<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 30, 1999
------------------------------
RMI.NET, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
001-12063 84-1322326
- ------------------------------------ --------------------------------------
(Commission File Number) (IRS Employee Identification No.)
999 Eighteenth Street, Suite 2201 80202
- ------------------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 672-0700
--------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
As previously announced in the Registrant's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1999, which was filed with the Securities
and Exchange Commission on August 9, 1999, the Registrant recently acquired
ACES Research, Inc., an Arizona corporation headquartered in Tucson, Arizona.
The Registrant agreed to pay approximately $1,938,000, payable in the form of
174,634 shares of common stock. The consideration that the Registrant agreed
to pay was determined through arm's length negotiation. There was no material
relationship between the Registrant and ACES Research, Inc. prior to the
acquisition. ACES Research is an Internet service provider whose customer
base is comprised of dedicated Internet access users. The Registrant intends
to use the assets acquired in the same manner that ACES Research utilized the
assets.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) ACES Research, Inc. - Audited Financial Statements:
Independent Auditors' Report - Ernst & Young LLP
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31,
1998 and 1997
Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and 1997
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
(b) Pro Forma Financial Information:
Pro Forma Condensed Combined Balance Sheet as of June 30,
1999
Pro Forma Condensed Combined Statement of Operations for the
Year Ended December 31, 1998
Pro Forma Condensed Combined Statement of Operations for the
Six Months Ended June 30, 1999
(c) Exhibits:
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
--------------------- ---------------------------------------------
<S> <C>
10.1 Asset Purchase Agreement by and among RMI.NET,
Inc. and ACES Research, Inc. and Ehud Gavron,
Joe Fico and Matthew Ramsey dated as of July
30, 1999
20.1 News Release dated July 30, 1999
announcing the Acquisition of ACES
Research, Inc.
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RMI.NET, Inc.
--------------------------------------------
(Registrant)
Date: August 30, 1999 By: /s/ CHRISTOPHER J. MELCHER
----------------------------------------
Christopher J. Melcher
Vice President, General Counsel and Corporate
Secretary
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
ACES Research, Inc.
We have audited the accompanying balance sheets of ACES Research, Inc. (an S
corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years 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 audits.
We conducted our audits 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 audits provide 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 ACES Research, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
June 30, 1999
1
<PAGE>
ACES RESEARCH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ --- $ 35,232
Accounts receivable...................................................... 46,306 16,263
-------- --------
Total current assets....................................................... 46,306 51,495
Property and equipment, net of accumulated depreciation of $71,061
and $39,054 at December 31, 1998 and 1997, respectively................ 106,493 106,274
-------- --------
Total assets................................................. $152,799 $157,769
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade.................................................. $ 77,900 $ 21,499
Deferred revenue......................................................... --- 22,455
Current maturities of obligations under capital leases................... 13,439 11,492
Line of credit payable................................................... 9,940 ---
Notes payable to related parties......................................... 21,403 25,024
-------- --------
Total current liabilities.................................................. 122,682 80,470
Long-term liability:
Obligations under capital leases, less current maturities 2,452 15,891
Stockholders' equity:
Class A common stock, $1 par value; 1,500 shares authorized, issued and
outstanding........................................................... 1,500 1,500
Retained earnings....................................................... 26,165 59,908
-------- --------
Total stockholders' equity................................................. 27,665 61,408
-------- --------
Total liabilities and stockholders' equity................... $152,799 $157,769
-------- --------
-------- --------
</TABLE>
See accompanying notes.
2
<PAGE>
ACES RESEARCH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-------- --------
<S> <C> <C>
Revenues .................................................................. $721,589 $601,608
Operating expenses:
Internet connection expense.............................................. 384,233 247,694
General and administrative expense....................................... 109,464 101,456
Salaries and benefits expense............................................ 154,131 144,056
Travel and entertainment expense......................................... 36,775 51,585
Depreciation expense..................................................... 32,007 25,169
-------- --------
Total operating expenses.......................................... 716,610 569,940
-------- --------
Income from operations..................................................... 4,979 31,668
Other income, net.......................................................... 7,786 14,099
Interest expense........................................................... (3,508) (3,738)
-------- --------
Net income................................................................. $ 9,257 $ 42,029
-------- --------
-------- --------
</TABLE>
See accompanying notes.
3
<PAGE>
ACES RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Stock Retained Stockholders'
CLASS A EARNINGS EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 1,500 $ 59,354 $ 60,854
Net income 42,029 42,029
Stockholder distributions (41,475) (41,475)
-------- --------- ---------
Balance at December 31, 1997 1,500 59,908 61,408
Net income 9,257 9,257
Stockholder distributions (43,000) (43,000)
-------- --------- ---------
Balance at December 31, 1998 $ 1,500 $ 26,165 $ 27,665
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes.
4
<PAGE>
ACES RESEARCH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997
-------------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 9,257 $ 42,029
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 32,007 25,169
Changes in operating assets and liabilities:
Accounts receivable................................. (30,043) 16,531
Accounts payable.................................... 56,401 11,197
Deferred revenue.................................... (22,455) (21,645)
-------------- ----------
Net cash provided by operating activities.................... 45,167 73,281
-------------- ----------
INVESTING ACTIVITIES
Purchases of property and equipment.......................... (32,226) (36,467)
-------------- ----------
Net cash used in investing activities........................ (32,226) (36,467)
-------------- ----------
FINANCING ACTIVITIES
Borrowings on line of credit................................. 11,640 ---
Payments on line of credit................................... (1,700) ---
Payments on notes payable, net of borrowings................. (3,621) 25,024
Stockholder distributions.................................... (43,000) (41,475)
Payments on capital lease obligations........................ (11,492) (8,762)
-------------- ----------
Net cash used in financing activities........................ (48,173) (25,213)
-------------- ----------
Net increase (decrease) in cash.............................. (35,232) 11,601
Cash at beginning of year.................................... 35,232 23,631
-------------- ----------
Cash at end of year.......................................... $ -- $ 35,232
-------------- ----------
-------------- ----------
SUPPLEMENTAL SCHEDULE OF ADDITIONAL CASH FLOW INFORMATION AND NONCASH ACTIVITIES
Interest paid................................................ $ 3,508 $ 3,738
Purchase of equipment through capital lease.................. --- 36,145
</TABLE>
See accompanying notes.
5
<PAGE>
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
ACES Research, Inc. (the "Company"), an Arizona corporation, was founded in
1991 as a privately held S corporation. The Company is primarily involved in
providing high speed Internet connectivity in southern Arizona and throughout
other regions of the United States. The Company's three primary products are
56Kbps Internet Access, T-1 and Ethernet Internet access, and Professional
WEB access. The Company also provides a variety of network consulting, custom
software, and professional training to support its primary product offerings.
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.
REVENUE RECOGNITION AND DEFERRED REVENUE
Revenue is recorded when earned. The Company signs connection agreements with
its customers and those contracts are usually for a length of one year.
Except on rare occasions, the Company bills those customers on a monthly
basis and recognizes the associated revenues at that time. In circumstances
where the customer has paid in advance for the Company's services, the
Company records a deferred revenue balance and recognizes the revenue ratably
over the life of the connection agreement.
ACCOUNTS RECEIVABLE
The Company extends credit to its customers based on evaluations of ability
to pay and generally no collateral is required. Concentrations of credit risk
with respect to trade receivables are limited.
PROPERTY AND EQUIPMENT
Property and equipment purchased new by the Company is recorded at cost.
Depreciation for new equipment is computed on a straight-line basis over the
following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures................................7 years
Computer equipment....................................5 years
Vehicles..............................................5 years
</TABLE>
INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the financial statements do not
include a provision for income taxes because the Company does not incur
federal or state income taxes. Instead, its earnings and losses are included
in the stockholders' personal income tax returns and are taxed based on their
personal tax strategies.
6
<PAGE>
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was
$26,738 for the year ended December 31, 1998 and $24,725 for the year ended
December 31, 1997.
SIGNIFICANT CUSTOMERS
The Company has substantial business relationships with a few large
customers. The Company's top two customers accounted for 27.2% and 32.9% of
the Company's revenues as of December 31, 1998 and 1997, respectively. No
other single customer accounted for more than 10% of the Company's total
revenues.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Vehicles.................................................. $ 15,000 $ 15,000
Furniture and fixtures.................................... 16,190 3,478
Computer equipment........................................ 146,364 126,850
--------- ---------
Total............................................ 177,554 145,328
Less accumulated depreciation............................. (71,061) (39,054)
--------- ---------
$ 106,493 $ 106,274
--------- ---------
--------- ---------
</TABLE>
3. LINE OF CREDIT
The Company, during 1998, secured a $50,000 revolving line of credit with
interest accruing monthly at the rate equal to the bank's prime lending rate
plus 4.75% (12.75% at December 31, 1998); a minimum payment equal to 2% of
the balance of principal and accrued interest is due each month. The line of
credit is secured by depository accounts held with the bank. There are no
debt covenant obligations necessary to maintain the line of credit. The line
of credit may be canceled by either party at any time and is payable on
demand, upon the financial institution's request. As of December 31, 1998,
the balance of the line of credit was $9,940.
4. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases various computer equipment under the provision of a
long-term capital lease. The economic substance of the leases is that the
Company is financing the acquisition of the assets through the leases, and
accordingly, they are recorded in the Company's assets and liabilities.
The following is an analysis of the leased assets included in property and
equipment:
<TABLE>
<S> <C>
Computer equipment $ 36,145
Less accumulated depreciation (11,642)
--------
Total $ 24,503
--------
--------
</TABLE>
7
<PAGE>
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CAPITAL LEASES (CONTINUED)
The following is a schedule by year of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1998:
<TABLE>
<S> <C>
Year Ending December 31:
1999 $15,000
2000 2,500
--------
Total minimum lease payments 17,500
Less amount representing interest (1,609)
--------
Present value of net minimum lease payments 15,891
Less current maturities 13,439
--------
Long-term maturities $ 2,452
--------
--------
</TABLE>
OPERATING LEASES
Future minimum rental commitments as of December 31, 1998 under noncancelable
operating leases are:
<TABLE>
<S> <C>
1999.......................................... $39,299
2000.......................................... 16,706
--------
$56,005
--------
--------
</TABLE>
The Company leases certain facilities under operating leases which contain
renewal options and provide for periodic cost-of-living adjustments and for
other taxes and fees. Rental expense was $37,237 and $20,614 for the periods
ended December 31, 1998 and 1997, respectively.
5. RELATED PARTY TRANSACTIONS
The Company is obligated for $21,403 as of December 31, 1998 and for $25,024
as of December 31, 1997 to its two primary stockholders for loans that were
made to the Company on behalf of the aforementioned stockholders. The
non-interest bearing loans are payable on demand. Assuming that the Company
was unable to secure the non-interest bearing loans from its stockholders and
assuming that the Company would have to draw on its line of credit at a rate
of 12.75% as of December 31, 1998 to satisfy its obligations, the amount of
interest expense incurred by the Company would have amounted to approximately
$2,960 for the year ended December 31, 1998 and approximately $1,595 for the
year ended December 31, 1997.
6. STOCK TRANSFER
Effective January 1, 1998, the President of the Company agreed to grant 23%
of his outstanding stock in the Company to two of the Company's key
employees. In exchange for the stock, the two key employees agreed to pay the
President an agreed upon sum of money upon termination of employment or by
January 1, 2003, whichever occurs first. The Company accounted for the stock
transfer as a variable compensation plan pursuant to the provisions of
Emerging Issues Task Force 95-16. No compensation expense for the year ended
December 31, 1998 has been recorded to reflect the transfer of the stock
ownership rights due to immateriality.
8
<PAGE>
ACES RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company entered into negotiations with
RMI.net to sell 100% of the outstanding stock of the Company. The transaction
is expected to be consummated in July 1999.
8. YEAR 2000 READINESS (UNAUDITED)
The Company is preparing its systems and applications for the Year 2000.
Various problems may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. These problems arise from the fact that most of
the world's computer hardware and software have historically used only two
digits to identify the year in a date. If the computer systems cannot
distinguish between the years 1900 and 2000, system failures or other
computer errors could result. Since the Company is a relatively new company
(founded in 1996), most hardware and software systems, as well as software
programs used by the Company, will not be impacted by the Year 2000 issues.
All future software that will be purchased will be year 2000 compliant. All
internally written software has been checked to ensure year 2000 compliance.
Users have been briefed on the necessity for them to check any special,
non-mission critical software that they have purchased for their departments
to ensure that it is year 2000 compliant. The Company has inventoried the
externally purchased network elements, including routers, router software,
router redundancy options, processor cards, and switches. The Company has
verified 100% completion of testing, in cooperation with the external
vendors, that the products associated with the network elements are year 2000
compliant. The Company has evaluated the financial impact for year 2000
compliance and total costs have not exceeded a material amount nor are future
costs expected to be material. The estimates for the costs of the year 2000
program are based upon management's best estimates and may be updated or
revised as additional information becomes available.
9
<PAGE>
SELECTIVE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial information
presented below has been derived from the unaudited or audited historical
financial statements of the Company, ACES Research, Inc., Triad Resources
L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation
(d/b/a Dave's World) and reflects management's present estimate of pro forma
adjustments, including a preliminary estimate of the purchase price
allocations, which ultimately may be different.
The acquisition is being accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed are recorded
at their estimated fair values, which are subject to further adjustment based
upon appraisals and other analysis, with appropriate recognition given to the
effect of the Company's borrowing rates and income tax rates.
The unaudited pro forma combined statements of operations for the six months
ended June 30, 1999 and the year ended December 31, 1998 give effect to the
acquisitions as if they had been consummated at the beginning of such period.
These pro forma statements of operations combines the historical consolidated
statements of operations for the periods reported for the Company, ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation
and August 5th Corporation (d/b/a Dave's World).
The unaudited pro forma condensed combined balance sheet as of June 30, 1999
gives effect to the acquisitions as if they had been consummated on that
date. This pro forma balance sheet combines the historical consolidated
balance sheet at that date for the Company, ACES Research, Inc., and for
Triad Resources L.L.C. (d/b/a WebZone).
The unaudited pro forma condensed combined financial statements may not be
indicative of the results that actually would have occurred if the
transaction described above had been completed and in effect for the periods
indicated or the results that may be obtained in the future. The unaudited
pro forma condensed combined financial data presented below should be read in
conjunction with the audited and unaudited historical financial statements
and related notes thereto of the Company.
10
<PAGE>
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Amount in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Communication Services 7,974 13,580 722 22,276 0 22,276
Web Solutions 2,113 0 0 2,113 0 2,113
-------------------------------------------------------------------------------------
10,087 13,580 722 24,389 0 24,389
-------------------------------------------------------------------------------------
Cost of revenue earned
Communication Services 3,471 9,911 384 13,766 0 13,766
Web Solutions 50 0 0 50 0 50
-------------------------------------------------------------------------------------
3,521 9,911 384 13,816 0 13,816
-------------------------------------------------------------------------------------
Gross profit 6,566 3,669 338 10,573 0 10,573
-------------------------------------------------------------------------------------
General, selling and administrative expenses 9,184 3,784 301 13,269 0 13,269
Cost related to unsuccessful merger attempt 6,071 0 0 6,071 0 6,071
Depreciation and amortization 1,789 470 32 2,291 2,228 (5) 4,519
-------------------------------------------------------------------------------------
Operating income (loss) (10,478) (585) 5 (11,058) (2,228) (13,286)
-------------------------------------------------------------------------------------
Other income (expense)
Interest expense (320) (140) (4) (464) 0 (464)
Interest Income 51 0 0 51 0 51
Other income (expense), net 78 98 8 184 0 184
-------------------------------------------------------------------------------------
(191) (42) 4 (229) 0 (229)
-------------------------------------------------------------------------------------
Net loss (10,669) (627) 9 (11,287) (2,228) (13,515)
=====================================================================================
Preferred stock dividends 33 33
Net loss applicable to common Stockholders (10,702) (13,548)
Basic and Diluted loss per share from
continuing operations (1.39) (1.56)
========= =============
Average number of common shares
outstanding (5) 7,690 8,675
========= =============
</TABLE>
11
<PAGE>
Pro Forma Condensed Combined Balance Sheet
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4,423 18 (7) 4,434 - 4,434
Trade receivables less allowance for
for doubtful accounts 4,687 74 88 4,849 - 4,849
Inventories 237 - - 237 - 237
Other 840 16 2 858 - 858
------------------------------------------------------------------------------------
Total Current Assets 10,187 108 83 10,378 - 10,378
------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net 8,270 742 103 9,115 - 9,115
Goodwill, net 21,637 - - 21,637 6,773 (1) 28,410
Other 117 61 - 178 - 178
====================================================================================
Total Assets 40,211 911 186 41,308 6,773 48,081
====================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 4,361 86 71 4,518 - 4,518
Current maturities of long term debt and
capital lease obligations 1,919 140 - 2,059 - 2,059
Deferred revenue 1,076 - - 1,076 - 1,076
Accrued payroll & related taxes 408 - - 408 - 408
Accrued expenses & other 2,070 142 - 2,212 - 2,212
