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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] 15, ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] 15, TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ____________
COMMISSION FILE NUMBER: 001-12063
ROCKY MOUNTAIN INTERNET, INC.
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Exact name of Registrant as specified in its charter
Delaware 84-1322326
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification
1099 18th Street, Suite 3000 DENVER COLORADO 80202
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 303-672-0700
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
Warrants to purchase common stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No .
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ].
State issuer's revenue for its most recent fiscal year. $3,281,579
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The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 15, 1997, based upon the closing price of the Common
Stock on the NASDAQ SmallCap Market for such date, was approximately
$5,445,000.
The number of outstanding shares of the registrant's Common Stock as of March
15, 1997, was approximately 4,648,565 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission on or prior to April 30, 1997 and to be used in
connection with the Annual Meeting of Shareholders expected to be held June
10, 1997 are incorporated by reference in Part III of this Form 10-KSB. Only
portions of the Proxy Statement which are specifically incorporated by
reference are deemed filed as part of this Annual Report on Form 10-KSB.
Transitional Small Business Disclosure Format (Check One): Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Certain of the information contained in this Form 10-KSB, including
"Description of Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", contain forward-looking
statements. The forward-looking statements herein are based on current
expectations that involve a number of risks and uncertainties. Such
forward-looking statements are based on assumptions that the Company will
continue to design, market and provide succesful new services, that
competitive conditions will not change materially, that demand for the
Company's services will continue to grow, that the Company will retain and
add qualified personnel, that the Company's forecasts will accurately
anticipate revenue growth and the costs of producing that growth, and that
there will be no material adverse change in the Company's business. In light
of the significant uncertainties inherent in the forward-looking information
included in this Form 10-KSB, actual results could differ materially from
the forward-looking information contained in this Form 10-KSB.
Rocky Mountain Internet, Inc. (the "Company") is a regional full-service
Internet access provider offering a wide range of Internet access services
including dial-up access, dedicated high speed access, and other Internet
related services to businesses and individuals including World Wide Web
("Web") services, data services and network frame services in the State of
Colorado. The Company gives particular attention to providing exemplary
customer service at competitive prices. The Company's high speed, digital
telecommunications network provides subscribers with direct access to the
full range of Internet applications and resources including E-mail, World
Wide Web sites, USENET newsgroups and FTP software. The Company has
experienced rapid growth in its subscriber base, reaching approximately 9,800
subscribers at the end of December 1996, up from 4,000 subscribers at the end
of December, 1995.
The Company is a Delaware corporation with its executive office located in
Denver, Colorado, and an operating facility located in Colorado Springs,
Colorado. The Company employs approximately 83 persons. The Company was
incorporated in October 1995, and is the successor to Rocky Mountain
Internet, Inc., a Colorado Corporation which was incorporated in 1994.
RMI's network infrastructure is comprised of a regional telecommunications
network supported by a backbone of leased, high-speed dedicated phone lines,
computer hardware and software, and local access points known as points of
presence ("POPs") in eleven Colorado cities providing access availability to
more than 85% of the population in Colorado. The Company's strategy includes
constructing additional POPs in various cities located in the Rocky Mountain
West.
ACQUISITIONS
RMI acquired two businesses in late 1996. In November, 1996, the Company
acquired assets of CompuNerd, Inc., a small Colorado Springs based Web
services company. RMI acquired in that transaction approximately 35 Web
hosting subscribers and 115 Internet access subscribers. In December, 1996,
the Company acquired the assets of The Information Exchange, LLC., a Denver
based voice messaging service company, a related party through common
ownership. The Information Exchange provides voice messaging services to
over 370 business
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clients in the Denver Metropolitan area. RMI completed this acquisition with
the intent to provide a multi-media service (voice messaging, email and fax)
to its dial-up clients in the second half of 1997. In January, 1997, RMI
acquired the dedicated high speed and dial-up subscribers from Online Network
Enterprises, Inc. (O*N*E), headquartered in Boulder, Colorado, a division of
VR*1, Inc. The O*N*E acquisition netted RMI approximately 47 dedicated and
732 dial-up subscribers. The total monthly revenue acquired between the
three companies is approximately $45,000.
INDUSTRY OVERVIEW
The Internet had its origins in 1969 as a project of the Advanced Research
Project Agency ("ARPA") of the U.S. Department of Defense. The network
established by ARPA was designed to provide efficient connections between
different types of computers separated by large geographic areas and to
function even if part of the network became inoperative. Historically, the
infrastructure was used by academic institutions and governmental agencies
for remote access to host computers and electronic mail communications.
Accordingly, the U.S. government historically provided the majority of
funding for the infrastructure. However, as the modern Internet developed
and became commercial, funding shifted to the private sector. Over the past
year, the number of worldwide Internet users has increased significantly. In
addition, the number of domains registered, which the Company believes is a
forward-indicator of activity on the Internet, has increased at a rapid pace.
There are several key drivers responsible for the rapid proliferation of
Internet use:
-- IMPROVING PERFORMANCE - There have been significant bandwidth,
communications, and price/performance improvements in communications
over the Internet. These developments make the Internet an
increasingly attractive medium for conducting business, adding
convenience, and attracting more users.
-- GROWTH OF MODEM-ENABLED PCS - As the installed personal computer
("PC") base has grown, it has become increasingly common for those
PCs to have a modem connection. Many new computers now have pre-
installed modems, allowing connections to be made even more easily.
-- IMPROVED CONTENT - As the Internet grows, new information and services
available on the Internet have attracted attention and created a more
widespread appeal.
-- EXPANSION OF LANS AND WANS - Corporate, government, and educational
local area networks ("LANs") and wide area networks ("WANs") are
expanding and these installed networks enable multiple users to be
connected to the Internet through a single point of contact.
Therefore, the actual number of Internet users connected through
these LANs and WANs greatly exceeds the number of connection points.
-- EXPECTATIONS FOR ELECTRONIC COMMERCE OVER THE INTERNET - With the
increased recognition of the Internet's potential as a medium for
marketing and purchasing, a growing number of companies are initiating
or expanding their use of the Internet for commercial purposes.
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-- DRAMATIC INCREASE IN NAVIGATIONAL AND UTILITY TOOLS - The
proliferation and improvement of software tools and browsers which
facilitate Internet use have attracted more users. The World Wide
Web and other user-friendly interfaces have made it easier for users
to access desired information on the Internet.
The convergence of these factors is creating an environment in which
individuals and businesses and other organizations perceive a compelling need
to establish Internet access and an Internet presence. The Company believes
that its Internet access, Web service and value-added services offerings are
particularly appealing to businesses for a number of reasons. For example,
many businesses are accustomed to working with a vendor with a local presence
and may prefer to contract with an Internet service provider such as RMI
which has a local presence and the experience and reputation of providing
quality and dependable service. Furthermore, many businesses have Internet
requirements that go beyond the simple access that most Internet service
providers offer. These Internet requirements include security, network
consulting, high-bandwidth managed access and data services.
THE RMI STRATEGY
RMI provides a comprehensive range of Internet access options, Web production
services and Web hosting services designed to meet the needs of businesses
and individual subscribers. The Company's strategy is to focus on cities
that have not become the primary target markets for the national access
providers and long distance carriers, but have enough of a population base to
provide a return on investment to justify initiatives by the Company. It is
the objective of RMI to provide a "one-stop-shop" to local businesses that
require not only reliable Internet access, but guidance regarding the use of
the Internet and how to take full advantage of applications pertinent to
their businesses. RMI plans to leverage its local presence and direct field
sales force and customer service organization to provide on-site sales and
support. RMI also plans to remain competitive in the individual dial-up
market with reasonably priced services. RMI's network infrastructure
currently allows local access for approximately 85% of the population in
Colorado.
RMI's strategy is to focus on cities that are not the primary target of the
national access providers and long distance carriers and to provide
comprehensive solutions by direct on-site sales contact with the business
communities in those areas. The Company intends to continue to expand its
subscriber base by providing high quality services coupled with the expertise
to assist its customers with application driven solutions to their needs, RMI
intends to achieve this strategy by focusing on the following key elements:
FOCUS ON BUSINESS SUBSCRIBERS. The Company believes that use of the Internet
by businesses will grow substantially over the next several years. The
Internet has the potential to enhance productivity through improved
communications, access to data, and through new ways of organizing how
businesses interact, both with other commercial enterprises and with
consumers. The Internet provides the potential for even small businesses to
maintain a worldwide presence for marketing their products and making
information about their products and services available to interested parties
in ways not possible before. The Company believes that many businesses are
aware, in general, that the Internet provides potential new means of
conducting business, and that businesses do not have the knowledge or
technical expertise required
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to access or use the Internet. The Company believes that by offering its
business customers a consultative and intensive service oriented
relationship, it can position itself as an important value added supplier and
thus gain a competitive advantage vis-a-vis its larger competitors which may
be unwilling or unable to provide the kind of customized service that the
Company intends to provide. In order to implement this strategy, the Company
instituted a field sales organization in November of 1995 which makes outside
calls on business customers and potential business customers.
PROVIDE HIGH-BANDWIDTH, RELIABLE INFRASTRUCTURE SERVICES. In the fourth
quarter of 1996, RMI instituted a frame network of Cascade switches in
Denver, Colorado Springs and Boulder that are interconnected via a DS3 fiber
optic network. RMI also increased its network infrastructure to include
redundant T3 access to the Internet through MCI Telecommunications
Corporation and ANS CO + RE Systems, Inc. with its main servers, routers and
network equipment contained in a data center with extensive environmental
controls including generator power backup and dual air conditioning systems.
The Company has expanded its network in anticipation of increasing demand for
higher bandwidth requirements such as 10 Mbps through 45 Mbps.
PROVIDE VALUE-ADDED SERVICE OFFERINGS. RMI offers a range of value-added
services designed to assist business customers in taking strategic advantage
of opportunities offered by the Internet such as increased revenues,
decreasing costs, bringing value-added services to their clientele and taking
advantage of the new advances in electronic commerce. These include Web
services, network consulting, security consulting, data services, commercial
transaction and payment processing services, Intranet applications, and voice
messaging services.
PRICING STRATEGY. RMI believes that price competition will intensify as the
Internet market grows and matures. RMI intends to remain competitive by
pricing its services to reflect market conditions. Accordingly, the Company
believes that management of its costs will be critical in increasing market
share and remaining competitive. RMI has made significant investments in its
hardware and network infrastructure which are designed to increase efficiency
and reduce the cost of delivering its services.
In general, RMI intends to price all of its services in order to remain
competitive with demand, competition and market trends. It is not the
intention of RMI to either be the lowest priced provider or conversely the
highest priced provider. RMI continues to add value to its services through
its investment in its network in order to offer the highest quality services,
and through its focus on customer needs and ensuring that the Company's
client base receives the highest degree of customer service and support.
RMI SERVICES
RMI primarily provides two high quality services which it believes are
competitively priced: Internet access service and Web services. Internet
access services can be divided into two basic categories: personal accounts
for individuals and small businesses that connect to the Internet via a modem
(referred to as "dial-up" accounts), and high speed dedicated accounts
(principally for medium to large business users) that connect to the
Internet via dedicated telecommunications lines. Dial-up subscribers can
access the Internet by calling RMI's local POPs. RMI's dedicated accounts
consist of subscribers that desire to connect internal computer networks to
the Internet. The Company offers a wide variety of service options, which
vary in price
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depending upon the features included and the data rate, or bandwidth, of the
connection. RMI bills its Internet access subscribers monthly, quarterly or
annually in advance. A significant percentage of individual accounts are
billed automatically through pre-authorized credit card accounts. RMI also
provides complete installation services, sales of turnkey networking
equipment, education and training services, and an efficient technical
support and network monitoring support team.
Web services can also be divided into two basic categories: Web hosting
services and Web productions (or content). RMI designs Web pages and
performs additional programming for Web sites on behalf of its business
subscribers. Charges for Web page design and programming vary widely with the
size and complexity of the project. RMI's Web services produce Web sites
that make use of original graphic arts, interactive forms, data base queries
and search engines. RMI also hosts Web pages on behalf of its customers
enabling them to have a continued presence of the Internet.
RMI'S VALUE-ADDED SERVICES
REALAUDIO SERVER. This software package delivers live and on-demand audio
over the Internet. Winner of PC Magazine's Editor's Choice Award, RealAudio
allows leading Web sites, such as ESPNET SportsZone, to provide a value-added
service to its audience, while enabling companies to deliver training,
education, or special announcements over their Intranets.
DATA CENTER SERVICES. As more people use the Internet to shop for products
and services, the demands on shared server resources are increasing. RMI
offers businesses the alternative of colocating their servers at RMI, thereby
taking cost-effective advantage of the company's centralized Internet
resources. For example, a Web developer who colocates a server at RMI can
save 40% to 60% of the monthly cost of maintaining that server in-house.
In addition, RMI is establishing itself as a provider's provider for Internet
transportation services. The company facilitates and enables businesses that
want to provide Internet transportation services, such as Hypertext Transfer
Protocol (HTTP) for Web, Simple Mail Transfer Protocol (SMTP) for mail,
Network News Transfer Protocol (NNTP) for news, File Transfer Protocol (FTP)
for file transfer, and Internet Group Multicast Protocol (IGMP) for
multimedia.
ON-LINE NETWORK REPORTS. RMI developed a password-protected on-line network
reporting service to allow customers to monitor the traffic and performance
of both RMI's network and the client's Internet connection in 15-minute
increments. The reports provide hourly, daily or weekly access to
high-resolution maps, tables, and graphs detailing the availability of
specific WAN links, network bandwidth, and error rates to help users
prioritize their internal network activities and reduce network management
expenses.
TRAINING CENTER. RMI's new headquarters in downtown Denver includes a
training center with 12 workstations. Customers can schedule their employees
for various levels of Internet training, ranging from basic access training
to HTML programming. Customized, one-on-one training is also available,
either at RMI's new facility, or at the customer's site.
RMI is the first local Internet service provider to implement the
leading-edge E-mail system, geared toward smaller LANs with 35 or fewer
personal computer users. According to a recent Dataquest survey, 75 percent
of all LANs have 35
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or fewer users. InternetFlash, developed by Dynaflo Systems, Inc., is a
high-performance, cost-effective E-mail delivery system that immediately and
automatically delivers E-mail directly to personal computer users within
small-and medium-size local area networks (LAN). The new InternetFlash
service instantly alerts each user that new E-mail was received, thus
eliminating the need for users to frequently dial their E-mail system to
check receipt of messages.
BUSINESS RELATIONSHIPS
The Company has established five joint venture agreements covering eight POP
locations with unrelated parties pursuant to which the Company and the
unrelated parties provide Internet services in certain rural areas and
smaller population centers in Colorado. Each of the parties to these
agreements is a local small business or business person who is not otherwise
affiliated with the Company. These agreements provide for the local party to
provide equipment and marketing services while the Company provides Internet
access and administrative services. The agreements provide for most revenues
from accounts in the geographic areas covered by the agreements to be split
equally between the Company and the local party.
These arrangements apply in specified territories outside of the main
Colorado population areas and accounted for approximately $67,500 (or
approximately 6%) of 1995 total revenue and approximately $354,100 (or
approximately 11%) of 1996 total revenue. Each of these alliances is for an
unspecified term and is terminable by the local party on three months notice,
subject to certain rights of the Company to purchase the interest of the
other party on termination. Although the Company may enter into additional
similar business alliances in the future, management expects that revenues
from such alliances will represent a proportionately smaller part of total
revenues as the Company expands its operations in the future.
NETWORK INFRASTRUCTURE
RMI believes that its future success in the Internet access services market
depends in part on its ability to enhance its current service offerings for
individuals and businesses and to advance the capabilities and capacity of
its telecommunications network. The Company purchased five B-STDX 9000
Cascade switches in October, 1996 in order to implement a regional backbone
network. The B-STDX switch is a wide area network (WAN) switch that
simultaneously supports Frame Relay, Switched Multimegabit Digital Service
(SMDS), Integrated Services Digital Network (ISDN), and Asynchronous Transfer
Mode (ATM) on a single platform. RMI installed these switches in various
locations in the cities of Denver, Colorado Springs and Boulder. These
switches are interconnected via a DS3 network supplied by the ICG Telecom
Group, Inc.
The Company is continuing to optimize and increase the capacity and
capabilities of its telecommunications network. The Company currently is
working to increase its speed, reliability, and network fault tolerance. In
November, 1996 the Company built a data center which is located at the
Corporate head office at 1099 18th Street, in Denver. The new data center is
an environmentally controlled facility with built in network redundancies,
dual air conditioning systems, an FM 200 fire protection system and generator
power backup supported by an Uninterrupted Power Supply (UPS). This facility
not only provides redundancies and stability to the Company's network, but
also allows the Company to make this facility available to those clients that
want
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the ability to colocate their Web servers in the RMI data center and pay RMI
for use of the facility as well as high bandwidth access to the Internet.
OPERATIONS AND CUSTOMER SUPPORT
As of December 31, 1996, the Company had 29 employees dedicated to technical
dial-up support, commercial account support, network operations and customer
service. The Company's Colorado Springs location facilitates the dial-up
technical support group that provides phone support for dial-up subscribers.
RMI also established a separate commercial support group for commercial high
speed access clients which involves phone support, on-site support and
installations. The Company's network support team concentrates on the
performance, stability and repair of the Company's network, network equipment
and servers.
SALES AND MARKETING
Prior to November, 1995, RMI's growth in its subscriber base was attributable
to word-of-mouth referrals primarily in the individual dial-up market. In
November, 1995, the Company began to staff a direct sales group in order to
support a new focus on business customers. The Company believes that it can
deliver high-speed Internet access solutions and Web services to business
customers in its regional markets and differentiate itself through an on-site
consultative approach, high-quality services and exemplary customer service.
Although it is not the intention of RMI to abandon the dial-up market, RMI
believes that its ability to differentiate itself from the national Internet
access providers, long distance providers and regional telephone companies
can best be achieved in the business market.
The Company currently employs eight field sales people, seven of whom work in
the Company's Denver office and one of whom works out of the Company's
Colorado Springs office. RMI also employs five inside salespeople to handle
incoming calls which have been primarily generated by word-of-mouth and by
the local press the Company has been receiving. The Company plans to
continue to expand its direct field sales force and inside sales group in
order to increase its market coverage. RMI also employs a customer service
group, currently comprised of four people, who concentrate on business client
retention.
The Company intends to continue its program of minimal advertising and to
maximize the amount of local newspaper, radio and television exposure with
press releases and interest articles on the Company.
COMPETITION
The Internet connectivity business is highly competitive and there are no
substantial barriers to entry. The Company believes that competition will
intensify in the future and its ability to successfully compete depends on a
number of factors including market presence, the capacity, reliability, and
the security of its network infrastructure, its pricing of services compared
to its competitors, the timing of new products and services by the Company
and its competitors, the Company's ability to react to changes in the market,
and industry and economic trends. The Company's competitors consist of (1)
regional Internet access providers, (2) national Internet service providers,
(3) on-line services companies, (4) regional telephone companies and national
long distance carriers, and (5) hardware/software companies and cable
operators.
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REGIONAL INTERNET ACCESS PROVIDERS. The Company's competitors include
numerous regional Internet access providers, the largest of which are
SuperNet, Inc. and Internet Express, Inc. SuperNet was formed by the Colorado
Advanced Technology Institute, and is currently the largest provider in the
State of Colorado with 15 POP locations. It has been in business since 1986.
Internet Express, Inc. is a wholly owned subsidiary of Telephone Express,
Inc., a commercial long distance provider. Internet Express currently offers
service in the states of Colorado, Texas, Arizona and Washington.
NATIONAL INTERNET SERVICE PROVIDERS. National Internet service providers
include companies such as NETCOM, PSI, UUNET and BBN. These national
competitors have established national and international networks, providing
extensive coverage throughout the U.S. and select international locations.
NETCOM, PSI and UUNET have recently completed large public offerings and as a
result have established extensive cash resources with which they may be able
to develop and expand their communications and network infrastructure more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote more resources to the marketing and sale of
services, than the Company. NETCOM, PSI and BBN have targeted the individual
dial-up market, while UUNET has specifically targeted the business markets.
ON-LINE SERVICE COMPANIES. Other competitors include the national on-line
service providers including America On-line, Inc., CompuServe (a division of
H&R Block), Prodigy, Delphi Internet Services (a division of News Corp.),
and Genie (a division of General Electric Information Services). Most of the
established on-line services are rapidly expanding their Internet access
services in order to offer more direct access to the Internet at more
competitive prices. On-line service companies are focused on the individual
dial-up market and are becoming direct competitors with the national Internet
providers and the long distance carriers.
REGIONAL TELEPHONE COMPANIES AND NATIONAL LONG DISTANCE COMPANIES. Regional
telephone companies such as U S West Communications Inc. and national long
distance carriers such AT&T, MCI, and Sprint Communications have recently
announced Internet access services. The Company's management believes AT&T
will be a significant competitor to the national Internet providers, long
distance carriers, and on-line services that are targeting the individual
dial-up market.
HARDWARE/SOFTWARE COMPANIES AND CABLE OPERATORS. In 1995, Microsoft Corp.
announced its entry into the on-line service business with "Microsoft
Network", a consumer on-line service that was released as a standard
integrated feature of the Windows 95 operating system. Microsoft Corp. has
recently focused its significant resources on its new Web browser software
called Microsoft Network Explorer and has proceeded to sign strategic
distribution agreements with America On-line Inc. and AT&T. IBM's most
recent version of its OS/2 operating system software includes Internet
utilities, and IBM has announced plans to introduce Internet connectivity
through its own private communications network. Cable operators such as
Tele-Communications, Inc. have also announced their intention to utilize
their cable networks to offer Internet services. Cable modems have the
capacity to transmit at speeds up to 10 Megabits per second versus the normal
telephone dial-up speed of 28.8 kilobits per second. Several cable companies
are in the process of upgrading their systems to handle the Internet because
cable services were not originally designed for the two-way nature of
Internet traffic.
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The Company is not currently subject to regulation by the Federal Communications
Commission or any other agency, other than regulations applicable to businesses
generally.
Because the Internet is a relatively new medium, the legal obligations and
First Amendment rights of participants in the Internet, including service
providers such as RMI, are not well defined and continue to evolve. The
Internet has not been subject to regulation by the Federal Communications
Commission or other governmental agencies, as has television, and standards
applicable to print publishers and television in respect of the law of
defamation and obscenity are not clearly applicable to the Internet.
Moreover, to the extent these issues have been considered by the courts,
outcomes have not been uniform. In 1996, Congress passed a telecommunications
act which, among other things, includes protection from liability for
Internet providers who take steps to prevent defamatory material from being
published on the Internet and also includes provisions to protect children
from indecent material on the Internet. Certain provisions of that
legislation regarding the imposition of criminal penalties for publication of
indecent materials on the Internet were recently held to be unconstitutional
by a federal district court.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's corporate headquarters is located in Denver, Colorado at 1099
Eighteenth Street, Suite 3000, where the executive, sales and marketing and
administrative functions exist. The Company leases approximately 19,500
square feet in Denver under a lease which terminates May 8, 2002. Rental
payments under that lease are approximately $15,835 per month for the first
eight months and $31,670 per month for the remaining lease term. The Company
is responsible for its pro rata share of related operating expenses. The
Company also leases approximately 4,000 square feet in Denver at 1800 Glenarm
which formerly housed the Corporate headquarters. This facility has been
sub-let for the remainder of the lease term which concludes January 7, 2001.
The Company recognized a loss on the subletting of this space in 1996 of
approximately $58,000 which includes the broker commission plus the
difference between the rate paid by the Company and the amount realized from
the sublet tenant. The Company maintains an office of approximately 8,000
square feet in Colorado Springs which is leased until January, 2000 at a
monthly rental of $4,474 plus a prorata share of increases in operating
expenses. RMI also has leased POP locations in Loveland, Colorado Springs
and Denver, Colorado. Eight additional leased POP locations in Alamosa,
Burlington, Durango, Grand Junction, Hayden, Leadville, Montrose, and Pueblo,
Colorado are leased by the Company's partners in joint venture arrangements.
The Company does not own any real estate.
ITEM 3. LEGAL PROCEEDINGS
On September 6, 1996, Robert Lewis and Storefronts in Cyberspace, L.L.C.,
filed a complaint in Denver District Court naming the Company and the
Colorado Rockies Baseball Club, Ltd., as defendants. All claims against the
Company have since been dismissed except for a breach of contract claim
seeking $25,000 in damages. The Company's management believes the breach of
contract claim is without merit and intends to vigorously defend against it.
The Company is not a party to any other litigation.
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ITEM 4. No matters were submitted to a vote of security holders in the fourth
quarter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company completed its initial public offering on September 5, 1996. The
Company's Common Stock is traded on the NASDAQ SmallCap Market under the
symbol RMII and the Company's Warrants are traded on the NASDAQ SmallCap
Market under the symbol RMIIW.
The following table sets forth the closing high and low bid prices of the
Company's Common Stock as reported on the NASDAQ SmallCap Market. These
prices are believed to be representative inter-dealer quotations, without
retail markup or commissions, and may not represent prices at which actual
transactions occurred.
1996 Bid
High Low
Quarter Ended September 30 $2.75 $2.50
Quarter Ended December 31 $1.625 $1.00
1997
First Quarter (through March 15) $2.75 $1.125
The number of record holders of the Company's $.001 par value common stock at
March 15, 1997 was 54. Because many of the Company's shares of common stock
are held by brokers or other institutions on behalf of stockholders, the
Company is unable to estimate its total number of beneficial owners of its
common stock represented by these record holders. The Company has never
declared or paid any dividends on its common stock. Since the Company
currently intends to retain all future earnings to finance growth, it does
not anticipate paying any cash dividends in the foreseeable future. In
addition, the Company's Series A Preferred Stock prohibits the payment of
dividends on common stock for so long as any dividends have not been paid on
the Series A Preferred Stock. Since the terms of an equipment lease to which
the Company is a party prohibit payment of dividends on the Series A
Preferred Stock and there are as a result accrued but unpaid dividends on the
Series A Preferred Stock, the Company is currently prohibited from paying
dividends on the common stock pursuant to the prohibition contained in the
Series A Preferred Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company as of
the dates and for the periods indicated. The income statement data for the
years ended December 31, 1995 and 1996, and the balance sheet data as of such
dates have been derived from financial statements of the Company which have
been included herein and which have been audited by McGladrey & Pullen, LLP.
(1995) and Baird, Kurtz, and Dobson (1996), independent public accountants.
These data should be read in conjunction with the Company's financial
statements and related notes included elsewhere in this Form 10-KSB.
12
<PAGE>
YEAR ENDED DECEMBER 31,
1995 1996
STATEMENT OF OPERATIONS DATA:
Revenues $1,179,325 $ 3,281,579
Gross profit 858,956 2,177,912
Operating (loss) income (108,522) (2,241,194)
Net (loss) income (128,794) (2,302,571)
Net (loss) income per share (1) (.04) (.63)
OTHER OPERATING DATA:
Approximate number of subscribers
at end of period 4,000 9,800
Number of POPs at end of period 9 11
BALANCE SHEET DATA:
Cash and Cash Equivalents $ 274,661 $ 348,978
Investments 0 1,356,629
Working Capital (Deficit) (186,865) 370,884
Total Assets 924,603 5,540,167
Long Term debt 524,437 1,134,380
Total Stockholders' (deficit) equity (169,036) 2,317,437
(1) Loss per share computed based on 3,489,000 Shares outstanding for 1995
and 3,715,000 shares outstanding for 1996. See Note 1 to the Company's
financial statements included elsewhere in this report.
