<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 27, 1999
SKYLYNX COMMUNICATIONS, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-24687 84-1360029
- --------------- ----------------------- --------------------
(State or other (Commission file number) (Employer Identi-
incorporation) fication No.)
600 South Cherry Street, Suite 305, Denver, Colorado 80246
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 316-0400
--------------------------------------------------------------------
--------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
<PAGE>
ITEM 2: ACQUISITION OF ASSETS
- -------------------------------
On July 27, 1999, SkyLynx Communications, Inc., a Colorado corporation,
through a wholly owned subsidiary, SkyLynx Communications of California, Inc.,
a Delaware corporation, ("SkyLynx" or the "Company") closed upon and
consummated a definitive Stock Purchase and Sale Agreement dated as of July
__, 1999, (the "Agreement") between the Company and CalWeb Internet Services,
Inc., a California corporation, ("CalWeb"), and Robert Du Gaue and Gloria Du
Gaue, as shareholders of CalWeb (the "Shareholders") (hereafter CalWeb and the
Shareholders may collectively be referred to as the "Sellers"), pursuant to
which the Company acquired 100% of the issued and outstanding shares of
capital stock of CalWeb, which is engaged in the business of internet service
provision (the "Business").
Under the terms of the Agreement, the Company acquired 100% of the
shares of CalWeb and, as a result, the assets and liabilities of the Business,
including inventories, accounts receivable and payable, furniture, fixtures,
office machinery and equipment and other tangible property, all mailing,
client and customer lists, leasehold improvements and fixtures, prepaid
expenses, contracts and licenses, development assets, intangible assets and
short and long-term debt.
In consideration of the shares of CalWeb, the Company paid the following
purchase price:
The Preliminary Purchase Price, as defined in the Agreement, was: (i) the
sum of $2,600,000 in cash paid at closing and (ii) a number of shares of the
common stock of SkyLynx (the "Consideration Shares") determined by dividing
$1,700,000 by the market value of a share of SkyLynx common stock, less the
Holdback Shares described below. The market value of the Consideration Shares
was deemed to be the average closing price of a share of SkyLynx common stock
on the over-the-counter market for the five trading days immediately preceding
the closing date.
Of the Consideration Shares, shares having a market value of $430,000
(the "Holdback Shares") were retained by the Company as security for the
Sellers' indemnification obligations under the Agreement. The Holdback Shares
will be retained by the Company for a period of one year and used as
collateral to satisfy any claims the Company may have against the Sellers for
indemnity under the terms of the Agreement. The source of the funds used by
the Company to pay the cash portion of the purchase price was working capital
derived from the Company's recently completed private placement of equity
securities.
The Agreement also provided for post closing adjustments to the
Preliminary Purchase Price based upon (i) a Net Worth Adjustment in the amount
of any decrease in the net worth of CalWeb as of the closing date from the net
worth reported at April 20, 1999, (ii) a 1999 tax adjustment for any taxes
attributable to the 1999 tax year in excess of $75,000.
The Company will continue to operate the business from its principal
facilities in Sacramento, California. As part of those continuing operations,
Robert Du Gaue agreed to continue in the employ of the Company for a period of
two years at a base salary of $8,000 per month and Gloria Du Gaue agreed to
continue in the employ of the Company for a period of not less than six months
following the closing date at a base salary of $5,000 per month.
<PAGE>
<PAGE>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
- ------------------------------------------
(a) Financial Statements
--------------------
Pursuant to Item 7(a)(4), the Registrant files herewith the
following financial statements of the acquired business:
CalWeb Audited Financial Statements
Independent Auditor's Report
Balance Sheet as of December 31, 1998
Statements of Operation and Accumulated Deficit for the year ended
December 31, 1998 and Inception to December 31, 1997
Statements of Cash Flows for the years ended December 31, 1998 and
December 31, 1997
Notes to Financial Statements
(b) Unaudited Financial Statements
------------------------------
Balance Sheet as of March 31, 1999 (unaudited)
Statements of Operations for the Three Month Periods Ended March 31,
1999 and 1998
Statements of Cash Flows for the Three Month Periods Ended March 31,
1999 and 1998
Notes to Financial Statements
(c) Pro Forma Financial Information
-------------------------------
Pursuant to Item 7(b) and Item 7(a)(4), the Registrant files
herewith the following unaudited pro forma consolidated financial information:
Pro Forma Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998
Pro Forma Consolidated Statements of Operations for the three month
period ended March 31, 1999 and the year ended December 31, 1998
The unaudited Pro Forma Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 and unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1998 and the three month period
ended March 31, 1999 (collectively the Pro Forma Consolidated Financial
Statements) give effect to the acquisition by SkyLynx Communications of 100%
of the shares of capital stock of CalWeb Internet Services, Inc. These
transactions were accounted for as a purchase in accordance with the
provisions of Accounting Principles Board Opinion Number 16.
The Pro Forma Consolidated Statements of Operations were prepared
assuming that the acquisition described above was consummated as of the
beginning of each period presented. The Pro Forma Consolidated Balance Sheet
includes the pro forma purchase accounting entries for the acquisition and was
prepared assuming that the transaction was consummated as of January 1, 1998.
The unaudited Pro Forma Consolidated Financial Statements are based upon
historical consolidated and combined financial statements of the Registrant
and CalWeb Internet Services, Inc.
The pro forma adjustments and the resulting Pro Forma Consolidated
Financial Statements have been prepared based upon available information and
certain assumptions and estimates deemed appropriate by the Registrant. A
final determination of required purchase accounting adjustments and the
allocation of the purchase price to the assets acquired based upon their
respective fair values has not yet been made for the acquisition.
The Pro Forma Consolidated Balance Sheet and the Pro Forma Consolidated
Statements of Operations are not necessarily indicative of the results of
operations that actually would have been achieved had the acquisition been
consummated as of the dates indicated, or that may be achieved in the future.
Furthermore, the Pro Forma Consolidated Financial Statements do not reflect
changes that may occur as the result of post-combination activities and other
matters.
The Pro Forma Consolidated Financial Statements and notes thereto should
be read in conjunction with the accompanying historical financial statements
and notes thereto of CalWeb Internet Services, Inc. and the audited
consolidated financial statements of the Registrant and subsidiaries included
in its Annual Report on Form 10-KSB for the year ended December 31, 1998.
(d) Exhibits
--------
Item Title
---- -----
1.1 Asset Purchase Agreement dated as of July 15, 1999
<PAGE>
<PAGE>
ARTHUR ANDERSEN
101 EAST KENNEDY BOULEVARD
TAMPA, FLORIDA 33602-5141
(813) 222-4600 (TELEPHONE) (813) 229-6229 (FACSIMILE)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
CalWeb Internet Services, Inc.:
We have audited the accompanying balance sheet of CalWeb Internet Services,
Inc. (a California corporation) as of June 30, 1998, and the related
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1998 and 1997. 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 audits 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 CalWeb Internet Services,
Inc. as of June 30, 1998, and the results of its operations and its cash flows
for the years ended June 30, 1998 and 1997, in conformity with generally
accepted accounting principles.
Tampa, Florida,
July 19, 1999
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
BALANCE SHEET -- JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 146,880
Accounts receivable, net of allowance for doubtful
accounts of $5,363 173,712
Prepaid expenses and other current assets 21,151
Deferred tax assets 26,710
------------
Total current assets 368,453
PROPERTY AND EQUIPMENT, net 235,610
------------
Total assets $ 604,063
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 17,860
Accrued liabilities 123,304
Deferred revenue 58,292
Income taxes payable 23,697
Current maturities of long-term debt 34,312
------------
Total current liabilities 257,465
LONG-TERM DEBT, net of current maturities 82,048
DEFERRED TAX LIABILITIES 27,536
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par value; 100,000 shares
authorized, 100 shares issued and outstanding 10,000
Retained earnings 227,014
------------
Total stockholders' equity 237,014
------------
Total liabilities and stockholders' equity $ 604,063
============
</TABLE>
The accompanying notes are an integral part of this balance sheet
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
REVENUES $ 1,350,361 $ 1,081,633
------------- ------------
COSTS AND EXPENSES:
Cost of revenues 358,182 303,125
Selling, general and administrative 760,016 632,418
------------- ------------
Total costs and expenses 1,118,198 935,543
------------- ------------
INCOME FROM OPERATIONS 232,163 146,090
------------- ------------
OTHER INCOME (EXPENSE):
Interest 1,792 889
Other 2,191 (1,176)
------------- ------------
Total other income (expense) 3,983 (287)
------------- ------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 236,146 145,803
PROVISION FOR INCOME TAXES 94,071 58,803
------------- ------------
NET INCOME $ 142,075 $ 87,000
============= ============
NET INCOME PER SHARE -- BASIC AND DILUTED $ 1,421 $ 870
============= ============
SHARES USED IN COMPUTING NET INCOME PER SHARE --
BASIC AND DILUTED 100 100
============= ============
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
-------------------
Retained
Shares AmountEarnings Total
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1996 100 $ 10,000 $(2,061) $ 7,939
Net income - - 87,000 87,000
-------- --------- ------- ---------
BALANCE, June 30, 1997 100 10,000 84,939 94,939
Net income - - 142,075 142,075
-------- --------- ------- ---------
BALANCE, June 30, 1998 100 $ 10,000$227,014 $ 237,014
======== ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 142,075 $ 87,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 48,682 22,402
Loss on disposition of property and
equipment - 1,466
Changes in operating assets and
liabilities-
Accounts receivable (74,568) (27,990)
Prepaid expenses and other current
assets (17,155) (18,499)
Deferred tax assets 26,796 (2,473)
Accounts payable (34,672) 38,510
Accrued liabilities 96,283 10,162
Deferred revenue (33,163) 26,029
Income taxes payable 8,226 12,303
------------- ------------
Net cash provided by
operating activities 162,504 148,910
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of property
and equipment (183,556) (66,834)
Proceeds from disposition of property
and equipment - 2,900
------------- ------------
Net cash used in investing
activities (183,556) (63,934)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 92,073 -
Principal debt payments (12,517) (22,360)
------------- ------------
Net cash provided by (used in)
financing activities 79,556 (22,360)
------------- ------------
NET INCREASE IN CASH 58,504 62,616
CASH, beginning of year 88,376 25,760
CASH, end of year $ 146,880 $
88,376
============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 3,997 $ 9,791
Taxes $ 73,750 $ 67,425
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
1. ORGANIZATION AND BUSINESS:
-------------------------
CalWeb Internet Services, Inc., a California corporation (the Company),
was formed to provide high-speed Internet connectivity and enhanced Internet
services to businesses through the use of wireline technologies. Since its
incorporation in 1995, the Company has grown to provide Internet access to
approximately 7,000 residential and commercial customers in the Sacramento
metropolitan area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of depreciable
assets. Amortization of leasehold improvements is determined using the
straight-line method over the shorter of the estimated useful life of the
improvements or the term of the lease.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statements of operations.