------------------------------------------------------------------------------------
Total Current Liabilites 9,834 368 71 10,273 - 10,273
------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,227 178 60 3,465 - 3,465
------------------------------------------------------------------------------------
Total liabilites 13,061 546 131 13,738 - 13,738
REDEEMABLE CONVERTIBLE PREFERRED STOCK 4,594 - - 4,594 - 4,594
Stockholders' Equity
Common Stock 12 - 1 13 (1) 12
Additional paid in capital 47,422 50 (45) 47,427 (5)(3) 47,422
7,193 7,193
Accumulated deficit (24,878) 315 99 (24,464) (414)(2) (24,878)
Unearned compesation - - - - - -
------------------------------------------------------------------------------------
22,556 365 55 22,976 6,773 29,749
------------------------------------------------------------------------------------
40,211 911 186 41,308 6,773 48,081
====================================================================================
</TABLE>
12
<PAGE>
Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------------------------------
Previously
Reported ACES Pro Forma Pro Forma Pro Forma
RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined
----------------------------------------------------------------------------------------
(Amount in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Communication Services 9,801 4,704 418 14,923 0 14,923
Web Solutions 1,851 0 0 1,851 0 1,851
------------------------------------------------------------------------------------
11,652 4,704 418 16,774 0 16,774
------------------------------------------------------------------------------------
Cost of revenue earned
Communication Services 5,406 3,241 211 8,858 0 8,858
Web Solutions 511 0 0 511 0 511
------------------------------------------------------------------------------------
5,917 3,241 211 9,369 0 9,369
------------------------------------------------------------------------------------
Gross profit 5,735 1,463 207 7,405 0 7,405
------------------------------------------------------------------------------------
General, selling and administrative expenses 10,222 1,080 171 11,473 0 11,473
Cost related to unsuccessful merger attempt 0 0 0 0 0 0
Depreciation and amortization 2,605 158 23 2,786 797 (4) 3,583
------------------------------------------------------------------------------------
Operating income (loss) (7,092) 225 13 (6,854) (797) (7,651)
------------------------------------------------------------------------------------
Other income (expense)
Interest expense (228) (41) 0 (269) 0 (269)
Interest Income 68 2 0 70 0 70
Other income (expense), net 0 0 23 23 0 23
------------------------------------------------------------------------------------
(160) (39) 23 (176) 0 (176)
------------------------------------------------------------------------------------
Net loss (7,252) 186 36 (7,030) (797) (7,827)
====================================================================================
Preferred stock dividends 178 178
Net loss applicable to common Stockholders (7,430) (8,005)
Basic and Diluted loss per share from
continuing operations (0.73) (0.72)
========= ========
Average number of common shares
outstanding (5) 10,141 10,902
========= ========
</TABLE>
13
<PAGE>
NOTES TO THE PRO FORMA CONSENSED
COMBINED FINANCIAL DATA
(UNAUDITED)
(A) BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed combined balance sheet is
presented as of June 30, 1999. The accompanying unaudited pro forma condensed
combined statements of operations are presented for the six months ended June
30, 1999 and the year ended December 31, 1998.
(B) PREVIOUSLY REPORTED ACQUISITIONS: The accompanying unaudited pro forma
condensed combined balance sheet presented as of June 30, 1999 includes the
balance sheet as of June 30, 1999 of Triad Resources L.L.C. (d/b/a WebZone)
which was previously disclosed on Form 8K/A filed with the Securities and
Exchange Commission on August 19, 1999. The accompanying unaudited pro forma
condensed combined statements of operations presented for the six months
ended June 30, 1999 and the year ended December 31, 1998 included the
condensed statements of operations for the respective periods ended for Triad
Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th
Corporation (d/b/a Dave's World). These acquisitions were previously
disclosed on Form 8K/A and filed with the Securities and Exchange Commission
on August 19, 1999, August 5, 1999 and April 19, 1999, respectively.
(C) PRO FORMA ADJUSTMENTS: The following pro forma adjustments have been made
to the unaudited condensed combined balance sheet as of June 30, 1999 and the
unaudited condensed combined statements of operations for the six months
ended June 30, 1999 and the year ended December 31, 1998:
(1) To reflect the 174,634 shares of RMI stock valued at $1.9 million
which is the number of shares issued in connection with the acquisition
of ACES Research, Inc. and the 439,493 shares of RMI stock valued at
$5.3 million which is the number of shares issued in connection with
the acquisition of Triad Resources L.L.C. (d/b/a WebZone). The excess
purchase price over the fair value of the assets acquired has been
allocated to goodwill. The pro forma adjustment reflects the
incremental goodwill in the amount of $6.8 million. Shares of Common
Stock issued for the acquisition were recorded at fair market value as
based on the current market price of RMI's publicly traded stock. The
final allocation of the purchase price will be made after the
appropriate appraisals or analyses are performed. Upon completion of
the appraisals and in accordance with the terms thereof, the excess
purchase price currently allocated to goodwill will be allocated to the
appropriate asset classifications, including customer list and
goodwill. While goodwill will be amortized over a period of five years,
customer list or other identified intangibles may be amortized over
shorter periods, which would therefore increase amortization expense.
(2) To eliminate the equity accounts of the acquisition.
(3) To adjust amortization expense due to increase in the carrying
value of goodwill, using a life of five years, as if such acquisitions
had been completed as of January 1, 1998.
(4) To adjust for revenues and expenses for the acquisition of ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone) and IdealDial
Corporation as if such acquisitions had been completed as of January 1,
1999.
(5) To adjust for revenues and expenses for the acquisition of ACES
Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial
Corporation and August 5th Corporation (d/b/a Dave's World) as if such
acquisitions had been completed as of January 1, 1998.
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Exhibit 10.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
RMI.NET, INC.
AND
ACES RESEARCH, INC.
AND
EHUD GAVRON, JOE FICO AND MATTHEW RAMSEY
JULY 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions
2. Basic Transaction
(a) Purchase and Sale of Assets
(b) No Assumption of Liabilities
(c) Purchase Price
(d) Adjustment of Purchase Price
(e) Issuance of Shares
(f) The Closing
(g) Deliveries at the Closing
(h) Allocation
3. Representations and Warranties of the Seller and the Seller Shareholders
(a) Organization of the Seller
(b) Authorization of Transaction
(c) Noncontravention
(d) Brokers' Fees
(e) Title to Assets
(f) Subsidiaries
(g) Financial Statements
(h) Events Subsequent to Most Recent Fiscal Year End
(i) Undisclosed Liabilities
(j) Legal Compliance
(k) Tax Matters
(l) Real Property
(m) Intellectual Property
(n) Tangible Assets
(o) Inventory
(p) Contracts
(q) Notes and Accounts Receivable
(r) Powers of Attorney
(s) Insurance
(t) Litigation
(u) Product Warranty
(v) Product Liability
(w) Employees
(x) Employee Benefits
(y) Guaranties
(z) Environment, Health, and Safety Matters
(aa) State PUC Authorizations and FCC Authorizations
(bb) Certain Business Relationships with the Seller
(cc) Disclosure
(dd) Investment
(ee) Bulk Transfer Laws
4. Representations and Warranties of the Buyer
(a) Organization of the Buyer
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Authorization of Transaction
(c) Noncontravention
(d) Brokers' Fees
5. Pre-Closing Covenants
(a) General
(b) Notices and Consents
(c) Operation of Business
(d) Preservation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
(h) Legend
6. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Seller
7. Termination
(a) Termination of Agreement
(b) Effect of Termination
8. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Covenant Not to Compete
(f) Non-Solicitation
(g) Survival of Representations and Warranties
(h) Indemnification Provisions for Benefit of the Buyer
(i) Indemnification Provisions for Benefit of the Seller
(j) Matters Involving Third Parties
(k) Other Indemnification Provisions
9. Additional Agreements
(a) Employment Agreements
(b) Non-Competition Agreements
10. Miscellaneous
(a) Press Releases and Public Announcements
(b) No Third-Party Beneficiaries
(c) Entire Agreement
(d) Succession and Assignment
(e) Counterparts
(f) Headings
(g) Notices
(h) Governing Law
(i) Arbitration
(j) Amendments and Waivers
(k) Severability
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
(l) Expenses
(m) Construction
(n) Incorporation of Exhibits and Schedules
(o) Specific Performance
Exhibit A--Escrow Agreement
Exhibit B--Lock-Up Agreement
Exhibit C--Form of Assignment
Exhibit D--Form of Bill of Sale
Exhibit E--Allocation Schedule
Exhibit F--Financial Statements
Exhibit G--Form of Opinion of Counsel to the Seller
Exhibit H--Form of Opinion of Counsel to the Buyer
Disclosure Schedule--Exceptions to Representations and Warranties
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), entered into as of
this 30th day of July, 1999, is by and between RMI.NET, INC., Delaware
corporation (the "Buyer"), ACES RESEARCH, INC., an Arizona corporation (the
"Seller"), and EHUD GAVRON, JOE FICO and MATTHEW RAMSEY (collectively, the
"Seller Shareholders"). The Buyer, the Seller and the Seller Shareholders are
sometimes referred to collectively herein as the "Parties."