OVERVIEW
The Company's growth strategy is to focus on commercial accounts in the high
speed access, frame relay network, and Web services areas. The Company also
continues to experience strong growth in dial-up access services based on
quality of service and word of mouth reputation.
Three acquisitions occurred in late 1996 and early 1997 pursuant to the
Company's strategy to expand through acquisitions as well as internal growth.
CompuNerd, Inc., a small Colorado Springs based Web services company was
acquired as of November 1, 1996 for consideration consisting of $70,478 and
30,000 shares of common stock. The Information Exchange (IE), a Denver based
voice messaging business was acquired effective December 1, 1996 for 52,723
shares of common stock. IE focuses on voice messaging to commercial
customers. Its acquisition further expands the Company's ability to provide a
full complement of services through the Internet. Several affiliates of the
Company were equity holders in The Information Exchange. See Item 12,
"Certain Relationships and Related Transactions." Effective January 16,
1997, the Company acquired dial-up and dedicated access subscribers from
Online Network Enterprises, Inc., a Boulder, Colorado, based provider of
Internet access and Web services for consideration consisting of $150,000 of
cash and 116,932 shares of the Company's common stock.
The Company has positioned itself for continued growth by expanding its
infrastructure and employee base. In December 1996, the Company relocated
its Corporate headquarters in Denver to an 19,500 square foot facility which
includes a data center where Denver based operations are being consolidated.
The Company's principal access servers, Web servers, ISDN routers, dial-up
13
<PAGE>
modem facilities, and management workstations are consolidated in this
facility to provide enhanced management and security. In addition to
improved facilities, the Company continues to seek and hire quality sales,
technical, and administrative management and staff. As a result the Company
will continue to incur losses in the near term. The Company will not generate
income or positive cash flow from operations unless revenues continue to
increase at rates commensurate with past growth while maintaining its
existing cost structure. Although the Company believes that its current
investment in equipment and related infrastructure, and its current employee
base (which accounts for a significant portion of selling, general and
administrative expense) can support substantial growth, there can be no
assurance that revenues will continue to grow at the rate they have over the
past year.
The Company may experience fluctuations in operating results in the future
caused by various factors, some of which are outside of the Company's
control, including general economic conditions, specific economic conditions
in the Internet access industry, user demand for the Internet, capital
expenditures and other costs relating to the expansion of operations, the
timing and number of customer subscriptions, the introduction of new services
by the Company or its competitors, the mix of services sold and the mix of
distribution channels through which those services are sold. In addition,
the Company's expenses, including but not limited to obligations under
equipment leases, facilities leases, telephone access lines, and Internet
access are relatively fixed in the short term, and therefore variations in
the timing and amount of revenues could have a material adverse effect on the
Company's results of operations.
RESULTS OF OPERATIONS
Revenues
Revenues are generated by a variety of Internet related activities that
include dial up access services, dedicated access services primarily for
business customers, frame services, and Web hosting and production. Other
sources of revenue include equipment sales related to dedicated access
accounts, educational courses, and setup charges associated with the
Company's various services. The following table provides information
regarding amounts of revenues in the foregoing categories for the years
ended December 31, 1995 and 1996.
Years Ended December 31,
1995 1996 % Change
REVENUE
Dial-Up Service $ 621,475 $ 1,465,269 135%
Dedicated Access Service 262,267 689,311 163%
Web Services 29,110 413,592 1321%
Equipment Sales 144,551 519,551 259%
Other 121,922 193,856 59%
---------- ------------
Total $1,179,325 $ 3,281,579 178%
The Company's revenue grew 178% from the year ended December 31, 1995 as
compared to the year ended December 31, 1996. The total number of customers
grew from 4,000 to 9,800 during the same periods representing an increase of
145%. Revenues exclusive of Equipment Sales grew at 167%. Revenues grew at a
faster rate than customer count due to a focus on commercial customers with
higher monthly billing rates and from increases in Web Production and Hosting
and Equipment sales.
14
<PAGE>
DIAL-UP SERVICE
The Company's strategy is to provide an high quality service with few busy
signals. In order to assure this service level the Company does not provide
any unlimited access service price plans during the business day, these plans
have a tendency to congest the network. The Company does provide a range of
service offerings based on a set number of hours for a set rate with
additional hours billed as overage. The table below shows the composite
weighted average billing rate for full service Internet access by quarter
for 1995 and 1996.
For the Three Months Ended
March June September December March June September December
1995 1995 1995 1995 1996 1996 1996 1996
$20.52 $20.42 $20.88 $21.02 $20.97 $20.33 $20.41 $20.50
The 135% revenue growth in Dial-Up Service in 1996 over 1995 is attributable
to growth in customers while maintaining average billing rates. Dial-up
Service has been split approximately evenly between commercial and
residential customers throughout 1995 and 1996.
RMI has established business alliances with five unrelated parties for the
purpose of providing Internet Services in secondary markets in the State of
Colorado. These joint venture agreements provide for the local party to
provide equipment and marketing services while the Company provides Internet
Access and administrative services. Dial-up revenues based on these joint
ventures generated $ 67,500 in revenues in 1995 and $ 354,100 in 1996 for an
increase of 425%. The joint venture points of presence (POP) began in the
second quarter of 1995 and grew to six locations by the end of 1995 and eight
locations by the end of 1996.
DEDICATED ACCESS SERVICE
Dedicated access services are primarily provided to commercial customers and
include a wide range of connectivity options tailored to the requirements of
the customer. These services include private port (dedicated modem),
Integrated Services Digital Network(ISDN) connections, 56 Kbps frame relay
connections, T-1 (1.54 Mbps) frame relay connections, point to point
connections, and T-3 (45 Mbps) or fractional T-3 connections. The Company
also offers a colocation service in which the customer's equipment is located
in the RMI data center, thereby providing access to the Internet directly
through the Company's connection.
The table below shows the quarterly customer count by each of the component
services offered for dedicated access as of the dates indicated:
<TABLE>
Service March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31
1995 1995 1995 1995 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Private Port 29 30 36 35 42 47 46 54
56 Kbps 18 27 27 34 47 69 71 72
ISDN 0 0 0 2 3 13 46 80
T-1 7 10 10 11 16 25 29 30
Colocation 0 1 4 4 6 4 5 6
</TABLE>
WEB SERVICES
Web services revenues are composed of Web page hosting and Web page
production. Web page hosting provides ongoing revenue from customers for
whom RMI hosts a
15
<PAGE>
Web site on Web servers in the RMI data center. All access made to these Web
Sites by the customer and the Internet community as a whole are processed on
the RMI servers. The advantage to customers is high speed access to sites by
their targeted audiences. The following is a summary of the number of Web
hosting customers as of the dates indicated:
March 31 June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31
1995 1995 1995 1995 1996 1996 1996 1996
1 21 45 90 157 217 242 341
Web page hosting accounted for $ 26,200 of revenue in 1995 and $239,700 of
1996 revenue for an increase of 815%. The increase resulted from increases
in the direct sales force, increased server capacities and speed, and the
increasing popularity of the Web as a business tool.
Web page production increased from $3,770 for 1995 to $ 173,800 for 1996 for
an increase of 4,510%. The Company increased the size of the Web production
department as well as provided customers more complex applications. The
growth in Web hosting business helped to drive this part of the business plus
the activities of the Company's direct sales force. RMI did not have a
direct sales force until December, 1995.
EQUIPMENT SALES
RMI sells hardware to its customers as an accommodation and to provide a "one
stop shop" for Internet services. Equipment sales can vary from a single
router for an ISDN connection to providing servers and Internet grade routers
for colocations. Sales grew from $144,551 in 1995 to $519,551 in 1996 or
259%. Equipment sales are typically low margin transactions and can fluctuate
dramatically depending on large server orders. RMI has established wholesale
purchasing relationships with national and regional vendors in order to
provide an attractively priced total Internet solution to its commercial
customers.
GROSS PROFIT
Gross profit consists of total revenue less the direct costs of delivering
services and the cost of equipment. Gross profit on Internet services
(exclusive of equipment) as a percentage of sales is 81% for 1995 and 77% for
1996. The reduction in gross profit percentage is principally the result of
increasing capacity for Internet access, ISDN facilities, and dial-up
facilities.
16
<PAGE>
GENERAL, SELLING AND ADMINISTRATIVE
SALES AND MARKETING EXPENSES increased from $92,300 in 1995 to $776,500 in 1996
inclusive of personnel costs. The Company hired a full time direct sales staff
beginning in December, 1995. Of the total 1996 sales and marketing expense,
approximately $565,000 relate to personnel expenses. The Company had 6
employees at the end of 1995 and 16 employees at the end of 1996 in sales and
marketing. Extensive efforts have been made to identify, hire, and train sales
personnel with expertise in Internet access and in Web applications.
Approximately $211,500 for 1996 was spent on advertising, developing and
printing marketing and sales support materials, and trade show attendance.
GENERAL AND ADMINISTRATIVE EXPENSES increased from approximately $875,200 in
1995 to $3,642,600 in 1996. General and administrative costs consist of
personnel (excluding sales and marketing personnel), physical facilities,
depreciation, amortization, professional services and other related
administrative expenses. Significant items are discussed below.
Payroll costs increased from $459,575 for the year ended December 31, 1995, to
$2,138,460 for the year ended December 31, 1996. The Company had 29 employees
at the end of 1995 and increased staff to 67 at the end of 1996 in all areas of
the Company including administration, technical support, development, and senior
management (excluding sales and marketing). Rent expense for 1995 was $82,269
and increased to $240,720 in 1996. During 1996 the Company moved its corporate
headquarters and leased office space of approximately 19,500 square feet which
includes a data center comprised of 1,200 square feet. The Company continues to
occupy offices in Colorado Springs for staff performing Dial-In technical
support, customer service, and sales functions. Additionally, the Company
leases two POP's (points of presence) which contain routers, servers, and modems
to provide Internet access for its customers. The Company's former offices in
Denver at 1800 Glenarm have been sub leased effective March 1, 1997 for the
remainder of the lease term. A one time charge of approximately $58,000 has
been recorded in 1996 for commission expense on the transaction as well as the
difference between the sub lease rate and the existing lease rate.
The Company experienced an increase in communications expense from $58,400 for
the year ended 1995 to $196,800 for the year ended 1996. These expenses
included local telephone service, cellular phones and pager costs and long
distance telephone expenses. The Company uses multiple "800" phone numbers to
provide technical support, customer support, and sales order processing to its
growing base of customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception and has experienced negative
operating cash flow in 1996. The Company's operations used net cash of
approximately $1.5 million for the year ended December 31, 1996. The cash used
by operating activities is primarily attributable to the Company's continued
expansion of its facilities and employee base in anticipation of continued
growth in revenues.
Between December 31, 1995, and December 31, 1996, the Company's employee base
increased from 35 to 83 and its total assets increased from $924,603 to
$5,540,167. The increase in the Company's total assets is primarily
attributable to $2,375,348 of property and equipment (net of accumulated
17
<PAGE>
depreciation), $1,356,629 in short term investments, and $428,489 of accounts
receivable. The Company has financed this growth primarily with revenues
from operations, from proceeds of approximately $3.7 million resulting from
completion of the Company's initial public offering in September 1996, and
1.7 million from capital lease financing. In addition, sources of cash
included $490,000 in proceeds from a private placement of convertible notes
(since converted into common stock) in late 1995 and early 1996, and $406,000
in net proceeds from a private placement of Series A Convertible Preferred
Stock in mid-1996.
During 1996 the Company acquired approximately $2.5 million in equipment,
software, and leasehold improvements. Equipment consisted of Cascade switches
and related equipment for the Company's frame relay network, routers, servers
and computers. Of the $2.5 million expended, approximately $1.7 million was
financed through capital lease transactions.
The Company has a bank line of credit in the amount of $500,000 which,
subsequent to December 31, 1996 was fully drawn. No amounts were outstanding as
of December 31, 1996, with respect to this line of credit. The line of credit
is secured by a pledge of a $300,000 treasury bill repurchase agreement and by
the Company's accounts receivable. The Company's office lease is also secured
by a pledge of a treasury bill of $250,000.
As of December 31, 1996, the Company had working capital of $370,884. This
included $348,978 of cash and cash equivalents and $1,356,629 of investments in
financial instruments convertible to cash. Trade receivables as of that date
were $518,827. Current liabilities as of that date were approximately
$2,088,350, including $425,160 of accounts payable, $451,823 of current
maturities of long-term debt and capital lease obligations, $528,160 of accrued
payroll and related taxes, and $460,836 of accrued expenses attributable
primarily to a payable on office furniture, deferred office rent, preferred
stock dividend payable, accrual for unbilled circuit costs, and amounts due
joint venture partners pending cash collections. Also included in current
liabilities as of that date is $218,121 of deferred revenue, which represents
differences in the timing of payments by customers and recognition of the
related revenue.
RMI is an Internet Service Provider (ISP) with an high growth rate (as discussed
elsewhere in this document). The Company's growth is dependent on building a
strong infrastructure and hiring high quality sales, technical, and
administrative personnel. In order to build the infrastructure and acquire the
human resources needed to maintain an high growth rate, the Company has operated
with a negative cash flow from operations during 1996 and projects to continue
to do so for the first half of 1997. The company's cash requirements are
relatively fixed for the near term and the Company expects to generate positive
operating cash flows by late 1997 if revenues continue to increase according to
expectations without any significant cost increases. In the near term, the
Company expects to finance negative operating cash flows from incentive programs
to customers designed to increase the rate of realization of accounts
receivable, and, if necessary, from reductions in operating expenses. As
discussed below, the Company may conduct an equity financing which, if
completed, the proceeds would be available to fund operations. In the longer
term, should revenues not continue to increase according to expectations, the
Company may have to seek additional financing to fund operating losses or
implement additional reductions in operating expenses. Reductions in operating
expenses, if effected, could adversely affect revenues and therefore not result
in the expected increase in cash flow. The Company does not currently have
18
<PAGE>
access to additional bank financing and therefore additional financing would
have to result from additional issuances of equity or debt securities.
The Company's common stock is traded on the NASDAQ SmallCap Market. The NASDAQ
Stock Market, Inc. has recently proposed changes to the maintenance criteria for
listing eligibility on the Small Cap Market, including a requirement that
issuers have at least $2,000,000 in net tangible assets. As of January 31,
1997, the Company had less than $2,000,000 in net tangible assets. If the
proposed changes to the SmallCap Market listing criteria are approved by the SEC
and if the Company were to fail to meet such requirements, the Company's common
stock would no longer trade in the SmallCap Market, which would adversely affect
the liquidity and price of the Company's common stock. In anticipation of the
eventual approval of the new maintenance criteria, the Company is seeking to
raise $1 million to $2 million in additional equity capital in a private
placement of stock, the terms and structure of which are not determined at this
time. The proceeds of that offering would be used to meet the more stringent
listing criteria and to improve the Company's working capital and liquidity.
There can be no assurance that additional equity capital will be available to
the Company or, if it is available, that it will be available on terms favorable
to the Company.
ITEM 7. FINANCIAL STATEMENTS
19
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
ACCOUNTANTS' REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
DECEMBER 31, 1995 AND 1996
TABLE OF CONTENTS
Page
----
INDEPENDENT ACCOUNTANTS' REPORT 1
Baird, Kurtz, & Dobson (1996) 1
McGladrey & Pullen (1995) 2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Operations 5
Statements of Stockholders' Equity (Deficit) 6
Statements of Cash Flows 7
Notes to Financial Statements 8
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Rocky Mountain Internet, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of ROCKY MOUNTAIN
INTERNET, INC. as of December 31, 1996, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ROCKY
MOUNTAIN INTERNET, INC. as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ BAIRD, KURTZ & DOBSON
Denver, Colorado
February 28, 1997
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Rocky Mountain Internet, Inc.
Denver, Colorado
We have audited the accompanying balance sheet of Rocky Mountain Internet,
Inc. as of December 31, 1995 and the related statements of operations,
stockholders' deficit, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rocky Mountain Internet,
Inc. as of December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ McGLADREY & PULLEN, LLP
Denver, Colorado
February 23, 1996
-2-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
ASSETS 1995 1996
--------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 274,661 $ 348,978
Investments - 1,356,629
Trade receivables, less allowance for doubtful
accounts; 1995 - $5,700; 1996 - $115,000 90,338 518,827
Inventories 12,185 91,047
Other 5,153 143,753
--------- ----------
Total Current Assets 382,337 2,459,234
--------- ----------
PROPERTY AND EQUIPMENT, AT COST
Equipment 555,654 2,513,944
Computer software 36,806 202,501
Leasehold improvements 4,880 127,877
Furniture, fixtures, and office equipment 15,101 413,678
--------- ----------
612,441 3,258,000
Less accumulated depreciation and amortization 132,812 403,023
--------- ----------
479,629 2,854,977
--------- ----------
OTHER ASSETS
Customer lists, at amortized cost - 145,444
Deposits 62,637 80,512
--------- ----------
62,637 225,956
--------- ----------
$ 924,603 $5,540,167
--------- ----------
--------- ----------
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1995 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
1995 1996
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 19,419 $ 4,250
Current maturities of long-term debt and capital lease obligations 72,675 451,823
Accounts payable 192,985 425,160
Deferred revenue 169,645 218,121
Accrued payroll and related taxes 83,528 528,160
Accrued expenses 30,950 460,836
---------- -----------
Total Current Liabilities 569,202 2,088,350
---------- -----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 524,437 1,134,380
---------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; authorized 1,000,000
shares; issued and outstanding 1995 - 0 shares,
1996 - 250,000 shares - 250
Common stock, $.001 par value; authorized 10,000,000
shares; issued and outstanding 1995 1,868,000 shares; 1996
4,540,723 shares 1,868 4,541
Additional paid-in capital 28,847 4,839,968
Accumulated deficit (199,751) (2,527,322)
---------- -----------
Total Stockholders' Equity (Deficit) (169,036) 2,317,437
---------- -----------
$ 924,603 $ 5,540,167
---------- -----------
---------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996
---------- ----------
REVENUE
Internet access and services $1,034,774 $ 2,762,028
Equipment sales 144,551 519,551
---------- -----------
1,179,325 3,281,579
---------- -----------
COST OF REVENUE EARNED
Internet access and services 193,875 640,880
Equipment sales 126,494 462,787
---------- -----------
320,369 1,103,667
---------- -----------
GROSS PROFIT 858,956 2,177,912
GENERAL, SELLING AND ADMINISTRATIVE EXPENSES 967,478 4,419,106
---------- -----------
OPERATING LOSS (108,522) (2,241,194)
---------- -----------
OTHER INCOME (EXPENSE)
Interest expense (31,818) (157,042)
Interest income 2,397 44,322
Finance charges 3,871 24,654
Other income, net 5,278 26,689
---------- -----------
(20,272) (61,377)
---------- -----------
LOSS BEFORE INCOME TAXES (128,794) (2,302,571)
INCOME TAX EXPENSE - -
---------- -----------
NET LOSS $ (128,794) $(2,302,571)
---------- -----------
---------- -----------
PRIMARY AND FULLY DILUTED LOSS PER SHARE
Net loss per share $ (.04) $ (.63)
---------- -----------
---------- -----------
See Notes to Consolidated Financial Statements
-5-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
Preferred Stock Common Stock Additional
---------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ------ --------- ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 - $ - 1,188,000 $1,188 $ 26,626 $ (70,957) $ (43,143)
Purchase of common stock for
redemption - - (180,000) (180) (18,570) - (18,750)
Issuance of common stock - - 860,000 860 1,008 - 1,868
Capital contribution - - - - 19,783 - 19,783
Net loss - - - - - (128,794) (128,794)
------- ------ --------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 - - 1,868,000 1,868 28,847 (199,751) (169,036)
Issuance of preferred stock 250,000 250 - - 405,750 - 406,000
Issuance of common stock - - 1,365,000 1,365 3,775,887 - 3,777,252
Stock option compensation - - - - 12,807 - 12,807
Issuance of underwriters' warrants - - - - 100 - 100
Conversion of debentures into
common stock - - 1,225,000 1,225 488,775 - 490,000
Dividends on preferred stock - - - - - (25,000) (25,000)
Issuance of common stock for the
acquisition of CompuNerd, Inc. - - 30,000 30 67,470 - 67,500
Issuance of common stock for the
acquisition of the Information
Exchange - - 52,723 53 60,332 - 60,385
Net loss - - - - - (2,302,571) (2,302,571)
------- ------ --------- ------ ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 250,000 $ 250 4,540,723 $4,541 $4,839,968 $(2,527,322) $ 2,317,437
------- ------ --------- ------ ---------- ----------- -----------
------- ------ --------- ------ ---------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
1995 1996
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(128,794) $(2,302,571)
Items not requiring (providing) cash:
Depreciation 51,395 88,162
Amortization 39,030 186,044
Salaries paid with stock options - 12,807
Changes in:
Trade receivables (59,621) (417,999)
Inventories (12,185) (78,862)
Other current assets (5,153) (138,066)
Accounts payable 89,395 224,618
Deferred revenue 77,084 41,268
Accrued payroll and related taxes 83,528 443,208
Accrued expenses 30,550 429,886
--------- ----------
Net cash provided by (used in) operating
activities 165,229 (1,511,505)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (177,771) (900,235)
Purchase of investments - (1,756,629)
Proceeds from investments - 400,000
Payment for purchase of CompuNerd, Inc. - (70,478)
Additions to deposits (60,635) (16,675)
--------- ----------
Net cash used in investing activities (238,406) (2,344,017)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 1,868 3,777,252
Proceeds from sale of preferred stock - 406,000
Proceeds from notes payable 18,000 6,689
Proceeds from long-term debt 373,000 135,404
Sale of stock warrants - 100
Payment of preferred stock dividend - (25,000)
Purchase of common stock for redemption (18,750) -
Payments on notes payable (8,217) (26,108)
Payments on long-term debt and capital leases
obligations (54,533) (344,498)
--------- ----------
Net cash provided by financing activities 311,368 3,929,839
--------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 238,191 74,317
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 36,470 274,661
--------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 274,661 $ 348,978
--------- ----------
--------- ----------
See Notes to Consolidated Financial Statements
-7-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a provider of Internet access services and Web services to
businesses, professionals and individuals in the state of Colorado. The Company
facilitates access to the Internet by means of a regional telecommunications
network comprised of a backbone of leased, high-speed dedicated phone lines,
computer hardware and software and local access points known as points of
presence in eleven locations. The Company's high speed, digital
telecommunications network provides subscribers with direct access to the full
range of Internet applications and resources.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its wholly-
owned subsidiary, Rocky Mountain Internet Subsidiary (Colorado) Inc. The
operations of this subsidiary consists solely of the ownership of equipment,
which it leases to the Company. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents. At December 31, 1995 and 1996,
cash equivalents consisted primarily of money market accounts.
COST OF REVENUE EARNED
Included in Internet access and services cost of revenue earned is primarily
the cost of high speed data circuits and telephone lines that allow customers
access to the Company's service plus Internet access fees paid by the Company to
Internet back bone carriers.
-8-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is computed using the
straight line method over the estimated useful lives of the assets, ranging from
five to seven years. Certain equipment obtained by capital lease obligations
are amortized over the life of the lease. Improvements to leased property are
amortized over the lesser of the life of the lease or life of the improvements.
Major additions and improvements to property and equipment are capitalized,
whereas replacements, maintenance and repairs which do not improve or extend the
lives of the respective assets, are expensed.
REVENUE RECOGNITION
The Company charges customers (subscribers) monthly access fees to the
Internet and recognizes the revenue in the month the access is provided. For
certain subscribers billed in advance, the Company recognizes the revenue over
the period the billing covered. Revenue for other services provided, including
set-up fees charged to customers when their accounts are activated, or equipment
sales, are recognized as the service is performed or the equipment is delivered
to the customer.
ADVERTISING
The Company expenses advertising costs as incurred. During the years ended
December 31, 1995 and 1996, the Company incurred $24,847 and $167,565,
respectively, in advertising costs.
CUSTOMER LISTS
The excess of the purchase price over the fair value of net assets acquired
in business acquisitions is recorded as customer lists, and is amortized on a
straight line basis over five years.
-9-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
INVENTORIES
Inventories consist of Internet access equipment and are valued at the lower
of cost of market. Cost is determined using the first-in, first-out method.
LOSS PER COMMON SHARE
For the years ended December 31, 1995 and 1996, loss per share is computed
based upon approximately 3,489,000 and 3,715,000, respectively, weighted average
common shares outstanding for both primary and fully-diluted earnings per share.
The net loss for the year ended December 31, 1996 used in the calculation was
increased by the preferred stock dividends paid of $25,000. These calculations
assumes all shares issued prior to the Company's initial public offering in
September, 1996, were outstanding during all periods presented, including shares
issuable under debenture and preferred stock conversions. It also includes
shares relating to stock options, calculated using the treasury stock approach.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax basis of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.
RENT EXPENSE
The Company recognizes rent expense on a straight-line basis over the lease
terms. Differences between expense recognized and payments made are recorded as
accrued expense.
-10-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
INVESTMENTS
Debt securities and marketable equity securities for which the Company has no
immediate plans to sell but which may be sold in the future are classified as
available-for-sale and carried at fair value. Unrealized gains and losses are
recorded, net of related income tax effects, in stockholders' equity. At
December 31, 1996, the Company had one investment in a U.S. Treasury Note, and
two repurchase agreements with a bank classified as available-for-sale. The
repurchase agreements are secured by U.S. Treasury Notes. The investments
mature in 1997, and the fair value of the investments approximated cost.
NOTE 2: NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has a commercial line of credit with a Bank that provides for
borrowing of up to $500,000 and is secured by a repurchase agreement in the
amount of $300,000, plus accounts receivable of the Company. The line bears
interest at the bank's prime rate plus 2% and matures September 10, 1997. At
December 31, 1996, the Company had no borrowings on this line, but was fully
drawn in 1997.
Long-term debt and capital lease obligations at December 31, 1995 and 1996,
consisted of the following:
1995 1996
---------- ----------
Capital lease obligations payable to finance
companies, due in monthly installments aggregating
$62,631 including interest ranging from 9.5% to
33% through November, 2001, collateralized by
equipment. An officer and shareholder of the
Company has guaranteed certain of the leases
and one of the leases restricts the payment of
preferred stock dividends. $ 196,732 $1,586,203
Debentures (converted to common stock in 1996) 373,000 -
Other 27,380 -
---------- ----------
597,112 1,586,203
Less current maturities 72,675 451,823
---------- ----------
$ 524,437 $1,134,380
---------- ----------
---------- ----------
-11-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 2: NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(continued)
Subsequent to December 31, 1996, the Company borrowed $200,000 from a bank.