Revenue Recognition and Deferred Revenue
Revenue, comprised primarily of Internet and enhanced services, is
recognized as the services are provided. Amounts collected prior to the
services being provided are reflected as deferred revenue. Installation and
customer set-up fees are recognized upon completion of the services. Revenue
from consulting services is recognized as the services are provided. Revenue
from hardware sales is recognized upon shipment of the respective products.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred amounts are measured using enacted tax rates
expected to apply to taxable income in the year those temporary differences
are expected to be recovered or settled.
Fair Value of Financial Instruments
The Company believes that the carrying value of financial instruments on
the balance sheet approximates their fair value.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company adopted SFAS 128 for the year ended June 30, 1997.
Under SFAS 128, net income (loss) per share-basic is determined by dividing
net income (loss) by the weighted average number of shares of common stock
outstanding during the period. Net income (loss) per share-diluted is
determined by dividing net income (loss) by the weighted average number of
shares of common stock outstanding and dilutive common equivalent shares
during the period.
3. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consisted of the following as of June 30, 1998:
<TABLE>
<CAPTION>
Useful Lives in Years Amount
--------------------- ------
<S> <C> <C>
Computer equipment 5 $309,081
Office equipment 5 6,101
Leasehold improvements 3 4,102
---------
319,284
Less- Accumulated depreciation and amortization (83,674)
---------
Property and equipment, net $235,610
=========
</TABLE>
4. LONG-TERM DEBT:
--------------
Long-term debt consisted of the following at June 30, 1998:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Note payable to a bank, maturing 2002 $ 92,073
Notes payable to stockholders, maturities from
2000 to 2001 14,837
Note payable to an employee, maturing 2001 9,450
----------
116,360
Less- Current maturities (34,312)
----------
Long-term debt, net of current maturities $ 82,048
==========
</TABLE>
For the fiscal years ending June 30, 1998 and 1997, the Company recorded
$3,997 and $9,791 in interest expense, respectively.
The note payable to a bank is secured by all of the Company's assets.
Principal and interest are payable in monthly installments of $2,675 at the
prime lending rate plus 2.75 percent (11.25 percent at June 30, 1998). The
Company has restrictive and various financial covenants with which the Company
was in compliance at June 30, 1998.
Notes payable to stockholders consists of three notes payable to certain
officers of the Company. These notes are payable in equal quarterly principal
installments of $1,100, $500 and $63, respectively, plus accrued interest.
Each of the notes bears interest at a face rate of 5.75 percent. On December
31, 1998, the Company paid the remaining principal on two of the notes; the
Company paid the outstanding principal on the third note on February 28, 1999.
The note payable to an employee is payable in equal monthly principal
installments of $350 plus accrued interest and bears interest at a face rate
of 8 percent. On August 31, 1998, the Company repaid the entire remaining
principal balance outstanding on this note.
At June 30, 1998, maturities of long-term debt were as follows:
<TABLE>
<CAPTION>
Year Ending June 30, Amount
-------------------- ------
<S> <C>
1999 $ 34,312
2000 36,960
2001 31,706
2002 13,382
---------
$ 116,360
=========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Operating Leases
The Company leases real estate under operating leases. Certain real
estate leases require the Company to pay maintenance, insurance, taxes and
certain other expenses in addition to the stated rentals.
Future minimum lease payments for noncancellable operating leases in
effect at June 30, 1998, are as follows:
<TABLE>
<CAPTION>
Year Ending June 30, Amount
-------------------- ------
<S> <C>
1999 $15,278
2000 6,250
2001 4,451
2002 1,155
-------
$27,134
=======
</TABLE>
Rent expense under operating leases for the years ended June 30, 1998, and
1997, totaled $53,158 and $49,827, respectively.
6. INCOME TAXES:
Provision for income taxes consisted of the following as of June 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current
Federal $52,349 $47,844
State 14,926 13,431
-------- --------
Total current 67,275 61,275
Deferred:
Federal 20,847 (1,930)
State 5,949 (542)
-------- --------
Total deferred 26,796 (2,472)
-------- --------
Provision for income taxes $94,071 $58,803
======== ========
</TABLE>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the consolidated
financial statements. The components of the Company's deferred income tax
assets and liability consisted of the following as of June 30, 1998:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Deferred tax assets:
Deferred revenue $23,218
Accrued vacation 1,156
Allowance for doubtful accounts 1,856
Other 480
--------
Total deferred tax assets 26,710
Deferred tax liability:
Property and equipment (27,536)
--------
Net deferred tax liability $ (826)
========
</TABLE>
The differences between the Company's effective income tax rate and the
federal statutory rate are reconciled as of June 30, 1998 and 1997, and are as
follows :
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
State income taxes, net of federal taxes 5.8 5.8
Other - 0.5
------ -------
Effective income tax rate 39.8% 40.3%
====== =======
</TABLE>
7. RELATED-PARTY TRANSACTIONS:
--------------------------
As discussed in Note 4, the Company has several notes payable outstanding
to its officers and an employee.
During the first three months of the year ended June 30, 1997, the Company
leased its primary office facility from the officers of the Company. Of the
$49,827 charged to rental expense in fiscal 1997, $10,500 represents rental
payments made to the officers of the Company.
In early fiscal 1997, the Company paid approximately $18,000 to an
individual with whom the Company had entered into a revenue sharing agreement.
This payment was made in consideration for early termination of the agreement
and was roughly equivalent to the economic benefit that this individual would
have received had the agreement remained in force for its full term. Based on
the terms of the release agreement, the Company bears no further liability for
amounts under the revenue sharing agreement; thus, no further amounts have
been reflected in the accompanying financial statements. The payment was
expensed in the year ended June 30, 1997.
8. SUBSEQUENT EVENTS:
-----------------
On April 20, 1999, the Company entered into an agreement with SkyLynx
Communications, Inc. (SkyLynx), pursuant to which SkyLynx will acquire the
Company for $2.6 million in cash and $1.7 million in SkyLynx common stock.
The SkyLynx common stock issued upon consummation of the transaction will be
classified as restricted shares under the Securities Act of 1933.
Additionally, SkyLynx will hold back shares having a market value equivalent
to 10 percent of the total purchase price for a period of one year following
the transaction. Such shares will be used as collateral to secure any
obligation of the Company to indemnify SkyLynx after the purchase has been
closed.
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
BALANCE SHEET -- MARCH 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 314,772
Accounts receivable, net of allowance for doubtful
accounts of $4,659 155,994
Prepaid expenses and other current assets 66,766
Deferred tax assets 32,962
------------
Total current assets 570,494
PROPERTY AND EQUIPMENT, net 281,872
------------
Total assets $ 852,366
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 36,468
Accrued liabilities 38,552
Deferred revenue 151,817
Income taxes payable 159,794
Current maturities of long-term debt 49,478
------------
Total current liabilities 436,109
LONG-TERM DEBT, net of current maturities 24,791
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $100 par value; 100,000 shares authorized,
100 shares issued and outstanding 10,000
Retained earnings 381,466
------------
Total stockholders' equity 391,466
------------
Total liabilities and stockholders' equity $ 852,366
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine-month
Period Ended
March 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
REVENUES $ 1,302,722 $ 1,016,696
COSTS AND EXPENSES:
Cost of revenues 328,727 264,761
Selling, general and administrative 725,807 546,496
Total costs and expenses 1,054,534 811,257
OPERATING INCOME 248,188 205,439
OTHER INCOME:
Interest 3,283 1,193
Other 5,290 1,404
Total other income 8,573 2,597
NET INCOME BEFORE PROVISION FOR
INCOME TAXES 256,761 208,036
PROVISION FOR INCOME TAXES 102,309 70,553
NET INCOME $ 154,452 $ 137,483
NET INCOME PER SHARE-BASIC AND DILUTED $ 1,545 $ 1,375
SHARES USED IN COMPUTING NET INCOME PER
SHARE - BASIC AND DILUTED 100 100
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
Nine-month
Period Ended
March 31,
----------------------------
1999 1998
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 154,452 $ 137,483
Adjustments to reconcile net income to
net cash provided by
operating activities-
Depreciation and amortization 54,017 35,035
Changes in operating assets and liabilities-
Accounts receivable 17,718 (46,422)
Prepaid expenses and other current assets (45,615) (38,750)
Deferred tax assets (33,788) 25,970
Accounts payable 18,608 (22,322)
Accrued liabilities (84,752) (3,765)
Deferred revenue 93,525 (24,872)
Income taxes payable 136,097 44,583
Net cash provided by operating
activities 310,262 106,940
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of property
and equipment (100,279) (117,425)
Net cash used in investing activities (100,279) (117,425)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 21,027 71,908
Principal debt payments (63,118) (9,804)
Net cash (used in) provided by
financing activities (42,091) 62,104
NET INCREASE IN CASH 167,892 51,619
CASH, beginning of period 146,880 88,376
CASH, end of period $ 314,772 $ 139,995
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for-
Interest $ 7,739 $ 2,998
Taxes $ 46,765 $ 38,750
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Interim Financial Information
The interim financial statements as of March 31, 1999, and for the nine-
month periods ended March 31, 1999 and 1998, are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the CalWeb Internet Services, Inc.'s
management, the unaudited interim financial statements contain all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
<PAGE>
CALWEB INTERNET SERVICES, INC.
Unaudited Pro Forma Condensed, Combined Financial Information
-------------------------------------------------------------
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition by SkyLynx Communications, Inc. of the capital
stock of CalWeb Internet Services, Inc.
The Pro Forma Condensed Combined Balance Sheet gives effect to the
acquisitions and to the proposed acquisition as if they had occurred on
March 31, 1999. The Pro Forma Condensed Combined Statements of Operations
give effect to the acquisitions as if they had occurred at the beginning of
the earliest period presented, combining the results of SkyLynx
Communications, Inc. for the three months ended March 31, 1999 and the year
ended December 31, 1998 with those of CalWeb Internet Services, Inc. for
the three months ended March 31, 1999 and the year ended March 31, 1999,
respectively. The results of CalWeb Internet Services, Inc. for the three
months ended March 31, 1999 are included in the Pro Forma Condensed
Combined Statement of Operations for both the year ended December 31, 1998
and the three months ended March 31, 1999. Revenue was approximately
$382,000 and the net loss was approximately $10,000 for CalWeb Internet
Services, Inc. for the three months ended March 31, 1999.