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ACQUIRED ASSETS" means all right, title, and interest in and to the
following assets of the Seller: (a) all customer contract rights and customer
lists; (b) all licenses, licensing agreements, permits, domains, IP Addresses
and governmental rights; (c) all Intellectual Property, goodwill associated
therewith, licenses and sublicenses granted or obtained with respect thereto,
and rights thereunder, remedies against infringement thereof, and rights to
protection of interests therein under the laws of all jurisdictions; (d) all
fixed assets and inventory pertaining to the Seller; (e) all real property
leases and equipment leases pertaining to the assets of the Seller; and (f) all
other assets pertaining to the Seller; PROVIDED, HOWEVER, that the Acquired
Assets shall not include accounts receivable or accounts payable either accrued
or incurred prior to the Closing Date, or personal property (including
paintings) belonging to the employees of the Seller.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses and
fees, including court costs and reasonable attorney's fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a).
"APPLICABLE RATE" means the corporate base rate of interest publicly
announced from time to time by Norwest Bank, NA.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"BUYER SHARES" has the meaning set forth in Section 2(c)(i) below.
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<PAGE>
"CLOSING" has the meaning set forth in Section 2(f) below.
"CLOSING DATE" has the meaning set forth in Section 2(f) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Reg. Section 1.1502-13.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"DISTRIBUTEES" has the meaning set forth in Section 2(c) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution
or protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or
cleanup of any hazardous materials, substances or wastes, chemical substances
or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, each as amended and as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ESCROW AGENT" has the meaning set forth in Section 2(e)(i) below.
"ESCROW AGREEMENT" has the meaning set forth in Section 2(e)(i)
below.
"ESCROW SHARES" has the meaning set forth in Section 2(e)(i) below.
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<PAGE>
"ESCROW TERM" has the meaning set forth in Section 2(e)(i) below.
"FCC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by the Federal
Communications Commission or similar federal governmental agency to provide
the telecommunications services currently provided by the Seller and to
conduct its business as it is currently conducted.
"FINANCIAL STATEMENT" has the meaning set forth in Section 3(g)
below.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names
(including the name "Aces Research"), together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all
mask works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists, pricing and
cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within
the Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
Section 3(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
3(g) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section
3(g) below.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section
3(37).
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<PAGE>
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PURCHASE PRICE" has the meaning set forth in Section 2(c) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments
under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SELLER SHARE" means any share of the Common Stock, par value $___
per share, of the Seller.
"SELLER SHAREHOLDERS" has the meaning set forth in the preface above.
"STATE PUC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by any state or local
regulatory authority to provide the telecommunications services currently
provided by the Seller and to conduct its business as it is currently
conducted
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any
8
<PAGE>
kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
2. BASIC TRANSACTION.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms
and conditions of this Agreement, the Buyer agrees to purchase from the
Seller, and the Seller agrees to sell, transfer, convey, and deliver to the
Buyer, all of the Acquired Assets at the Closing for the consideration
specified below in this Section 2.
(b) NO ASSUMPTION OF LIABILITIES. Other than as specified
herein as related to the Acquired Assets, the Buyer will not assume or have
any responsibility with respect to any obligation or Liability of the Seller.
(c) PURCHASE PRICE. In exchange for the Acquired Assets, the
Buyer will issue to the Seller that number of shares of the Common Stock of
the Buyer, par value $0.001 per share (the "Buyer Shares"), equal to
$1,464,000 (the "Purchase Price") divided by the average closing price per
share of the Buyer Shares for the five (5) day period ending on the day prior
to Closing. The Buyer Shares shall be registered when issued under the
Securities Act, or, if unregistered, shall be registered by the Buyer
pursuant to Section 2(e) below. Further, subject to the provisions set forth
in Section 2(e) below, it is contemplated that the Buyer Shares shall be
allocated and distributed by the Seller to the Seller Shareholders, its
officers or directors (the "Distributees") in the sole discretion of the
Seller.
(d) ADJUSTMENT OF PURCHASE PRICE. The Purchase Price set forth
in Section 2(c) above is based upon a recurring revenue rate of the Seller of
$61,000 per month. In the event that the actual recurring revenue rate for
the Seller for the month of May, 1999 is (i) in excess of than $61,000, the
Purchase Price shall be increased by $24 for each dollar such actual
recurring revenue rate is above $61,000; or (ii) less than $61,000, the
Purchase Price shall be decreased by $24 for each dollar such actual
recurring revenue rate is below $61,000.
(e) ISSUANCE OF SHARES.
(i) At the Closing, to secure its obligations under Section
8 hereof and all of the Seller's representations and warranties hereunder,
the Seller will deposit with an escrow agent (the "Escrow Agent") ten percent
(10%) of the Buyer Shares payable at the Closing (the "Escrow Shares"), which
Escrow Shares shall be held by the Escrow Agent for eighteen (18) months
following the Closing Date (the "Escrow Term") pursuant to the terms and
conditions of the escrow agreement attached hereto as Exhibit A (the "Escrow
Agreement"). In the event of any conflict between the terms of this Agreement
and the Escrow Agreement, the terms of the Escrow Agreement shall govern. All
costs and fees of the Escrow Agent for establishing and administering the
escrow fund herein described shall be borne by the Buyer. Upon compliance
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with the terms hereof, the Buyer shall be entitled to obtain indemnity first
from the Escrow Fund for all Adverse Consequences covered by the indemnity
provided for in Section 8 hereof. If the Escrow Fund is not sufficient to
cover the indemnity for the Adverse Consequences covered by Section 8, then
the Buyer shall be entitled to seek payment directly from the Seller. The
Escrow Shares shall be registered under the Securities Act prior to the
expiration of the Escrow Term.
(ii) Following the Closing, the Distributees may sell,
trade and otherwise transfer up to twenty percent (20%) of the Buyer Shares
issued to the Seller pursuant to Sections 2(c) and 2(d) above; PROVIDED,
HOWEVER, that the Seller and Selling Shareholders shall not sell, trade or
otherwise transfer more than 4,000 of such shares in any one trading day.
(iii) Seventy percent (70%) of the Buyer Shares payable at
the Closing (the "Lock-Up Shares") will be subject to a lock-up agreement, a
form of which is attached hereto as Exhibit B (the "Lock-Up Agreement"),
prohibiting the sale, transfer or other disposition of the Lock-Up Shares in
the following amounts and for the following periods of time following the
Closing (the "Lock-Up Periods"): (i) fifty percent (50%) of the Lock-Up
Shares (which is equal to thirty five percent (35%) of the total Buyer
Shares) for six (6) months; and (ii) the remaining fifty percent (50%) of the
Lock-Up Shares (which is equal to an additional thirty five percent (35%) of
the total Buyer Shares) for twelve (12) months. The Lock-Up Shares shall be
registered under the Securities Act prior to the expiration of the relevant
Lock-Up Periods.
(f) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of RMI.NET,
Inc. in Denver, Colorado commencing at 10:00 a.m. local time on the earlier
of (i) the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself), or (ii) July 30, 1999
(the "CLOSING DATE"); PROVIDED, HOWEVER, that the Closing Date may be
extended upon mutual agreement of the Parties.
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) the Seller
will deliver to the Buyer the various certificates, instruments, and
documents referred to in Section 6(a) below; (ii) the Buyer will deliver to
the Seller the various certificates, instruments, and documents referred to
in Section 6(a) below; (iii) the Seller will execute, acknowledge (if
appropriate), and deliver to the Buyer (A) an Assignment in the form attached
hereto as Exhibit C, (B) a Bill of Sale in the form attached hereto as
Exhibit D, (C) the Escrow Agreement, (D) the Lock-Up Agreement, and (E) such
other instruments of sale, transfer, conveyance, and assignment as the Buyer
and its counsel reasonably may request; (iv) the Buyer will deliver to the
Seller the consideration specified in Section 2 above.
(h) ALLOCATION. The Parties agree to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in accordance with
the allocation schedule attached hereto as Exhibit E.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER
SHAREHOLDERS. Each of the Seller and the Seller Shareholders represent and
warrant to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
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complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Disclosure Schedule"). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3.