The note is due January 3, 2000, is payable $66,660 annually plus one final
principal payment with interest accrued at prime plus 2%, and is secured by
furniture and fixtures.
Aggregate maturities required on long-term debt and obligations under capital
leases at December 31, 1996, are as follows:
Amount
----------
Years ending December 31:
1997 $ 451,823
1998 482,255
1999 573,700
2000 60,322
2001 18,103
----------
$1,586,203
----------
----------
The following is a schedule by years of the future minimum lease payments
under the capital leases, together with the present value of the minimum lease
payments as of December 31, 1996:
Amount
----------
Years ending December 31:
1997 $ 751,389
1998 697,443
1999 635,526
2000 72,067
2001 21,392
----------
Future minimum lease payments 2,177,817
Less amount representing interest 591,614
----------
Present value of minimum lease payments $1,586,203
----------
----------
Equipment acquired under capital lease obligations had a cost of $248,586 and
$1,976,285 and accumulated depreciation of $33,990 and $186,011 at December 31,
1995 and 1996, respectively.
-12-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 3: COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases operating facilities, facilities storing Internet point of
presence equipment, and certain equipment under operating lease agreements
expiring through May, 2002. Certain lease agreements require the Company to pay
certain operating expenses and provide for escalation of annual rentals if the
landlord's operating costs increase.
At December 31, 1996, the future minimum payments under these leases are as
follows:
Amount
----------
Years ending December 31:
1997 $ 377,874
1998 525,474
1999 501,366
2000 447,594
2001 382,501
Thereafter 126,679
----------
$2,361,488
----------
----------
In February, 1997, the Company subleased one of its operating facilities.
The Company accrued a loss of $58,073 as of December 31, 1996, as a result of
this sublease. Minimum future rentals receivable under this noncancellable
operating sublease was $178,648, covering the period through January, 2001, and
is not deducted from the above future minimum payments.
Rent expense was $82,269 and $240,720 for 1995 and 1996, respectively.
EMPLOYEE CONTRACTS
The Company currently has employment agreements with six of its officers that
provide for salaries ranging from $102,000 per year to $66,000 per year, and are
terminable for cause. The Company may also terminate the agreements without
cause subject to the obligation to pay the terminated employee a severance
payment equal to from five to eight months salary based on length of service.
The employment agreements terminate in December, 1999. Employment agreements
with any employees do not significantly restrict such employee's ability to
compete with the Company following any termination.
-13-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 3: COMMITMENTS AND CONTINGENCIES (continued)
EMPLOYEE CONTRACTS (continued)
In February, 1997, one of the officers' employment was terminated. The
officer was also a shareholder, and in a negotiated agreement the Company has
agreed to purchase 90,000 shares of the Company's common stock from the
individual for $120,000. The stock will be purchased over an eighteen month
period.
LETTER OF CREDIT
The Company had $250,000 at December 31, 1996, in an outstanding letter of
credit to be used in case of default on its main operating facilities lease.
The letter of credit is secured by $250,000 currently invested in a U.S.
Treasury Note.
OTHER CONTINGENCIES
The Company has various claims and legal matters occurring in the normal
course of business which, in the aggregate, are not expected to have a
material adverse effect on the financial position of the Company.
NOTE 4: BUSINESS ALLIANCES
The Company has entered into various joint venture agreements with
unrelated parties to provide Internet service to certain areas within
Colorado. Under the agreements, the Company provides access to the Internet
through its point of presence (POP) sites and administrative and customer
support services. The other parties provide equipment at the local POP site
and market the Internet service in the local area. Most revenues generated
by the joint ventures are shared equally by the two parties. The agreements
can be terminated with notice, the Company has the first option to purchase
the local POP equipment should the other parties desire to dispose of their
interest. During the years ended December 31, 1995 and 1996, the Company had
revenues from the joint ventures of $67,452 and $354,565, respectively, and
included in accrued expenses are payables to joint venture partners of $9,774
and $10,069 at December 31, 1995 and 1996, respectively.
-14-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 5: INCOME TAXES
Under the provisions of the Internal Revenue Code, the Company has
available for federal income tax purposes, a net operating loss carryforward
of approximately $2,238,000, which expires in the years 2010 and 2011. The
tax effects of this and other temporary differences related to deferred taxes
were:
1995 1996
-------- ---------
Deferred tax assets:
Net operating loss $ 44,000 $ 850,000
Allowance for doubtful accounts 2,000 44,000
Tax goodwill 20,000 18,000
Accrued expenses - 22,000
-------- ---------
66,000 934,000
Valuation allowance (66,000) (934,000)
-------- ---------
Net deferred tax asset $ - $ -
-------- ---------
-------- ---------
The actual provisions for income taxes varied from the expected provision
for income taxes (computed by applying the statutory U.S. Federal income tax
rates to loss before taxes) only because the tax benefit of the net operating
losses for the periods ended December 31, 1995 and 1996, is offset by the
valuation allowance.
NOTE 6: DEPENDENCE ON SUPPLIERS
The Company depends upon third-party suppliers for its access to the
Internet through leased telecommunications lines. Although this access is
available from several alternative suppliers, there can be no assurance that
the Company could obtain substitute services from other providers at
reasonable or comparable prices or in a timely manner. The Company is also
dependent upon the regional Bell operating company to provide installations
of circuits and to maintain those circuits.
-15-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 7: REORGANIZATION
The Company was originally formed as a sole proprietorship in October,
1993 and incorporated as a Colorado corporation in March, 1994. A new
Delaware corporation was formed in October, 1995. On October 31, 1995, the
Delaware corporation purchased all the assets relating to the Colorado
corporation's business, and assumed all of its liabilities, except for
certain notes payable to shareholders. Since both parties in the transaction
were under common control, the transaction has been accounted for similar to
a pooling of interests, and all assets purchased and liabilities assumed were
recorded by the Delaware corporation at the Colorado corporation's historical
costs. These financial statements reflect the operations of both entities
during the years ended December 31, 1995 and 1996. The stockholders' equity
balances represent shares outstanding as if the transaction had taken place
January 1, 1995.
NOTE 8: PREFERRED STOCK
On April 26, 1996, the Board of Directors designated 250,000 shares of
Preferred Stock as Series A Convertible Preferred Stock (Series A Stock) and
set the terms of the stock. The Series A Stock accrues cumulative dividends
at the rate of 10% per annum. The dividends are payable quarterly to the
extent permitted by applicable law. The Series A Stock may be converted into
shares of Common Stock at the option of the holder at any time after May 15,
1997. The rate of conversion is the Series A Stock's liquidation value
divided by the conversion price, currently set at $2.00 per share. The
Series A Stock's liquidation value is equal to the price paid for the Series
A Stock plus any cumulative dividends unpaid as of the conversion date. The
conversion price is subject to change due to certain antidilution adjustments.
The Company offered 250,000 shares of Series A Stock at $2.00 per share to
accredited investors under an offering that was complete and the shares sold
in June, 1996. The offering netted the Company approximately $406,000 after
expenses of the offering of approximately $94,000.
The Company has the authority to issue up to an additional 750,000 shares
of Preferred Stock. The Board of Directors is authorized to fix the terms
and preferences of the Preferred Stock prior to its being issued.
-16-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 9: COMMON STOCK TRANSACTIONS
On September 5, 1996, the Company completed a public offering of 1,365,000
units at an offering price of $3.50 per unit. Each unit consisted of one
share of common stock and one warrant to purchase one share of common stock
at $4.375 per share for a 23-month period commencing October 5, 1997, and
prior to September 5, 1999. Under certain circumstances, the Company may
redeem the warrants at $.25 per warrant. Additionally, the Company sold the
underwriter for $100 warrants to purchase 125,000 units. These units are
exercisable through September 5, 2000, at an exercise price of $4.20 per unit
(for which the accompanying warrant is exercisable at $6.5625). Costs of the
offering, including a 10% commission paid to the underwriters, the
underwriters nonaccountable expense allowance and professional fees, totalled
$1,000,248, resulting in net proceeds from the offering of $3,777,252.
In connection with the public offering completed on September 5, 1996, the
Company entered into a consulting agreement retaining the underwriters as
financial consultants to the Company for a twelve month period for a fee of
$30,000.
NOTE 10: BENEFIT PLANS
MANAGEMENT BONUS PLAN
The Company had a bonus plan during 1996 in which named employees were
entitled to receive a cash bonus based upon achievement of specified levels
of revenues by the Company for the year ended December 31, 1996. For the
year ended December 31, 1996, the Company accrued $158,000 in bonuses under
the plan. The Company gave employees the option of receiving their bonuses in
cash or stock options. As a result, 51,230 stock options were issued in 1997
to employees at an exercise price of $1.00 per share. Additional
compensation of $12,807 was recorded during the year ended December 31, 1996
as a result of these stock options being issued.
The Company adopted a similar plan for 1997. If the Company achieves its
targeted revenues during 1997 bonuses of $259,000 will be payable. Achieving
revenues above or below the target would result in bonuses above or below
this amount.
-17-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 10: BENEFIT PLANS (continued)
STOCK OPTION PLANS
In July, 1996, the Company adopted the 1996 Employee Stock Option Plan
(the Employee Plan) and the Non-Employee Directors' Stock Option Plan (the
Directors' Plan). The Employee Plan provides for an authorization of 471,300
shares of Common Stock for issuance upon exercise of stock options granted
under the Plan. The Employee Plan is administered by the Board of Directors,
which determines the persons to whom options are granted, the type, number,
vesting schedule, exercise price and term of options granted. Under this
plan both incentive and non-qualified options can be granted.
An aggregate of 18,000 shares of Common Stock are reserved for issuance
under the Directors' Plan. All non-employee directors are automatically
granted non-qualified stock options to purchase 1,500 shares initially and an
additional 1,500 shares for each subsequent year that they serve up to a
maximum of 6,000 shares per director.
The following is a summary of the status of the Company's two stock option
plans and the stock options discussed under management bonus plans at
December 31, 1995 and 1996, and the changes during the years then ended:
<TABLE>
1995 1996
------------------------------------- -----------------------------------------
Employee Plan Employee Plan
and Bonus Plan Directors' Plan and Bonus Plan Directors' Plan
----------------- ----------------- -------------------- ------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year - $ - - $ - - $ - - $ -
Granted during year - - - - 284,230 1.68 1,500 2.00
----- ---- ----- ----- ------- ----- ------ -----
Outstanding, end of year - $ - - $ - 284,230 $1.68 1,500 $2.00
----- ---- ----- ----- ------- ----- ------ -----
----- ---- ----- ----- ------- ----- ------ -----
Options exercisable,
end of year - - 25,000 1,500
----- ----- ------- ------
</TABLE>
-18-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 10: BENEFIT PLANS (continued)
The fair value of each option granted is estimated on the date of the grant
using the Black-Sholes method with the following weighted-average assumptions:
Dividend per share $0.00
Risk-free interest rate 6.16%
Expected life of options 5 years
Weighted-Average fair value
of options granted during 1996 $1.90
The following table summarized information about stock options under the
plans outstanding at December 31, 1996:
<TABLE>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.40 25,000 5 years $ 0.40 25,000 $ 0.40
$ 1.00 51,230 5 years $ 1.00 - $ -
$ 2.00 209,500 5 years $ 2.00 1,500 $ 2.00
</TABLE>
One non-qualified stock option to purchase 25,000 shares at $.40 per share
was granted under the Employee Plan. This option vested immediately. The
remaining Employee Plan options above have a five year term and vest over
three years with one-third vested at the end of the first year.
In January, 1997, 184,000 options were issued under the Employee Plan at
an exercise price of $1.50 per share, under the same terms as the remaining
options described above.
-19-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 10: BENEFIT PLANS (continued)
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans, and no compensation cost has been recognized for the plans, other
than the one non-qualified option. Had compensation cost for the Plans been
determined based on the fair value at the grant dates using Statement of
Financial Accounting Standards No. 123, the Company's net loss would have
increased by $74,258 in 1996. In addition, the Company's loss per share would
have increased by $.02 in 1996.
NOTE 11: ACQUISITIONS
On November 1, 1996, the Company acquired the customer base and selected
assets of CompuNerd, Inc. for $70,428 in cash and 30,000 shares of the Company's
common stock. On December 1, 1996, the Company acquired the Information
Exchange, a related party through common ownership, in exchange for 52,723
shares of the Company's common stock. The acquisitions have been accounted for
as purchases by recording the assets acquired at their estimated market value at
the acquisition date. The operations of the Company include the operations of
the acquirees from the acquisition date. Consolidated operations would not have
been significantly different for the Company had the CompuNerd, Inc. acquisition
been made at the time of the periods shown below. Unaudited ProForma
consolidated operations assuming the Information Exchange purchase was made at
the beginning of each year are shown below:
1995 1996
----------- -----------
Net sales $1,200,0645 $ 3,367,720
Net loss $ (214,042) $(2,337,599)
Net loss per share $ (.06) $ (.64)
The ProForma results are not necessarily indicative of what would have
occurred had the acquisition been on these dates, nor are they necessarily
indicative of future operations.
In January, 1997, the Company entered into an agreement to purchase
substantially all of the assets of O.N.E., an Internet service provider,
including equipment, contracts and intangibles for $150,000 in cash plus 116,932
shares of the Company's common stock. The purchase also requires the Company to
enter into a service agreement with VR-1, Inc., the parent company of O.N.E., in
which VR-1, Inc. would have a credit of up to $175,000 for the purchase of
services from the Company. This acquisition was accounted for as a purchase.
-20-
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE 12: ADDITIONAL CASH FLOW INFORMATION
NONCASH INVESTING AND FINANCING ACTIVITIES 1995 1996
-------- ----------
Capital lease obligations incurred for equipment $211,654 $1,672,244
Capital contributions by reductions of notes payable 19,783 -
Long-term debt converted to common stock - 490,000
Acquisition of CompuNerd, Inc. through issuance of
common stock - 67,500
Acquisition of the Information Exchange through
issuance of common stock - 60,385
ADDITIONAL CASH PAYMENTS INFORMATION
Interest paid $ 22,043 $ 159,007
NOTE 13: CONTINUED OPERATIONS
During the year ended December 31, 1996, the Company incurred a net loss of
$2,302,571 and used $1,511,505 of net cash from operating activities. The
Company's management currently has plans it believes will increase revenues in
order to become profitable and generate positive cash flows from operations.
However, there are no assurances that the Company's plan's for revenue growth
and improved operating cash flows will be successful. It could be necessary to
raise additional capital or reduce operating costs to meet liquidity
requirements. Reducing operating costs could inhibit the Company's planned rate
of revenue growth.
-21-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On January 21, 1997, the Board of Directors of Rocky Mountain Internet, Inc.
resolved to engage the accounting firm of Baird, Kurtz and Dobson as the
Registrant's independent accountant for its fiscal year ending December 31,
1996. Effectively, the Registrant's former independent accountant, McGladrey &
Pullen, LLP, simultaneously resigned as of January 20, 1997. The Denver office
of McGladrey & Pullen was acquired by Baird, Kurtz and Dobson on June 17, 1996.
Certain former audit engagement members are now with Baird, Kurtz and Dobson,
and will continue to be involved with the Registrant's audit.
McGladrey & Pullen's report on the financial statements for the past two years
contained a going concern statement, but otherwise was not qualified or modified
as to audit scope or accounting principles.
During the two most recent fiscal years and interim period subsequent to
December 31, 1995, there have been no disagreements with McGladrey & Pullen on
matters of accounting principles or practices, financial statement disclosure,
auditing scope or procedure, or any reportable events.
McGladrey & Pullen has furnished Registrant with a copy of its letter addressed
to the SEC stating that it agrees with the above statements.
20
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 11 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 12 is incorporated by reference to the
Company's Proxy Statement to be used in connection with its 1997 Annual Meeting
of Shareholders and to be filed with the Commission not later than 120 days
after December 31, 1996.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS
(a) Exhibits required by Item 601 of Regulation S-B
Exhibit
Number Description of Exhibits
3.1 Certificate of Incorporation *
3.2 Bylaws of Rocky Mountain Internet, Inc. *
4.1 Form of Warrant Agreement dated September 5,1996 between Rocky
Mountain Internet, Inc. and American Securities Transfer, Inc. *
4.2 Form of Subordinated Convertible Promissory Note *
4.3 Form of Lock-Up Agreement for Shareholders *
4.4 Form of Lock-Up Agreement for Preferred Stockholders *
4.5 Form of Lock-Up Agreement for Debenture Holders *
4.6 Form of Stock Certificate *
4.7 Form of Warrant Certificate *
10.1 Agreement of Lease between Denver-Stellar Associates Limited
Partnership, Landlord and Rocky Mountain Internet, Inc., Tenant
**
10.2 Asset Purchase Agreement - Acquisition of Compunerd, Inc. **
10.3 Confirmation of $2.0 million lease line of credit **
10.4 Agreement between MCI and Rocky Mountain Internet, Inc.
governing the provision of professional information system
21
<PAGE>
development services for the design and development of the MCI
internal Intranet project referred to as Electronic Advice. **
10.5 Sublease Agreement- 2/26/97 - 1800 Glenarm, Denver, Colorado
10.6 Acquisition of The Information Exchange
10.7 Asset purchase of On-Line Network Enterprises
10.8 1996 Incentive Compensation Plan - Annual Bonus Incentive
10.9 1997 Incentive Compensation Plan - Annual Bonus Incentive
16.1 Letter re change in certifying accountant ***
27.1 Financial Data Schedule
* Incorporated by reference from the Company's registration statement on
Form SB-2 filed with the Commission on August 30, 1996, registration
number 333-05040C.
** Incorporated by reference from the Company's Form 10-QSB filing dated
11/14/96.
*** Incorporated by reference to the Company's Form 8-K filing dated
1/28/97.
(b) Reports on 8-K. State whether any reports on Form 8-K were filed during the
last quarter of the period covered by this report, listing the items reported,
any financial statements filed and the dates of such reports.
Item 4. Changes in Registrant's Certifying Accountant - filed January 21,
1997
Item 5. Other Events. - Correction to Earnings per Share report - filed
March 21, 1997.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Rocky Mountain Internet, Inc.
Registrant
March 31, 1997 By: /s/ D. Kirk Roberts
--------------------------------
Chief Financial Officer
By: /s/ Roy J. Dimoff
--------------------------------
Chief Executive Officer and
Chairman -- Board of Directors
By: /s/ Christopher K. Phillips
--------------------------------
Board of Directors
By: /s/ Gerald Van Eeckhart
--------------------------------
Board of Directors
22
<PAGE>
EXHIBIT 10.5
SUBLEASE AGREEMENT - 1800 GLENARM, DENVER, COLORADO
DATED 2/26/97
<PAGE>
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT is entered into this 26th day of February, 1997, by
and between Rocky Mountain Internet, Inc. ("Sublessor") and T & 0 Smith & Wogrin
("Sublessee") subject to a certain lease ("Lease") dated November 24, 1995,
entered into by Sheridan Realty Corporation ("Lessor") and the Sublessor as
Lessee.
(1) SUBLEASE PREMISES
Sublessor leases to Sublessee and Sublessee leases from Sublessor upon
terms and conditions set forth herein commonly known as 1800 Glenarm, Suite
1100, 4,202 rentable square feet, attached as Exhibit "A," ("Sublease
Premises"), together with any rights-of-way, easements and any other rights, if
any, appurtenant thereto. Exhibit "A" closely, but not exactly represents the
existing floor plan of Suite 1100.
(2) TERMS AND CONDITIONS OF SUBLEASE
(a) TERMS. The term of this Sublease shall begin ON the 1ST day of MARCH,
1997, ("Commencement Date") and shall extend through the 7th day of January,
2001, unless terminated sooner as provided herein ("Termination Date").
(b) CONDITIONS. This Sublease Agreement is made expressly subject to all
of the terms and conditions of the Lease (Attached as Exhibit "B"). If an event
occurs that is not governed by the terms and provisions of this Sublease
Agreement, then the terms and provisions of the Lease shall govern such event.
Furthermore, the Sublessee assumes each and every covenant, duty and obligation
of the Lessee and promises to faithfully observe each and every term and
provision set forth in the Lease (except as may be modified by this Sublease
Agreement). The Sublessee acknowledges that the Sublessor shall be deemed to be
substituted for the Lessor under the Lease with respect to the rights of
Landlord and the Sublessor shall be entitled to exercise all of the rights and
privileges of the Lessor as defined in the Lease (except as may be modified by
this Sublease Agreement). By way of illustration and not by way of limitation,
the Sublessor shall be entitled to exercise any remedy provided to the Lessor
under the Lease (in addition to any remedy set forth in this Sublease) in the
event the Sublessee breaches any condition, provision or covenant set forth in
this Sublease Agreement. Notwithstanding anything herein to the contrary,
Sublessor does not assume any of the obligations of Landlord, and as between the
Sublessor and Sublessee, this Sublease Agreement is not subject to the following
Provisions Paragraphs 2.1, 3.1, 8.1, 9.2, 12.1, 20,1, 20.2, 20.3, Exhibits B, C,
E and F and paragraphs 2 and 3 of the first Amendment.
(3) RENTAL
Sublessee agrees to pay to Sublessor for the full term hereof the sum of
$178,147.72, payable in advance and without notice in equal monthly
installments of $2,935.17 on the first day of each month from March 1, 1997
to December 31, 1997, and $4,107.46 per month from January 1, 1998 to
December 31, 2000 and a final payment of $927.49 due January 1, 2001 at the
following address: 1099 18th Street, 30th floor, Denver, Colorado 80202 (or
at such other address as Sublessor may designate in writing from time to
time) without any set-off or deduction whatsoever. Sublessee shall
additionally pay Tenant's pro rata share of all Building Operating Costs as
set forth in the Lease that exceed 1997 year-end building operating costs.
(a) Should Sublessee's monthly rent be more than five (5) days late from
the due date, Sublessor shall assess Sublessee a late fee of 5% of such
unpaid portion of overdue rent.
(4) USE OF SUBLEASE PREMISES
Sublessee shall have the right to use and occupy the Sublease Premises
for general business use. Any other use shall be permitted only with the
prior written consent of Sublessor, which consent may be withheld in
Sublessor's sole discretion. Throughout the term of this Sublease (and any
extension thereof), Sublessee, at Sublessee's sole cost and expense,
covenants to promptly comply with all laws and ordinances and the orders,
rules, regulations and requirements of all federal, state and municipal
governments and appropriate departments, commissions, boards and officers
thereof.
(5) PAYMENT OF TAXES
Sublessee agrees to pay all personal property taxes, all franchise or
license fees or any other charge levied against the Sublessee resulting from
the operation of the Sublessee's business in the Sublease Premises.
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<PAGE>
(6) INSURANCE
During term of this Sublease, Sublessee shall carry and maintain insurance
as required under the Lease.
(a) WAIVER OF SUBROGATION. The parties agree that all insurance policies
obtained pursuant to this Sublease shall include a clause or endorsement which
shall waive the right of subrogation on the part of the insurance carrier
against both Sublessor and Sublessee. Sublessor and Sublessee hereby release
the other from any and all liability or responsibility to the other or anyone
claiming through or under them by way of subrogation.
(7) ASSIGNMENT AND SUBLETTING
Without Sublessor's consent, which will not be unreasonably withheld, this
Sublease or any interest herein may not be assigned by Sublessee, voluntarily or
involuntarily, by operation of law or otherwise, and all or any part of the
Sublease Premises shall not be subleased by Sublessee a merger, consolidation,
sale of substantially all of the assets or sale of a substantial amount of the
stock of Sublessee or a transfer of a substantial partnership interest of
Sublessee, and shall constitute an assignment of this Sublease for the purposes
of this paragraph. Any assignment or subletting in violation of this provision
shall be null and void and is strictly subject to the consent of the Landlord
and the terms of paragraph 28 of the Lease.
(8) INDEMNITY PROVISIONS
Sublessee agrees to exonerate, hold harmless, protect and indemnity
Sublessor, or any owner of the Sublease Premises, from and against any and all
losses, damages, claims, suits or actions, judgments and costs which may arise
during the term of this Sublease for personal injury, loss of life or damaged
property sustained in or about the Sublease Premises or the improvements and
appurtenances thereto upon the Sublease Premises or upon the adjacent sidewalks
and streets; and from and against all costs, counsel fees, expenses and
liabilities incurred in any such claims, the investigation thereof or the
defense of any action or proceeding brought thereon; and from and against any
judgments, orders, decrees or liens resultant therefrom and any fines levied by
any authority for any law, regulation or ordinance by virtue of the use by
Sublessee of the improvements and appurtenances thereto situated upon the
Sublease Premises. Sublessee shall not permit any mechanic's or materialmen's
liens to be filed against the Sublease Premises and hereby indemnifies and holds
Sublessor harmless from and against any liability, damage, expense or cost which
may be incurred by Sublessor in connection with any mechanic's or materialmen's
liens which may be filed against the Sublease Premises as a result of the
provisions of this Sublease. This indemnity shall specifically include
attorneys' fees and any costs incurred by Sublessor to enforce this indemnity.
(9) ADA COMPLIANCE
(a) DISCLOSURE. Sublessee hereby acknowledges that Sublessor and Broker
have advised Sublessee that the Premises and Sublessee may be subject to the
Americans With Disabilities Act (the "ADA"), a Federal law. Among other
requirements of the ADA that could apply to the Premises, Title III of the ADA
requires owners and tenants of "public accommodations" to remove barriers to
allow access by disabled persons and provide auxiliary aids and services for
hearing, vision or speech impaired persons by certain dates. All costs incurred
by Sublessee or Sublessor during the term of this Sublease (and any extension
thereof) to ensure Sublessee's compliance with the ADA, including necessary
alterations in or about the Sublease Premises or modifications to the access to
the building of which the Premises is a part, shall be at Sublessee's sole cost
and expense unless Sublessor has agreed, in writing, to pay for a portion of
said costs.
(b) INVESTIGATION. Sublessee hereby acknowledges that Sublessor and
Broker have recommended that Sublessee prior to executing this Sublease,
investigate the ADA and the regulations thereunder to determine if the ADA law
and regulations would apply to Sublessee and/or to the Premises in which
Sublessee is interested in occupying. Sublessee agrees that it is solely
responsible, at its expense, for conducting its own independent investigation of
all ADA issues prior to the execution date of this Sublease and during the
primary term of this Sublease (and any extension thereof).
(10) HAZARDOUS MATERIALS
Sublessee shall not (either with or without negligence) cause the escape,
disposal or release of any biologically or chemically active or other hazardous
substances or materials ("Hazardous Materials"). Sublessee shall not allow the
storage or use of such Hazardous Materials in any manner not sanctioned by law
or by the highest standards prevailing in the industry for the storage and use
of Hazardous Materials, nor allow to be brought into the Premises any Hazardous
Materials except with
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<PAGE>
the prior written consent of Sublessor, which may be withheld in Sublessors
sole discretion. Without limitation, Hazardous Materials shall include those
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 USC Section 9601 et seq., the Resource
Conservation and Recovery Act, as amended, 42 USC Section 6901 et seq., and
applicable state or local laws and the regulations adopted under these acts. If
any lender or governmental agency shall ever require testing to ascertain
whether or not there has been any release of Hazardous Materials, then the
reasonable cost of testing and resulting cleanup thereof shall be reimbursed by
Sublessee to Sublessor upon demand as additional charges if such requirement
applies to the Premises, provided that such testing proves that Sublessee
released such Hazardous Materials on the Premises. In addition, Sublessee shall
execute affidavits, representations and the like from time to time at
Sublessor's request concerning Sublessee's best knowledge and belief regarding
the presence of Hazardous Materials on the Premises. In all events, Sublessee
shall indemnify Sublessor in the manner elsewhere provided in this Sublease from
any release of Hazardous Materials on the Sublease Premises occurring while
Sublessee is in possession, or elsewhere if caused by Sublessee or persons
acting under Sublessee.