The pro forma adjustments are based on estimates, available information and
certain assumptions that management deems appropriate. The pro forma
financial data do not purport to represent what our financial position or
results of operations would actually have been if such transactions had
occurred on those dates and are not necessarily representative of our
financial position or results of operations for any future period. The pro
forma financial statements should be read in conjunction with the other
financial statements and notes thereto included with the other financial
statements and notes thereto included elsewhere in this Report and the
Company's other reports filed with the SEC.
The following footnotes should be read in understanding pro forma adjustments
to the unaudited pro forma condensed, consolidated statements.
(a) Adjustment to recognize twelve months amortization expense
($1,302,845) on the customer list and the covenant not to compete
agreements. The customer list and covenant not to compete
agreements are amortized over three years.
(b) Adjustment to revise the weighted average common shares
outstanding and basic loss per share for the 234,483 common
shares issued in the purchase agreement.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CALWEB INTERNET SERVICES, INC.
PRO FORMA CONDENSED, COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1998
SkyLynx CalWeb Pro
forma Pro forma
Communications, Total
Adjustments Combined
Inc.
CalWeb
<S> <C> <C> <C>
<C> <C>
Revenues 7,898 1,636,387 1,644,285
1,644,285
Operating cost
and expenses 5,300,834 1,361,475 6,662,309
1,302,845(ab) 7,965,154
Loss from operations (5,292,936) 274,912 (5,018,024)
(1,302,845) (6,320,869)
Interest and other
income (expenses) 18,104 9,959 28,063 -
28,063
---------- ---------- ----------- ----------
- ---- -------------
Net Loss (5,274,832) 284,871 (4,989,961)
(1,302,845) (6,292,806)
=========== ========= ============
============== =============
Weighted average
common shares
outstanding 8,946,874 234,483
9,181,357
Basic loss per share (0.59)
(0.69)
</TABLE>
<PAGE>
<PAGE>
CALWEB INTERNET SERVICES, INC.
Unaudited Pro Forma Condensed, Combined Financial Information
- -------------------------------------------------------------
The following unaudited pro forma condensed combined financial statements give
effect to the acquisition by SkyLynx Communications, Inc. of the capital
stock of CalWeb Internet Services, Inc.
These unaudited pro forma condensed, combined statements are not necessarily
indicative of results of operations had the acquisitions occurred at
January 1, 1999, nor the results the results to be expected in the future.
The following footnotes should be read in understanding pro forma adjustments
to the unaudited pro forma condensed, consolidated statements.
(a) Adjustment reflects the $4,300,000 acquisition of CalWeb; $3,908,534
customer list and covenant not to compete, $314,772 cash, $255,722
other assets, $281,872 property and equipment, $309,083 other
liabilities and $151,817 deferred revenue. The consideration paid in
this transaction was $2,600,000 cash and 234,483 shares of common
stock with a fair market value of $1,700,000.
(b) Adjustment to recognize three months amortization expense ($325,711)
on the customer list and the covenant not to compete agreements. The
customer list and covenant not to compete agreements are amortized
over three years.
(c) Adjustment to reflect the $2,600,000 cash required for acquisitions
and the adjustment to equity to fund acquisitions
(d) Adjustment to revise the weighted average common shares outstanding
and basic loss per share for the 234,483 common shares issued in the
purchase agreement.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CALWEB INTERNET SERVICES, INC.
PRO FORMA CONDENSED, COMBINED BALANCE SHEET
as of March 31,1999
SkyLynx CalWeb Equity
Pro forma Pro forma Communications,
Total Adjustments Adjustments Combined
Inc. CalWeb
CalWeb
<S> <C> <C> <C> <C>
<C> <C>
Assets
Cash 843,365 314,772 1,158,137
(2,600,000)(a)1,158,137
2,600,000 (c)
Accounts
receivable - 155,994 155,994 -
155,994
Inventory - - - - -
Other current
assets 269,536 99,728 369,264
- - 369,264
-------- ---------- ----------
- ------------- -------
Current
assets 1,112,901 570,494 1,683,395 -
- 1,683,395
---------- --------- -----------
- ------------- ---------
Property and
equipment 1,728,989 281,872 2,010,861
- 2,010,861
Other assets 1,029,307 - 1,029,307
3,908,534 (a) 4,937,841
---------- -------- ---------
- ------------ ----------
Total assets 3,871,197 0852,366 4,723,563 -
3,908,534 8,632,097
========== ========= ==========
=========== ============
Liability and Equity
Accounts
payable 356,057 36,468 392,525
- - 392,525
Accrued
expense 184,476 198,346 382,822
- - 382,822
Unearned
revenue - 151,817 151,817
- - 151,817
Other Current
Liabilities 373,093 49,478 422,571 -
422,571
------- ---------- ----------
- --------- ------------
Current
liabilities 913,626 436,109 1,349,735 -
- 1,349,735
-------- ---------- ----------
- --------- -----------
LT debt 25,000 24,791 49,791 -
- - 49,791
Other LT
Liabilities - - - - -
-
--------- ----------- -----------
- ----------- ----------
Total LT
Liabilities 25,000 24,791 49,791 -
- - 49,791
--------- ------------ -----------
- ----------- -----------
Total
Liabilities 938,626 460,900 1,399,526 -
- - 1,399,526
Preferred
stock 3,978,119 3,978,119
2,600,000 (c) 6,578,119
Common stock 10,889 10,000 20,889 (10,000)
234 (a) 11,123
Paid in
capital 7,786,972 7,786,972 -
1,699,766(a) 9,486,738
Retained
earnings
(deficit) (8,843,409) 381,466 (8,461,943) (381,466) -
(8,843,409)
Total share-
holders
equity 2,932,571 391,466 3,324,037 (391,466)
4,300,000 7,232,571
------------- ------------ --------- ----------
---------- -----------
Total
liability
and equity 3,871,197 852,366 4,723,563 (391,466)
4,300,000 8,632,097
========== ============= ========== ==========
========== ==========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CALWEB INTERNET SERVICES, INC.
PRO FORMA CONDENSED, COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,1999
SkyLynx CalWeb Pro
forma Pro forma
Communications, Total
Adjustments Combined
Inc.
CalWeb
<S> <C> <C> <C> <C>
<C>
Revenues 67,888 381,569 449,457
449,457
Operating cost
and expenses 3,360,606 396,214 3,756,820
325,711(b) 4,082,531
Loss from operations (3,292,718) (14,645) (3,307,363)
(325,711) (3,633,074)
Interest and other
income (expenses) 2,895 4,464 7,359
- - 7,359
------------ --------- ------------ -----
- ------ -----------
Net Loss (3,289,823) (10,181) (3,300,004)
(325,711) (3,625,715)
Weighted average
common shares
outstanding 10,572,168
234,483 (d) 10,806,651
Basic loss per share (0.31)
(0.34)
</TABLE>
<PAGE>
<PAGE>
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.
SKYLYNX COMMUNICATIONS , INC.
Dated: July 28, 1999 By: /s/ Jeffery A. Mathias
------------------- ----------------------------
Jeffery A. Mathias, President
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
among
SKYLYNX COMMUNICATIONS, INC.
a Colorado corporation,
SKYLYNX COMMUNICATIONS OF CALIFORNIA, INC.
a Delaware corporation,
and
ROBERT DU GAUE and GLORIA DU GAUE
Dated as of July __, 1999
<PAGE>
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is entered into and made
effective as of July ___, 1999 ("Effective Date") by and among (i) SkyLynx
Communications, Inc., a Colorado corporation ("SkyLynx"), (ii) SkyLynx
Communications of California, a Delaware corporation ("Purchaser"), and (iii)
each of the following individuals, jointly and severally, who own all of the
outstanding stock of CalWeb Internet Services, Inc., a California corporation
(the "Company"): Robert Du Gaue and Gloria Du Gaue (which persons are
hereinafter collectively referred to as "Shareholders", each individually as
"Shareholder").
RECITALS:
WHEREAS, subject to the terms and conditions of this Agreement, the
Shareholders desire to sell to Purchaser all of the issued and outstanding
shares of capital stock of the Company (the "Stock"); and
WHEREAS, subject to the terms and conditions of this Agreement, Purchaser
desires to acquire the Stock from the Shareholders.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings (all terms defined in this Article I or in other
provisions of this Agreement in the singular to have the same meanings when
used in the plural, and vice versa):
"Agreement" shall mean this Stock Purchase and Sale Agreement.
"Base Balance Sheet" shall have the meaning set forth at Section 2.4(a).
"Cash Portion" shall have the meaning set forth in Section 2.2(a).
"Closing" shall have the meaning set forth at Section 8.1.
"Closing Balance Sheet" shall have the meaning set forth at Section
2.4(a)(i).
"Closing Date" shall have the meaning set forth at Section 8.1.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Draft Closing Balance Sheet" shall have the meaning set forth at Section
2.4(a).
"Employment Agreement" shall have the meaning set forth at Section 5.9.
"Encumbrance" shall mean any lien, pledge, mortgage, security interest,
claim, charge or other encumbrance, right or claim of any kind whatsoever.
"Environmental Laws" shall have the meaning set forth at Schedule 3.24.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Termination" shall have the meaning set forth at Section 11.1.
"Final Purchase Price" shall have the meaning set forth at Section 2.4.
"Financial Statements" shall have the meaning set forth at Section 3.12.
"GAAP" shall mean generally accepted accounting principles.
"Hold Back Shares" shall have the meaning set forth in Section 2.3.
"Intellectual Property" shall mean and include all patents, trademarks,
service marks, trade names, copyrights, mask works, inventions, processes,
trade secrets, know-how, confidentiality agreements, consulting agreements,
software and any documentation relating to the manufacture, marketing,
installation, service and operation of products and all rights relating
thereto.
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" " or "to the best knowledge" or similar terms as used in this
Agreement, unless otherwise specifically defined herein, shall mean the actual
or constructive knowledge, after due inquiry and investigation, of each of the
Shareholders, the officers and directors of Seller, and its key employees in
managerial roles.
"Market Value" means the average closing price of a share of SkyLynx
Common Stock on the over-counter-market for the five (5) trading days
immediately preceding the Closing Date.
"Material Adverse Change (or Effect)" means a change (or effect), in the
condition (financial or otherwise), properties, assets, liabilities, rights,
obligations, operations, business or prospects which change (or effect)
individually or in the aggregate, is materially adverse to such condition,
properties, assets, liabilities, rights, obligations, operations, business or
prospects.
"Material Contracts" shall have the meaning set forth at Section 3.15.
"Net Worth" shall mean the amount determined by subtracting (i) the
amount of total liabilities of the Company as reported on the Company's
applicable balance sheet from (ii) the amount of total assets of the Company
as reported on the Company's applicable balance sheet.