(a) ORGANIZATION OF THE SELLER. The Seller is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. Without
limiting the generality of the foregoing, the board of directors of the
Seller and the Seller Shareholders have duly authorized the execution,
delivery, and performance of this Agreement by the Seller. This Agreement
constitutes the valid and legally binding obligation of the Seller,
enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments referred to in Section 2 above), will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which any of the Seller and its Subsidiaries is subject
or any provision of the charter or bylaws of any of the Seller and its
Subsidiaries, or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which any of the Seller, its Subsidiaries, or the Seller Shareholders is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
None of the Seller, its Subsidiaries, and the Seller Shareholders needs to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by this Agreement
(including the assignments referred to in Section 2 above).
(d) BROKERS' FEES. Neither the Seller nor the Seller
Shareholders has any Liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions contemplated
by this Agreement for which the Buyer could become liable or obligated. None
of the Subsidiaries of the Seller has any Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. The Seller and its Subsidiaries have good
and marketable title to, or a valid leasehold interest in, the properties and
assets used by them, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all
Security Interests, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
Without limiting the generality of the foregoing, the Seller has good and
marketable title to all of the Acquired Assets, free and clear of any
Security Interest or restriction on transfer.
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(f) SUBSIDIARIES. Section 3(f) of the Disclosure Schedule sets
forth for each Subsidiary of the Seller (i) its name and jurisdiction of
incorporation, and (ii) its directors and officers. Each Subsidiary of the
Seller is an entity duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its organization. Each Subsidiary of
the Seller is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required.
Each Subsidiary of the Seller has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
If applicable, all of the issued and outstanding shares of capital stock of
each Subsidiary of the Seller have been duly authorized and are validly
issued, fully paid, and nonassessable. The minute books (containing the
records of meetings of the stockholders, members, board of directors, any
committees of the board of directors, or managers, as applicable), the stock
certificate books, and the stock record books of each Subsidiary of the
Seller are correct and complete. None of the Subsidiaries of the Seller is in
default under or in violation of any provision of its charter or bylaws.
(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the
following financial statements (collectively the "Financial Statements"): (i)
audited consolidated and unaudited consolidating balance sheets and
statements of income, changes in stockholders' equity, and cash flow as of
and for the fiscal years ended December 31, 1997 and December 31, 1998 (the
"Most Recent Fiscal Year End") for the Seller; and (ii) unaudited
consolidated and consolidating balance sheets and statements of income,
changes in stockholders' equity, and cash flow (the "Most Recent Financial
Statements") as of and for the fiscal period ended May 31, 1999 (the "Most
Recent Fiscal Month End") for the Seller. The Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Seller as of such dates and the results of
operations of the Seller for such periods, are correct and complete, and are
consistent with the books and records of the Seller (which books and records
are correct and complete); PROVIDED, HOWEVER, that the Most Recent Financial
Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other
presentation items.
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the
Most Recent Fiscal Year End, there has not been any material adverse change
in the business, financial condition, operations, results of operations, or
future prospects of the Seller. Without limiting the generality of the
foregoing, and except as set forth in Section 3(h) of the Disclosure
Schedule, since that date:
(i) the Seller has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Seller has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) outside the Ordinary Course of Business;
(iii) no party (including any of the Seller and its
Subsidiaries) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related
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agreements, contracts, leases, and licenses) involving more than $5,000 to
which the Seller is a party or by which it is bound;
(iv) the Seller has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(v) the Seller has not made any capital expenditure (or
series of related capital expenditures) outside the Ordinary Course of
Business;
(vi) the Seller has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions) outside
the Ordinary Course of Business;
(vii) the Seller has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation;
(viii) the Seller has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Seller has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims);
(x) the Seller has not granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of any of the Seller;
(xii) the Seller has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xiii) the Seller has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether
in cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Seller has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property;
(xv) the Seller has not made any loan to, or entered into
any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Seller has not entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or
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agreement;
(xvii) the Seller has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Seller has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors, officers,
and employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Seller has not made any other change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xx) the Seller has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
(xxi) the Seller has not paid any amount to any third party
with respect to any Liability or obligation (including any costs and expenses
the Seller has incurred or may incur in connection with this Agreement and
the transactions contemplated hereby) which would not constitute an Assumed
Liability if in existence as of the Closing;
(xxii) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Seller and its Subsidiaries; and
(xxiii) the Seller has not committed to any of the
foregoing.
(i) UNDISCLOSED LIABILITIES. The Seller has no Liability (and
there is no reasonable Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i) Liabilities
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) and (ii) Liabilities which have arisen after the Most Recent
Fiscal Month End in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(j) LEGAL COMPLIANCE. Each of the Seller and its predecessors
and Affiliates has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply.
(k) TAX MATTERS.
(i) The Seller has filed all Tax Returns that it was
required to file. All such Tax
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Returns were correct and complete in all respects. All Taxes owed by any of
the Seller (whether or not shown on any Tax Return) have been paid. The
Seller is not currently the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where the Seller does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security Interests on
any of the assets of the Seller that arose in connection with any failure (or
alleged failure) to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to
have been withheld and paid in connection with (A) amounts paid or owing to
any employee, independent contractor, creditor, stockholder, customer or
other third party, or (B) as a result of the sale of any goods or services.
(iii) No Seller Shareholder or director or officer (or
employee responsible for Tax matters) of the Seller expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the
Seller either (A) claimed or raised by any authority in writing or (B) as to
which any of the Seller Shareholders and the directors and officers (and
employees responsible for Tax matters) of the Seller has Knowledge based upon
personal contact with any agent of such authority. The Seller has delivered
to the Buyer correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by any of the Seller and its Subsidiaries since December 31, 1996.
(iv) The Seller has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Seller has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662.
The Seller is not a party to any Tax allocation or sharing agreement. The
Seller (A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
the Seller) or (B) has any Liability for the Taxes of any Person (other than
the Seller) under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
(vi) Section 3(k) of the Disclosure Schedule sets forth the
following information with respect to the Seller as of the most recent
practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby): (A) the basis of the Seller in its assets; (B) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Seller; and
(C) the amount of any deferred gain or loss allocable to the Seller arising
out of any Deferred Intercompany Transaction.
(l) REAL PROPERTY.
(i) The Seller owns no real property.
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(ii) Section 3(l)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Seller. The
Seller has delivered to the Buyer correct and complete copies of the leases
and subleases listed in Section 3(l)(ii) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in Section
3(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby (including
the assignments referred to in Section 2 above);
(C) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has repudiated
any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations
and warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) the Seller has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
(I) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of
said facilities; and
(J) the owner of the facility leased or subleased has
good and marketable title to the parcel of real property, free and clear of
any Security Interest, easement, covenant, or other restriction, except for
installments of special easements not yet delinquent and recorded easements,
covenants, and other restrictions which do not impair the current use,
occupancy, or value, or the marketability of title, of the property subject
thereto.
(m) INTELLECTUAL PROPERTY.
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(i) The Seller owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Seller as presently
conducted. Each item of Intellectual Property owned or used by the Seller
immediately prior to the Closing hereunder will be owned or available for use
by the Buyer on identical terms and conditions immediately subsequent to the
Closing hereunder. The Seller has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(ii) The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Seller Shareholders and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Seller and its Subsidiaries has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Seller must license or refrain from using any Intellectual Property rights of
any third party). To the Knowledge of any of the Seller Shareholders and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Seller, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Seller.
(iii) Section 3(m)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to the Seller
with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which the Seller has made
with respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which the Seller has granted to any
third party with respect to any of its Intellectual Property (together with
any exceptions). The Seller has delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and has made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Section 3(m)(iii) of the Disclosure Schedule also identifies each trade name
or unregistered trademark used by the Seller in connection with any of its
businesses. With respect to each item of Intellectual Property required to be
identified in Section 3(m)(iii) of the Disclosure Schedule:
(A) the Seller possesses all right, title, and
interest in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) the Seller has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
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(iv) Section 3(m)(iv) of the Disclosure Schedule identifies
each item of Intellectual Property that any third party owns and that the
Seller uses pursuant to license, sublicense, agreement, or permission. The
Seller has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each item of Intellectual Property required to be identified in
Section 3(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby (including the assignments referred to in Section 2
above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree, ruling,
or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(H) the Seller has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
(v) To the Knowledge of any of the Seller Shareholders and
the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Seller, the Seller will not interfere
with, infringe upon, misappropriate, or otherwise come into conflict with,
any Intellectual Property rights of third parties as a result of the
continued operation of its businesses as presently conducted.
