxxx, 00xx xxxxx
Xxxxxx, Xxxxxxxx 00000
COPY TO: Minor & Xxxxx, P.C.
Xxxx X. X'Xxxxxxxx
000 Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
IF TO SHAREHOLDERS: Xxxxxx X. Xxxxxxxxx
00000 00xx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Xxxxxxx X. Xxxxx
00000 XX 000xx Xxxxxx
Xxxxxx, Xxxxxxxxxx 00000
Xxxxxx Xxxxxxx
0000 Xxxx Xxxxxx/X.X. Xxx 0000
Xxx Xxxxxx, Xxxxxxxxxx 00000
COPY TO: Stoel Rives LLP
Xxxx Xxxxxxx, Esq.
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000-0000
Facsimile: (000) 000-0000
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 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
45
communications hereunder are to be delivered by giving the other Parties
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) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
RMI and Application Methods. 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.
(j) 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.
(k) 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, or local statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean including without limitation. The
Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating
to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or
covenant.
(l) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Disclosure Schedule identified in this Agreement are incorporated herein by
reference and made a part hereof.
(m) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of federal court, sitting in Denver, Colorado in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in
any such court. Each Party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of
the process to the
46
Party to be served at the address and in the manner provided for the giving
of notices in Section 12(g) above. Nothing in this Section 12(n), however,
shall affect the right of any Party to serve legal process in any other
manner permitted by law or at equity. Each Party agrees that a final judgment
in any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law or at
equity.
[INTENTIONALLY LEFT BLANK]
47
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
Rocky Mountain Internet, Inc.,
a Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx, President, CEO,
and Chairman of the Board
RMI Acquisition Subsidiary, Inc.
a Colorado corporation
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx, President, CEO,
and Chairman of the Board
Application Methods, Incorporated
a Washington corporation
By: /s/ Xxxxxx Xxxxxxxxx
-------------------------------------
Xxxxxx Xxxxxxxxx, CEO and
Chairman of the Board
/s/ Xxxxxx Xxxxxxxxx
------------------------------------
Xxxxxx Xxxxxxxxx, Shareholder
/s/ Xxxxxxx X. Xxxxx
------------------------------------
Xxxxxxx X. Xxxxx, Shareholder
/s/ Xxxxxx Xxxxxxx
------------------------------------
Xxxxxx Xxxxxxx, Shareholder
48