"1999 Tax Year" shall mean the fiscal year of the Company commencing July
1, 1998 and ending June 30, 1999.
"Operative Documents" shall mean this Agreement and all other instruments
and agreements required hereby or incident or collateral hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permits" shall mean any and all governmental, administrative, or other
permits, licenses, certificates, approvals, registrations and authorizations
necessary or appropriate for the conduct of the Company's business.
"Person" shall mean and include an individual, a partnership, a
corporation, an association, a joint stock company, a limited liability
company or partnership, a trust, a joint venture, an unincorporated
organization or a governmental entity (or any department, agency, or political
subdivision thereof).
"Plans" shall have the meaning set forth at Section 3.22.
"Preliminary Purchase Price" shall have the meaning set forth at Section
2.2.
"Purchaser Indemnitees" shall have the meaning set forth at Section 9.2.
"Restricted Territory" means the area within a three hundred fifty (350)
mile radius of downtown Sacramento, California and such other areas within a
one hundred (100) mile radius of any location in which SkyLynx or any of its
affiliates has an office or is conducting business as of the Closing Date.
"Returns" shall mean all federal, state, local and foreign Tax (as
defined in this Article I) returns, reports, statements, forms or other
documents or information which are required to be filed by, or with respect
to, the Company.
"SEC" shall mean the United States Securities and Exchange Commission.
"SkyLynx Common Stock" shall have the meaning set forth in Section
2.2(b).
"SkyLynx Shares" shall have the meaning set forth in Section 2.2(b).
"Stock" shall mean all of the issued and outstanding shares of capital
stock of the Company.
"Shareholder Indemnitees" shall have the meaning set forth at Section
9.3.
"Tax" (including, with correlative meaning, the terms "Taxes" and
"Taxable") shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or not.
"Transfer Tax Returns" shall have the meaning set forth at Section 5.10.
ARTICLE II
TERMS OF PURCHASE AND SALE OF THE STOCK
2.1 Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from the Shareholders, and the
Shareholders, jointly and severally, agree to sell, transfer and deliver to
Purchaser on the Closing Date, the Stock, free and clear of any Encumbrance.
2.2 Purchase Price. Subject to the terms set forth in this Agreement,
and in consideration of the sale and delivery to Purchaser of the Stock,
Purchaser shall deliver to the Shareholders in proportion to their respective
ownership of Stock on the Closing Date (or with respect to the SkyLynx Shares
(as defined below), within a reasonable time following the Closing Date) the
Preliminary Purchase Price, consisting of the following:
(a) Two Million Six Hundred Thousand Dollars ($2,600,000) by wire
transfer of immediately available funds to the Seller (the "Cash Portion");
and
(b) an aggregate number of shares of Common Stock of SkyLynx, par
value $.001 ("SkyLynx Common Stock") determined by dividing One Million Seven
Hundred Thousand Dollars ($1,700,000) by the Market Value (the "SkyLynx
Shares"), less the Hold Back Shares, as defined herein.
2.3 Hold Back Shares. Notwithstanding anything contained herein to the
contrary, a number of the SkyLynx Shares equal to $430,000 divided by the
Market Value (the "Hold Back Shares") shall be set aside and retained by
Purchaser for a period of one (1) year from the Closing Date (the "Hold Back
Period"). The Hold Back Shares shall be held pursuant to Article IX hereof as
security for the obligations of the Shareholders, and the Shareholders
acknowledge that forfeiture of the Hold Back Shares may be required pursuant
to Article IX hereof.
2.4 Post-Closing Adjustments of Preliminary Purchase Price. If
required, the Preliminary Purchase Price shall be adjusted after the Closing
Date as a result of (a) Net Worth Deficiency (as defined in Section 2.4(a)
below), and/or (b) Taxes owed by the Company attributable to the 1999 Tax Year
and/or any prior fiscal year, as follows and shall constitute the Final
Purchase Price:
(a) Net Worth Adjustment. Within thirty (30) days following the
Closing, Purchaser shall prepare and deliver to the Shareholders an unaudited
balance sheet of the Company as at the Closing Date (the "Draft Closing
Balance Sheet"). Purchaser shall prepare the Draft Closing Balance Sheet in
accordance with the same accounting principles and basis utilized in the
preparation of the unaudited balance sheet of the Company as at April 20, 1999
(the "Base Balance Sheet") previously delivered to Purchaser by the
Shareholders. The Shareholders shall cooperate fully with Purchaser in the
preparation of the Draft Closing Balance Sheet, including, without limitation,
the furnishing of all information regarding the accounting principles and
basis used in preparing the Base Balance Sheet. If the Net Worth of the
Company as shown on the Closing Balance Sheet (as defined in Section
2.4(a)(i)) is less than the Net Worth as shown on the Base Balance Sheet (the
"Net Worth Deficiency"), Purchaser shall reduce the number of SkyLynx Shares
received by the Shareholders by retaining ownership of a number of the Hold
Back Shares determined by dividing the Net Worth Deficiency by the average
closing price of a share of SkyLynx Common Stock on the over-counter-market
for the five (5) trading days immediately preceding the date on which the
Closing Balance Sheet is finally determined, pursuant to Section 2.4(a)(i)
below.
(i) The Shareholders collectively shall deliver to Purchaser
within ten (10) days following their receipt of the Draft Closing Balance
Sheet, a detailed statement describing their objections (based upon the
comparison of the Base Balance Sheet and the Draft Closing Balance Sheet, and
setting forth in reasonable detail each amount objected to, the amount
proposed as an adjustment thereto and the basis for such objection), if any,
thereto. Failure by the Shareholders to object to the Draft Closing Balance
Sheet shall constitute acceptance thereof, whereupon the Draft Closing Balance
Sheet shall be deemed to be the "Closing Balance Sheet". Purchaser and the
Shareholders shall use their reasonable and good faith efforts to resolve any
such objections, but if they do not reach a final resolution within thirty
(30) days following the Shareholders' delivery of their statement of
objections, Purchaser and the Shareholders shall settle the disagreement by
retaining Arthur Andersen, L.L.P. ("Arthur Andersen") to resolve any
remaining objections. The determination of Arthur Andersen will be set forth
in writing. The Draft Closing Balance Sheet then shall be adjusted in
accordance with Arthur Andersen's decision. The Draft Closing Balance Sheet,
as so adjusted, shall be the Closing Balance Sheet. Any decision by Arthur
Andersen shall be final and binding upon the parties, absent fraud or manifest
error, and judgment may be entered thereon, upon the application of either
party, by any court having competent jurisdiction. Each party shall bear the
cost of preparing and presenting its case; and the fees and expenses of Arthur
Andersen will be shared equally by the parties.
(ii) During the period of any dispute referred to above, (A)
Purchaser shall, and shall cause the Company to, provide the Shareholders,
their accountants and Arthur Andersen full access to the books, records,
facilities and employees of the Company, Purchaser's accountants and all work
papers in connection with the Draft Closing Balance Sheet; provided, however,
that any such access shall be allowed only in such manner as not to interfere
unreasonably with the operation of the Company's business, and (B) the
Shareholders shall, and shall cause the Shareholders' independent accountants
to, provide Purchaser, Purchaser's accountants and Arthur Andersen full access
to all work papers in connection with the Base Balance Sheet, the Draft
Closing Balance Sheet.
(b) Adjustment for Additional 1999 Taxes. In the event that the
Company owes more than $75,000 in Taxes, in the aggregate, attributable to (i)
the 1999 Tax Year (after taking into account all Taxes prepaid by the
Company), and/or (ii) any prior fiscal year of the Company, Purchaser shall
reduce the number of SkyLynx Shares to be received by the Shareholders by
retaining ownership of a number of the Hold Back Shares determined by dividing
the amount of such Taxes in excess of $75,000 by the average closing price of
a share of SkyLynx Common Stock on the over-counter-market for the five (5)
trading days immediately preceding the date on which Purchaser makes such
calculation.
ARTICLE III
REPRESENTATIONS OF THE SHAREHOLDERS
As a material inducement for Purchaser to enter into this Agreement and
to consummate the transactions contemplated hereby, each of the Shareholders
hereby represents and warrants to Purchaser, severally with respect to all
representations and warranties concerning such Shareholder, and jointly and
severally with respect to all representations and warranties concerning the
Company, that each of the statements contained in this Article III (including
the Schedules hereto) is true and correct as of the date of this Agreement and
will be true and correct at and as of the Closing.
3.1 Ownership of Stock. Shareholder is the lawful owner of the number
of shares of Stock listed opposite Shareholder's name on Exhibit A hereto,
free and clear of all Encumbrances. Shareholder has full legal right, power
and authority to sell, assign, transfer and convey Shareholder's shares of the
Stock in accordance with the terms and subject to the conditions of this
Agreement. Delivery of the Shareholder's shares of Stock to Purchaser
pursuant to the provisions of this Agreement will transfer to Purchaser valid
title to such Stock, free and clear of any and all Encumbrances.
3.2 Due Issuance. The shares of Stock owned by Shareholder are validly
issued, fully paid and nonassessable.
3.3 Power and Authority Relative to Transaction. Shareholder has full
power and authority and has taken all required action necessary to permit
Shareholder to execute and deliver this Agreement and to perform all of
Shareholder's obligations contained herein, and to execute, deliver and
perform all of the obligations contained in the Operative Documents, and none
of such actions conflicts with or violates any provision of law or violates or
constitutes a default under or will result in any breach of any agreement,
indenture, deed of trust, mortgage, instrument, lease, order, judgment, writ,
injunction, decree, license or permit of any court or governmental or
regulatory body applicable to Shareholder.
3.4 Valid and Binding Obligations. This Agreement constitutes the valid
and legally binding obligation of Shareholder, enforceable against such
Shareholder in accordance with its terms, subject to applicable bankruptcy,
insolvency and other general laws affecting the rights and remedies of
creditors, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
3.5 Litigation. Except as set forth on Schedule 3.5, there is no
action, suit or proceeding at law or in equity by any Person or any
arbitration or any administrative or other proceeding by or before any
governmental or other instrumentality or agency, pending or, to the knowledge
of Shareholder, threatened against the Shareholder that would materially
adversely affect such Shareholder's ability to perform his or her obligations
under the Operative Documents.