(vi) To the Knowledge of the Seller and the Seller
Shareholders, the Seller owns and has the right to use the name "Aces
Research."
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(n) TANGIBLE ASSETS. The Seller owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its businesses as presently conducted. Each such tangible asset is free from
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it
presently is used.
(o) INVENTORY. The inventory of the Seller consists of raw
materials and supplies, manufactured and purchased parts, goods in process,
and finished goods, all of which is merchantable and fit for the purpose for
which it was procured or manufactured, and none of which is slow-moving,
obsolete, damaged, or defective, subject only to the reserve for inventory
writedown set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Seller.
(p) CONTRACTS. Section 3(p) of the Disclosure Schedule lists
the following contracts and other agreements to which the Seller is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year, result
in a material loss to the Seller, or involve consideration in excess of
$5,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $5,000 or
under which it has imposed a Security Interest on any of its assets, tangible
or intangible;
(v) any agreement concerning confidentiality or
noncompetition (other than in connection with this Agreement);
(vi) any agreement involving any of the Seller Shareholders
and their Affiliates (other than the Seller);
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
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(ix) any agreement for the employment of any individual on
a full-time, part-time, consulting, or other basis providing annual
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects
of the Seller; or
(xii) any other agreement (or group of related agreements)
the performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in Section 3(p) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and conditions
of each oral agreement referred to in Section 3(p) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) the agreement
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby (including the assignments referred to in Section 2
above); (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Seller are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, and are current
and collectible.
(r) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Seller or the Seller Shareholders.
(s) INSURANCE. Section 3(s) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Seller
has been a party, a named insured, or otherwise the beneficiary of coverage
at any time within the past 5 years.
(t) LITIGATION. Section 3(t) of the Disclosure Schedule sets
forth each instance in which the Seller (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(t) of the Disclosure Schedule could
result in any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Seller. None of
the Seller Shareholders and the directors and officers (and
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employees with responsibility for litigation matters) of the Seller has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Seller.
(u) PRODUCT WARRANTY. Each product or service manufactured,
sold, leased, or delivered by the Seller has been in conformity with all
applicable contractual commitments and all express and implied warranties,
and the Seller has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Seller. No product or service
manufactured, sold, leased, or delivered by the Seller is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 3(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Seller (containing applicable guaranty, warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. The Seller has no Liability (and there
is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property
as a result of the ownership, possession, or use of any product manufactured,
sold, leased, or delivered by the Seller.
(w) EMPLOYEES. To the Knowledge of any of the Seller
Shareholders and the directors and officers (and employees with
responsibility for employment matters) of the Seller, no executive, key
employee, or group of employees has any plans to terminate employment with
the Seller. The Seller is not a party to or bound by any collective
bargaining agreement, nor has the Seller experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes.
The Seller has not committed any unfair labor practice. None of the Seller
Shareholders and the directors and officers (and employees with
responsibility for employment matters) of the Seller has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Seller.
(x) EMPLOYEE BENEFITS.
(i) Section 3(x) of the Disclosure Schedule lists each
Employee Benefit Plan that the Seller maintains or to which the Seller
contributes or has any obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and other
applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed and distributed appropriately with
respect to each such Employee Benefit Plan. The
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requirements of COBRA have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and
practice of the Seller. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan meets the requirements of a "qualified plan"
under Code Section 401(a), has received, within the last two years, a
favorable determination letter from the Internal Revenue Service that it is a
"qualified plan," and Seller is not aware of any facts or circumstances that
could result in the revocation of such determination letter.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested Liabilities thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension Benefit Plan
terminating on the date for determination.
(F) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each such
Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that any of
the Seller and any ERISA Affiliate maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute:
(A) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No proceeding by the
PBGC to terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(B) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such Employee
Benefit Plan. No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending or
threatened. None of the Seller Shareholders and the
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directors and officers (and employees with responsibility for employee
benefits matters) of the Seller has any Knowledge of any Basis for any such
action, suit, proceeding, hearing, or investigation.
(C) The Seller has not incurred, and none of the
Seller Shareholders and the directors and officers (and employees with
responsibility for employee benefits matters) of the Seller has any reason to
expect that the Seller will incur any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA (including any
withdrawal liability as defined in ERISA Section 4201) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
(iii) None of the Seller and the other members of the
Controlled Group that includes the Seller contributes to, ever has
contributed to, or ever has been required to contribute to any Multiemployer
Plan or has any Liability (including withdrawal liability as defined in ERISA
Section 4201) under any Multiemployer Plan.
(iv) The Seller does not maintain or ever has maintained or
contributes, ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code Section 4980B).
(y) GUARANTIES. The Seller is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any other
Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) To the Knowledge of the Seller and the Seller
Shareholders, each of the Seller and its predecessors and Affiliates has
complied and is in compliance with all Environmental, Health, and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, each
of the Seller and its Affiliates has obtained and complied with, and is in
compliance with, all permits, licenses and other authorizations that are
required pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business; a list of all
such permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Seller nor its predecessors or Affiliates
has received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and
Safety Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.
(iv) To the Knowledge of the Seller and the Seller
Shareholders, none of the
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following exists at any property or facility owned or operated by the Seller:
(1) underground storage tanks, (2) asbestos-containing material in any form
or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(v) None of the Seller or its predecessors or Affiliates
has treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and
no such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to liabilities, including any
liability for response costs, corrective action costs, personal injury,
property damage, natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or
any other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or consent
of government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Requirements.
(vii) Neither the Seller nor its predecessors or Affiliates
has, either expressly or by operation of law, assumed or undertaken any
liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.
(viii) To the Knowledge of the Seller and the Seller
Shareholders, no facts, events or conditions relating to the past or present
facilities, properties or operations of the Seller or any of its predecessors
or Affiliates will prevent, hinder or limit continued compliance with
Environmental, Health, and Safety Requirements, give rise to any
investigatory, remedial or corrective obligations pursuant to Environmental,
Health, and Safety Requirements, or give rise to any other liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise) pursuant
to Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases
of hazardous materials, substances or wastes, personal injury, property
damage or natural resources damage.
(aa) STATE PUC AUTHORIZATIONS AND FCC AUTHORIZATIONS. The Seller
represents and warrants that there are no State PUC Authorizations or FCC
Authorizations relating to Seller.
(bb) CERTAIN BUSINESS RELATIONSHIPS WITH THE SELLER. None of the
Seller Shareholders and their Affiliates has been involved in any business
arrangement or relationship with the Seller within the past twelve (12)
months, and none of the Seller Shareholders and their Affiliates owns any
asset, tangible or intangible, which is used in the business of the Seller.
(cc) DISCLOSURE. The representations and warranties contained in
this Section 3 do not contain any untrue statement of a fact or omit to state
any fact necessary in order to make the
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statements and information contained in this Section 3 not misleading.
(dd) INVESTMENT. Each of the Seller and the Seller Shareholders
(i) understands that some, if not all, of the Buyer Shares have not been
registered under the Securities Act, or under any state securities laws, and
are being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring the Buyer
Shares solely for its own account for investment purposes, and not with a
view to the distribution thereof (except to the Distributees), (iii) has
received certain information concerning the Buyer and has had the opportunity
to obtain additional information as desired in order to evaluate the merits
and the risks inherent in holding the Buyer Shares, and (iv) is able to bear
the economic risk and lack of liquidity inherent in holding the Buyer Shares.
The Seller and the Seller Shareholders acknowledge and agree that Ehud Gavron
is an Accredited Investor as a result of this Agreement and transaction.
(ee) BULK TRANSFER LAWS. The Seller represents and warrants
that the transactions contemplated by this Agreement are not affected by the
provisions of any bulk transfer laws of any applicable jurisdiction.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Seller that the statements contained in this Section 4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the Disclosure Schedule. The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 4.
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments referred to in Section 2 above), will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of its
charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Buyer is a party or by which it is bound or to which any of its
assets is subject. The Buyer does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement (including the assignments
referred to in Section 2 above).
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(d) BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use its best efforts to
take all action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the Closing conditions set forth in Section
6 below).
(b) NOTICES AND CONSENTS. The Seller will give any notices to
third parties, and the Seller will use its best efforts to obtain any third
party consents, that the Buyer may request in connection with the matters
referred to in Section 3(c) above. Each of the Parties will give any notices
to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(c) and
Section 4(c) above. Without limiting the generality of the foregoing, each of
the Parties will make any further filings that may be necessary, proper, or
advisable in connection therewith.