(11) DEFAULT PROVISIONS
(a) The occurrence of any one or more of the following events, as well as
those applicable by reason of the Lease, shall constitute a default and breach
of this Sublease by Sublessee:
(1) FAILURE TO PAY RENT. Sublessee failing to pay the rental herein
reserved and such failure continues for five (5) days following the date when
due.
(2) FAILURE TO PAY OTHER COSTS. Sublessee failing to make any other
payments required to be made by Sublessee when due, where such failure shall
continue for a period of five (5) calendar days following written notice from
Sublessor to Sublessee.
(3) FAILURE TO KEEP COVENANTS. Sublessee failing to perform or keep any
of the other terms, covenants and conditions herein contained for which
Sublessee is responsible, and such failure continuing and not being cured for a
period of five (5) calendar days after written notice or if such default is a
default which cannot be cured within a 5-calendar-day period, then Sublessee's
failing to commence to correct the same within said 5-calendar-day period and
thereafter failing to prosecute the same to completion with reasonable
diligence.
(4) ABANDONMENT. Sublessee abandoning the Sublease Premises.
(5) BANKRUPTCY. Sublessee being adjudicated a bankrupt or insolvent or
Sublessee filing in any court a petition for bankruptcy or for reorganization or
for the adoption of an arrangement under the Bankruptcy Act (as now or in the
future amended) or the filing of an involuntary bankruptcy against Sublessee
[unless said involuntary bankruptcy is reanimated within thirty (30) calendar
days from the date of said filing], or Sublessee filing in any court for the
appointment of a receiver or trustee of all or a portion of Sublessee's property
or there being appointed a receiver or trustee for all or a portion of
Sublessee's property, unless said receiver or trustee is terminated within
thirty (30) calendar days from the date of said appointment.
(6) ASSIGNMENT FOR BENEFIT OF CREDITORS. Sublessee making any general
assignment or general arrangement of Sublessee's property for the benefit of
Sublessee's creditors.
(12) REMEDIES
In the event of an occurrence of default as set forth above, Sublessor
shall have the right to seek any remedies as pursuant to the Lease, as well as:
(a) TERMINATE SUBLEASE. Terminate this Sublease and end the term hereof
by giving to Sublessee written notice of such termination, in which event
Sublessor shall be entitled to recover from Sublessee at the of such termination
the present value of the excess, if any, of the amount of rent reserved in this
Sublease for the then balance of the term hereof over the then reasonable rental
value of the Sublease Premises for the same period. The present value shall be
determined by discounting all future excess rent amounts at a rate of eight
percent (8%) per annum. It is understood and agreed that the "reasonable rental
value" shall be the amount of rental which Sublessor can obtain as rent for the
remaining balance of the initial term or renewal term, whichever is applicable;
or
(b) SUE MONTHLY FOR RENTS. Without resuming possession of the Sublease
Premises or terminating this Sublease to sue monthly for and recover all rents,
other required payments due under this Sublease, and other sums including
damages and legal fees at any time and from time to time accruing hereunder; or
(c) REPOSSESS SUBLEASE PREMISES. Upon written notice to all interested
parties, reenter and take possession of the Sublease Premises or any part
thereof and repossess the same as of Sublessors former estate and expel
Sublessee and those claiming through or under Sublessee and remove the effects
of either or both (forcibly, if necessary) without being deemed guilty in any
manner of trespass and without prejudice to any remedies for rent delinquencies
or preceding lease defaults, in which event Sublessor may from time to time
without terminating this Sublease relet the Sublease Premises or any
-3-
<PAGE>
part thereof for such term or terms and at such rental or rentals and upon
such other terms and conditions as Sublessor may deem advisable, with the
right to make alterations and repairs to the Sublease Premises, and such
reentry or taking of possession of the Sublease Premises by Sublessor shall
not be construed as an election on Sublessor's part to terminate this
Sublease unless a written notice of termination is given to Sublessee or
unless the termination thereof is decreed by a court of competent
jurisdiction. In the event of Sublessor's election to proceed under this
provision, then such repossession shall not relieve Sublessee of Sublessee's
obligation and liability under this Sublease, all of which shall survive such
repossession, and Sublessee shall pay to Sublessor as current liquidated
damages the basic rental and additional rental and other sums hereinabove
provided which would be payable hereunder if such repossession had not
occurred, less the net proceeds (if any) of any reletting of the Sublease
Premises after deducting all of Sublessor's expenses in connection with such
reletting, including but without limitation all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, expenses of employees,
alteration costs, and expenses of preparation of such reletting. Sublessee
shall pay such current damages to Sublessor on the days on which the basic
rental would have been payable hereunder if possession had not been retaken,
and Sublessor shall be entitled to receive the same from Sublessee on each
such day.
(13) NOTICES
All notices, demands and requests required to be given by either party to
the other shall be in writing and shall either be hand delivered or sent by
certified or registered mail, return receipt requested, postage prepaid,
addressed to the parties at the addresses set forth below or at such other
addresses as the parties may designate in writing delivered pursuant to this
provision. Any notice when given as provided herein shall be deemed to have
been delivered on the date personally served or two (2) calendar days subsequent
to the date that said notice was deposited with the United States Postal
Service.
SUBLESSOR: Rocky Mountain Internet
c/o Marcia White
1099 18th Street, 30th floor
Denver, CO 80202
SUBLESSEE: T & 0 Smith & Wogrin
c/o David Smith
1800 Glenarm, Suite 1100
Denver, CO 80202
(14) TIME OF THE ESSENCE
Time is of the essence hereof.
(15) QUIET ENJOYMENT
Sublessor represents, covenants, and warrants that:
(a) AUTHORITY. Sublessor has the right to enter into and consummate this
Sublease.
(b) PEACEFUL POSSESSION. Upon Sublessee's paying the rental herein
reserved and upon performing all of the terms and conditions of this Sublease on
Sublessee's part to be performed, Sublessee shall at all times during the term
of this Sublease peacefully and quietly have, hold and enjoy the Sublease
Premises.
(c) OBLIGATIONS UNDER THE LEASE. Throughout the term of the Sublease,
Sublessor shall maintain the Lease in good standing and promptly perform all
obligations of Sublessor thereunder NOT DELEGATED TO SUBLESSEE PURSUANT TO THIS
SUBLEASE.
(d) INDEMNITY. Sublessor and Sublessee shall indemnify each other and hold
each other harmless from and against all costs, expenses (including reasonable
attorney fees), losses, claims, liabilities, obligations, and damages resulting
from or arising out of a breach by Sublessor or Sublessee of its
representations, covenants, and warranties contained in this Section 16.
(e) NOTICE OF DEFAULT. If Sublessor is in default or breach under the
Lease, Sublessor shall provide written notice of such default to Sublessee
within two days of such default or breach.
(16) MISCELLANEOUS
(a) CHOICE OF LAW. This Sublease is entered into in the State of Colorado
and shall be construed in accordance with the laws thereof.
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<PAGE>
(b) HEADINGS AND CAPTIONS. The headings and captions used in this Sublease
are for the convenience of reference only and shall not be used in the
construction or interpretation of this Sublease.
(c) INUREMENT. The covenants and agreements contained herein shall be
binding upon and inure to the benefit of the parties hereto, their heirs,
personal representatives, administrators, successors and assigns.
(d) CONSTRUCTION OF TERMS. Words of any gender used in this Sublease shall
be held to include any other gender, and words in the singular shall be held to
include the plural, as the identity of Sublessor or Sublessee requires.
(17) NO WAIVER
No waiver by Sublessor of any provisions hereof shall be deemed a waiver of
any other provision hereof or of any subsequent breach by Sublessee of the same
or any other provision. Sublessor's consent to or approval of any act shall not
be deemed to render unnecessary the obtaining of Sublessor's consent to or
approval of any subsequent act by Sublessee. The acceptance of rental hereunder
by Sublessor shall not be a waiver of any preceding breach by Sublessee of any
provision hereof, other than the failure of Sublessee to pay the particular
rental so accepted, regardless of Sublessor's knowledge of such preceding breach
at the time of acceptance of such rent.
(18) ATTORNEYS' FEES
In case suit shall be brought to enforce any provisions of this Sublease,
the prevailing party shall be awarded (in addition to the relief granted) all
reasonable attorneys' fees and costs resulting from such litigation.
(19) INTEREST ON PAST-DUE OBLIGATIONS
Any amount due to Sublessor not paid when due shall bear interest at the
rate of one percent (1%) per month from the date due; provided, however, that
any such payment of interest shall not excuse or correct any default by
Sublessee under this Sublease.
(20) LEGAL COUNSEL
By virtue of this paragraph, Broker advises and recommends that all
parties hereto obtain legal counsel to represent them in connection with the
examination of title, zoning of the Sublease Premises, the execution of this
Sublease, tax implications of the transaction and all other aspects relative
to the transaction contemplated hereby.
(21) AGENCY DISCLOSURE
The rules and regulations of the Colorado Real Estate Commission require
that Broker (Fuller and Company) discloses its agency relationship with all
parties to a transaction. Broker hereby discloses that it is acting as dual
agent for and on behalf of Sublessor and Sublessee. The parties acknowledge
prior timely agency disclosure and consent to said agency relationship.
(22) SEVERABILITY
If any sentence, paragraph or section of this Sublease is held to be
illegal or invalid, this shall not affect in any manner those other portions of
the Sublease not illegal or invalid and this Sublease shall continue in full
force and effect as to those provisions.
(23) SECURITY DEPOSIT
Sublessee shall deposit with Sublessor a Security Deposit of $3,790.00 upon
the execution of this Sublease. Sublessor will hold such security deposit in
accordance with paragraph 7.1 of the Lease. Sublessor agrees to promptly (within
thirty (30) days of the default of Sublessor, termination, or expiration of this
Sublease) return the Security Deposit, less any allowed deductions, to Sublessee
upon Sublessor's default under the Lease, or upon the termination or expiration
of this Sublease.
(25) ADDITIONAL PROVISIONS
(a) Sublessee agrees to take the premises in an as is condition.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease Agreement the
day and year first written above.
SUBLESSOR: SUBLESSEE:
Rocky Mountain Internet, Inc. T & O Smith & Wogrin
1099 18th Street, 30th floor 1800 Glenarm, Suite 1100
Denver, CO 80202 Denver, CO 80202
By: /s/ By: /s/
---------------------------- -----------------------------
Its: President Its: President
--------------------------- ----------------------------
Lessor hereby consents to this Sublease Agreement by signing below and Lessor
grants Sublessee a Right of First Refusal to assume the Lease upon Sublessor's
uncured default under the Lease.
LESSOR:
Sheridan Realty Corp.
1800 Glenarm, Suite 1200
Denver, CO 80202
By: /s/
----------------------------
Its: Vice President
---------------------------
-6-
<PAGE>
EXHIBIT A
Legal Description and Premises
[Graph]
<PAGE>
EXHIBIT 10.6
ACQUISITION OF THE INFORMATION EXCHANGE
<PAGE>
BILL OF SALE
INFORMATION EXCHANGE, L.L.C.
This Bill of Sale is entered into between Rocky Mountain Internet, Inc., a
Delaware corporation (the "Company") and the persons whose signature appear
below (the "Owners").
Whereas, the Owners own all of the outstanding equity interests in the
Information Exchange, L.L.C.. The Company and the Owners desire to exchange
shares of common stock of the Company ("Common Stock") for all of Owners' equity
interests in IE (the "Equity Interests") upon the terms and subject to the
conditions set forth herein.
Therefore, the parties agree as follows:
1. Each of the Owners hereby assigns, transfers and conveys to the
Company all of such Owners Equity Interests in IE, in exchange for an aggregate
of 52,723 shares of Common Stock, such shares to be issued to the owners pro
rata according to their respective ownership interests in IE.
2. Each of Roy Dimoff, Brian Dimoff, Nancy Phillips and Sandra Collins
represents and warrants that they own 51%, 14%, 31% and 4%, respectively, of the
outstanding equity interests in IE, and that upon delivery of such Equity
Interests to the Company, the Company will own 100% of the outstanding equity
interests in IE, free and clear of any lien, claim or encumbrance of any kind
whatsoever.
3. The Company represents and warrants that the shares of Common Stock to
be issued hereunder will be validly issued, fully paid and nonassessable and
free and clear of any lien, claim or encumbrance of any kind whosoever, except
for restrictions on transfer imposed by applicable securities laws.
Effective December 3, 1996, notwithstanding the actual date of execution.
This Bill of Sale may be executed in one or more counterparts.
Rocky Mountain Internet, Inc.
By: /s/ D. Kirk Roberts /s/ Nancy Phillips
----------------------- -------------------------
Nancy Phillips
/s/ Roy Dimoff /s/ Brian Dimoff
-------------------------- -------------------------
Roy Dimoff Brian Dimoff
/s/ Sandra Collins
--------------------------
Sandra Collins
<PAGE>
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS
OF ROCKY MOUNTAIN INTERNET, INC.
December 3, 1996
A special meeting of the board of directors of Rocky Mountain Internet,
Inc., a Delaware corporation (the "Corporation") was held on December 3, 1996,
at the executive offices of the Corporation. Present were Roy Dimoff, Chris
Phillips and Gerald Van Eeckhout, all the directors of the Corporation. Also
present were Marcia White and, by conference telephone, Tony Petrelli, a senior
vice president with Neidiger/Tucker/Bruner, Inc., the Corporation's investment
banker, and, for the initial portion of the meeting, Stephen Halasz, the
Corporation's attorney.
A general discussion of the proposed acquisition by the Corporation of the
outstanding equity interests in the Information Exchange, LLC ("IE") was had.
Mr, Dimoff, a director of the Corporation, is an equity owner in IE, as are
Nancy Phillips and Brian Dimoff, employees of the Corporation. Messrs. Phillips
and Van Eeckhout asked questions of Mr. Dimoff regarding the advisability,
consideration to be paid and other terms of the proposed transaction, and the
value of the assets to be received by the Corporation. Mr. Dimoff explained
that the proposed consideration to be paid by the Corporation consisted of
52,723 shares of common stock, valued for such purpose at a 40% discount from
the most recent bid prices of the common stock based on the restricted nature of
the shares proposed to be issued. Such valuation resulted in a deemed purchase
price for IE of $60,385, or 6.5 times current monthly revenue.
Mr. Phillips and Mr. Van Eeckhout then reviewed the written opinion of
Neidiger to the effect that the proposed transaction is fair to the Corporation
from a financial point of view. After questioning Mr. Petrelli regarding the
basis for the Neidiger opinion, Messrs. Phillips and Van Eeckhout, upon motion
duly made and seconded, voted in favor of the following resolutions, with Mr.
Dimoff abstaining:
RESOLVED, that whenever these resolutions authorize the taking of any
action by the "Proper Officers," such action may be taken by the president and
any vice president of the Corporation, any one of them acting alone, or to the
extent necessary for purposes of certification and attestation, any secretary or
assistant secretary of the Corporation.
RESOLVED, that Marcia White shall serve as secretary of the meeting and
shall prepare minutes of the meeting for approval of the directors.
FURTHER RESOLVED, that it is in the best interests of the Corporation to
acquire IE for consideration consisting of 52,723 shares of common stock of the
corporation, such shares to be issued to the holders of equity interests in IE
pro rata according to their respective interests.
<PAGE>
FURTHER RESOLVED, that the Proper Officers be, and each of them hereby
is, with full authority to act without the others, authorized to execute and
deliver, in the name and on behalf of the Corporation, a bill of sale and all
other documents, instruments, agreements and certificates to be delivered by
the Corporation pursuant to or in connection with the acquisition of IE (the
"Transaction Documents"), with such additions, deletions or changes therein
and modifications thereof, if any, as the Proper Officer executing the same
shall approve (the execution thereof by any such officer to be conclusive
evidence of his or her approval of any such additions, deletions, changes or
modifications) and that each of the officers of the Corporation hereby is
authorized and directed to take any and all appropriate action on behalf of
the Corporation to perform its obligations under the Transaction Documents.
FURTHER RESOLVED, that the Secretary and Assistant Secretaries of the
Corporation are hereby authorized and directed to sign any Secretary's
Certificates required to be delivered pursuant to or in connection with the
Transaction Documents and to make such attestations as may be required pursuant
to or in connection with the Transaction Documents.
FURTHER RESOLVED, that the Proper Officers of the Corporation be, and each
of them hereby is, authorized and directed to take any and all actions necessary
and advisable to consummate the transactions contemplated hereby, and to carry
out the purpose and intent of the foregoing resolutions.
FURTHER, RESOLVED, that the Proper Officers are further authorized, but
shall not be required, to take any action including, without limitation,
completing or conforming any document delivered by or on behalf of the
Corporation with respect to the transactions described in the foregoing
resolutions and to execute any other instruments, assurances, certificates, or
waivers for or on behalf of the Corporation as may be necessary or advisable to
consummate the transactions contemplated herein.
FURTHER RESOLVED, that all acts of the Proper Officers acting on behalf of
the Corporation in connection with the negotiation and execution of the
transactions contemplated herein and all other necessary instruments, documents,
and agreements relating thereto are approved, ratified and confirmed.
FURTHER RESOLVED, that each and all of the resolutions, acts, and
proceedings of the officers of the Corporation, since the last ratification of
acts as evidenced by the records in the minute book of the Corporation, are
hereby approved, ratified, and made the acts and deeds of the Corporation.
<PAGE>
There being no further business to come before the meeting, the meeting
upon motion duly made and seconded was adjourned.
Respectfully submitted,
/s/ Marcia White
- ---------------------------
Marcia White
Approved and Signed:
/s/ Roy J. Dimoff
-----------------------------
Roy J. Dimoff
/s/ Christopher K. Phillips
-----------------------------
Christopher K. Phillips
/s/ Gerald Van Eeckhout
-----------------------------
Gerald Van Eeckhout
Being all of the directors of the
Corporation
<PAGE>
August 7, 1996
To the Members
The Information Exchange, Limited Liability Company
1800 Glenarm Place, 11th Floor
Denver, Colorado 80202
We have compiled the accompanying statement of Assets, Liabilities, and
Members' Equity--cash basis of The Information Exchange Limited Liability
Company as of July 31, 1996, and the related statement of revenues and
expenses--cash basis for the seven months then ended, in accordance with
Statement on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have not
audited or reviewed the accompanying financial statements and, accordingly,
do not express an opinion or any other form of assurance on them.
The Company has chosen under the Internal Revenue Code to be a limited
liability company. In lieu of income taxes, the members of a limited
liability company are taxed on their proportionate share of the Company's
taxable income. Therefore, no provision or liability for federal income taxes
has been included in these financial statements.
Management has elected to omit substantially all of the disclosures
ordinarily included in financial statements prepared on the cash basis of
accounting. If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the Company's
assets, liabilities, equity, revenue and expenses. Accordingly, these
financial statements are not designed for those who are not informed about
such matters.
Knorr & Associates, P.C.
<PAGE>
THE INFORMATION EXCHANGE
Statement of Assets, Liabilities and Members' Equity--Cash Basis
July 31, 1996
ASSETS
Current Assets:
Cash in Bank $ (3,192.)
--------
TOTAL CURRENT ASSETS (3,192.)
--------
Plant, Property and Equipment
Telephone Equipment 71,718.
--------
71,718.
Less Accumulated Depreciation (23,340.)
--------
48,378.
--------
TOTAL ASSETS $ 45,186.
--------
--------
LIABILITIES & MEMBERS' EQUITY
Current Liabilities
Accrued payroll taxes $ 1,691.
Current portion of lease obligation 28,430.
--------
TOTAL CURRENT LIABILITIES 30,121.
--------
Long-term Liabilities
Lease Obligation 43,406.
Less Current Portion (28,430.)
--------
Total Long-Term Debt 14,976.
--------
TOTAL LIABILITIES 45,097.
--------
Members' Equity
Members' Equity 29,333.
Current year expenses over revenue 29,244.
--------
TOTAL MEMBERS' EQUITY 89.
--------
TOTAL LIABILITIES & MEMBERS' EQUITY $ 45,186.
--------
--------
SEE ACCOUNTANTS' COMPILATION REPORT
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION EXCHANGE LIMITED LIABILITY COMPANY
Statement of Revenues and Expenses--Cash Basis
For The Seven Months Ended July 31, 1996
Rental Revenues $50,918. 100.00%
------- -------
Expenses:
Auto expense 978. 1.92
Bank charges 170. .33
Commissions 616. 1.21
Contract labor 86. .17
Depreciation 12,249. 24.06
Dues & subscriptions 1,165. 2.29
Employee benefits 2,399. 4.71
Equipment maintenance 800. 1.57
Entertainment 335. .66
Insurance 424. .83
Interest expense 3,201. 6.29
Legal & accounting 760. 1.49
Miscellaneous expense 162. .32
Office supplies 1,290. 2.53
Parking 567. 1.11
Payroll taxes 3,032. 5.95
Postage & shipping 653. 1.28
Printing 467. .92
Promotion 2,020. 3.97
Rent 300. .59
Repairs 455. .89
Salaries & wages 31,494. 61.85
Sales taxes 879. 1.73
Telephone & communications 4,444. 8.73
Telephone lines & data circuits 12,040. 23.65
Travel 509. 1.00
Worker's compensation 241. .47
-------- -------
Total Operating Expenses 81,736. 160.52
-------- -------
(30,818.) (60.52)
Other income 1,574. 3.09
-------- -------
Net Expenses Over Revenue $(29,244.) (57.43)%
-------- -------
-------- -------
SEE ACCOUNTANTS' COMPILATION REPORT
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION EXCHANGE LIMITED LIABILITY COMPANY
Statement of Cash Flows--Cash Basis
For The Seven Months Ended July 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Expenses over Revenue $(29,244.)
Noncash Expenses:
Depreciation 12,249.
Changes is Assets and Liabilities:
Increase (Decrease) In:
Accrued Payroll Taxes 877.
--------
Net Cash Used by Operating Activities (16,118.)
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (16,262.)
--------
Net Cash Used by Investment Activities (16,262.)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of Lease Obligation (8,833.)
Additional Capital Lease Utilized 16,262.
Contribution by Members to Equity 24,600.
--------
Net Cash Provided by Financing Activities 32,029.
--------
Net Decrease in Cash ( 351.)
Cash Balance, January 1, 1996 (2,841.)
--------
Cash Balance, July 31, 1996 $(3,192.)
--------
--------
Supplemental Disclosure:
Interest paid $ 3,201.
--------
--------
SEE ACCOUNTANTS' COMPILATION REPORT
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-KSB
EXHIBIT 10.7
ASSET PURCHASE OF ON-LINE NETWORK ENTERPRISES
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of the 22nd day of
January, 1997, by and between Rocky Mountain Internet, Inc. a Delaware
corporation ("Buyer") and VR-1, Inc., a Delaware corporation ("Seller").
RECITALS
Seller is engaged in the business of providing Internet connectivity
services to subscribers under the service mark "O.N.E." (the "Business").
Buyer desires to purchase and Seller desires to sell certain of the assets of
Seller used or useful in connection with the Business.
AGREEMENT
In consideration of the above recitals and the mutual agreements stated
in this Agreement, the parties agree as follows:
SECTION 1. DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms, when used in this Agreement, will have the meanings set
forth below:
1.1 AFFILIATE. With respect to any Person, any other Person
controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities or voting
interests, by contract or otherwise.
1.2 ASSETS. All properties, privileges, rights, interests and claims,
real and personal, tangible and intangible, of every type and description
that are described on the attached Schedule 1.2, including Intangibles,
Seller Contracts, and Equipment specified on such schedule, but excluding any
Excluded Assets.
1.3 BUSINESS. The Internet connectivity business conducted by Seller on
the date of this Agreement (but specifically excluding Seller's web site
development and services business and Seller's software development
business).
1.4 BUSINESS DAY. Any day other than Saturday, Sunday or a day on which
banking institutions in Denver, Colorado are required or authorized to be
closed.
1.5 CLOSING. The consummation of the transactions contemplated by this
Agreement, as described in Section 8, the date of which is referred to as the
Closing Date.
1.6 ENCUMBRANCE. Any mortgage, lien, security interest, security
agreement, conditional sale or other title retention agreement, limitation,
pledge, option, charge, assessment,
<PAGE>
restrictive agreement, restriction, encumbrance, adverse interest,
restriction on transfer or any exception to or defect in title or other
ownership interest (including reservations, rights of way, possibilities of
reverter, encroachments, easements, rights of entry, restrictive covenants,
leases and licenses).
1.7 ENVIRONMENTAL LAW. Any Legal Requirement relating to pollution or
protection of public health, safety or welfare or the environment, including
those relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including ambient air, surface
water, ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
1.8 EQUIPMENT. All free standing kiosks, servers, modems, electronic
devices, test equipment, and other tangible personal property owned or leased
by Seller for use in the Business and listed on Schedule 1.2.
1.9 GAAP. Generally accepted accounting principles as in effect from
time to time in the United States of America.
1.10 GOVERNMENTAL AUTHORITY. (i) The United States of America, (ii) any
state, commonwealth, territory or possession of the United States of America
and any political subdivision thereof (including counties, municipalities and
the like), (iii) any agency, authority or instrumentality of any of the
foregoing, including any court, tribunal, department, bureau, commission or
board.
1.11 GOVERNMENTAL PERMITS. All franchises, approvals, authorizations,
permits, licenses, easements, registrations, qualifications, leases,
variances and similar rights obtained from any Governmental Authority.
1.12 INTANGIBLES. All intangible assets listed on Schedule 1.2 including
subscriber lists, rights to kiosk and dispenser placement and design,
accounts receivable, claims (excluding any claims relating to Excluded
Assets), Intellectual Property, and goodwill, if any, owned or leased by
Seller for use in the Business.
1.13 INTELLECTUAL PROPERTY. All of Seller's rights in and to the
trademarks, copyrights, inventions (whether or not patented or patentable)
and trade secrets listed on Schedule 1.2.
1.14 LEGAL REQUIREMENT. Any statute, ordinance, code, law, rule,
regulation, order or other requirement, standard or procedure enacted, adopted
or, to the knowledge of Seller, applied by any Governmental Authority,
including judicial decisions to which Seller is a party or to the knowledge
of Seller applying common law or interpreting any other Legal Requirement.
1.15 PERSON. Any natural person, corporation, partnership, trust,
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
<PAGE>
1.16 STOCK CONSIDERATION. A number of shares of Common Stock equal to a
quotient, the numerator of which is 250,000 and the denominator of which is
the numerical average of the closing bid price of the Common Stock on the
Nasdaq Smallcap market on each Friday between the date of the Company' s
initial public offering and the Closing.