3.6 No Offer. Shareholder has not, directly or indirectly, singly or
with others, offered, solicited offers for or sold, assigned, pledged or
otherwise transferred any of the Stock prior to the Closing. Neither the
Shareholders nor the Company has, directly or indirectly, through any officer,
director, agent or otherwise, (i) solicited, initiated or encouraged
submission of proposals or offers from any person other than Purchaser
relating to any acquisition or purchase of any of the Stock and/or all or
substantially all of the assets of the Company, or any equity interest in the
Company or any equity investment, merger, consolidation or business
combination with the Company, or (ii) participated in any discussions or
negotiations regarding, or furnished to any other Person, any nonpublic
information with respect to, or otherwise cooperated in any way with, or
assisted or participated, facilitated or encouraged, any effort or attempt by
any other Person to do or seek to do any of the foregoing.
3.7 Broker's or Finder's Fees. No agent, broker or Person acting on
behalf of any or all of the Shareholders or the Company is, or will be,
entitled to any commission or broker's or finder's fee from any of the parties
hereto, or from any Person controlling, controlled by or under common control
with any of the parties hereto, in connection with any of the transactions
contemplated herein.
3.8 Organization, Power and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on
its business as now being conducted. The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing in
each of the jurisdictions set forth on Schedule 3.8 hereto; Schedule 3.8
contains a complete listing of all jurisdictions in which the character or
location of the property owned, leased or operated by the Company or the
nature of the business conducted by the Company makes such qualification
necessary, except where the failure to be so duly qualified or licensed would
not have a material adverse effect on the business, financial condition or
results of operations of the Company.
3.9 Authorization; Execution and Delivery. The Company has the
corporate power and authority to make, execute, deliver and perform the
Operative Documents to which it is a party and to consummate the transactions
contemplated thereby. The execution, delivery and performance by the Company
of the Operative Documents to which it is a party have been duly authorized by
the Company's Board of Directors and the Company's Shareholders.
3.10 Capital Stock. The number of authorized shares of capital stock,
the number of shares of capital stock presently issued and outstanding, the
par value per share of capital stock and the beneficial owners of such issued
and outstanding shares of capital stock are set forth in Schedule 3.10
attached hereto. All such outstanding shares have been duly authorized and
validly issued, are fully paid and nonassessable, and have been issued in full
compliance with all applicable securities laws. Except as set forth in
Schedule 3.10, there are no outstanding subscriptions, options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, plans or
other agreements providing for the purchase, issuance or sale of any shares of
the capital stock of the Company, other than as contemplated by this
Agreement.
3.11 Subsidiaries and Interests in Other Entities. Except as set forth
in Schedule 3.11, (i) the Company has no subsidiaries and does not, directly
or indirectly, own or control, or have any interest or the right to acquire
any equity interest whatsoever in, any other corporation, limited liability
company, partnership, joint venture, association or other business
organization or entity, and (ii) the Company has not made any investment in or
advance of cash or other extension of credit to any company, entity or
individual. Other than the Shareholders, there is no Person controlling,
controlled by or under control with the Company, nor is there any Person which
on or prior to the Closing Date is or was a member of the same controlled
group or affiliated service group or was under common control with the Company
within the respective meanings of Sections 414(b), (m) and (c) of the Code.
3.12 Financial Statements. Except as indicated therein, the financial
statements, including balance sheets and statements of income, of the Company
which have been supplied by the Shareholders to Purchaser as of and for the
fiscal years ended June 30, 1997 and June 30, 1998, in each case reviewed by
the Company's independent accountants: (i) have been prepared on a consistent
basis; (ii) present fairly the financial condition of the Company as at such
dates; (iii) are true, correct and complete; and (iv) are consistent with the
books and records of the Company (which books and records are correct and
complete). The Shareholders have also supplied to Purchaser a balance sheet
as at April 20, 1999 and statements of income for the ten (10) months ended
April 30, 1999. Collectively, all of such audited and unaudited financial
statements, including the footnotes thereto, are the "Financial Statements".
The Company has maintained adequate reserves for all assets and liabilities
set forth on its Base Balance Sheet. Neither the Company nor any Shareholder
has any debts, liabilities or obligations of any nature whatsoever which are
related to the business or the assets of the Company which are not disclosed
on such Financial Statements or set forth on Schedule 3.12.
3.13 Undisclosed Liabilities.
(a) The Company does not have any liability (and to the
Shareholders' knowledge, there is no basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim or demand
against the Company giving rise to any liability), except for: (i) liabilities
set forth on the face of the Base Balance Sheet (rather than in any notes
thereto); and (ii) except, as set forth on Schedule 3.13(a), liabilities which
have arisen after April 20, 1999 in the Company's 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.
(b) Without in any way limiting the representation and warranty set
forth in Section 3.13(a) above, the Company does not have any unfunded
liabilities in connection with any workers' compensation, employers'
liability, or group health plan except as described in Schedule 3.13(b). The
matters described in Schedule 3.13(b) will not, individually or in the
aggregate, have any material adverse effect upon the business or operations of
the Company or Purchaser.
3.14 Title to Properties; Encumbrances.
(a) Except as set forth in the Financial Statements or as listed on
Schedule 3.14(a), the Company is the sole owner of, and has good, valid and
marketable title to, all of its properties and assets, real and personal,
including all those reflected in the Financial Statements (except for such
assets as may since have been sold or otherwise disposed of in the ordinary
course of business). None of such properties is subject to any mortgage,
pledge, lien, conditional sale agreement, security interest, encumbrance or
other charge except:
(i) liens reflected in the Base Balance Sheet;
(ii) liens consisting of zoning or planning restrictions,
easements, permits and other restrictions or limitations on the use of real
property or irregularities in title thereto which do not materially detract
from the value of, or impair the use of, such property by the Company in the
operation of its business;
(iii) liens, encumbrances and leases incurred or made in the
ordinary course of business which do not materially impair the usefulness of
such properties and assets in the conduct of the business of the Company (but
excluding liens securing payment of indebtedness);
(iv) liens arising by operation of law;
(v) liens for current taxes, assessments or governmental
charges or levies on property not yet due and delinquent; and
(vi) as specifically set forth on Schedule 3.14(a).
Except as set forth in Schedule 3.14(a), the Company's properties and
assets are in good working order and condition, ordinary wear and tear
excepted.
(b) The Company enjoys peaceful and undisturbed possession under
the leases set forth on Schedule 3.14(b). All such leases are valid,
subsisting and in full force and effect, and there are no uncured defaults of
the Company under such leases. There exists no material event, occurrence,
condition or act (including the purchase of the Stock hereunder) which, with
the giving of notice, the lapse of time or the happening of any further event
or condition, would become a material default by the Company under any such
lease. The assets and properties of the Company, including those obtained
pursuant to said leases, are adequate to conduct the operations currently
conducted and presently proposed to be conducted by the Company. Except as
set forth in Schedule 3.14(b), all machinery, equipment and other assets of
the Company are in good repair, reasonable wear and tear excepted, have been
well maintained and, to the best of the Shareholders' knowledge, conform in
all material respects to all applicable ordinances, regulations and zoning or
other laws, and such machinery and equipment is in good working order. There
is no pending or, to the best of the Shareholders' knowledge, threatened
condemnation of any such property. Except as set forth in Schedule 3.14(b),
the leasehold or other interest of the Company in such real property is not
subject or subordinate to any security interest, lien or mortgage, except with
respect to liens described in Section 3.14(a), clauses (i) through (vi) above.
The lease for the Company's premises at 1111 Howe Avenue, Suite 355,
Sacramento, California, has not been amended and neither the landlord nor the
Company is in default thereunder. To the best of the Shareholders' knowledge,
the Company's use of its premises and the occupancy and operation thereof by
the Company are in compliance in all material respects with all applicable
Federal, state and local laws, ordinances and regulations, including without
limitation Federal and state safety, health, environmental protection and
hazardous waste laws, regulations, standards and ordinances.
(c) Schedule 3.14(c) sets forth an accurate, correct and complete
list of all motor vehicles operated by the Company, whether owned or leased.
All such vehicles are: (a) properly licensed and registered in accordance with
applicable law; (b) insured as set forth in Schedule 3.23; (c) in good
operating condition and repair (reasonable wear and tear excepted); and (d)
except as set forth on Schedule 3.14(c), not subject to any lien or other
encumbrance.
3.15 Material Contracts. Schedule 3.15 hereto sets forth a complete and
accurate list and compilation of all material:
(a) Contracts between the Company and its customers, revenues from
which constituted at least one percent (1%) of the Company's revenues for the
fiscal quarter from April 1 to June 30, 1999;
(b) Licenses, leases, contracts and other arrangements with respect
to any material property of the Company;
(c) Contracts (written or oral) with respect to which the Company
has any liability or obligation, contingent or otherwise, involving more than
Ten Thousand Dollars ($10,0000) or which may otherwise have any continuing
effect after the Closing, or which place any material limitation on the method
of conducting or the scope of the Company's business;
(d) Contracts with directors, officers, employees, agents and/or
consultants of the Company or the spouses or relatives of such persons;
(e) Compensation arrangements for employees, consultants and
independent contractors including rates of pay and other benefits and the
amounts of compensation and other benefits accrued as of a recent date;
(f) Agreements, contracts or instruments relating to the borrowing
of money, or the guaranty of any obligation for the borrowing of money;
(g) Contracts between officers, directors or employees of the
Company and any other Person which purport to restrict the Company's business
activities or use of information in the Company's business, including without
limitation any covenant not to compete;
(h) All agreements (regardless of materiality) relating to any
securities of the Company or rights in connection therewith; and
(i) Any other material contracts, leases, instruments, commitments,
plans or arrangements of the Company not referred to above.
All the foregoing are herein called "Material Contracts." Schedule 3.15
includes with respect to each Material Contract, whether oral or written, the
names of the parties, the date thereof, and its title or other general
description. Each Material Contract sets forth the entire arrangement and
understanding between the Company and the respective third parties with
respect to the subject matter thereof and, except as indicated in such
Schedule, there have been no amendments or side or supplemental arrangements
to or in respect of any Material Contract. The Company has furnished to
Purchaser true and correct copies of all written Material Contracts as
currently in effect, and will furnish any further information that Purchaser
may reasonably request in connection with any Material Contract. Each
Material Contract is valid and in full force and effect, and the Company has
performed all material obligations required to be performed by it thereunder.
The Company is not in material default under or in material breach or material
violation of any Material Contract or any other agreement, decree, order,
statute or governmental rule or regulation applicable to it in a manner which
would materially and adversely affect its business, operations, affairs,
prospects or condition, or the transactions contemplated by this Agreement and
the execution and delivery of the Operative Documents and the consummation of
the transactions contemplated thereby will not result in the violation of any
law, decree or order known to the Company or in any default, breach or
violation of any Material Contract to which the Company is a party or by which
it is bound. To the best of the Shareholders' knowledge, there is no event
which has occurred or existing condition which constitutes, or with notice or
lapse of time or both, would constitute a default under any Material Contract
or would cause the acceleration of any obligation of any party thereto, or
give rise to any right of termination or cancellation or cause the creation of
any Encumbrance on any asset of the Company. To the best of the Shareholders'
knowledge, no third party is in default under any material provision of any
Material Contract. None of the Shareholders has any knowledge that the
parties to any Material Contract will not fulfill their obligations thereunder
in all material respects. There is no term of any Material Contract which now
or in the future may, so far as the Shareholders can now reasonably foresee,
materially adversely affect the business, operations, affairs, prospects or
condition of the Company.