(c) OPERATION OF BUSINESS. The Seller will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, the
Seller will not (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock, (ii) pay any amount to any third
party with respect to any Liability or obligation (including any costs and
expenses the Seller has incurred or may incur in connection with this
Agreement and the transactions contemplated hereby) which would not
constitute an Assumed Liability if in existence as of the Closing, or (iii)
otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 3(h) above.
(d) PRESERVATION OF BUSINESS. The Seller will keep its business
and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
(e) FULL ACCESS. The Seller will permit representatives of the
Buyer to have full access at all reasonable times, and in a manner so as not
to interfere with the normal business operations of the Seller, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Seller.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other Party of any material adverse development causing a
breach of any of its own representations and warranties in Section 3 and
Section 4 above. No disclosure by any Party pursuant to this Section 5(f),
however, shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
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(g) EXCLUSIVITY. The Seller will not (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Seller (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. The
Seller will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
(h) LEGEND. The Buyer and the Seller covenant and agree that
eighty percent (80%) of the Buyer Shares will bear the following legend until
the Buyer Shares are registered pursuant to Sections 2(e)(i) and 2(e)(iii)
hereof:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY ACCEPTING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE
ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE ISSUER, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, (C) IN ACCORDANCE WITH RULE 144 UNDER
THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS, OR (D) IN ACCORDANCE WITH ANY OTHER EXEMPTION UNDER
THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS UPON THE DELIVERY OF A LEGAL OPINION, REASONABLY
SATISFACTORY TO THE ISSUER, TO THE FOREGOING EFFECT. THE TRANSFER OF
THE SECURITIES IS ALSO RESTRICTED UNDER THE TERMS OF A REGISTRATION
RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES
OF RMI.NET, INC.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3 above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Seller shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(iii) the Seller shall have procured all of the third party
consents specified in Section 5(b) above;
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(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the transactions contemplated by
this Agreement, (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, or (C) affect adversely the
right of the Buyer to own the Acquired Assets (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Section 6(a)(i)-(iv) is satisfied in all respects;
(vi) the Buyer shall have received from counsel to the
Seller an opinion in form and substance as set forth in Exhibit G attached
hereto, addressed to the Buyer, and dated as of the Closing Date;
(vii) the Buyer shall have received from the Seller the
executed Lock-Up Agreement;
(viii) the Buyer shall have entered into the employment
agreements described in Section 9(a) below;
(ix) the Seller Shareholders shall have executed and
delivered to the Buyer the Non-Competition Agreements described in Section
9(b) below; and
(x) all actions to be taken by the Seller in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if
it executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of
the Seller to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
4 above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or
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before any arbitrator wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above in
Section 6(b)(i)-(iii) is satisfied in all respects;
(vii) the Seller shall have received from counsel to the
Buyer an opinion in form and substance as set forth in Exhibit H attached
hereto, addressed to the Seller, and dated as of the Closing Date; and
(viii) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller.
The Seller may waive any condition specified in this Section 6(b) if
it executes a writing so stating at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing (A) in the
event the Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer has
notified the Seller of the breach, and the breach has continued without cure
for a period of thirty (30) days after the notice of breach, or (B) if the
Closing shall not have occurred on or before July 31, 1999, by reason of the
failure of any condition precedent under Section 6(a) hereof (unless the
failure results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(ii) the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the event
the Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Seller has notified
the Buyer of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach, or (B) if the Closing
shall not have occurred on or before July 31, 1999, by reason of the failure
of any condition precedent under Section 6(b) hereof (unless the failure
results primarily from the Seller itself breaching any representation,
warranty, or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section
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7(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for
any Liability of any Party then in breach).
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8(g) or Section 8(i) below).
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving the Seller, each of the other Parties
will cooperate with the contesting or defending Party and his or its counsel
in the contest or defense, make available his or its personnel, and provide
such testimony and access to his or its books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8(g),
Section (h), Section (i) or Section (j) below).
(c) TRANSITION. Neither the Seller nor any of the Seller
Shareholders, directors or officers of Seller will take any action that is
designed or intended to have the effect of discouraging any lessor, licenser,
customer, supplier, or other business associate of the Seller from
maintaining the same business relationships with the Buyer after the Closing
as it maintained with the Seller prior to the Closing.
(d) CONFIDENTIALITY. The Seller and each of the Seller
Shareholders, directors and officers of Seller, as applicable, will treat and
hold as such all of the Confidential Information, refrain from using any of
the Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the request and option of the
Buyer, all tangible embodiments (and all copies) of the Confidential
Information which are in his/her or its possession. In the event that the
Seller or any of the Seller Shareholders, directors or officers of Seller is
requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, that Person will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or
waive compliance with the provisions of this Section 8(d). If, in the absence
of a protective order or the receipt of a waiver hereunder, the Seller or any
of the Seller Shareholders, directors or officers of Seller is, on the advice
of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Person may disclose the
Confidential Information to the tribunal; PROVIDED, HOWEVER, that the
disclosing Person shall use his or its reasonable best efforts
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to obtain, at the reasonable request of the Buyer, an order or other
assurance that confidential treatment will be accorded to such portion of the
Confidential Information required to be disclosed as the Buyer shall
designate.
(e) COVENANT NOT TO COMPETE. For a period of one (1) year from
and after the Closing Date, or from a period of six (6) months from or after
the last date of post-Closing employment of Selling Shareholder(s) by Buyer,
the Selling Shareholders will not engage directly or indirectly in the
business of an internet networking provider that the Seller conducts as of
the Closing Date in any geographic area in which the Seller conducts that
business as of the Closing Date; PROVIDED, HOWEVER, that no owner of less
than 1% of the outstanding stock of any publicly traded corporation shall be
deemed to engage solely by reason thereof in any of its businesses. In the
event Buyer wishes to enforce the terms of this Section as against one or
more of the Selling Shareholders for the period of six (6) months from or
after the last date of post-Closing employment of Selling Shareholders by
Buyer, Buyer hereby agrees to compensate the Selling Shareholder(s) during
that six(6) month period at the same rate of compensation as was provided
during the prior employment with Buyer. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section
8(e) is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(f) NON-SOLICITATION. Selling Shareholders covenant that for a
period of 18 months from and after the Closing Date, or for a period of six
(6) months from or after the last date of employment by Buyer of Selling
Shareholder(s), whichever period is longer, they shall not directly or
indirectly induce or solicit, or directly or indirectly aid or assist any
other person to induce or solicit, any person who is (or within the prior
twelve months had been) an employee, salesman, agent, consultant,
distributor, representative, advisor, customer or supplier of Buyer to
terminate that person's employment or business relations with the other.
(g) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing)
and continue in full force and effect for a period of three (3) years
thereafter.
(h) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Seller breaches (or in the event any
third party alleges facts that, if true, would mean the Seller has breached)
any of its representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to Section
8(g) above, provided that the Buyer makes a written claim for indemnification
against the Seller within such survival period, then the Seller agrees to
indemnify the Buyer from and against the entirety of any Adverse Consequences
the Buyer may suffer through and after the date
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of the claim for indemnification resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach).
(ii) The Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer (A)
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Seller (including any Liability of the Seller that
becomes a Liability of the Buyer under any bulk transfer law of any
jurisdiction, under Environmental, Health, and Safety Requirements, for
unpaid Taxes, or otherwise by operation of law); and (B) suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
ownership or operation of the Acquired Assets by the Seller prior to the
Closing. .
(iii) The Seller agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Company (a) for Taxes of the Company with respect to any
Tax year or portion thereof ending on or before the Closing Date; and (b) for
the unpaid Taxes of any Person (other than the Seller) under Reg. Section
1.1502.6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(i) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(i) In the event the Buyer breaches (or in the event any
third party alleges facts that, if true, would mean the Buyer has breached)
any of its representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to Section
8(g) above, provided that the Seller makes a written claim for
indemnification against the Buyer within such survival period, then the Buyer
agrees to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller Members may suffer through and after the date of the
claim for indemnification resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(ii) The Buyer agrees to indemnify the Seller from and
against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
the ownership or operation of the Acquired Assets by the Buyer from and after
the Closing.
(j) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; PROVIDED,
HOWEVER, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
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(ii) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen
(15) days after the Indemnified Party has given notice of the Third Party
Claim that the Indemnifying Party will indemnify the Indemnified Party from
and against the entirety of any Adverse Consequences the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in the good
faith judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business interests of
the Indemnified Party, and (E) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(j)(ii) above,
(A) the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld unreasonably),
and (C) the Indemnifying Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event any of the conditions in Section 8(j)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it reasonably
may deem appropriate (and the Indemnified Party need not consult with, or
obtain any consent from, any Indemnifying Party in connection therewith), (B)
the Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the Indemnified
Party may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided in this
Section.