1.17 SUBSCRIBER. Any subscriber to the Internet access service offered
by the Business, except for any subscriber who (i) is more than 60 days'
delinquent in the payment of any amount in excess of $10 (in the case of
Dial-up Subscribers) or $350 (in the case of Dedicated Subscribers), or (ii)
was solicited during the 90 day period preceding the Closing by extraordinary
promotions or offers of discounts. A "Dial-up Subscriber" is a Subscriber
who receives dial-up Internet access from the Business and a "Dedicated
Subscriber" is a Subscriber who receives a Internet access from the Company
offering higher data transmission rates than available from dial-up access.
1.18 OTHER DEFINITIONS. The following terms are defined in the Sections
indicated:
TERM SECTION
---- -------
Action 11.4
Adjustments Report 3.3.1
Assumed Liabilities 4.1
Buyer Damages 11.5
Excluded Assets 4.2
Indemnified Party 11.4
Indemnifying Party 11.4
Noncompetition Payment 3.1
Seller Contracts 5.8
Seller Damages 11.6
Survival Period 11.1
Taking 7.6.2
SECTION 2. SALE OF ASSETS.
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions
set forth in this Agreement, at the Closing, Seller will sell to Buyer, and
Buyer will purchase from Seller, all of Seller's rights, titles and interests
in, to and under the Assets specified on SCHEDULE 1.2.
SECTION 3. CONSIDERATION.
3.1.1 CASH CONSIDERATION. Buyer will pay to Seller at the
Closing in immediately available funds total cash consideration of $150,000
(subject to adjustment as provided below). The cash portion of the
consideration will be allocated as follows:
(i) $1,000 (the "Noncompetition Payment") will be paid on the
<PAGE>
Closing Date in consideration of Seller's covenants under the Noncompetition
Agreement referred to in Section 7.9; and
(ii) $149,000 (the "Base Cash Consideration") will be paid on
the Closing Date in consideration of the sale of the Assets to Buyer.
3.1.2 STOCK CONSIDERATION. At Closing Buyer shall issue to
Seller a number of shares of the Common Stock of Buyer equal to the Stock
Consideration.
3.1.3 SERVICES AGREEMENT. At Closing, Buyer and Seller shall
enter into the Services Agreement in the form attached hereto as EXHIBIT A.
3.2 ADJUSTMENTS TO BASE CASH CONSIDERATION The Base Cash Consideration
will be adjusted as follows:
3.2.1 Adjustments on a pro rata basis as of the Closing Date
will be made for all prepaid expenses (to the extent such prepayments may
accrue to Buyer's benefit), accrued expenses (including, but not limited to,
personal property taxes), and prepaid income, all as determined in accordance
with GAAP consistently applied, and to reflect the principle that all
expenses and income attributable to the Business for the period prior to the
Closing Date are for the account of Seller, and all expenses and income
attributable to the Business for the period on and after the Closing Date are
for the account of Buyer.
3.2.2 All advance payments to, or funds of third parties on
deposit with, Seller as of the Closing Date, relating to the Business,
including advance payments and deposits by subscribers served by the Business
will be retained by Seller and credited to the account of Buyer.
3.2.3 All deposits relating to the Business that are held by
third parties as of the Closing Date for the account of Seller or as security
for Seller's performance of its obligations (other than with respect to
Excluded Assets and any other deposits the full benefit of which will not be
available to Buyer following the Closing Date), including deposits on leases
and deposits for utilities, will be credited to the account of Seller in
their full amounts and will become the property of Buyer.
3.2.4 There shall be no assignment of or adjustments for
accounts receivable as of the Closing Date. Seller shall continue to collect
accounts receivable for up to 60 days following the Closing and shall retain
payments made for services provided prior to the Closing Date and shall
deliver to Buyer payments made for services provided after the Closing Date.
Any partial payments made by a Subscriber shall be applied pro rata to the
pre-Closing and post-Closing outstanding balances for such Subscriber in
proportion to the relative amounts of such balances. Seller shall not make
any collection efforts other than the sending of invoices in the ordinary
course without the consent of Buyer, which will not be unreasonably withheld.
3.3 DETERMINATION OF ADJUSTMENTS. Adjustments to the Base Purchase
Price will be determined as follows:
<PAGE>
3.3.1 At least one day before Closing, Seller will deliver to
Buyer a report (the "Adjustments Report"), showing in detail the
determination of the adjustments referred to in Section 3.2, which are
calculated as of the Closing Date (or as of any other date agreed by the
parties) and any documents substantiating the adjustments proposed in the
Adjustments Report. The Adjustments Report will include a complete list of
Subscribers and a schedule setting forth advance payments and deposits made
to or by Seller, as well as accounts receivable information relating to the
Business (showing sums due and their respective aging as of the Closing
Date). Seller also will furnish to Buyer its billing report for the most
current period as of the Closing Date.
3.4 ALLOCATION OF CONSIDERATION. The consideration payable by Buyer
under this Agreement, excluding the Noncompetition Payment, will be allocated
among the Assets as set forth in a schedule furnished by Buyer to Seller not
later than 180 days after the Closing Date (or April 1 of the year following
the Closing Date if earlier). Buyer and Seller agree to be bound by the
allocation and will not take any position inconsistent with such allocations
and will file all returns and reports with respect to the transactions
contemplated by this Agreement, including all federal, state and local tax
returns, on the basis of such allocations.
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS.
4.1 ASSIGNMENT AND ASSUMPTION. Seller will assign, and Buyer will
assume and perform, the Assumed Liabilities, which are defined as: (a)
Seller's obligations to Subscribers for (i) Subscriber deposits held by
Seller as of the Closing Date and which are refundable, in the amount for
which Buyer received credit under Section 3.2, (ii) Subscriber advance
payments held by Seller as of the Closing Date for services to be rendered in
connection with the Business after the Closing Date, in the amount for which
Buyer received credit under Section 3.2 and (iii) the delivery of Internet
connectivity service to Subscribers after the Closing Date; and (b)
obligations accruing and relating to periods after the Closing Date under
Seller Contracts included as part of the Assets. Buyer will not assume or
have any responsibility for any liabilities or obligations of Seller other
than the Assumed Liabilities. In no event will Buyer assume or have any
responsibility for any liabilities or obligations associated with the
Excluded Assets.
4.2 EXCLUDED ASSETS. The Excluded Assets, which will be retained by
Seller, will consist of all assets of Seller except the Assets described on
SCHEDULE 1.2. Without limiting the generality of the foregoing, Excluded
Assets shall include, without limitation, the following: (a) insurance
policies and rights and claims thereunder (except as otherwise provided in
Section 7.6.1); (c) bonds, letters of credit, surety instruments and other
similar items; (d) cash and cash equivalents; (e) Seller's rights under any
agreement governing or evidencing an obligation of Seller for borrowed money;
and (f) Seller's rights under any contract, license, authorization, agreement
or commitment other than those creating or evidencing Assumed Liabilities.
SECTION 5. SELLER'S REPRESENTATIONS AND WARRANTIES.
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer, as of the date of this Agreement and as of the Closing, as
follows:
<PAGE>
5.1 ORGANIZATION AND QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own, lease
and use the Assets as they are currently owned, leased and used and to
conduct the Business as it is currently conducted. Seller is duly qualified
or licensed to do business and is in good standing under the laws of each
jurisdiction in which the character of the properties owned, leased or
operated by it or the nature of the activities conducted by it makes such
qualification necessary, except any such jurisdiction where the failure to be
so qualified or licensed and in good standing would not have a material
adverse effect on Seller or on the validity, binding effect or enforceability
of this Agreement.
5.2 AUTHORITY AND VALIDITY. Seller has all requisite corporate power
and authority to execute and deliver, to perform its obligations under, and
to consummate the transactions contemplated by, this Agreement. The
execution and delivery by Seller of, the performance by Seller of its
obligations under, and the consummation by Seller of the transactions
contemplated by, this Agreement have been duly authorized by all requisite
corporate action of Seller. This Agreement has been duly executed and
delivered by Seller and is the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except insofar as
enforceability may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect
affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
5.3 NO BREACH OR VIOLATION. The execution, delivery and performance of
this Agreement by Seller will not: (a) violate any provision of the charter
or bylaws of Seller; (b) violate any Legal Requirement; (c) require any
consent, approval or authorization of, or any filing with or notice to, any
Person; or (d) (i) violate, conflict with or constitute a breach of or
default under, (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of Seller under, or (iv) result in the
creation or imposition of any Encumbrance under, any Seller Contract or any
other instrument evidencing any of the Assets or any instrument or other
agreement to which Seller is a party or by which Seller or any of its assets
is bound or affected, except for purposes of this clause (d) such violations,
conflicts, breaches, defaults, terminations, suspensions, modifications, and
accelerations as would not, individually or in the aggregate, have a material
adverse effect on any of the Assets, the Business or Seller.
5.4 ASSETS. Seller has good and marketable title to (or, in the case of
Assets that are leased, valid leasehold interests in) the Assets . The
Assets are free and clear of all Encumbrances of any kind or nature, except
Encumbrances disclosed on SCHEDULE 1.2 which will be removed and released at
or prior to the Closing. Except as set forth on SCHEDULE 1.2, none of the
Equipment is leased by Seller from any other Person. All the Equipment is in
good operating condition and repair, ordinary wear and tear excepted and is
suitable and adequate for continued use in the manner in which it is
presently used.
5.5 COMPLIANCE WITH LAW. The ownership, leasing and use of the Assets
as they are currently owned, leased and used and the conduct of the Business
as it is currently conducted do not violate any Legal Requirement, which
violation, individually or in the
<PAGE>
aggregate, would have a material adverse effect on the Business or Seller.
Seller has received no notice claiming a violation by Seller or the Business
of any Legal Requirement applicable to Seller or the Business as it is
currently conducted and to Seller's best knowledge, there is no basis for any
claim that such a violation exists.
5.6 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 5.6, there is
no judgment or order outstanding, or any action, suit, complaint, proceeding
or investigation by or before any Governmental Authority or any arbitrator
pending, or to Seller's best knowledge, threatened, involving or affecting
all or any part of the Assets.
5.7 CUSTOMERS AND SUPPLIERS. Seller's relations with its customers and
suppliers are good and there are no pending or threatened claims or
controversies with any customer or supplier that is material to the Assets or
the Business except as set forth on SCHEDULE 5.7.
5.8 SELLER CONTRACTS. SCHEDULE 5.8 contains a true and complete list
of all contracts, agreements, arrangements or understandings (the "Seller
Contracts") to which Seller is a party or by which Seller is bound or to
which any of the Assets are subject, other than any which are entered into
with unaffiliated third parties in the ordinary course of business which are
(i) not material to the conduct of the Business, (ii) which are terminable
without payment of premium or penalty at will or upon not more than 30 days'
notice, which impose monetary obligations not in excess of $5,000 and which
impose no material non-monetary obligations. Except as set forth on SCHEDULE
5.8, none of the Seller Contracts listed or described on SCHEDULE 5.8 has
been amended nor has Seller waived any right thereunder. Seller has provided
Buyer with true, complete and correct copies of each of the Seller Contracts
described on SCHEDULE 5.8 that are written and true, complete and correct
written summaries of the Seller Contracts listed or described on SCHEDULE
5.8 that are oral. Except as set forth on SCHEDULE 5.8, (A) Seller has
performed all obligations required to be performed by it to date under the
Seller Contracts, (B) neither Seller nor, to the best of Seller's knowledge,
any other party to any Seller Contract has improperly terminated or is in
breach or default under such Seller Contract, (C) there exists no condition
or event which , after the giving of notice or lapse of time or both, would
constitute any such breach, termination or default, (D) each of the Seller
Contracts is in full force and effect and is a legal, binding and enforceable
obligation of Seller and, to the best of Seller's knowledge, each of the
other parties to the Seller Contracts, and (E) none of the Seller Contracts
is presently being renegotiated, either in whole or in part.
5.9 SUBSCRIBERS. As of the Closing Date, the Business will have no
fewer than 763 Dial-up Subscribers and no fewer than 35 Dedicated Subscribers.
5.10 FINDERS AND BROKERS. Seller has not employed any financial
advisor, broker or finder or incurred any liability for any financial
advisory, brokerage, finder's or similar fee or commission in connection with
the transactions contemplated by this Agreement for which Buyer could be
liable.
5.11 DISCLOSURE. No representation or warranty by Seller in this
Agreement or
<PAGE>
in any Schedule or Exhibit to this Agreement, or any statement, list or
certificate furnished or to be furnished by Seller pursuant to this
Agreement, contains or will contain any untrue statement of material fact, or
omits or will omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading in light of
the circumstances in which made.
5.12 SECURITIES ACT. Seller is acquiring the Stock Consideration
for investment only with no view to a distribution thereof. Seller has had
an opportunity to ask questions of senior management of Buyer and has been
provided copies of Buyer's Prospectus dated September 5, 1996, and its
quarterly report on Form 10Q for the period ended September 30, 1996. Buyer
is an accredited investor as that term is defined in Regulation D under the
Securities Act of 1933, as amended (the "1933 Act"). Buyer acknowledges that
the Stock consideration may not be sold or transferred without registration
under the 1933 Act and applicable state law unless an exemption therefrom is
available, and agrees that certificates representing the Stock Consideration
may bear a legend to the foregoing effect.
SECTION 6. BUYER'S REPRESENTATIONS AND WARRANTIES.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller, as of the date of this Agreement and as of the Closing,
as follows:
6.1 ORGANIZATION AND QUALIFICATION. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority to carry on its business
as currently conducted and to own, lease, use and operate its assets. Buyer
is duly qualified or licensed to do business and is in good standing under
the laws of each jurisdiction in which the character of the properties owned,
leased or operated by it or the nature of the activities conducted by it
makes such qualification necessary, except any such jurisdiction where the
failure to be so qualified or licensed and in good standing would not have a
material adverse effect on Buyer or on the validity, binding effect or
enforceability of this Agreement.
6.2 AUTHORITY AND VALIDITY. Buyer has all requisite corporate power and
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement. The execution
and delivery by Buyer of, the performance by Buyer of its obligations under,
and the consummation by Buyer of the transactions contemplated by, this
Agreement have been duly authorized by all requisite corporate action of
Buyer, and this Agreement constitutes the valid and binding obligation of
Buyer, enforceable in accordance with its terms, except insofar as
enforceability may be limited or affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally or by principles governing the
availability of equitable remedies.
6.3 NO BREACH OR VIOLATION. The execution, delivery and performance of
this Agreement by Buyer will not: (a) violate any provision of the charter or
bylaws of Buyer;
9
<PAGE>
(b) violate any Legal Requirement; (c) require any consent, approval or
authorization of, or any filing with or notice to, any Person; or (d) (i)
violate, conflict with or constitute a breach of or default under (without
regard to requirements of notice, passage of time or elections of any
Person), (ii) permit or result in the termination, suspension, modification
of, (iii) result in the acceleration of (or give any Person the right to
accelerate) the performance of Buyer under, or (iv) result in the creation or
imposition of any Encumbrance under, any instrument or other agreement to
which Buyer is a party or by which Buyer or any of its assets is bound or
affected, except for purposes of this clause (d) such violations, conflicts,
breaches, defaults, terminations, suspensions, modifications and
accelerations as would not, individually or in the aggregate, have a material
adverse effect on Buyer or on the validity, binding effect or enforceability
of this Agreement.
6.4 FINDERS AND BROKERS. Buyer has not employed any financial advisor,
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Seller could be liable.
SECTION 7. ADDITIONAL COVENANTS.
7.1 ACCESS TO PREMISES AND RECORDS. Between the date of execution and
delivery of this Agreement and the Closing Date, Seller will give Buyer and
its representatives full access at reasonable times to all the premises and
books and records of the Business and to all the Assets and will furnish to
Buyer and its representatives all information regarding the Business and the
Assets as Buyer may from time to time reasonably request. Notwithstanding
any investigation that Buyer may conduct of the Business and the Assets,
Buyer may fully rely on Seller's representations, warranties, covenants and
indemnities, which will not be waived or affected by or as a result of such
investigation; provided that Buyer shall promptly notify Seller of any breach
or potential breach of Seller's representations, warranties, covenants or
indemnities of which Buyer has actual knowledge.
7.2 CONTINUITY AND MAINTENANCE OF OPERATIONS; FINANCIAL STATEMENTS.
Except as Buyer may otherwise agree in writing, until the Closing:
7.2.1 Seller will continue to operate the Business in the
ordinary course consistent with past practices and will use commercially
reasonable efforts to preserve any beneficial business relationships with
customers, suppliers and others having business dealings with Seller relating
to the Business. Without limiting the generality of the foregoing, Seller
will maintain the Assets in good condition and repair, will maintain adequate
inventories of spare Equipment consistent with past practice, will maintain
insurance as in effect on the date of this Agreement and will keep all of its
business books, records and files in the ordinary course of business in
accordance with past practices. Seller will not itself, and will not permit
any of its officers, directors, shareholders, agents or employees to, pay any
of Seller's subscriber accounts receivable (other than for their own
residences) prior to the Closing Date. Seller will continue to implement its
procedures for disconnection and discontinuance of service to subscribers
whose
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accounts are delinquent in accordance with those in effect on the date of
this Agreement.
7.2.2 Seller will not, without the prior written consent of
Buyer: (a) change the rate charged for Internet connectivity services; (b)
sell, transfer or assign any of the Assets or permit the creation of any
Encumbrance on any Asset; (c) permit the amendment or cancellation of any of
the Governmental Permits, Seller Contracts or any other contract or agreement
(other than those constituting Excluded Assets) which affects or is
applicable to the Business; (d) enter into any contract or commitment or
incur any indebtedness or other liability or obligation of any kind relating
to the Business involving an expenditure in excess of $1,000; or (e) take or
omit to take any action that would cause Seller to be in breach of any of its
representations or warranties in this Agreement.
7.3 LEASED EQUIPMENT. Except as specified on SCHEDULE 7.3, Seller will
pay the remaining balances on any leases for Equipment and deliver title to
such Equipment free and clear of all Encumbrances (other than Permitted
Encumbrances) to Buyer at the Closing.
7.4 NO SHOPPING. None of Seller, its shareholders or any agent or
representative of any of them will, during the period commencing on the date
of this Agreement and ending with the earlier to occur of the Closing or the
termination of this Agreement, directly or indirectly (a) solicit or initiate
the submission of proposals or offers from any Person for, (b) participate in
any discussions pertaining to or (c) furnish any information to any Person
other than Buyer relating to, any direct or indirect acquisition or purchase
of all or any portion of the Assets.
7.5 NOTIFICATION OF CERTAIN MATTERS. Seller will promptly notify Buyer
of any fact, event, circumstance or action (a) which, if known on the date of
this Agreement, would have been required to be disclosed to Buyer pursuant to
this Agreement or (b) the existence or occurrence of which would cause any of
Seller's representations or warranties under this Agreement not to be correct
and complete.
7.6 RISK OF LOSS; CONDEMNATION.
7.6.1 Seller will bear the risk of any loss or damage to the
Assets resulting from fire, theft or other casualty (except reasonable wear
and tear) at all times prior to the Closing. If any such loss or damage
involves any material portion of the Business, Seller will immediately notify
Buyer of that fact and Buyer, at any time within 10 days after receipt of
such notice, may elect by written notice to Seller either (i) to waive such
defect and proceed toward consummation of the acquisition of the Assets in
accordance with terms of this Agreement or (ii) terminate this Agreement. If
Buyer elects so to terminate this Agreement, Buyer and Seller will be
discharged of any and all obligations hereunder. If Buyer elects to
consummate the transactions contemplated by this Agreement notwithstanding
such loss or damage and does so, there will be no adjustment in the
consideration payable to Seller on account of such loss or damage but all
insurance proceeds payable as a result of the occurrence of the event
resulting in such loss or damage will be delivered by Seller to Buyer, or the
rights to such proceeds will be
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assigned by Seller to Buyer if not yet paid over to Seller, and Seller will
pay to Buyer (or Buyer may withhold from the Base Purchase Price) an amount
equal to the difference between the amount of such insurance proceeds and the
full replacement cost of the damaged or lost Assets.
7.6.2 If, prior to the Closing, any part of or interest in the
Assets is taken or condemned as a result of the exercise of the power of
eminent domain, or if a Governmental Authority having such power informs
Seller or Buyer that it intends to condemn all or any part of the Assets
(such event being called, in either case, a "Taking"), then Buyer may
terminate this Agreement. If Buyer does not elect to terminate this
Agreement, then (a) Buyer will have the sole right, in the name of Seller, if
Buyer so elects, to negotiate for, claim, contest and receive all damages
with respect to the Taking, (b) Seller will be relieved of its obligation to
convey to Buyer the Assets or interests that are the subject of the Taking,
(c) at the Closing Seller will assign to Buyer all of Seller's rights to all
damages payable with respect to such Taking and will pay to Buyer all damages
previously paid to Seller with respect to the Taking and (d) following the
Closing, Seller will give Buyer such further assurances of such rights and
assignment with respect to the taking as Buyer may from time to time
reasonably request.
7.7 TRANSFER TAXES. Seller will be responsible for the payment of any
state or local sales, use, transfer, excise, documentary or license taxes or
fees or any other charge (including filing fees) imposed by any Governmental
Authority with respect to the transfer of any of the Assets pursuant to this
Agreement.
7.8 ADDITIONAL AGREEMENTS. At the Closing, the parties will execute
and deliver:
a) a Services Agreement in the form of EXHIBIT A;
b) a Noncompetition Agreement in the form of EXHIBIT B;
c) a Registration Rights Agreement in the form of EXHIBIT C;
d) a License Agreement in the form of EXHIBIT D;
e) a Domain Name Assignment in the form of EXHIBIT E;
f) an Assignment and Assumption of Contracts in the form of EXHIBIT F;
and
g) a Bill of Sale in the form of EXHIBIT G.
On the day of the Closing, Seller will deliver to each Subscriber by
first class U.S. mail a letter in the form EXHIBIT H.
7.9 SATISFACTION OF CONDITIONS. Each party will use its best efforts to
satisfy, or to cause to be satisfied, the conditions to the obligations of
the other party to consummate the transactions contemplated by this
Agreement, as set forth in Section 9, provided that Buyer will not be
required to agree to any increase in the amount payable with respect to, or
any modification that makes more burdensome in any material respect, any of
the Assumed Liabilities.
7.10 SECURITIES LAWS. Buyer covenants that it will file the reports
required to be filed by it under all applicable state and federal securities
laws and the rules and regulations adopted thereunder and, at all times will
take such further action as Buyer may reasonably
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request, all to the extent required from time to time to enable Seller to
sell the shares issued to Seller as Stock Consideration without registration
under the 1933 Act within the limitation of the exemptions provided by (a)
Rule 144 of the 1933 Act, as such rule may be amended from time to time or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of Seller, Buyer will deliver to Seller a written statement as to
whether it has complied with such information and requirements.
7.11 CONFIDENTIALITY. Neither party will issue any press release or make
any other public announcement regarding this Agreement or the transactions
contemplated hereby without the consent of the other party. Each party will
hold, and will cause its employees, consultants, advisors and agents to hold,
in confidence, the terms of this Agreement and any non-public information
concerning the other party obtained pursuant to this Agreement.
Notwithstanding the preceding, a party may disclose such information to the
extent required by any Legal Requirement (including disclosure requirements
under federal and state securities laws), but the party proposing to disclose
such information will first notify and consult with the other party
concerning the proposed disclosure, to the extent reasonably feasible. Each
party also may disclose such information to employees, consultants, advisors,
agents and actual or potential lenders whose knowledge is necessary to
facilitate the consummation of the transactions contemplated by this
Agreement. Each party's obligation to hold information in confidence will be
satisfied if it exercises the same care with respect to such information as
it would exercise to preserve the confidentiality of its own similar
information, but not less than reasonable care.
7.12 POST-CLOSING TRANSITIONAL MATTERS. Following the Closing, Seller
will provide, without additional cost to Buyer, except as provided below,
such assistance as is reasonably requested by Buyer in order to effect an
orderly transition in the ownership and operation of the Assets. Such
assistance will include commercially reasonable efforts to provide or do the
following:
a) SELLER SERVICES
For up to 60 days following Closing:
i) Seller shall continue to provide its billing services for the
Subscribers;
ii) Seller shall remit to Buyer amounts collected from the
previous billing cycle for access services provided after
Closing, less any pro rata amounts due Seller as provided in
Section 3.2.4;
iii) Seller shall use commercially reasonable efforts to
cooperate with Buyer in attempting to obtain roof access rights
from Seller's landlord in order to install Buyer's antenna;
iv) Seller shall use reasonable efforts to cooperate with Buyer
in attempting to establish point of presence for wireless and
direct
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connect Subscribers;
v) CIRCUIT SERVICE. Attached hereto as Schedule 7.12 is a list
of all the telephone circuit service contracts used by Seller in
connection with the business (the "Circuits"). Seller shall not
assign the Circuits to Buyer at Closing but shall, for a period
not exceeding 60 days after Closing, act as Buyer's agent with
respect to maintaining the Circuits for Buyer's use. Seller's
obligation to act as agent for Buyer with respect to the Circuits
shall be conditioned on Buyer's prompt reimbursement to Seller of
all costs and expenses of Seller associated therewith and upon a
default by Buyer to promptly reimburse Seller for such costs and
expenses, Seller shall have the right to terminate the Circuits
if Buyer fails to cure such default within five days after Seller
has provided written notice thereof. Buyer shall give Seller
written notice of its intent to terminate the Circuits and shall
thereafter pay Seller for all costs and expense of the Circuits
from January 15, 1997 until termination of the Circuits.
For up to 30 days following Closing:
vi) Seller shall accompany Buyer as reasonably requested by Buyer
to introduce Buyer personnel to Dedicated Subscribers and
participate in on-site visits to Dedicated Subscribers in order
to, inter alia, address issues related to transition of service
and co-located Subscriber equipment. Such services in this
subsection (vi) shall be limited to a total of 40 hours within
such 30 day period. Additional assistance may be provided upon
payment to Seller and mutual agreement of the parties;
vii) Seller shall provide point of presence for the Business. If
Buyer requires additional point of presence services from Seller,
Seller shall provide such services for up to an additional 30
days at the rate of $3,000 per month, pro rated for actual days
elapsed;
viii) Seller shall assist Buyer with troubleshooting access
issues during Seller's normal business hours and at Seller's
principal place of business;
For the time periods specified below:
ix) Seller shall, for the first two days following Closing,
continue to staff Subscriber telephone support lines from 8am to
6pm; for the next eight Business Days, Seller shall staff
Subscriber telephone
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support lines from 8am to 5pm. Upon the expiration of such
period, Seller's Subscriber telephone support number shall be
permanently forwarded to Buyer and Seller shall provide one of
its employees at Buyer's Colorado Springs support facility for
the next five Business Days from 8am to 5pm.
b) WEB SITE COOPERATION. Buyer and Seller will cooperate to
modify and effect the orderly transition of Seller's Web Site found at
www.netone.com (the "ONE Web Site"). The front page of the Web Site will be
modified to inform users regarding changes in access services and will
provide links to Buyer's home page. Seller will maintain the ONE Web Site
and the links that refer to Seller's web services. Once Seller has
established a new name for its web services business, Seller will move web
services content from the ONE Web Site to a new site and the ONE Web Site
will be maintained for 60 days and will have links to Buyer for access
services and links to Seller for web services.
c) NO EMPLOYEE SOLICITATION. For a period of one year after
Closing, without the prior written consent of Seller, Buyer shall not solicit
or attempt to solicit any employee of Seller to terminate his or her
employment.