3.16 No Violations. Except as set forth in Schedule 3.16, the execution
and delivery of the Operative Documents by the Company and the consummation of
the transactions contemplated thereby: (a) will not violate any provision of
the Articles of Organization or Bylaws of the Company, (b) to the knowledge of
the Shareholders, will not violate any statute, rule, regulation, order or
decree of any public body or authority by which the Company is bound or
binding upon any of their respective properties or assets, and (c) to the
knowledge of the Shareholders, will not result in a violation or breach of, or
constitute a default under, any material license, franchise, permit,
indenture, agreement or other instrument to which the Company is a party, or
by which the Company or any of its assets or properties is bound, excluding
from the foregoing clauses (b) and (c) violations, breaches or defaults which,
either individually or in the aggregate, would not have a material adverse
effect on the business, operations, affairs or prospects of the Company.
3.17 Taxes. The Company has timely filed or caused to be timely filed,
or will timely file or cause to be timely filed on or prior to the Closing
Date, all Returns required to be filed on or prior to the Closing Date (taking
into account any extension of time to file granted to or on behalf of the
Company), except for Returns for the 1999 Tax Year. All such Returns are
correct and complete in all respects and no Return of the Company has ever
been audited. Except as set forth in Schedule 3.17 (which includes unpaid
Taxes attributable to the 1999 Tax Year and any potential claims of unpaid
Taxes for any prior fiscal year) attached hereto, all Taxes for the respective
periods covered by the Returns have been, or prior to the Closing Date will
be, timely paid. The Company does not owe more than $75,000 in Taxes, in the
aggregate, attributable to (i) the 1999 Tax Year (after taking into account
all Taxes prepaid by the Company), and/or (ii) any prior fiscal year of the
Company. Except as set forth in Schedule 3.17, there is no unpaid assessment
and no basis for the assessment of any Taxes in excess of $75,000 for any
period ending on or prior to June 30, 1999. Except as set forth on Schedule
3.17, neither the IRS nor any other taxing authority has asserted or
threatened to assert, or is now asserting or threatening to assert, against
the Company any deficiency or claim for additional Taxes. The Company has
withheld from its employees' or its other payees' gross compensation or other
payments and has paid over to appropriate governmental authorities all Tax
withholdings required by applicable law. Except as disclosed on Schedule
3.17, (a) there are no waivers or extensions in effect of the applicable
statutory period of limitation for the assessment of Taxes of the Company for
any taxable period, and (b) no deficiency assessment or proposed adjustment
with respect to any Tax liability of the Company for any taxable period is
pending or, to the knowledge of the Shareholders, threatened. No claim has
ever been made by an authority in a jurisdiction where the Company does not
file Returns that it is or may be subject to taxation by that jurisdiction.
Schedule 3.17 hereto lists all of the jurisdictions in which the Company has
ever done business, been authorized to do business, owned or leased property,
had employees or customers, employed capital, or solicited or made sales.
There are no liens for Taxes (other than for current Taxes not yet due and
payable) on the assets of the Company. The Company is not a party to, or
bound by, any agreement providing for the allocation or sharing of Taxes.
Schedule 3.17 hereto sets forth the Company's adjusted basis in its assets for
federal income tax purposes. The Company neither (i) has been a member of an
affiliated group filing a consolidated federal income tax return (other than a
group the common parent of which was the Company), nor (ii) has any liability
for the taxes of any other person under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise. Neither any Shareholder nor the Company
has executed or entered into any closing agreement pursuant to Section 7121 of
the Code, or any predecessor provision thereof, or any similar provision of
state or local law. No Shareholder is a foreign person within the meaning of,
and no Tax is required to be withheld as a result of the transfers
contemplated by this Agreement pursuant to, Section 1445 of the Code.
3.18 Conduct of Business; Absence of Material Adverse Changes. Since
January 1, 1999, except as otherwise required pursuant to this Agreement, the
Company has conducted its business only in the usual and ordinary course, and
there has been: (i) no sale, transfer or other disposition of any of the
material assets or capital stock of the Company; (ii) no Encumbrance placed
upon the Company's assets or capital stock; and (iii) no other event or
condition known to the Shareholders which materially and adversely affects, or
which is reasonably likely to materially and adversely affect, the business or
the condition (financial or other), operations, affairs, prospects, assets or
liabilities of the Company.
In particular, and without limiting the generality of the foregoing,
since January 1, 1999, the Shareholders have not permitted the Company to do
any of the following:
(a) change its method of management or operations;
(b) amend its Articles of Organization or Bylaws;
(c) terminate the services of any employee, consultant or agent of
the Company;
(d) increase the compensation payable or to become payable to any
officer, director, employee or agent of the Company or make or enter into any
bonus payment arrangement with any officer, director, employee, or agent, or
hire or engage any additional management personnel, consultants or contractors
for the business of the Company, except as previously disclosed to Purchaser
regarding payment by Seller to each of the Shareholders in the amount of Five
Thousand Dollars ($5,000) on April 5, 1999;
(e) make any loan to, or enter into any other transaction with, any
of its directors, officers and employees, or any member of their respective
families, outside of the Company's ordinary course of business;
(f) adopt, amend, modify or terminate any bonus, profit sharing,
incentive, severance or other plan, contract or commitment for the benefit of
any of its directors, officers and employees (or take any such action with
respect to any of its employee benefit plans);
(g) directly or indirectly redeem, purchase or otherwise acquire or
dispose of any properties or assets except in the ordinary course of business;
(h) subject any of its properties or assets to any Encumbrance;
(i) directly or indirectly redeem, purchase or otherwise acquire
any of its Stock;
(j) incur any indebtedness for borrowed money, make any loans or
advances to any Person, or assume, guarantee or endorse, or otherwise become
responsible for, the obligation of any other Person, except in the ordinary
course of business;
(k) modify, amend, cancel or terminate any existing agreement
material to its business, including the making of any substantial prepayment
on any existing obligation, except in the ordinary course of business;
(l) make any material change in the accounting methods or practices
employed by the Company as at the date hereof in respect of the business of
the Company;
(m) delay or postpone the payment of its accounts payable and other
liabilities outside its ordinary course of business;
(n) enter into any contract or commitment involving in any instance
aggregate payment by the Company of more than Five Thousand Dollars ($5,000)
or extending beyond the Closing Date, except in connection with the
transactions contemplated hereby or in the usual and ordinary course of
business consistent with past practice;
(o) declare or pay any dividend or distribution in respect of its
capital stock, either in cash, in kind or in shares of stock (except for the
distribution of the assets listed on Schedule 3.18 to the Shareholders prior
to the Closing), or issue or authorize any securities of the Company or grant
stock options, warrants or other rights to acquire shares of its stock or
securities convertible into or exchangeable for shares of its stock;
(p) take any other action which would materially adversely affect
or detract from the value of the Company or the capital stock of the Company,
including without limitation canceling any debts or claims;
(q) waive any rights of material value or modify, amend, alter or
terminate any Material Contract;
(r) grant any license or sublicense of any of its rights under or
with respect to any of its Intellectual Property; and/or
(s) directly or indirectly offer, solicit or entertain offers for
or take any other action with a view to the sale of all or any substantial
part of the assets, capital stock or business of the Company.
3.19 Intellectual Property. The Company owns or has the right to use all
Intellectual Property necessary to the conduct of its business. Schedule 3.19
contains a list of all Intellectual Property and registrations and
applications for the foregoing. The Company has clear and unencumbered title
to the Intellectual Property set forth in Schedule 3.19 which is listed as
owned by the Company and such title has not been challenged (or, to the
knowledge of the Shareholders and the Company, threatened) by others except
for the Encumbrances listed at Schedule 3.19. No rights or licenses to use
Intellectual Property have been granted or acquired by the Company except
those listed at Schedule 3.19. Except as listed at Schedule 3.19, to the
knowledge of the Shareholders and the Company, there have been (a) no claims
or assertions made by others that the Company has infringed any rights to any
Intellectual Property of others by the sale of products or any other activity
in the preceding six (6) year period and (b) no infringements by the Company
during this period. Except as listed at Schedule 3.19, the Company has no
knowledge of any infringement of Intellectual Property of the Company by
others. All such patents, registered trademarks, service marks, and
copyrights owned by the Company are in good standing, and are recorded on the
public record in the name of the Company except for those failures to be in
good standing and so recorded that would not, individually or in the
aggregate, have a materially adverse effect the business, prospects,
condition, affairs or operations of the Company or any of its properties or
assets.
3.20 Compliance with Laws. Except as set forth in Schedule 3.20, the
Company presently holds all permits, licenses, certificates, approvals,
registrations and authorizations (collectively, "Permits") necessary or
appropriate for the conduct of its business, all such Permits are listed on
Schedule 3.20 and, the consummation of the transactions contemplated by this
Agreement will not render such Permits invalid or otherwise require any
notices, applications or other filings except as annotated on Schedule 3.20.
Neither the Company nor any of the Shareholders has received any notice from
any federal, foreign, state or local governmental agency, and neither the
Company nor any of the Shareholders has any knowledge or reason to believe
that the Company's operation of its business violates any federal, foreign,
state or local law, regulation, order or restriction. The Company has
operated its business in full compliance with all applicable laws, including
all laws and regulations relating to employment, occupational safety and
health, and environmental matters. The Company is not in violation of any
federal, foreign, state or local statute, ordinance, judgment, decree, order
or governmental rule, regulation, policy or guideline applicable to the
Company in a manner which could materially and adversely affect its condition
(financial or otherwise), operations, affairs or prospects, the transactions
contemplated by this Agreement or the business of the Company.
3.21 Employees and Compensation.
(a) The Company is not in violation of any applicable federal,
foreign, state or local laws, rules or regulations with respect to employment,
employment practices or the terms and conditions of employment, wages and
hours in a manner which could materially and adversely affect its condition
(financial or otherwise), operations, affairs or prospects or the business of
the Company. None of the Company's employees is represented by any union, and
there is no labor strike, slowdown, stoppage, organizational effort, dispute
or proceeding by or with any employee or former employee of the Company or any
labor union pending or threatened against the Company.