(k) OTHER INDEMNIFICATION PROVISIONS. The indemnification
provisions set forth in Section 8(g), Section 8(h), and Section 8(i) are in
addition to, and not in derogation of, any statutory, equitable, or common
law remedy (including without limitation any such remedy arising under
Environmental, Health, and Safety Requirements) any Party may have with
respect to the Seller, or the transactions contemplated by this Agreement.
9. ADDITIONAL AGREEMENTS.
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(a) EMPLOYMENT AGREEMENTS. Prior to the Closing Date, the Buyer
will take the following actions with respect to the employment of certain
Seller Shareholders and other key employees of the Seller (collectively, the
"Employment Agreements"):
(i) the Buyer shall enter into employment agreements for a
term of one (1) year with Ehud Gavron, Joe Fico and Matthew Ramsey, providing
for compensation similar to the compensation such individuals were earning as
of March 1, 1999, terminable only "for cause," and upon such other terms and
conditions as shall be reasonably acceptable to the parties thereto; and
(ii) the Buyer shall, in its discretion, provide letters of
employment to certain other key employees of the Seller previously identified
by the Buyer, the terms of which shall be reasonably acceptable to the
parties thereto.
10. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior
written approval of the other Party; PROVIDED, HOWEVER, that any Party may
make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Party prior to making the
disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement and the Exhibits and
Schedules hereto (including the documents referred to herein) constitutes the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party; PROVIDED, HOWEVER, that the
Buyer may (i) assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(e) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. This Agreement may be
executed by facsimile provided that the original counterpart is delivered
within five (5) days of such execution.
(f) HEADINGS. The section headings contained in this Agreement
are inserted for
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convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO THE SELLER:
Aces Research, Inc.
c/o Ehud Gavron
4003 East Speedway Blvd., Suite 123
Tucson, AZ 85712
COPY TO:
Mr. Peter Beren
1331 North Swan Road, Suite 151
Tucson, AZ 85712
IF TO THE BUYER:
RMI.NET, Inc.
999 18th Street
North Tower, 22nd Floor
Denver, CO 80202
Attention: Mr. Douglas H. Hanson, Chairman and CEO
COPIES TO:
RMI.NET, Inc.
999 18th Street
North Tower, 22nd Floor
Denver, CO 80202
Attention: Mr. Chris J. Melcher
Holland & Hart, LLP
215 South State Street, Suite 500
Salt Lake City, UT 84111-2317
Attention: Mr. David R. Rudd
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail),
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but no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
(i) ARBITRATION. The Parties hereby covenant and agree that,
except as otherwise set forth in this Agreement, any suit, dispute, claim,
demand, controversy or cause of action of every kind and nature whatsoever,
known or unknown, fixed or contingent, that the Parties may now have or at
any time in the future claim to have based in whole or in part, or arising
from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"Disputes") shall be completely and finally settled by submission of any such
Disputes to arbitration under the Rules of Arbitration and Conciliation of
the American Arbitration Association then in effect. If the Parties to the
Dispute are unable to agree on a single arbitrator, then such binding
arbitration shall be conducted before a panel of three (3) arbitrators that
shall be comprised of one (1) arbitrator designated by each Party to the
Dispute and a third arbitrator designated by the two (2) arbitrators selected
by the Parties to the Dispute. Unless the Parties to the Dispute agree
otherwise, the arbitration proceedings shall take place in Denver, Colorado
and the arbitrator(s) shall apply the law of the State of Colorado, USA, to
all issues in dispute, in accordance with Section 10(h). The findings of the
arbitrator(s) shall be final and binding on the Parties to the Dispute.
Judgment on such award may be entered in any court of appropriate
jurisdiction, or application may be made to that court for a judicial
acceptance of the award and an order of enforcement, as the party seeking to
enforce that award may elect. Notwithstanding any applicable rules of
arbitration, all arbitral awards shall be in writing and shall set forth in
particularity the findings of fact and conclusions of law of the arbitrator
or arbitrators.
(j) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and the Seller. The Seller may consent to any such amendment at
any time prior to the Closing with the prior authorization of its board of
directors; PROVIDED, HOWEVER, that any amendment effected after the Seller
Shareholders have approved this Agreement will be subject to the restrictions
contained in the Delaware General Corporation Law or other applicable
corporation statute. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
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provision in any other situation or in any other jurisdiction.
(l) EXPENSES. Each of the Buyer, the Seller, and the Seller
Shareholders will bear his or its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. The Seller agrees that none of its
Subsidiaries has borne or will bear any of the costs and expenses of the
Seller and the Seller Shareholders (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby. The Seller also agrees that it has not paid any amount
to any third party, and will not pay any amount to any third party until
after the Closing, with respect to any of the costs and expenses of the
Seller and the Seller Shareholders (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(m) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity
and describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception
to a representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or other item itself).
The Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating
to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or
covenant.
(n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(i) above), in addition to any other remedy to which it
may be entitled, at law or in equity.
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*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the date first above written.
RMI.NET, INC.
By:______________________________________________
Douglas H. Hanson, Chairman and CEO
ACES RESEARCH, INC.
By:______________________________________________
Print Name:______________________________________
Title:___________________________________________
SELLER SHAREHOLDERS
_________________________________________________
Ehud Gavron
_________________________________________________
Joe Fico
_________________________________________________
Matthew Ramsey
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Exhibit 20.1
RMI.NET ACQUIRES TUCSON, ARIZ.-BASED ACES RESEARCH A DEDICATED ACCESS INTERNET
SERVICE PROVIDER
DENVER, July 30 /PRNewswire/ -- RMI.NET, Inc. (Nasdaq: RMII), formerly Rocky
Mountain Internet, a national e-business and convergent communications
company, announced today it has acquired ACES Research, Inc., a Tucson,
Ariz.-based dedicated access Internet service provider (ISP), for
approximately $2 million in RMI.NET stock. ACES Research has an annualized
revenue run rate of approximately $1 million. (Photo:
http://www.newscom.com/cgi-bin/prnh/19990628/RMILOGO )
In acquiring ACES Research, RMI.NET gains one of southern Arizona's premier
ISPs for high-quality, high-speed Internet service. ACES Research is the
highest bandwidth provider in southern Arizona, with three Digital Service
Level 3s (DS-3s) on separate Optical Carrier Level 12s (OC-12s), and a focus
on high-end services for small and medium-sized business customers. ACES
Research was founded in 1991 to provide quality network consulting and
Internet connectivity to southern Arizona.
"This acquisition will allow us to strategically expand our e-commerce
efforts in the Arizona communications marketplace," said Douglas H. Hanson,
chairman and chief executive officer for RMI.NET. "This acquisition is
another step forward in our national expansion plans to deploy e-SELL(R), our
premier e-commerce storefront, and Internet communications services."
"RMI.NET offers ACES Research the opportunity for continued growth. It allows
us the ability to continue providing high-quality, dedicated Internet service
in the southern Arizona marketplace," said Ehud Gavron, president for ACES
Research. "Our customers have long enjoyed the services we provide, and our
partnership with RMI.NET will allow us to expand our offering, especially for
e-commerce and communications applications." RMI.NET acquired Internet Now!,
one of Arizona's leading ISPs, in November 1998. Internet Now! was voted as
Arizona's leading ISP by Arizona Business Magazine.
In a separate transaction, RMI.NET also announced it had acquired the web
hosting assets of Net One Communications Corp., a Denver-based company. Terms
of the second acquisition were not disclosed. Denver-based RMI.NET, Inc.,
formerly Rocky Mountain Internet, is a national commerce solutions provider
focusing on turnkey e-business applications and convergent communications.
RMI.NET has developed and provides small and medium-sized companies with
scalable e-business capabilities; customized web page development and
hosting; nationwide Internet dial up and dedicated access; digital subscriber
line service (DSL); and local, long distance and enhanced telephony. RMI.NET
also provides Internet, and data and voice communications services to
consumer households. The company wholly owns a proprietary port site and
search engine, Infohiway, at www.infohiway.com; and develops and markets
Simplified Domains, a new and emerging Internet domain registration, at
www.simplifieddomains.com. For more information on RMI.NET, call (800)
864-4327, or visit the company's web site at www.rmi.net.
This press release might contain forward-looking statements. These
forward-looking statements are subject to risks and uncertainties. Actual
results may differ materially from such forward-looking statements as a
result of risks and uncertainties which are described in the cautionary
statements section of the company's 10K dated December 31, 1998, and may
include other risks described in all Securities and Exchange Commission
filings submitted as of this date.
/CONTACT: Mark Stutz of RMI.NET, Inc., 303-313-0672, [email protected]/