SECTION 8. CLOSING.
The Closing will be held on a date acceptable to both Buyer and Seller
that is within 15 days after all conditions to the Closing contained in this
Agreement (other than those based on acts to be performed at the Closing)
have been satisfied or waived.
SECTION 9. CONDITIONS TO CLOSING.
9.1 CONDITIONS TO THE OBLIGATIONS OF BUYER AND SELLER. The obligations
of each party to consummate the transactions contemplated by this Agreement
to take place at the Closing are subject to the satisfaction or waiver, to
the extent permitted by applicable Legal Requirements, at or prior to the
Closing Date of each of the following conditions:
9.1.1 No action, suit or proceeding is pending or threatened by
or before any Governmental Authority and no Legal Requirement has been
enacted, promulgated or issued or deemed applicable to any of the
transactions contemplated by this Agreement by any Governmental Authority,
which would (a) prohibit Buyer's ownership or operation of all or a material
portion of the Business or the Assets, (b) compel Buyer to dispose of or
separate all or a material portion of the Business or the Assets as a result
of any of the transactions contemplated by this Agreement or (c) prevent or
make illegal the consummation of any transactions contemplated by this
Agreement.
9.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the transactions contemplated by this Agreement to take place at the
Closing are subject to the satisfaction or waiver, to the extent permitted by
applicable Legal Requirements, at
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or prior to the Closing Date, of each of the following conditions:
9.2.1 All representations and warranties of Seller contained in
this Agreement are, if specifically qualified by materiality, true in all
respects and, if not so qualified, are true in all material respects, in each
case on and as of the Closing Date with the same effect as if made on and as
of the Closing Date.
9.2.2 Seller in all material respects has performed and complied
with each obligation, agreement, covenant and condition required by this
Agreement to be performed or complied with by Seller at or prior to the
Closing.
9.2.3 Seller has executed (or caused to be executed) and
delivered to Buyer each of the documents required by SECTION 7.8;
9.2.4 No action, proceeding or investigation has been instituted
or threatened prior to Closing which would, if determined adversely to
Buyer's interest, materially impair the ability of Buyer to realize the
benefits of the transactions contemplated by this Agreement;
9.2.5 Seller has delivered releases, in form satisfactory to
Buyer, of all Encumbrances affecting any of the Assets;
9.2.6 Seller has delivered an Adjustment Report which is
reasonably satisfactory to Buyer; and
9.2.7 Seller has delivered to Buyer: (a) a certificate, dated
the Closing Date, signed by Seller's chief executive officer, stating that to
his knowledge, the conditions set forth in Sections 9.2.1 and 9.2.2 are
satisfied; and (b) such other documents as Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
9.3 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
consummate the transactions contemplated by this Agreement to take place at
the Closing are subject to the satisfaction or waiver by Seller, to the
extent permitted by applicable law, at or prior to the Closing Date, of each
of the following conditions:
9.3.1 All representations and warranties of Buyer contained in
this Agreement are, if not specifically qualified by materiality, true and
correct in all respects and, if so qualified, are true and correct in all
material respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, except for changes permitted
or contemplated by this Agreement.
9.3.2 Buyer in all material respects has performed and complied
with each obligation, agreement, covenant and condition required by this
Agreement to be performed or complied with by Buyer at or prior to the
Closing.
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9.3.3 Buyer has executed and delivered to Seller each of the
documents required by Section 7.8.
9.3.4 Buyer has delivered to Seller the following: (a) a
certificate, dated the Closing Date, signed by an executive officer of Buyer,
stating that to his or her knowledge, the conditions set forth in Sections
9.3.1 and 9.3.2, are satisfied; and (b) such other documents as Seller may
reasonably request in connection with the transactions contemplated by this
Agreement.
9.4 WAIVER OF CONDITIONS. Any party may waive in writing any or all of
the conditions to its obligations under this Agreement.
SECTION 10. TERMINATION.
10.1 EVENTS OF TERMINATION. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time
prior to the Closing:
(a) by the mutual written consent of Buyer and Seller;
(b) by either party, if the transactions contemplated by this
Agreement to take place at the Closing have not been consummated by
_________, 199__, for any reason other than (i) a breach or default by such
party in the performance of any of its obligations under this Agreement or
(ii) the failure of any representation or warranty of such party to be
accurate;
(c) by either party in the event of a material breach or default by
the other party under this Agreement;
(d) by either party if any court or governmental authority of
competent jurisdiction shall have issued an order or judgment or taken any
other action restraining, enjoining, or otherwise prohibiting the
transactions contemplated by this Agreement.
10.2 LIABILITIES IN EVENT OF TERMINATION. The termination of this
Agreement will in no way limit any obligation or liability of any party based
on or arising from a breach or default by such party prior to the date of
termination with respect to any of its representations, warranties, covenants
or agreements contained in this Agreement.
10.3 PROCEDURE UPON TERMINATION. In the event of the termination of this
Agreement by Buyer or Seller pursuant to this Section 10, notice of such
termination will promptly be given by the terminating party to the other.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. The
representations and warranties and indemnification of Seller in this Agreement
and in the
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documents and instruments to be delivered by Seller pursuant to this
Agreement will survive until the first anniversary of the Closing Date,
except that (a) all such representations and warranties and indemnities with
respect to any federal, state or local taxes will survive until the
expiration of the applicable statute of limitations (including any
extensions) for such federal, state or local taxes, respectively. The
representations and warranties and indemnities of Buyer in this Agreement and
in the documents and instruments to be delivered by Buyer pursuant to this
Agreement will survive until the first anniversary of the Closing Date. The
periods of survival of the representations and warranties prescribed by this
Section 11.1 are referred to as the "Survival Period." The liabilities of
the parties under their respective representations and warranties will expire
as of the expiration of the applicable Survival Period; provided, however,
that such expiration will not include, extend or apply to any representation
or warranty, the breach of which has been asserted by a party in a written
notice to the other party before such expiration or about which a party has
given the other party written notice before such expiration indicating that
facts or conditions exist that, with the passage of time or otherwise, can
reasonably be expected to result in a breach (and describing such potential
breach in reasonable detail). The Survival Period for a party's
indemnification obligations hereunder shall not apply to the extent a claim
for indemnification arises out of the other party's fraudulent or intentional
acts or its gross negligence. The covenants and agreements of the parties in
this Agreement and in the other documents and instruments to be delivered by
Seller or Buyer pursuant to this Agreement will survive the Closing and will
continue in full force and effect without limitation.
11.2 INDEMNIFICATION BY SELLER. Seller will indemnify, defend and hold
harmless Buyer and its shareholders and its and their respective Affiliates,
and the shareholders, directors, officers, employees, agents, successors and
assigns of any of such Persons, from and against:
(a) all losses, damages, liabilities, deficiencies or obligations
of or to Buyer or any such other indemnified Person resulting from or arising
out of (i) any breach of any representation or warranty made by Seller in
this Agreement, (ii) any breach of any covenant, agreement or obligation of
Seller contained in this Agreement, (iii) any act or omission of Seller with
respect to, or any event or circumstance related to, the ownership or
operation of the Assets or the conduct of the Business, which act, omission,
event or circumstance occurred or existed prior to or at the Closing Date,
without regard to whether a claim with respect such matter is asserted before
or after the Closing Date, and (iv) any claim that the transactions
contemplated by this Agreement violate any bulk transfer or fraudulent
conveyance laws of any applicable jurisdiction; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
11.3 INDEMNIFICATION BY BUYER. Buyer will indemnify, defend and hold
harmless Seller and Seller's shareholders, directors, officers, employees,
agents, successors and assigns,
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from and against:
(a) all losses, damages, liabilities, deficiencies or obligations
of or to Seller or any such other indemnified Person resulting from or
arising out of (i) any breach of any representation or warranty made by Buyer
in this Agreement, (ii) the breach of any covenant, agreement or obligation
of Buyer contained in this Agreement (iii) any act or omission of Buyer with
respect to, or any event or circumstance related to, the ownership or
operation of the Assets or the conduct of the Business, which act, omission,
event or circumstance occurred or existed (other than as a result of Seller's
actions) subsequent to the Closing Date, or (iv) the failure by Buyer to
perform any of its obligations in respect of the Assumed Liabilities; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including,
without limitation, settlement costs and reasonable legal, accounting,
experts' and other fees, costs and expenses) incident or relating to or
resulting from any of the foregoing.
11.4 THIRD PARTY CLAIMS. Promptly after the receipt by any party of
notice of any claim, action, suit or proceeding by any Person who is not a
party to this Agreement (collectively, an "Action"), which Action is subject
to indemnification under this Agreement, such party (the "Indemnified Party")
will give reasonable written notice to the party from whom indemnification is
claimed (the "Indemnifying Party"). The Indemnified Party will be entitled,
at the sole expense and liability of the Indemnifying Party, to exercise full
control of the defense, compromise or settlement of any such Action unless
the Indemnifying Party, within a reasonable time after the giving of such
notice by the Indemnified Party, (a) admits in writing to the Indemnified
Party the Indemnifying Party's liability to the Indemnified Party for such
Action under the terms of this Section 11, (b) notifies the Indemnified Party
in writing of the Indemnifying Party's intention to assume such defense, (c)
provides evidence reasonably satisfactory to the Indemnified Party of the
Indemnifying Party's ability to pay the amount, if any, for which the
Indemnified Party may be liable as a result of such Action and (d) retains
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The other party will cooperate with the party
assuming the defense, compromise or settlement of any such Action in
accordance with this Agreement in any manner that such party reasonably may
request. If the Indemnifying Party so assumes the defense of any such
Action, the Indemnified Party will have the right to employ separate counsel
and to participate in (but not control) the defense, compromise or settlement
of the Action, but the fees and expenses of such counsel will be at the
expense of the Indemnified Party unless (i) the Indemnifying Party has agreed
to pay such fees and expenses, (ii) any relief other than the payment of
money damages is sought against the Indemnified Party or (iii) the
Indemnified Party will have been advised by its counsel that there may be one
or more defenses available to it which are different from or additional to
those available to the Indemnifying Party, and in any such case that portion
of the fees and expenses of such separate counsel that are reasonably related
to matters covered by the indemnity provided in this Section 11 will be paid
by the Indemnifying Party. No Indemnified Party will settle or compromise
any such Action for which it is entitled to indemnification under this
Agreement without the prior written consent of the Indemnifying Party, unless
the Indemnifying Party has
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failed, after reasonable notice, to undertake control of such Action in the
manner provided in this Section 11.4. No Indemnifying Party will settle or
compromise any such Action (A) in which any relief other than the payment of
money damages is sought against any Indemnified Party or (B) in the case of
any Action relating to the Indemnified Party's liability for any tax, if the
effect of such settlement would be an increase in the liability of the
Indemnified Party for the payment of any tax for any period beginning after
the Closing Date, unless the Indemnified Party consents in writing to such
compromise or settlement.
11.5 LIMITATIONS ON INDEMNIFICATION - SELLER.
(a) Seller will not be liable for indemnification arising solely
under Section 11.2 for (a) any losses, damages, liabilities, deficiencies or
obligations of or to Buyer or any other person entitled to indemnification from
Seller or (b) any claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this Section 11.5 as "Buyer Damages") unless the
amount of Buyer Damages for which Seller would, but for the provisions of this
Section 11.5, be liable exceeds, on an aggregate basis, $5,000, in which case
Seller will be liable for all such Buyer Damages, which will be due and payable
within 15 days after Seller's receipt of a statement therefor.
(b) Except for any Buyer Damages arising out of Seller's fraudulent
or intentional acts or gross negligence, Seller's liability for Buyer Damages
under this Agreement shall be limited to a maximum of $400,000. For any
Buyer's Damages in excess of $150,000, Seller shall have the option to pay
such excess by transfer to Buyer of shares of Common Stock that were issued
to Seller as Stock Consideration hereunder. Seller shall receive a credit
for such shares equal to the closing bid price of Buyer's Common Stock on the
Nasdaq Smallcap market on the last Business Day immediately preceding the
date of payment by transfer of such shares, but in no event will Seller
receive a credit for such shares of less than the price per share established
at Closing to calculate the Stock Consideration. Seller may elect to pay
excess Buyer Damages in cash rather than stock.
11.6 LIMITATIONS ON INDEMNIFICATION - BUYER. Buyer will not be liable
for indemnification arising solely under Section 11.3(a)(i) for (a) any
losses, damages, liabilities, deficiencies or obligations of or to Seller or
any other person entitled to indemnification from Buyer or (b) any claims,
actions, suits, proceedings, demands, judgments, assessments, fines,
interest, penalties, costs and expenses (including settlement costs and
reasonable legal, accounting, experts' and other fees, costs and expenses)
incident or relating to or resulting from any of the foregoing (the items
described in clauses (a) and (b) collectively being referred to for purposes
of this Section 11.6 as "Seller Damages") unless the amount of Seller Damages
for which Buyer would, but for the provisions of this Section 11.6, be liable
exceeds, on an aggregate basis, $5,000, in which case Buyer will be liable
for all such Seller Damages, which will be due and payable within 15 days
after Buyer's receipt of a statement therefor.
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SECTION 12. MISCELLANEOUS.
12.1 PARTIES OBLIGATED AND BENEFITED. Subject to the limitations set
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in
interest, and no other Person will be entitled to any of the benefits
conferred by this Agreement. Without the prior written consent of the other
parties, no party will assign any of its rights under this Agreement or
delegate any of its duties under this Agreement, provided that Buyer may,
without the consent of any other party, assign or delegate its rights and
obligations under this Agreement to any of its Affiliates, and such assignee
will be substituted for Buyer under this Agreement as though it were the
original party to this Agreement; provided that Buyer shall not be released
from its obligations under this Agreement upon any such assignment.
12.2 NOTICES. Any notice, request, demand, waiver or other communication
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or by
first class, prepaid, registered or certified mail, or sent by courier or, if
receipt is confirmed, by telecopier:
To Buyer at:
Rocky Mountain Internet, Inc.
1099 18th Street, 30th Floor
Denver, CO 80202
Attention: Kevin Loud
Telecopy: (303) 672-0711
With a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
Attention: Stephen S. Halasz, Esq.
Telecopy: (303) 298--940
To Seller at:
VR-1, Inc.
4888 Pearl East Circle, Suite 101
Boulder, CO 80301
Attention: Vice President
Telecopy: 303-444-2797
With a copy to:
Holme Roberts & Owen LLP
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1401 Pearl Street, Suite 400
Boulder, CO 80302
Attention: Patrick K. Perrin, Esq.
Telecopy: (303) 444-1063
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 12.2.
All notices will be deemed to have been received on the date of delivery or
on the third Business Day after mailing in accordance with this Section,
except that any notice of a change of address will be effective only upon
actual receipt.
12.3 ATTORNEYS' FEES. Subject to applicable limitations in Sections
11.1, 11.5 and 11.6, in the event of any action or suit based upon or arising
out of any alleged breach by any party of any representation, warranty,
covenant or agreement contained in this Agreement, the prevailing party will
be entitled to recover reasonable attorneys' fees and other costs of such
action or suit from the other party.
12.4 RIGHT TO SPECIFIC PERFORMANCE. Seller acknowledges that the unique
nature of the Assets to be purchased by Buyer pursuant to this Agreement
renders money damages an inadequate remedy for the breach by Seller of its
obligations under this Agreement, and Seller agrees that in the event of such
breach, Buyer will upon proper action instituted by it and relief awarded to
it by a court of competent jurisdiction, be entitled to a decree of specific
performance of this Agreement.
12.5 WAIVER. This Agreement or any of its provisions may not be waived
except in writing. The failure of any party to enforce any right arising
under this Agreement on one or more occasions will not operate as a waiver of
that or any other right on that or any other occasion.
12.6 CAPTIONS. The article and section captions of this Agreement are
for convenience only and do not constitute a part of this Agreement.
12.7 CHOICE OF LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER
IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE
LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES
OF COLORADO.
12.8 TERMS. Terms used with initial capital letters will have the
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word
are used in this Agreement in an illustrative sense rather than limiting
sense.
12.9 RIGHTS CUMULATIVE. All rights and remedies of each of the parties
under this Agreement will be cumulative, and the exercise of one or more
rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law, subject to the
limitations under Sections 11.1, 11.5 and 11.6.
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12.10 FURTHER ACTIONS. Seller and Buyer will execute and deliver to
the other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents,
assurances or things as may be reasonably necessary to give full effect to
this Agreement and to allow each party fully to enjoy and exercise the rights
accorded and acquired by it under this Agreement.
12.11 TIME. Time is of the essence under this Agreement. If the
last day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of
such act will be extended to the next succeeding Business Day.
12.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original.
12.13 ENTIRE AGREEMENT. This Agreement (including the Schedules and
Exhibits referred to in this Agreement, which are incorporated in and
constitute a part of this Agreement) contains the entire agreement of the
parties and supersedes all prior oral or written agreements and
understandings with respect to the subject matter. This Agreement may not be
amended or modified except by a writing signed by the parties.
12.14 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable will be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining
rights of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
12.15 CONSTRUCTION. This Agreement has been negotiated by Buyer and
Seller and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of
this Agreement against the party drafting this Agreement will not apply in
any construction or interpretation of this Agreement.
12.16 EXPENSES. Except as otherwise expressly provided in this
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
The parties have executed this Agreement as of the day and year first
above written.
Seller:
VR-1, INC.
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By: /s/ LARRY BECKER
-----------------------------------
Name: Larry Becker
Title: CEO
Buyer:
ROCKY MOUNTAIN INTERNET, INC.
By: /s/ ROY DIMOFF
--------------------------------------------
Name: Roy Dimoff
Title: CEO
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Exhibits
Exhibit A Services Agreement Section 3.1.3
Exhibit B Noncompetition Agreement Section 7.8
Exhibit C Registration Rights Agreement Section 7.8
Exhibit D License Agreement Section 7.8
Exhibit E Domain Name Assignment Section 7.8
Exhibit F Assignment and Assumption
of Contracts Section 7.8
Exhibit G Bill of Sale Section 7.8
Exhibit H Subscriber Letter Section 7.8
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EXHIBIT A
26
<PAGE>
EXHIBIT A
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made as of January 22, 1997, by
and between VR-1, Inc., a Delaware corporation ("VR-1"), and Rocky Mountain
Internet, Inc., a Delaware corporation ("RMI").
RECITALS
A. Pursuant to an agreement between VR-1 and RMI of even date herewith,
(the "Asset Purchase Agreement"), RMI has agreed to purchase certain assets
of VR-1.
B. As partial consideration for the Asset Purchase Agreement, RMI has
agreed to provide certain services to VR-1.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the parties, intending to be legally bound, agree as
follows:
1. SERVICES TO BE PERFORMED. To the extent that VR-1 may reasonably
request, RMI will provide to VR-1 its standard Internet access services,
including dial-up accounts, dedicated accounts, software solutions and
World-Wide Web services, along with such custom or special Web design
services as VR-1 may reasonably request. RMI shall value its services
provided to VR-1 under this Agreement at not more than the lowest prices paid
for similar services by other customers.
2. RECORDS. RMI will maintain reasonably complete accounting records
with respect to its provision of services pursuant to this Agreement. RMI
will provide VR-1 a statement of account at least monthly. Amounts properly
invoiced will, subject to paragraph 3, be due and payable thirty days after
the invoice date, and will accrue interest on amounts not paid within 30 days
at the rate of 14% per annum.
3. PAYMENT FOR SERVICES. VR-1 may pay RMI for services by transferring
to RMI shares of RMI's Common Stock that were issued to VR-1 as Stock
Consideration under the Asset Purchase Agreement (a "Stock Payment"). VR-1
shall receive a credit for such shares equal to the closing bid price of
RMI's Common Stock on the Nasdaq Smallcap market on the last Business Day
immediately preceding the date of payment by transfer of such shares, but in
no event shall VR-1 receive a credit for such shares of less than the price
per share established at Closing of the Asset Purchase Agreement to calculate
the Stock Consideration. VR-1 may, at its election, pay cash for the
services at any time. VR-1 may make Stock Payments no more frequently than
once per month and in increments of no less than 5,000 shares (if the value
of shares tendered in any Stock Payment exceeds the amount then due under
this Agreement, such
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<PAGE>
excess will be creditied against future payments). No Stock Payments will be
made in any fraction of a share. The aggregate value of all Stock Payments
made hereunder may not exceed $175,000 (with each Stock Payment valued for
such purposes at its valuation when made in accordance with the preceding
provisions of this paragraph).
4. TERM; CONVERSION. The term of this Agreement will begin on the date
of this Agreement and will continue until 5 years elapse from the date of
this Agreement or until earlier terminated by written notice from VR-1 to
RMI.
5. WARRANTY; LIMITATIONS. RMI REPRESENTS AND WARRANTS THAT IT WILL USE
REASONABLE CARE IN THE PROVISION OF INTERNET ACCESS, EQUIPMENT, SYSTEMS OR
SERVICES TO VR-1, BUT MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED (INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE), WITH
RESPECT TO THERETO. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, RMI
WILL NOT BE LIABLE FOR ANY FAILURE TO FUNCTION OF ANY INTERNET ACCESS,
EQUIPMENT, SYSTEMS OR SERVICES PROVIDED TO VR-1 IF SUCH FAILURE IS NOT
ATTRIBUTABLE TO A LACK OF REASONABLE CARE ON THE PART OF RMI. IT IS
EXPRESSLY AGREED THAT NEITHER VR-1 NOR RMI WILL UNDER ANY CIRCUMSTANCES BE
LIABLE HEREUNDER FOR INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES OR FOR ANY
CLAIM FOR LOSS OF BUSINESS PROFITS OR GOODWILL.
6. MISCELLANEOUS.
6.1 ASSIGNMENT AND DELEGATION. No party may assign this Agreement or
any right accruing hereunder, or delegate its performance hereunder in whole
or in part, without the prior consent of the other, which shall not be
unreasonably withheld. Notwithstanding the foregoing, (i) either party may
assign this Agreement to its Affiliate or make a collateral assignment of
this Agreement without the prior written consent of the other party and (ii)
either party may assign this Agreement to any successor or any person that
acquires all or substantially all of the assets of such party, provided that
such assignment shall not relieve the assigning party of liability for any
failure by the assignee to perform its obligations hereunder.
6.2 AMENDMENT. This Agreement may be amended at any time by a written
instrument executed by all parties.
6.3 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Colorado without regard to such jurisdiction's rules regarding
conflicts of laws.
6.4 ATTORNEYS' FEES. If any party commences an action because of the
breach of or to enforce any of the terms of this Agreement, the prevailing
party will be entitled to all costs and expenses associated with such action,
including reasonable attorneys' fees.
6.5 BINDING EFFECT. Except as otherwise provided in this Agreement,
this Agreement will be binding upon, and will inure to the benefit of, the
parties and their respective successors and permitted assignees.
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<PAGE>
6.6 WAIVER. No consent or waiver, express or implied, by a party of any
breach or default by the other party in the performance of its obligations
under this Agreement will be deemed to be a consent to or waiver of any
further or other breach or default by such other party.
6.7 NOTICES. Any notice, request, demand, waiver or other communication
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or by
first class, prepaid, registered or certified mail, or sent by courier or, if
receipt is confirmed, by telecopier:
To RMI at:
Rocky Mountain Internet, Inc.
1099 18th Street, 30th Floor
Denver, CO 80202
Attention: Kevin Loud
Telecopy: (303) 672-0711
With a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
Attention: Stephen S. Halasz, Esq.
Telecopy: (303) 298--940
To VR-1 at:
VR-1, Inc.
4888 Pearl East Circle, Suite 101
Boulder, CO 80301
Attention: Vice President
Telecopy: 303-444-2797
With a copy to:
Holme Roberts & Owen LLP
1401 Pearl Street, Suite 400
Boulder, CO 80302
Attention: Patrick K. Perrin, Esq.
Telecopy: (303) 444-1063
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section 6.7. All
notices will be deemed to have been
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<PAGE>
received on the date of delivery or on the third Business Day after mailing
in accordance with this Section, except that any notice of a change of
address will be effective only upon actual receipt.
6.8 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties in respect of the transactions contemplated
hereby and supersedes all prior agreements, arrangements and understandings
relating to its subject matter.
6.9 SEVERABILITY. Each provision of this Agreement will be considered
severable. If for any reason any provision of this Agreement is determined
to be invalid, such invalidity will not impair the operation or affect the
other provisions of the Agreement, and the remainder of this Agreement will
continue in effect.
6.10 COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, and all of such counterparts, when taken together,
will be deemed to constitute the original of this Agreement.
6.11 HEADINGS. The section and other headings contained in this
Agreement are inserted only as a matter of convenience and in no way affect
the scope or meaning of this Agreement.
6.12 NO THIRD-PARTY BENEFICIARIES. This Agreement is not intended to,
and will not be construed to, create any right enforceable by any Person not
a party to this Agreement, including any creditor or employee of a party,
except as specifically referenced.
This Agreement is signed by the parties as of the date first written above.
VR-1, INC. ROCKY MOUNTAIN INTERNET, INC.
a Delaware corporation a Delaware corporation
By: /s/ Larry Becker By: /s/ Kevin Loud
-------------------------- -----------------------------
Name: Larry Becker Name: Kevin Loud
Title: CEO Title: Vice President
30
<PAGE>
EXHIBIT B
31
<PAGE>
EXHIBIT B
NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "Agreement") dated January 22, 1997,
is between Rocky Mountain Internet, Inc. a Delaware corporation ("Buyer") and
VR-1, Inc., a Delaware corporation ("Seller").
RECITALS
A. Seller and Buyer are parties to an Asset Purchase Agreement dated as
of January 22, 1997 (the "Asset Purchase Agreement"), pursuant to which Buyer
is purchasing, contemporaneously with the execution and delivery of this
Agreement, certain assets owned or leased by Seller in connection with the
Internet services business operated by Seller. The Asset Purchase Agreement
requires the execution and delivery of this Agreement in connection with the
closing of the transactions contemplated by the Asset Purchase Agreement.
AGREEMENT
In consideration of the foregoing recitals and to induce Buyer to enter
into the Asset Purchase Agreement, Buyer and Seller agree as follows:
1. DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, whenever used in this Agreement the following terms shall have the
meanings set forth below:
(a) "AFFILIATE" means, with respect to any person, (i) any other
person controlling, controlled by or under common control with such person,
and (ii) any director or executive officer of such person. For purposes of
this Agreement, "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities or voting
interests, by contract or otherwise.
(b) "BUSINESS" means the Internet connectivity business conducted by
Seller on the date of this Agreement (but specifically excluding Seller's web
site development and services business and Seller's software development
business).