(b) There are no employment or consulting contracts or arrangements
(other than those terminable at will) with any employees or consultants of or
associated with the Company, except as described on Schedule 3.21. Schedule
3.21 also sets forth a true and complete list of all employees of and
consultants to the Company, showing date of hire, hourly rate or salary or
other basis of compensation, each bonus, hourly rate increase and/or salary
increase granted since December 31, 1998 (or committed to be granted in
connection with the transactions contemplated hereunder), and job function.
3.22 Employee Benefits.
(a) Except as disclosed on Schedule 3.22, there are no plans,
programs, arrangements, understandings, practices or commitments, whether
formal or informal, firm or contingent, written or oral, domestic or foreign,
sponsored, maintained or contributed to by the Company which (i) cover, or
which at any time prior to the Closing Date covered, any current or former
employees or independent contractors of the Company, and (ii) provide, or
which at any time prior to the Closing Date provided, any of the following
benefits, regardless of whether such benefit is subject to regulation under
ERISA: pension, profit sharing, stock bonus, deferred compensation, incentive
compensation, stock option, employee stock ownership, life insurance, medical,
dental, vision, disability, vacation, workers' compensation, retiree welfare,
severance or any benefit listed in Section 3(1) and 3(2) of ERISA. The plans,
programs, arrangements, understandings, practices and commitments listed in
the Schedule 3.22 are hereinafter referred to collectively as the "Plans."
(b) The Shareholders and the Company have delivered to Purchaser
true and complete copies of all documents, as they may have been amended to
the date hereof, embodying or materially relating to the Plans. Except as
disclosed in Schedule 3.22, there have been no written or oral communications
with respect to any Plan with the IRS, U.S. Department of Labor, PBGC or the
Securities and Exchange Commission, or with any other federal, state or local
government entity. The Company and the Shareholders shall further make
available to Purchaser any documents or other information relating to the
Plans as may be reasonably requested by Purchaser.
(c) All persons who participate in the operations of each Plan
(including, without limitation, members of any Plan committee, all Plan
fiduciaries, all Plan administrators, the Company, its board of directors and
all relevant employees of the Company) act and have always acted with respect
to each Plan in accordance with the requirements of all applicable laws
(including but not limited to ERISA and the Code) and in accordance with the
terms and conditions of each such Plan. All Plans are now, and have always
been, established, maintained and operated in accordance with all applicable
laws (including ERISA and the Code).
(d) Except as disclosed in Schedule 3.22, every Plan is now and has
always been established in writing. With respect to any Plan not established
in writing, a true and complete description of such Plan is set forth in
Schedule 3.22. Each Plan is now, and has always been, operated in complete
accordance with its Plan documents, or with the written description of the
Plan set forth in Schedule 3.22.
(e) All communications with respect to each Plan by any person
(including, without limitation, members of any Plan committee, all Plan
fiduciaries, all Plan administrators, the Company, its board of directors and
all relevant employees of the Company) reflect and have always reflected
accurately the documents and operations of each such Plan.
(f) Except as set forth in Schedule 3.22, each Plan intended to
meet the requirements under Section 401(a) of the Code has received a
favorable, unrevoked determination letter from the IRS with respect to the Tax
Reform Act of 1986 and subsequent legislative changes to the Code (with its
related trust having been determined by the IRS to be exempt from taxation
under Section 501(a) of the Code), which determination letter may still be
relied upon as to such tax qualified status, and to the best of Company's and
the Shareholders' knowledge no circumstances have occurred that would
adversely affect the tax-qualified status of any such Plan.
(g) Except as described in Schedule 3.22, and except with respect
to income taxes assessed on benefits paid or provided which are clearly
intended to be taxable, no income, excise or other tax or penalty (federal or
state) has been waived or excused, has been paid or is owed by any person
(including without limitation any Plan, any Plan fiduciary and the Company)
with respect to the operations of, or any transactions with respect to, any
Plan. No action has been taken, nor has there been any failure to take any
action, nor is any action or failure to take action contemplated, that would
subject any person or entity to any liability for any tax or penalty in
connection with any Plan (including but not limited to any tax or penalty for
the failure to withhold income taxes in connection with benefit payments). No
reserve for any taxes or penalties has been established with respect to any
Plan, nor has any advice been given to any person with respect to the need to
establish such a reserve.
(h) Except as set forth on Schedule 3.22, all reports, forms and
other documents with respect to any Plan required to be filed with any
government entity or to be disclosed to Plan participants and their
beneficiaries have been timely filed or disclosed, as the case may be, and are
accurate.
(i) Except as set forth on Schedule 3.22, there have been no
filings with respect to any Plan with the PBGC. No liability to the PBGC has
been incurred or is expected with respect to any Plan except for insurance
premiums, and all insurance premiums incurred or accrued up to and including
the Closing Date have been timely paid by the Company. There has been no
event or condition, nor is any event or condition expected, that would present
a risk of termination of any Plan or which would constitute a "reportable
event" (within the meaning of Section 4043 of ERISA).
(j) All contributions required to be made to each Plan as of the
Closing Date have been timely and completely made. All such contributions
have been fully deducted by the Company for income tax purposes, such
deductions have not been challenged or disallowed by any government entity
(nor does the Company have any reason to believe that such deductions are not
allowable), and all amounts properly accrued as unpaid liabilities of the
Company with respect to each Plan for the current plan year have been recorded
on the Company's books and will be reflected on the Closing Balance Sheet.
(k) All benefits and other payments required to be made under or by
any Plan have been completed and timely paid.
(l) The Company does not have any obligations to pay severance
benefits that will arise solely as a result of this stock purchase, and no
benefit obligations have given or will give rise to an "excess parachute
payment," as such term is defined in Section 280G of the Code.
(m) No Plan which is an "employee welfare benefit plan" provides
for continuing benefits or coverage, including but not limited to medical,
health or life insurance, to an employee or former employee following
termination of employment with the Company other than that required by Section
4980B of the Code and Sections 601 through 609 of ERISA.
(n) Each Plan which is a "group health plan" (within the meaning of
Section 5000(b)(1) of ERISA) is in material compliance with the requirements
under Section 4980B of the Code and Sections 601 through 609 of ERISA and the
requirements of the Health Insurance Portability and Accountability Act of
1996.
(o) No employees of the Company are, or have been, participants in
any "multiemployer plan" (within the meaning of Section 3(37) of ERISA),
"multiple employer welfare arrangement" (within the meaning of Section 3(40)
of ERISA) or "voluntary employees' beneficiary association" (within the
meaning of 501(c)(9) of the Code) maintained, sponsored by or contributed to
by the Company.
(p) With respect to each Plan which is a self-insured "employee
welfare benefit plan" (within the meaning of Section 3(1) of ERISA), no claims
have been made pursuant to any such Plan that have not yet been paid or
otherwise accrued on the Company's books and, to the best knowledge of the
Company, no injury, sickness or other medical condition has been incurred with
respect to which claims may be made pursuant to any such Plan.
(q) There is no suit, action, dispute, claim, arbitration or legal,
administrative or other proceeding or governmental investigation pending, or,
to the best knowledge of the Company, threatened, alleging any breach of the
terms of any Plan or of any fiduciary duties thereunder or violation of any
applicable law with respect to any Plan, nor, to the best knowledge of the
Company, any arbitration, proceeding or investigation.
(r) Without prior disclosure to, and consent from, Purchaser, there
will be no change in the operations of the Plans or in the documents
constituting or affecting the Plans which individually or in the aggregate
would materially affect the amount of assets of the Plans which are
attributable to employees of the Company or the benefits or liabilities of the
Plans which are attributable to employees of the Company.
(s) Subject to applicable requirements of ERISA, neither any
provision of any Plan nor any agreement with any employee nor any
representation or course of conduct by or on behalf of the Company would
prevent the amendment or termination of any Plan without liability to the
Company.
Solely for purposes of this Section 3.22, the term Company includes any
controlled group (within the meaning of Section 414(b) of the Code) of which
the Company is a member, all trades or businesses under common control (within
the meaning of Section 414(c) of the Code) of which the Company is a member,
and all affiliated service groups (within the meaning of Section 414(m) of the
Code) of which the Company is a member. Except as disclosed on Schedule 3.22,
the Company is not a member of any controlled group, any trade or business
under common control, or any affiliated service group.
3.23 Insurance. The Company has continuously maintained for the entire
period of time it has been in existence, and continues to maintain, property,
general liability and workers' compensation insurance covering the operations
of the Company's business through the policies listed in Schedule 3.23. Such
policies are in full force and effect, all premiums due thereon have been
paid, and the Company has complied in all material respects with the
provisions of such policies. Except as otherwise indicated on Schedule 3.23,
all liability insurance policies are on an "occurrence" basis. The insurance
listed in Schedule 3.23 is in amounts adequate to cover losses on physical
assets. Schedule 3.23 also lists all outstanding claims against such policies
as of the date hereof.
3.24 Environmental and Safety Laws.
(a) The Company (including its properties, facilities and
operations) is, and has in the past been, in compliance with all, and has no
liability under any, Environmental Laws and all applicable statutes, laws or
regulations relating to occupational health and safety, except as set forth in
Schedule 3.24. There are no actions, activities, circumstances, conditions,
events or incidents, including the release, emission, discharge, presence or
disposal of any Materials of Environmental Concern which could interfere with
or prevent continued compliance with all Environmental Laws.
(b) Except as set forth in Schedule 3.24 or as authorized under
applicable Environmental Laws, there is not currently, and has not in the past
been, any release, emission, discharge, presence or disposal of any Materials
of Environmental Concern into the environment (including the air, surface and
groundwater and surface and subsurface soils) at, on, into, under, or
originating at any real property owned, leased or operated by the Company.
Except as set forth in Schedule 3.24, no real property owned, leased or
operated by the Company is or has been the location of any hazardous waste
treatment, storage or disposal facility, any underground storage tank, or any
facilities or equipment containing asbestos or polychlorinated biphenyls. No
lien has been imposed by a governmental entity or third party on any real
property owned, leased or operated by the Company in connection with the
presence at such property of any Material of Environmental Concern.
(c) The Company has not, since inception, (i) received any written
communication from a governmental, quasi-governmental or regulatory agency or
other entity, citizens' group, director, officer or employee of the Company or
other Person, alleging that the Company is not in compliance with or has
violated any Environmental Law or any applicable statute, law or regulation
relating to occupational health and safety or that the Company has any
liability under common law with respect to pollution and/or protection of
human health and/or the environment (including, without limitation, any
release, emission, discharge, presence or disposal of any Materials of
Environmental Concern); (ii) received any request for information, notice or
administrative inquiry under any Environmental Law; or (iii) entered into or
been subject to any consent decree, compliance order, or administrative order
with respect to any Environmental Law or any liability under common law with
respect to pollution and/or protection of human health and/or the environment
(including, without limitation, any release, emission, discharge, presence or
disposal of any Materials of Environmental Concern).