(c) "BUSINESS AREA" means the State of Colorado.
(d) "PERSON" means any natural person, corporation, trust,
partnership, limited liability company, joint venture, unincorporated
organization, government (including any governmental department, body or
agency) or other legal entity.
Capitalized terms not defined in this Agreement shall have the
meaning ascribed to them in the Asset Purchase Agreement.
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<PAGE>
2. REPRESENTATIONS. Seller represents that it is not subject to any
agreement, restriction, lien, encumbrance, or assignment of any right, title
or interest to any person, limiting in any way the scope of this Agreement or
in any way inconsistent with this Agreement, and will not after the date of
this Agreement enter into or grant to any person any of the same.
3. RESTRICTIONS. Seller acknowledges that upon the consummation of the
transactions contemplated by the Asset Purchase Agreement, Buyer intends to
conduct the Business and shall own the Assets, both tangible and intangible
(including goodwill), used in and incident to the conduct of the Business.
Accordingly, and in consideration of the execution, delivery and performance
of the Asset Purchase Agreement by Buyer, Seller agrees that:
(a) For a period of five years after the date of this Agreement,
neither Seller nor its Affiliates will, within any part of the Business Area,
engage, directly or indirectly, as partner, proprietor, stockholder or other
owner of a voting, equity or profits interest (including without limitation
any option or right to acquire such voting, equity or profits interest),
director, officer, employee, consultant, agent or in any other representative
or individual capacity, or as the owner of indebtedness, in any business that
is competitive with the Business; provided however that nothing in this
Agreement shall prohibit the Seller or its Affiliates from "beneficially
owning" (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934 (the "1934 Act")) equity securities or interests of or in another
corporation, partnership, joint venture, business trust or other business
organization or association engaged in an activity that, if engaged in by the
Seller or its Affiliates, would be prohibited by the first clause of this
sentence, so long as the equity securities or interests so owned in the
aggregate by Seller and its Affiliates do not represent, in the aggregate,
more than 15% of the aggregate voting power of all outstanding equity
securities or interests of the issuer thereof.
(b) So long as any of the restrictions set forth in Section 3(a)
apply, without the prior written consent of Buyer, Seller will not solicit or
attempt to solicit any employee of Buyer or any Affiliate of Buyer to
terminate his or her employment.
(c) For a period of twelve months following the date of this
Agreement, Seller shall not communicate with any Subscriber (as defined in
the Asset Purchase Agreement) regarding the transactions contemplated by the
Asset Purchase Agreement, nor will Seller directly solicit any Subscriber to
purchase web services from Seller without Buyer's prior written consent. The
foregoing restrictions (i) shall not prohibit Seller from providing web
services to any Subscriber if such transaction is solicited by the Subscriber
and (ii) shall not apply to any current web service customers of Seller.
During such 12 month period, Buyer shall not directly solicit any of Seller's
web service customers, as identified on Exhibit A attached hereto, to use or
change to Buyer's web services, however, Buyer shall be permitted to provide
web services to any current web service customer of Seller if such services
are solicited solely by the customer. Notwithstanding this Section 3(c),
Seller shall be permitted to contact Dedicated Subscribers by letter to
inform them of the new name of Seller's web service business. The form and
content of such letter shall be subject to the prior approval of Buyer, which
approval shall not be unreasonably withheld or delayed.
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<PAGE>
(d) The parties agree that the restrictions on the Seller's
activities imposed under Section 3 of this Agreement are reasonable with
respect to their duration and geographical area and with respect to the
nature and scope of the activities so restricted.
4. SUCCESSOR AND ASSIGNS; THIRD-PARTY BENEFICIARIES. This Agreement
will inure to the benefit of and will be binding upon the parties and their
respective successors and assigns. Any Affiliate of Buyer will be a
third-party beneficiary of all of the covenants and agreements made by Seller
in this Agreement. The obligations of Seller under this Agreement will be
personal and not assignable or delegable. Buyer retains the unrestricted
right to assign all or any portion of its rights under this Agreement to any
Affiliate of Buyer or any other person who has or may hereafter acquire the
Business.
5. REMEDIES. The parties acknowledge and agree that the subject matter
of this Agreement is unique and that any party (or any third-party
beneficiary referred to in Section 4) will have, in addition to all other
remedies, the right to enforce specific performance of the provisions of this
Agreement by a suit in equity or otherwise and to seek and obtain temporary,
preliminary or permanent injunctive relief, with respect to which no bond or
other security will be required. All rights and remedies of each of the
parties under this Agreement will be cumulative, and the exercise of one or
more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law. Seller expressly
and knowingly waives any claim or defense that any adequate remedy at law
might exist for any breach by Seller of any term or provision of this
Agreement.
6. CHOICE OF LAW; JURISDICTION. This Agreement and the rights and
obligations created by this Agreement will be governed by and interpreted in
accordance with the internal law of Colorado, without regard to the conflicts
of laws rules thereof. Seller submits to the jurisdiction of any state or
federal court sitting in Denver, Colorado in any action or proceeding arising
out of or relating to this Agreement, agrees that all claims in respect of
the action or proceeding may be heard and determined in any such court and
agrees not to bring any action or proceeding arising out of or relating to
this Agreement in any other court. The parties agree that a final judgment
in any action or proceeding so brought will be conclusive and may be enforced
by suit on the judgment or in any other manner provided by law.
7. SEVERABILITY; INTERPRETATION. If any provision of this Agreement is
held to be invalid, illegal or unenforceable under applicable law in any
jurisdiction, such provision will be ineffective only to the extent of such
invalidity, illegality or unenforceability without invalidating the remainder
of such provision or the other provisions of this Agreement; provided
however, that if a court having jurisdiction shall find that any of the
covenants and agreements contained in Section 3 of this Agreement are not
reasonable, such court will have the power to modify the duration of such
covenant or agreement or the geographical area or the nature or scope of the
activities within or to which such covenant or agreement applies, so as to
make such covenant or agreement valid, legal and enforceable to the maximum
extent permitted by law. This Agreement constitutes a fully negotiated
agreement between commercially sophisticated parties, each assisted
34
<PAGE>
by legal counsel, and will be construed and interpreted without regard to
which party was the drafter of this Agreement.
8. INTEGRATION; AMENDMENT AND WAIVER. This Agreement constitutes the
entire agreement and understanding between Buyer and Seller and supersedes
all prior oral or written agreements and understandings relating to the
subject matter of this Agreement. No modification, amendment or waiver of
any of the terms of this Agreement will be binding upon the parties unless
made in writing after the date of this Agreement and duly executed by the
party or parties intended to be bound or affected thereby.
9. FAILURE TO ACT NOT A WAIVER. The failure to enforce any right
arising under this Agreement on one or more occasions shall not operate as a
waiver of that or any other right on the same occasion or any other occasion.
10. EXTENSION OF NON-COMPETITION PERIOD. The five-year period of time
set forth in Section 3(a) will be extended by the length of time during which
any party is in breach of the terms of this Agreement as determined by a
court of competent jurisdiction.
11. CAPTIONS. The titles and captions of this Agreement are for
convenience of reference only and do not constitute a part of this Agreement.
12. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which will be deemed an original.
13. ATTORNEYS' FEES. In the event of any action or suit based upon or
arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs
and expenses of such action or suit from the other party.
14. NOTICES. All notices and other communications given under this
Agreement must be in writing and will be deemed to have been duly given when
delivered in person or by first class prepaid, registered or certified mail,
by prepaid courier or by facsimile transmission addressed to the parties as
follows:
If to Buyer:
Rocky Mountain Internet, Inc.
1099 18th Street, 30th floor
Denver, CO 80202
Attention: Kevin Loud
Telecopy: (303) 672-0711
If to Seller:
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<PAGE>
VR-1, Inc.
4888 Pearl East Circle, Suite 101
Boulder, CO 80301
Attention: Steve Weaver
Telecopy: 303-444-2797
or to such other address as either of them by written notice may from time to
time designate.
VR-1, Inc.
By: /s/ LARRY BECKER
------------------------------
Name: Larry Becker
Title: CEO
Rocky Mountain Internet, Inc.
By: /s/ ROY DIMOFF
-------------------------------
Name: Roy Dimoff
Title: CEO
36
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EXHIBIT A TO NON-COMPETE
37
<PAGE>
EXHIBIT A TO NON-COMPETE
Adcast
Advergence
Astarte Fiber Networks, Inc.
Augusta Software Design
Benefits Communication Corp.
Benefit Secure
Bidcast
Bujin Design
CareerTrack
Case Logic, Inc.
Cosmosnet Information Internet Services
Crowder Mortgage
Data Storage Marketing, Inc.
DDx
Decisioneering, Inc.
Digital Camera Network
Dot Systems
Euphonics
Fisher Imaging Corp.
Globalkey
Great American Cigar Club
Holme Roberts & Owens
Honda Hawke
Infinite Pictures
International Titanium Association
Jason's Publishing Ltd.
Ken Johnson
Lance Ltd.
LCM, Ltd. LLC
Leopard Communications
Les Mendelson & Associates
LISI
Macedon Mediatures
Mathemaesthetics, Inc.
McBabies, Inc.
McGuckin Hardware
Micro Solutions Tech, inc.
Mountain Solutions
National Career Search
Net Dining
Optimum Soft
Parascript
Pentax Technologies Corp.
Performance Enhancements, Inc.
Premier Concepts, Inc.
Rocky Mountain Trad (RMTAAC)
SkyConnect
Specialty Products Company
Sun Mountain Villas
The Protector Corp.
38
<PAGE>
The Troubleshooter (Tom Martino)
Turquoise Reef Group
Votelink
Voyager Company
Wildwasser
39
<PAGE>
EXHIBIT C
40
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 22, 1997 (this
"Agreement"), by and between Rocky Mountain Internet, Inc., a Delaware
corporation ("RMI"), /fsand VR-1, Inc., a Delaware corporation ("Investor").
WHEREAS, pursuant to the terms of an Asset Purchase Agreement dated as of
January 22, 1997 (the "Purchase Agreement"), RMI has agreed to purchase assets
of Investor comprising its Internet access business. Pursuant to the Purchase
Agreement, RMI will issue to Investor shares of common stock, par value $.001
per share ("Common Stock" or "Shares"). In order to induce Investor to enter
into the Purchase Agreement, RMI has agreed to provide the registration rights
set forth herein.
Therefore, in consideration of the premises and of the mutual covenants
herein contained, the parties agree as follows:
1. INCIDENTAL REGISTRATIONS. (a) Each time that RMI proposes to register
any of its equity securities under the Securities Act of 1933, as
amended, (the "Securities Act") (other than a registration effected
solely to implement an employee benefit or stock option plan or to sell
shares obtained under any employee benefit or stock option plan or a
transaction to which Rule 145 or any other similar rule under the
Securities Act is applicable) RMI will give written notice to the
Investor of its intention to do so. The Investor and each other
Selling Stockholder (as defined below) may give RMI a written request
to register all or some of the Common Stock issued to it pursuant to
the Purchase Agreement ("Registrable Shares") in the registration
described in the written notice from RMI as set forth in the foregoing
sentence, provided that such written request is given within 20 days
after receipt of any such notice from RMI (with such request stating
(i) the amount of Registrable Shares to be disposed of and the
intended method of disposition of such Registrable Shares and (ii) any
other information reasonably requested by RMI to properly effect the
registration of such Registrable Shares). As used in this Agreement,
a "Selling Stockholder" is the Investor and any other person to whom
the Investor has transferred Registrable Shares in compliance with
applicable federal and state securities laws and who has agreed to be
bound by this Agreement by signing a counterpart hereof. Upon receipt
of such request, RMI will use its reasonable efforts to cause promptly
all such Registrable Shares intended to be disposed of to be
registered under the Securities Act so as to permit their sale or
other disposition (in accordance with the intended methods set forth
in the request for registration), unless the sale is a firmly
underwritten public offering and the managing underwriter thereof
determines reasonably and in good faith in writing that the inclusion
of such securities
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would materially adversely affect the offering, in which case the
number of shares to be offered for the accounts of the Selling
Stockholders shall be reduced or limited (an "Underwriter Cutback")
in proportion to the number of shares owned by such Selling
Stockholders to the extent necessary to reduce the total number of
shares to be included in such offering to the amount recommended by
such managing underwriter; provided, that if securities are being
offered for the account of other persons or entities as well as RMI,
such reduction shall be made pro rata from the securities intended
to be offered by such persons and from the Selling Stockholders.
RMI's obligations under this Section 1 shall apply to a registration
to be effected for securities to be sold for the account of RMI as
well as a registration statement which includes securities to be
offered for the account of other holders of RMI equity securities.
RMI represents and warrants that the only registration rights
granted by it as of the date of this Agreement (other than those
contained in this Agreement) are as set forth on
2. Schedule 1 to this Agreement.
(b) Anything in the foregoing paragraph 1(a) to the contrary
notwithstanding, (i) any Registrable Shares included pursuant to paragraph 1(a)
in any registration of the common stock issuable upon exercise of warrants
distributed to the public by RMI in connection with its initial public offering
in September, 1996, will not be subject to any Underwriter Cutback, and (ii) to
the extent any Registrable Shares are excluded from any other registration
pursuant to any Underwriter Cutback, RMI (x) will cause a registration statement
to be filed under the Securities Act with respect to the Registrable Shares
which were excluded pursuant to such Underwriter Cutback within 180 days after
the effective date of the registration under the Securities Act as to which the
Registrable Shares were subject to such Underwriter Cutback or (y) purchase such
Registrable Shares which were excluded pursuant to such Underwriter Cutback at a
price equal to the selling price of the Registrable Shares which were sold
pursuant to such registration.
2. EXPENSES OF REGISTRATION. RMI shall pay all costs and expenses
incurred in connection with the registration of the Registrable Shares pursuant
hereto, including all registration and filing fees, printing expenses, fees and
disbursements of counsel and accountants of RMI and fees and disbursements (not
exceeding $2500) of counsel to VR-1 as the Selling Stockholder ("Investor's
Counsel"). Notwithstanding the foregoing, all fees and disbursements of the
Selling Stockholders' counsel (other than fees and disbursements of up to $2500
for Investor's Counsel) transfer taxes, brokerage commissions and underwriters'
discounts attributable to the Registrable Shares being offered and sold by such
Selling Stockholders shall be for the account of the Selling Stockholders.
3. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding the provisions
of Section 1 hereof, RMI shall not be required to effect any registration
pursuant to Section 1 (a) after the third anniversary of the date hereof; (b)
if the request or requests for registration cover an aggregate number of
Registrable Shares having a Market Value of less than $25,000 as of the date
of the last of such requests; or (c) in the opinion of counsel for the RMI,
each Selling
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Stockholder could sell in a single transaction under Rule 144 promulgated
under the Securities Act or any successor rule the number of Registrable
Shares such Selling Stockholder proposes to have registered pursuant to this
Agreement. "Market Value" as used in this Agreement shall mean, as to each
Registrable Share at any date, the average of the daily closing prices for
the Common Stock for the 10 consecutive trading days before the day in
question. The closing price for shares of such class for each day shall be
the last reported sale price or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on which such shares
of such class are listed or admitted to trading, or if they are not listed or
admitted to trading on any such exchange, the closing sale price (or the
average of the quoted closing bid and asked prices if no sale is reported) as
reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or any comparable system, or if the shares of
such class are not quoted on NASDAQ, or any comparable system, the average of
the closing bid and asked prices as furnished by any market maker in the
securities of such class who is a member of the National Association of
Securities Dealers, Inc.
4. OBLIGATIONS WITH RESPECT TO REGISTRATION.
(a) If and whenever RMI is obligated by the provisions of this
Agreement to effect the registration of any Registrable Shares under the
Securities Act, RMI shall: (i) prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement and any
amendments and supplements to the registration statement in which the
Registrable Shares are included and to the prospectus used in connection
therewith (a "Registration Statement") as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the
Securities Act and the rules and regulations promulgated thereunder with
respect to the disposition of all Registrable Shares covered by the
Registration Statement for the period required to effect the distribution of
such Shares, but in no event shall RMI be required to do so for a period of
more than 90 days following the effective date of the Registration Statement;
(ii) notify the Selling Stockholders and confirm such advice in writing, (A)
when a Registration Statement becomes effective, (B) when any post-effective
amendment to a Registration Statement becomes effective, and (C) of any
request by the Commission for any amendment of or supplement to a
Registration Statement or any prospectus relating thereto or for additional
information; (iii) furnish at RMI's expense to the Selling Stockholders such
number of copies of a preliminary, final, supplemental or amended prospectus,
in conformity with the requirements of the Securities Act and the rules and
regulations promulgated thereunder, as may reasonably be required in order to
facilitate the disposition of the Registrable Shares covered by a
Registration Statement, but only while RMI is required under the provisions
hereof to cause a Registration Statement to remain effective; (iv) register
or qualify the Registrable Shares covered by a Registration Statement under
the securities or blue sky laws of such jurisdictions in the United States as
the Selling Stockholders shall reasonably request, and do any and all other
acts and things which may be necessary to enable each Selling Stockholder
whose Registrable Shares are covered by such Registration Statement to
consummate the disposition in such jurisdictions of such Registrable Shares;
provided, however, that RMI shall in no event be required to qualify to
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do business as a foreign corporation or a dealer in any jurisdiction where it
is not so qualified, to conform the composition of its assets at the time to
the securities or blue sky laws of such jurisdiction, to execute or file any
general consent to service of process under the laws of any jurisdiction, to
take any action that would subject it to service of process in suits other
than those arising out of the offer and sale of the Registrable Shares
covered by the Registration Statement, or to subject itself to taxation in
any jurisdiction where it has not theretofore done so; and (v) cause such
Registrable Shares covered by a Registration Statement to be listed on the
principal exchange or exchanges on which the Common Stock is then listed upon
the sale of such Registrable Shares pursuant to such Registration Statement.
(b) RMI's obligations under this Agreement with respect to a Selling
Stockholder shall be conditioned upon such Selling Stockholder's compliance with
the following: Such Selling Stockholder shall reasonably cooperate with RMI in
connection with the preparation of the Registration Statement, and for so long
as RMI is obligated to file and keep effective the Registration Statement, shall
provide to RMI, in writing, for use in the Registration Statement, all such
information regarding the Selling Stockholder and its plan of distribution of
the Registrable Shares as may be necessary to enable RMI to prepare the
Registration Statement and prospectus covering the Registrable Shares, to
maintain the currency and effectiveness thereof and otherwise to comply with all
applicable requirements of law in connection therewith. During such time as RMI
or such Selling Stockholder may be engaged in a distribution of the Registrable
Shares, RMI and such Selling Stockholder shall comply with Rules 10b-6 and 10b-7
promulgated under the Exchange Act and pursuant thereto it shall, among other
things: (i) not engage in any stabilization activity in connection with the
securities of RMI in contravention of such rules; (ii) distribute the
Registrable Shares solely in the manner described in the Registration Statement;
(iii) cause to be furnished to each broker through whom the Registrable Shares
may be offered, or to the offeree if an offer is not made through a broker, such
copies of the prospectus covering the Registrable Shares and any amendment or
supplement thereto and documents incorporated by reference therein as may be
required by law; and (iv) not bid for or purchase any securities of RMI or
attempt to induce any person to purchase any securities of RMI other than as
permitted under the Exchange Act.
5. INDEMNIFICATION.
(a) BY RMI. Except as set forth in the last sentence of this
Section 5(a), RMI agrees to indemnify and hold harmless each Selling
Stockholder, its officers and directors and each person who controls such
Selling Stockholder (within the meaning of the Securities Act) and any
underwriter thereof against all losses, claims, damages, liabilities and
expenses ("Losses") relating to any untrue or alleged untrue statement of a
material fact contained in any Registration Statement or any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information with respect to such Selling Stockholder or underwriter, if any,
furnished in writing to RMI by such Selling Stockholder or underwriter
expressly for use therein. In connection with an underwritten offering, RMI
will indemnify the underwriters thereof, their
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officers and directors and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Shares. RMI
will promptly as incurred reimburse each such indemnified party for all legal
or other expenses reasonably incurred by such party in connection with
investigating or defending any such claims, including, subject to such
indemnified party's compliance with the provisions of the last sentence of
subsection (c) of this Section 5, any amounts paid in settlement of any
litigation, commenced or threatened. RMI shall not be obligated to indemnify
any person hereunder to the extent that any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary or summary prospectus if a copy of
the final prospectus was delivered by the Company to the Selling Stockholder
(as amended or supplemented) and the Selling Stockholder failed to deliver
such final prospectus to the person alleging Losses at or prior to the
written confirmation of the sale of such Registrable Shares to such person
and the untrue statement or omission had been corrected in such final
prospectus.
(b) BY THE SELLING STOCKHOLDERS. In connection with any
registration statement in which a Selling Stockholder is participating, each
such Selling Stockholder agrees to indemnify and hold harmless RMI, the
directors and officers of RMI and each person who controls RMI (within the
meaning of the Securities Act) against any Losses relating to any untrue or
alleged untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in the Registration
Statement or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement
or omission is contained in any information with respect to such Selling
Stockholder so furnished in writing by such Selling Stockholder expressly for
use in the registration statement, provided that the liability of such
Selling Stockholder pursuant to this Section 5(b) shall not exceed an amount
equal to the proceeds of the sale of Registrable Shares sold pursuant to such
registration statement that are received by or for the benefit of such
Selling Stockholder. RMI shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution to the same extent
as provided above with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration
statement. The Selling Stockholders shall promptly as incurred reimburse
each such indemnified party for all legal or other expenses reasonably
incurred by such party in connection with investigating or defending any such
claim, including, subject to such indemnified party's compliance with the
provisions of the last sentence of subsection (c) of this Section 5, any
amounts paid in settlement of any litigation, commenced or threatened.
(c) THIRD PARTY CLAIMS. Promptly after the receipt by any party
hereto of notice of any claim, action, suit or proceeding by any person who
is not a party to this Agreement (collectively, an "Action") which is subject
to indemnification hereunder, such party (the "Indemnified Party") shall give
reasonable written notice to the party from whom indemnification is claimed
(the "Indemnifying Party"). The Indemnified Party shall be entitled, at the
sole expense and liability of the Indemnifying Party, to exercise full
control of the defense, compromise or settlement of any such Action unless
the Indemnifying Party, within a reasonable time after the
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giving of such notice by the Indemnified Party, shall: (i) admit in writing
to the Indemnified Party, the Indemnifying Party's liability to the
Indemnified Party for such Action under the terms of this Section 5, (ii)
notify the Indemnified Party in writing of the Indemnifying Party's intention
to assume the defense thereof, and (iii) retain legal counsel reasonably
satisfactory to the Indemnified Party to conduct the defense of such Action.
The Indemnified Party and the Indemnifying Party shall cooperate with the
party assuming the defense, compromise or settlement of any such Action in
accordance herewith in any manner that such party reasonably may request. If
the Indemnifying Party so assumes the defense of any such Action, the
Indemnified Party shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement
thereof, but the fees and expenses of such counsel shall be the expense of
the Indemnified Party unless (i) the Indemnifying Party has agreed to pay
such fees and expense, (ii) any relief other than the payment of money
damages is sought against the Indemnified Party or (iii) the Indemnified
Party shall have been advised by its counsel that there may be one or more
legal defenses available to it which are different from or additional to
those available to the Indemnifying Party, and in any such case the fees and
expenses of such separate counsel shall be borne by the Indemnifying Party.
No Indemnifying Party shall settle or compromise any such Action in which any
relief other than the payment of money damages is sought against any
Indemnified Party unless the Indemnified Party consents in writing to such
compromise or settlement. No Indemnified Party shall settle or compromise
any such Action for which it is entitled to indemnification hereunder without
the prior written consent of the Indemnifying Party, unless the Indemnifying
Party shall have failed, after reasonable notice thereof, to undertake
control of such Action in the manner provided above in this Section 5.
(d) CONTRIBUTION. If the indemnification provided for in subsections
(a) or (b) of this Section 5 is unavailable to or insufficient to hold the
indemnified party harmless under subsections (a) or (b) above in respect of any
Losses referred to therein for any reason other than as specified therein, then
the Indemnifying Party shall contribute to the amount paid or payable by the
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and the Indemnified Party on the other in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by (or omitted to be supplied by) RMI or the Selling
Stockholder (or underwriter) and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by an Indemnified Party as a result of the Losses
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
6. MISCELLANEOUS.
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(a) NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or telecopier, as follows:
if to RMI: Rocky Mountain Internet, Inc.
1099 18th Street, 30th floor
Denver, CO 80202
Attention: Kevin Loud
Telecopy: (303) 672-0711
with a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street , Suite 3000
Denver, Colorado 80202
Attention: Stephen S. Halasz, Esq.
Telecopy: (303) 298-0940
if to Investor:
VR-1, Inc.
4888 Pearl East Circle, Suite 101
Boulder, CO 80301
Attention: Steve Weaver
Telecopy: (303) 444-2797
with a copy to:
VR-1, Inc.
4888 Pearl East Circle, Suite 101
Boulder, CO 80301
Attention: Leslie Woodard, Esq.
Facsimile: (303) 444-2797
or to such other person or address as any party shall specify by notice in
writing to the other party. Notice of a change of address shall be effective
only upon actual receipt thereof.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof.
(c) BINDING EFFECT; BENEFIT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in
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this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, other than rights conferred upon indemnified persons under Section
6 and rights conferred upon Permitted Transferees.
(d) AMENDMENT AND MODIFICATION. This Agreement may be amended or
modified only by an instrument in writing signed by or on behalf of each party
and any other person then a Stockholder. Any term or provision of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof.
(e) SECTION HEADINGS. The section headings contained in this
Agreement are inserted for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
(f) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all of which together shall
be deemed to be one and the same instrument.
(g) APPLICABLE LAW. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
laws of the State of Colorado, without regard to the conflict of laws rules
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ROCKY MOUNTAIN INTERNET, INC.
By: /s/ KEVIN LOUD
----------------------------
Its: VICE PRESIDENT
----------------------------
VR-1, INC.
By: /s/ LARRY BECKER
----------------------------
Its: CEO
----------------------------
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SCHEDULE 1
OUTSTANDING REGISTRATION RIGHTS
ROCKY MOUNTAIN INTERNET, INC.
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SCHEDULE 1
OUTSTANDING REGISTRATION RIGHTS
ROCKY MOUNTAIN INTERNET, INC.
As of January 22, 1997, Rocky Mountain Internet, Inc. (the "Company"), had
outstanding the following registration rights.
1. WARRANTS. The Company issued 1,365,000 warrants in its public offering in
September, 1996. The warrants become exercisable in October, 1997, at a
price of $4.375 per share (subject to adjustment). The Company is required
to register common stock issuable on exercise of the warrants.
2. UNDERWRITER'S WARRANTS. The underwriter in the Company's initial public
offering received 136,500 warrants to purchase Units (i.e. one share of
common stock and one warrant) at an exercise price of $4.20 per Unit and
$6.5625 per underlying warrant. These warrants are exercisable beginning
in September, 1997, and the underwriter has been granted registration
rights in connection with the exercise thereof.
3. CONVERTIBLE PREFERRED STOCK. Prior to its initial public offering the
Company issued 250,000 shares of convertible preferred stock which are
convertible into common stock at a 1:1 ratio (subject to adjustment). The
preferred stock is convertible at any time after May 15, 1997, and the
holders thereof have a single demand registration right in connection
therewith exercisable on or after May 15, 1997.
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EXHIBIT D
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Exhibit D
LICENSE AGREEMENT
This License Agreement ("License") is dated effective January 22, 1997 by
and between VR-1, Inc., a Delaware corporation ("Licensor"), and Rocky
Mountain Internet, Inc., a Delaware corporation ("Licensee").
RECITALS
Licensor and Licensee are parties to that certain Asset Purchase Agreement
dated January 22, 1997. The execution and delivery of this License is a
condition to the consummation of the transactions contemplated by the Asset
Purchase Agreement.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
A. SOFTWARE means the on-line client and server registration software
known as "ONE Soft-TM- Version 6.0".
B. SUPPORT MATERIALS means any human-readable program listings, flow
charts, logic diagrams, input and output forms, manuals,
specifications, instructions and other materials, and any copies of
any of the foregoing, in any medium, related to the Software and
delivered to Licensee under this License.
C. TRADEMARKS means the trademarks and/or service marks (i) ONE Soft-TM-
and (ii) ONE and Design, a copy of which is attached hereto as
Exhibit A.
2. GRANT OF RIGHTS.
A. LICENSE. Licensor grants Licensee and its Affiliates a nonexclusive,
world-wide, royalty-free right to (i) reproduce and distribute the
client portion of the Software to Licensee's subscribers and potential
subscribers, (ii) use the Software in connection with Licensee's
Internet access services, provided that Licensee shall have no right
to distribute or sublicense the server or Unix portion of the
Software, (iii) create derivative works of the Software, (iv) use the
ONE Soft mark to identify the Software and Derivative Works and (v)
use the ONE and Design mark to market, promote and identify Licensee's
Internet access services (including but not limited to in connection
with the NETONE.COM Internet domain name); all of the foregoing in
accordance with the terms of this Agreement.
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B. COPIES. Licensee may make copies of the written documentation which
accompanies the Software in support of Licensee's authorized use of
the Software. Licensee may also make such copies of the Software as
are necessary for Licensee and its Affiliates to use the Software
under this License.
C. TRANSFER RESTRICTIONS. No party will, without the consent of the
other (which shall not be unreasonably withheld), assign any of its
rights or delegate any of its duties under this License, provided that
(i) either party may assign this License to its Affiliate or make a
collateral assignment of this Agreement and (ii) either party may
assign this Agreement to any successor or any person that acquires all
or substantially all of the assets of such party, provided that such
assignment shall not relieve the assigning party of liability for any
failure by the assignee to perform its obligations hereunder.
D. MODIFICATIONS BY LICENSEE. Licensee may modify any machine-readable
form of the Software for use by Licensee and merge it into other
program material to form an updated work ("Derivative Work") without
the prior written consent of Licensor. The source code for each
Derivative Work shall contain internal comments delineating the
independent program material. Licensee shall own such Derivative
Works.
E. TITLE. Title and all ownership and proprietary rights to the
Trademarks and Software shall remain in Licensor, and Licensee shall
take no action inconsistent with such title, ownership and proprietary
rights.
F. REVIEW OF QUALITY. Licensor shall have the right, but not the
obligation, to review services rendered, or goods provided, under the
Trademarks to ensure that they are of a good quality. Licensor shall
promptly notify Licensee of any defects in quality of goods or
services denoted by the Trademarks, and Licensee and Licensor shall
work together to remedy any such defects.
3. DELIVERY, INSTALLATION, TRAINING AND MAINTENANCE.
A. DELIVERY. Licensor will furnish the Software to Licensee in machine-
readable form and provide Support Materials containing detailed
specifications for operation and use of the Software. Licensor will
also provide Licensee a copy of all source code related to the
Software.
B. INSTALLATION AND TRAINING. Licensor shall provide Licensee an
aggregate total of 40 hours of the following services without
additional charge hereunder: (i) software programming; (ii) assistance
in installing and rendering operable the Software at Licensee's
designated site; and (iii), if requested by Licensee, training for
Licensee's employees in the use of the Software.
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C. CONFIDENTIALITY. Licensee shall keep the source code for the Software
strictly confidential and shall not disclose the source code to any
third party without the prior written consent of Licensor.
4. TERM AND TERMINATION
A. TERM AND TERMINATION. This License shall become effective upon
execution by Licensor and Licensee and shall terminate (a) as to the
ONE and Design mark, two years following the execution hereof at which
time Licensee shall cease all use of the ONE and Design mark and (b)
as to the Software and the ONE Soft Mark, by mutual written agreement
of the parties or on the tenth day following written notice by
Licensee of its desire to terminate this License.
B. EFFECT OF TERMINATION. Upon termination of this License for any
reason, Licensee's rights under this License shall cease. Licensee
shall immediately return all items bearing either of the Trademarks,
and all information relating to the Software, except the Derivative
Works, including any copies, updates, or Support Materials, however
embodied, to Licensor.
5. REPRESENTATIONS AND WARRANTY
A. WARRANTY. Licensor warrants that (1) the Software will, when
delivered and installed by Licensor, be in good working order and will
conform to the program specifications in the accompanying
documentation when used without material alteration in accordance with
the instructions set forth in the documentation; and (2) any service
rendered by Licensor will be performed in a professional manner by
qualified personnel.
B. REPRESENTATIONS. Licensor warrants and represents to Licensee that:
i. it is duly organized, validly existing and in good standing under
the laws of each jurisdiction in which its activities require such
qualification;
ii. the execution, delivery and performance of this License have been
duly authorized by all necessary corporate action and this License
constitutes the legal, valid and binding obligation of Licensor,
enforceable in accordance with its terms against Licensor except as
such enforceability may be affected by bankruptcy, reorganization,
insolvency, moratorium or laws affecting creditors' rights generally
or by general principles of equity;
iii. it has full corporate power and authority to enter into this
License and to perform its obligations hereunder;
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<PAGE>
iv. the Software and Support Materials are original works of
authorship;
v. it is the sole owner of the Trademarks and Software or otherwise
has authority to grant the rights hereunder to Licensee;
vi. the use of the Trademarks, Software and Support Materials by
Licensee hereunder will not violate or infringe any intellectual
property or proprietary right of any other person, including the
licensors of any licensed software contained in the Software;
vii. the execution and delivery of this License, and the
performance by Licensor of its obligations hereunder, will not
violate, breach, conflict with or cause a default under any law, rule,
regulation, order, or material agreement or instrument to which
Licensor is a party or by which it is bound, or of Licensor's
constituent documents;
viii. no consent, approval or authorization of any person is
needed in order for Licensor to perform its obligations pursuant to
this License; and
ix. there are no lawsuits, proceedings or claims pending, or to the
knowledge of Licensor, asserted with respect to the Trademarks,
Software, the Support Materials, or any portion thereof which could
materially affect Licensor's ability to perform its obligations under
this License or which could materially affect the utility to Licensee
thereof, and Licensor promptly will notify Licensee if any such suit
or proceeding is instituted or claim asserted.
6. INDEMNIFICATION.
A. Licensor shall defend or settle at its sole expense any action brought
against Licensee by third parties to the extent that such action is
based on or arises out of an allegation or adjudication that the
Licensee's permitted use of the Trademarks, or the manufacture, use,
sale, reproduction or distribution of the Software or any portion
thereof in accordance with the terms of this Agreement, constitutes an
infringement of any United States patent, trademark, copyright or
other proprietary right. Licensee shall cooperate fully in the
defense of the claim or suit, and may appear at its own expense
through counsel of its choice.
B. Licensee shall indemnify Licensor against all claims, liabilities and
costs, including reasonable attorney fees, of defending any claim or
suit, other than for infringement of intellectual property rights as
provided above, arising out of its use of the Trademarks and Software
provided under this License.
7. NOTICE. All notices, requests, demands and other communications
called for or contemplated hereunder will be in writing and will be deemed to
have been duly given if delivered
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when deposited in the United States mail, first class postage prepaid,
addressed as follows, or to any other address of which a party gives notice
to the other:
If to Licensor to: With a copy to:
Steve Weaver, Vice President Patrick K. Perrin, Esq.
VR-1, Inc. Holme Roberts & Owen LLP
4888 Pearl East Circle, Suite 101 1401 Pearl Street, Suite 400
Boulder, CO 80301 Boulder, CO 80302
If to Licensee to: With a copy to:
Kevin Loud, Vice President Stephen S. Halasz, Esq.
Rocky Mountain Internet, Inc. Sherman & Howard L.L.C.
1099 Eighteenth Street, Suite 3000 633 17th Street, Suite 3000
Denver, CO 80202-1930 Denver, CO 80202
8. MISCELLANEOUS
A. MODIFICATION. This License may not be modified other than by a
written amendment executed by each of the parties hereto.
B. WAIVER. No consent or waiver, express or implied, by a party of any
breach or default by the other party in the performance of its
obligations under this License will be deemed to be a consent to or
waiver of any further or other breach or default by such other party.
C. GOVERNING LAW. This License will be construed in accordance with, and
be governed by, the internal laws of the State of Colorado without
reference to any conflict of laws principles.
D. SEVERABILITY. If any provision or part thereof in this License is
held invalid, illegal or unenforceable for any reason, the remainder
of this License will nonetheless remain in full force and effect.
E. BINDING AGREEMENT. This License will benefit and be binding upon the
parties hereto and their respective heirs, representatives, successors
and permitted assigns.
F. COUNTERPARTS. This License may be executed in two or more identical
counterparts, and all of such counterparts, when taken together, will
be deemed to constitute the original of this License.
G. HEADINGS. The headings in this License are for purpose of reference
only and shall not be construed as part of this License.
56
<PAGE>
H. ATTORNEYS' FEES. If any party commences an action because of the
breach of or to enforce any of the terms of this License, the
prevailing party will be entitled to all
57
<PAGE>
costs and expenses associated with such action, including reasonable
attorneys' fees.
I. ENTIRE AGREEMENT. This License constitutes the entire understanding
and agreement of the parties hereto with respect to the subject matter
covered in it and supersedes all prior agreements and understandings,
written or oral, among any of the parties with respect to such subject
matter.
The parties have executed this License as of the date first above written.
LICENSOR: LICENSEE:
VR-1, INC. ROCKY MOUNTAIN INTERNET, INC.
a Delaware corporation a Delaware corporation
By: /s/ LARRY BECKER By: /s/ KEVIN LOUD
------------------------- -------------------------
Name: LARRY BECKER Name: KEVIN LOUD
Title: CEO Title: VICE PRESIDENT
58
<PAGE>
EXHIBIT E
59
<PAGE>
Exhibit E
ASSIGNMENT OF DOMAIN NAME
WHEREAS, VR-1, Inc., a Delaware corporation, f/k/a On-line Network
Enterprises, having an office and principal place of business at 4888 Pearl East
Circle, Suite 101, Boulder, Colorado 80301, is the owner of a domain name
"NETONE.COM" and the registration thereof with InterNIC; and
WHEREAS, VR-1, Inc. wishes to assign to Rocky Mountain Internet, Inc., a
Delaware corporation, having an office and principal place of business at 1099
18th Street, 30th Floor, Denver, CO 80202, the entire right, title and interest
in and to such domain name, any registrations obtained thereon and all rights of
renewal thereof, together with the goodwill of the Internet access business
associated with and symbolized by such domain name;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, VR-1, Inc. sells, assigns and sets over unto Rocky Mountain
Internet, Inc., its successors and assigns, the entire right, title and interest
of VR-1, Inc., in and to such domain name, any registrations obtained thereon,
and all rights of renewal thereof together with the goodwill of the Internet
access business associated with and symbolized by such domain name.
VR-1, Inc. agrees to take all necessary actions to effect the transfer of
the domain name with InterNIC or any future registrar of the domain name
"NETONE.COM."
VR-1, INC., f/k/a On-line Network Enterprises
By /s/ Larry Becker
-----------------------------------------
Larry Becker, chief executive officer
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing instrument was acknowledged before me this ____ day of
__________, 1997, by Larry Becker as chief executive officer of VR-1, Inc.
My commission expires:
-------------------------- ---------------------------
Notary Public
[SEAL]
60
<PAGE>
EXHIBIT F
61
<PAGE>
EXHIBIT F
ASSIGNMENT AND ASSUMPTION AGREEMENT
For value received, the receipt and sufficiency of which are
acknowledged, VR-1, Inc., a Delaware corporation ("Seller") hereby assigns
and transfers to Rocky Mountain Internet, Inc., a Delaware corporation
("Buyer") all of Seller's right, title and interest in and to each of the
contracts ("Assumed Contracts") included on Schedule 5.8 to the Asset
Purchase Agreement dated January 22, 1997, between Seller and Buyer (the
"Asset Purchase Agreement") except for receivables due for services performed
prior to the date of the Asset Purchase Agreement. Buyer assumes and agrees
to discharge, in accordance with terms thereof, all obligations under the
Assumed Contracts arising on and after the date hereof to the extent that
such liabilities and obligations relate to periods beginning on or after the
date hereof and to be bound by such contracts as fully as if Buyer had
executed each as a party thereto.
This Agreement may be executed in one or more counterparts, all of which
taken together shall constitute the original of this Agreement.
Dated as of January 22, 1997
Rocky Mountain Internet VR-1, Inc.
By: /s/ Roy Dimoff By: /s/ Larry Becker
--------------------------- ----------------------------
62
<PAGE>
EXHIBIT G
63
<PAGE>
Exhibit G
BILL OF SALE
VR-1, Inc., a Delaware corporation ("Seller") for $10.00 and other valuable
consideration in hand paid by Rocky Mountain Internet, Inc., a Delaware
corporation ("Buyer"), receipt of which is acknowledged, hereby sells, grants,
transfers and conveys to Buyer all of the Seller's rights to the assets set
forth on Schedule 1.2 to the Asset Purchase Agreement dated as of January 22,
1997, between Seller and Buyer.
Dated as of January 22, 1997.
Rocky Mountain Internet, Inc. VR-1, Inc.
By: /s/ Roy Dimoff By: /s/ Larry Becker
-------------------------- --------------------------------
64
<PAGE>
EXHIBIT H
65
<PAGE>
EXHIBIT H LETTERS TO SUBSCRIBERS
Dear O.N.E. Customer,
We are pleased to announce that Online Network Enterprises has sold the dial-up
and dedicated Internet access division of our company to Rocky Mountain Internet
(RMI) effective x/x/97. This change will allow us to focus on our Web and
online game development divisions.
RMI is a Colorado based company and is a leading provider of quality Internet
services. RMI has recently invested over $2 million into its network! The
results of RMI's investment has resulted in a carrier class network including
redundant T-3 access to the Internet, a state of the art Data Center including
generator backup, and a fully redundant sonnet based DS3 network interconnecting
its switches and services.
It has been our pleasure to serve you, and hope that we have exceeded your
expectations. We are working closely with RMI to ensure a smooth and seamless
transition. At this time, you will not be required to make any changes to your
system in order to access the Internet or send and receive E-mail. In addition,
RMI will be honoring O.N.E.'s existing rate structure.
Again, thank you for the opportunity to serve you. We have enjoyed providing
your access to the Internet.
Sincerely,
Lisa Mouscher
Vice President of Customer Service
Online Network Enterprises
Letter to dedicated customers
66
<PAGE>
JANUARY 22, 1997
XXXXXX
XXXXX
O.N.E. AND RMII
DEAR CUSTOMER,
On January 23, 1997 Online Network Enterprises announced the sales of our
Internet access business (dial up and dedicated) to Rocky Mountain Internet Inc,
(RMII).
O.N.E.'S WEB DEVELOPMENT AND HOSTING BUSINESS REMAINS UNCHANGED - BOTH IN
OWNERSHIP AND IN OUR RESOURCES.
This letter is to briefly explain the benefits to you, our customer, regarding
this change of Internet Access to RMII, and the renewed focus of O.N.E.'s *
business as a leading edge Web Development studio.
RMII is a leading Colorado Internet Service Provider, offering economies of
scale and specialization in this industry that will guarantee that your Internet
access service is of the highest industry standards. The transition of your
access to RMII should be seamless and almost invisible.
O.N.E., as part of its parent Company VR-1, has made this change to allow us to
focus purely on high level content creation for the Web. We've renewed our
focus as a leading web development partner for your business, offering
excellence in both web design and high level database development. O.N.E. will
also continue to offer full, high quality web hosting, web site marketing and
consulting services.
*AS PART OF THIS NEW FOCUS WE ARE RE-EVALUATING OUR STUDIO NAME AND PLAN TO
LAUNCH A NEW LOGO AND IDENTITY IN THE NEXT TWO MONTHS. WE WILL BE BACK IN
TOUCH.
Meanwhile, if you have any questions over our Web Development service do not
hesitate to contact your sales representative XXX at (303) 444-2522.
Yours sincerely,
Mike Moniz
PRESIDENT
ONLINE NETWORK ENTERPRISES/VR-1 INC.
67
<PAGE>
VR-1, INC.
CLOSING CERTIFICATE
This certificate is delivered pursuant to Section 9.2.7 of the Asset
Purchase Agreement (the "Agreement") dated as of January 22, 1997 by and between
VR-1, Inc., a Delaware corporation (the "Company") and Rocky Mountain Internet,
Inc. a Delaware corporation ("RMI"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Agreement.
The undersigned does hereby certify to RMI that, to his knowledge:
1. All representations and warranties of the Company contained in the
Agreement are, if specifically qualified by materiality, true in all
respects and, if not so qualified, true and correct in all material
respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, subject to such
disclosures and exceptions specifically described on the Schedules
attached to the Agreement.
2. The Company has performed and complied in all material respects with
each obligation, agreement, covenant and condition required by the
Agreement to be performed or complied with by the Company at or prior
to the date of Closing.
EXECUTED as of the 22nd day of January, 1997.
VR-1, INC., a Delaware corporation
By:/S/ LARRY BECKER
-------------------------------
Larry Becker
Chief Executive Officer
68
<PAGE>
ROCKY MOUNTAIN INTERNET, INC.
CLOSING CERTIFICATE
-------------------
This certificate is delivered pursuant to Section 9.3.4 of the Asset
Purchase Agreement (the "Agreement") dated as of January 22, 1997 by and between
VR-1, Inc., a Delaware corporation ("VR-1") and Rocky Mountain Internet, Inc. a
Delaware corporation (the "Company"). Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Agreement.
The undersigned does hereby certify to VR-1 that, to his knowledge:
1. All representations and warranties of the Company contained in the
Agreement are, if specifically qualified by materiality, true in all
respects and, if not so qualified, true and correct in all material
respects, in each case on and as of the Closing Date with the same
effect as if made on and as of the Closing Date, subject to such
disclosures and exceptions specifically described on the Schedules
attached to the Agreement.
2. The Company has performed and complied in all material respects with
each obligation, agreement, covenant and condition required by the
Agreement to be performed or complied with by the Company at or prior
to the date of Closing.
EXECUTED as of the 22nd day of January, 1997.
ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation
By:/S/ KEVIN LOUD
-------------------------
Kevin Loud
Vice President
69
<PAGE>
SCHEDULE 1.2
SELLER CONTRACTS
- 823 dial up accounts
- 47 dedicated accounts
- Seller contracts listed in Schedule 5.8
EQUIPMENT
- Ascend Madx 4000 with 6 modem cards
- 3 kiosks and
- 10 dispensers (Hermans)
INTANGIBLES
- the rights to placement and design of kiosks (see Schedule 5.8 for
description).
- the rights to design of Hermans dispensers.
- netone.com domain name
- Control of O.N.E. CIDR block ranges identified as 206.83.96.0 through
206.83.127.255 and 206.246.0.0 through 206.246.31.255 leaving the range
206.246.32.0 through 206.246.63.255 for O.N.E./VR-1 control. The customers
on the existing Sprint CIDR will be moved by O.N.E. As soon as routing
(BGP$) is established between O.N.E. and RMI, the two CIDR block ranges
will be transferred to RMI.
70
<PAGE>
SCHEDULE 5.6 LEGAL PROCEEDINGS
None
71
<PAGE>
SCHEDULE 5.7 CUSTOMERS AND SUPPLIERS EXCEPTIONS
See Customer lists attached to Schedule 1.2 for subscribers who are late in
paying as disclosed therein.
There are no Supplier Exceptions
72
<PAGE>
SCHEDULE 5.8 SELLER'S CONTRACTS AND EXCEPTIONS
DEDICATED SUBSCRIBERS
- ---------------------
All dedicated subscribers contracts delivered at closing. See Dedicated
Customer List attachment to Schedule 1.2 for payment status
DIAL UP SUBSCRIBERS
- -------------------
Attached is the text of the Seller Service Agreement
TCG SERVICE CONTRACT
- --------------------
Attached service agreement between Seller and TCG dated 7/28/96 and consent of
assignment. Buyer's obligation to assume the TCG Service Contract is
conditioned upon TCG agreement to move the circuit to 910 15th Street, Denver,
Colorado 80202.
KIOSK PLACEMENT
- ---------------
Three kiosks which distribute the ONEsoft software on a speculative basis have
been placed, one each, at Elek-Tek in Aurora, McGuckin Hardware in Boulder and
Media Play in downtown Denver.
ELEK-TEK
- --------
The longest placement has been Elek-Tek. The first two kiosks for Elek-Tek were
installed in late November 1995 there was a written agreement for 6 months.
That agreement has expired. The kiosk resides at Elek-Tek based on their
continued desire to have Internet access from a device on the floor.
Seller provides Elek-Tek free access over a 64k frame relay circuit (Elek-Tek
pays US West for the frame circuit) along with mailboxes and a special rate for
dialup access to their employees. VR-1 Adtran 56/64 CSU/DSU, and Cisco 1005D
Router. Elek-Tek provides the hub, computer, monitor, speakers, and keyboard
for the kiosk. All equipment owned by Seller must be replaced by RMI equipment
within 30 days of closing.
MCGUCKIN HARDWARE
McGuckin Hardware in Boulder is the location for the second Kiosk. Seller
trades out a 56k dedicated access account for the kiosk placement. McGuckin
Hardware pays for both DSUs and the US West 56k DSS circuit. There is no
written agreement stating this trade out. One of Seller's former customer
support personnel is a key member of the McGuckin hardware systems group. Thus
the relationship has been a strong one.
The DSS service is not used at the kiosk. Rather it uses a modem connection to
facilitate access to the Internet. All computer equipment including the CPU,
monitor, keyboard, modem, speakers, power supplies belong to Seller and must be
replaced within 30 days of closing.
73
<PAGE>
MEDIA PLAY
Media Play was installed in October of 1996 pursuant to the attached letter from
Media Play dated September 13, 1996. Seller has paid $300 each month for months
November and December. Seller will be responsible for the fees accrued to Media
Play prior to closing and Buyer will be responsible for fees accrued to Media
Play after closing.
Internet access is facilitated through a modem connection. All computer
equipment including the CPU, monitor, keyboard, modem, speakers, power supplies
belong to Seller and must be replaced within 30 days of closing. The POTS
circuit is paid for by Seller RMI will begin paying for this circuit as of
January 15th, 1997. See circuit list.
DISCUSSION OF TRADE OUT SERVICES
- --------------------------------
Seller provides free Internet access service to the following two customers.
FREEWAVE TECHNOLOGIES is the developer of the wireless modems we use for IGS,
Euyphonics and product Knowledge. We assisted with testing these modems the
summer of 95. The test proved successful so we traded Freewave Internet access
and 5 mailboxes for two of their modems. These modems are currently in use by
IGS. IGS is moving to a TCG circuit and will be returning the modems as soon as
that circuit is up and running. This gives RMI the ability to sell another
wireless access customer or use the modems as you see fit. The term of the
Freewave agreement was for one year. It should expire in the May 97 time frame.
LITTLETON COMMUNITY NETWORK (LCN) is a frame relay trade out for marketing of
the O.N.E. services at different events in Littleton. LCN is a non-profit
organization with the mission of automating the delivery of civic events and
information. The circuit is paid for by LCN. We have participated in a number
of Internet seminars held at the Littleton library. We have the ability to
place dispensers with disks at the library and at community events where LCN has
participation. A quick look at the customer list shows 32 active dial up
accounts coming from Littleton. The contract will expire the end of March 1997.
Contract is attached.
74
<PAGE>
SCHEDULE 7.3
Ascend Max 4000 with 6 8 port cards.
The above equipment is leased through Charter Financial, Inc. and will be paid
off and a UCC Termination Statement will be provided within 30 days of closing.
75
<PAGE>
SCHEDULE 7.12
USWEST SERVICES
- ---------------
TELEPORT COMMUNICATIONS GROUP (TCG) SERVICES
- --------------------------------------------
LDDS WORLDCOMM
- --------------
76
<PAGE>
EXHIBIT 10.8 1996 INCENTIVE COMPENSATION PLAN - ANNUAL BONUS INCENTIVE
Bonuses for 1996 are based on achieving 81% of the revenue objective.
Roy J. Dimoff President and CEO $ 20,250
Christopher K Phillips Vice President 8,100
Nancy Phillips Vice President 8,100
Kevin Loud Vice President 16,200
D. Kirk Roberts Chief Financial Officer 11,340
Employees 95,547
Total $ 159,537
<PAGE>
EXHIBIT 10.9 1997 INCENTIVE COMPENSATION PLAN - ANNUAL BONUS INCENTIVE
1997 Total Annual Revenue Bonus X Factor
not continuous
$ 8,500,000 0.25
$ 9,000,000 0.50
$ 9,500,000 0.75
$10,000,000 1.00
$10,500,000 1.30
$11,000,000 1.60
$11,500,000 1.90
$12,000,000 2.20
$12,500,000 2.50
not continuous
Bonus Amounts for Executives based on Bonus Factor of 1.00
Roy J. Dimoff President and CEO $ 30,000
Christopher K Phillips Vice President 20,000
Nancy Phillips Vice President 20,000
Kevin Loud Vice President 20,000
D. Kirk Roberts Chief Financial Officer 16,000
Employees 153,000
Total $ 259,000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATION FOR THE PERIOD END 12/31/96 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001003282
<NAME> ROCKY MOUNTAIN INTERNET
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 348,978
<SECURITIES> 1,356,629
<RECEIVABLES> 633,827
<ALLOWANCES> 115,000
<INVENTORY> 91,047
<CURRENT-ASSETS> 2,459,234
<PP&E> 3,258,000
<DEPRECIATION> 403,023
<TOTAL-ASSETS> 5,540,167
<CURRENT-LIABILITIES> 2,088,350
<BONDS> 0
250
0
<COMMON> 4,541
<OTHER-SE> 2,312,646
<TOTAL-LIABILITY-AND-EQUITY> 5,540,167
<SALES> 519,551
<TOTAL-REVENUES> 3,281,579
<CGS> 462,787
<TOTAL-COSTS> 1,103,667
<OTHER-EXPENSES> 4,480,483
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,042
<INCOME-PRETAX> (2,302,571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,302,571)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,302,571)
<EPS-PRIMARY> (.63)
<EPS-DILUTED> (.63)
</TABLE>