(d) The Company has not conducted, or arranged for the conduct of,
an environmental audit, investigation or assessment of any of its facilities
or operations or any real property owned, leased or operated by the Company.
The Company has not received, and none of the Shareholders nor the Company has
any knowledge of, any such audit, investigation or assessment conducted by any
other party.
(e) None of the Shareholders or the Company has any knowledge of
any past or present actions, activities, circumstances, conditions, events or
incidents, including the release, emission, discharge, presence or disposal
(whether at the Company's property or at property of another person) of any
Materials of Environmental Concern, that could reasonably be expected to form
the basis of any Environmental Claim against the Company.
(f) The Company has all permits, approvals and other governmental
authorizations that it is required to hold under any Environmental Law.
3.25 Books and Records. All corporate actions of the Company's board of
directors and Shareholders have been duly authorized in accordance with
applicable law and the Articles of Organization and Bylaws of the Company, and
have been duly and accurately recorded in the Company's minute books. The
general ledgers and books of each Company and all of the Company's other
books, accounts and records are complete and correct in all material respects
and have been maintained in accordance with good business practice and, in all
material respects, all applicable laws and regulations.
3.26 Banking Relationships. All of the arrangements which the Company
has with any banking institution are completely and accurately described in
Schedule 3.26, indicating with respect to each such arrangement the type of -
arrangement maintained (including, without limitation, checking account,
borrowing arrangement, lockbox or safe deposit box) and the person or persons
authorized in respect thereto. The Company has no outstanding powers of
attorney or guaranties of any kind.
3.27 Required Consents, Etc. Except as described in Schedule 3.27, no
consent, approval, authorization, declaration or filing including, without
limitation, any consent, approval or authorization of or declaration or filing
with any governmental authority, is required on the part of the Company and/or
any Shareholder in connection with the execution, delivery and performance of
the Operative Documents.
3.28 Accounts Receivable. All notes and accounts receivable of the
Company are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible, and will
be collected in accordance with their terms at their recorded amounts, subject
only to the reserve for bad debts set forth on the face of the Base Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with GAAP and the past custom and
practice of the Company. The Company has no accounts or loans receivable from
any Person which is affiliated with the Company or from any director, officer
or employee of the Company. All accounts receivable of the Company arose out
of bona fide transactions in its ordinary course of business.
3.29 Litigation. Except as set forth on Schedule 3.29, there is no
litigation, proceeding or investigation pending or, to the best of the
Shareholders' knowledge, threatened (nor, to the best of the Shareholders'
knowledge, is there any basis therefor) against the Company or affecting any
of its properties, rights or assets or against any director, officer or
employee which relates to the affairs of the Company or the right of any
director, officer or employee to participate in the business of the Company
and which is reasonably likely to result in any material adverse change in the
business or condition (financial or otherwise), operations, affairs,
prospects, assets or liabilities of the Company or which relates to the Stock
or the transactions contemplated by this Agreement, in any court or before any
authority or governmental entity including, without limitation, actions,
proceedings or investigations with respect to any alleged violation by the
Company of any law, statute, ordinance, regulation, order, policy or guideline
of any governmental entity.
3.30 Inventory. The Company's inventory of items are of a quality and
quantity useable in the ordinary course of the Company's business. The
Company's inventory with a value in excess of $500 is listed on Schedule 3.30.
3.31 Government Contracts The Company is not a party of any
governmental contracts.
3.32 Disclosure. None of the representations and warranties of the
Shareholders and/or the Company contained in the Operative Documents,
including the Schedules thereto, nor any other document, certificate or
written statement furnished by any Shareholder or the Company to Purchaser or
Purchaser's representatives in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein complete and not
misleading as of the dates thereof in light of the circumstances in which they
were made.
ARTICLE IV
REPRESENTATIONS OF PURCHASER AND SKYLYNX
As a material inducement for the Company and the Shareholders to enter
into this Agreement and to consummate the transactions contemplated hereby,
Purchaser and SkyLynx hereby represents and warrants to the Shareholders and
the Company that each of the statements contained in this Article IV
(including the Schedules hereto) is true and correct as of the date of this
Agreement and will be true and correct at and as of the Closing.
4.1 Existence and Good Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and SkyLynx is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado,
and Purchaser and SkyLynx each has all requisite corporate power and authority
to own, lease and operate its properties and to carry on their respective
business as now being conducted.
4.2 Authorization; Execution and Delivery. Purchaser and SkyLynx each
has the corporate power and authority to make, execute, deliver and perform
the Operative Documents and to consummate the transactions contemplated
thereby. The execution, delivery and performance by Purchaser and SkyLynx of
the Operative Documents have been duly authorized by each of the Board of
Directors of Purchaser and SkyLynx. This Agreement constitutes the valid and
binding agreement of Purchaser and SkyLynx, enforceable against Purchaser and
SkyLynx in accordance with its terms, subject to applicable bankruptcy,
insolvency and other general laws affecting the rights and remedies of
creditors, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
4.3 No Violations. The execution and delivery of this Agreement by
Purchaser and SkyLynx and the consummation of the transactions contemplated
hereby: (a) will not violate any provision of the Certificate of Incorporation
or Bylaws of Purchaser or the Articles of Incorporation or Bylaws of SkyLynx;
(b) will not violate any statute, rule, regulation, order or decree of any
public body or authority by which Purchaser or SkyLynx, or any of their
respective properties or assets is bound; and (c) will not result in a
violation or breach of, or constitute a default under, any license, franchise,
permit, indenture, agreement or other instrument to which Purchaser or SkyLynx
is a party, or by which Purchaser or SkyLynx or any of their respective
properties or assets are bound, excluding from the foregoing clauses (b) and
(c) violations, breaches or defaults which, either individually or in the
aggregate, would not prevent Purchaser or SkyLynx from performing its
obligations under this Agreement or consummation of the transactions
contemplated by this Agreement.
4.4 Broker's or Finder's Fees. No agent, broker or Person acting on
behalf of Purchaser or SkyLynx is, or will be, entitled to any commission or
broker's or finder's fee from any of the parties hereto, or from any Person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
4.5 Disclosure. None of the representations and warranties of Purchaser
or SkyLynx contained in the Operative Documents, including the Schedules
thereto, nor any other document, certificate or written statement furnished by
Purchaser or SkyLynx to the Shareholders and/or the Company in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein complete and not misleading as of the dates thereof in light of the
circumstances in which they were made.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Purchaser's Access to Information. The Shareholders shall cause the
Company to permit Purchaser and its counsel, accountants and other
representatives full and free access, upon reasonable notice and during normal
business hours, throughout the period prior to the Closing, to all of the
properties, books, contracts, commitments, records (including Tax records),
officers and personnel of the Company and shall furnish to Purchaser during
such period all such information concerning the business activities of the
Company as Purchaser or its counsel, accountants or other representatives may
reasonably request. Notwithstanding the foregoing, to avoid unnecessary
disruption of the Company's relationships with its customers, Purchaser hereby
agrees that in the course of conducting its due diligence activities
hereunder, Purchaser will contact the Company's customers and suppliers, and
will cause its employees, agents and independent contractors to contact the
Company's customers and suppliers, only at such times and in such manner as
consented to in advance by the Company, which consent shall not be
unreasonably withheld or delayed. If the transactions contemplated by this
Agreement are not consummated, all confidential or proprietary information
furnished by the Shareholders or the Company shall be kept in strict
confidence and shall not be used or disclosed by any recipient, and Purchaser
shall cause each such recipient to destroy (and certify as to such
destruction) or to return to the Company all copies of documents or records
furnished hereunder. No investigation or findings of Purchaser shall diminish
or affect the representations and warranties of the Shareholders and the
Company in this Agreement or relieve the Shareholders or the Company of any of
their respective obligations hereunder.
5.2 Notices and Consents; Governmental Approvals. The Shareholders
shall use their best efforts to obtain, and cooperate with Purchaser to
obtain, all governmental and regulatory approvals and actions necessary to
consummate the transactions contemplated hereby which are required to be
obtained by applicable law or regulations. The Company will give any notices
to third parties, and will use its best efforts to obtain any third party
consents, that Purchaser reasonably may request in connection with the matters
referred to in Section 3.27. Each of the parties hereto will give any
required notices, make any filings with, and use its reasonable best efforts
to obtain any governmental approvals in connection with the matters referred
to in Sections 3.20 and 3.27 above.
5.3 Exclusive Dealing. Until the earlier of the Closing or an Event of
Termination, the Shareholders shall not take any action, directly or
indirectly, to encourage, initiate or engage in discussions or negotiations
with, or provide any information to, any Person other than Purchaser
concerning any purchase of the Stock or any merger, sale of substantial assets
or similar transaction involving the Company.
5.4 Operation of Business. The Company will not engage in any practice,
take any action, or enter into any transaction outside of its ordinary course
of business. Without limiting the generality of the foregoing, the Company
will not, without the prior written consent of Purchaser, which consent may be
withheld in Purchaser's sole discretion, at any time prior to the Closing, (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, or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 3.18 above.
5.5 Preservation of Business. Prior to Closing, the Company will keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions and relationships with
lessors, licensors, suppliers, customers (including preservation of goodwill)
and employees.
5.6 Notice of Developments. The parties hereto will give prompt written
notice to the other parties of any material adverse development prior to the
Closing which causes or is likely to cause a breach of any of their respective
representations and warranties in Article III or IV. No disclosure by any
party pursuant to this Section 5.6, however, shall be deemed to amend or
supplement the Schedules or to prevent or cure any misrepresentation, breach
of warranty or breach of covenant.
5.7 Further Assurances. Each of the parties hereto, both before and
after the Closing, upon the request from time to time of the other party or
parties hereto and without further consideration, will do each and every act
and thing as may be necessary or reasonably requested to consummate the
transactions contemplated hereby including, without limitation, executing,
acknowledging and delivering assurances, assignments and other documents and
instruments, furnishing information and copies of documents, books and records
(including, without limitation, Tax records); filing reports, returns,
applications, filings and other documents and instruments with governmental
authorities; and cooperating with each other party hereto in exercising any
right or pursuing any claim, whether by litigation or otherwise, other than
rights and claims running against the party from whom or which such
cooperation is requested.
5.8 Non-Competition and Non-Solicitation Covenants.
(a) Covenants. The Shareholders hereby jointly and severally
acknowledge that the success of the business of the Company depends, among
other things, upon the absence of competition from the Shareholders and the
continued preservation of the confidentiality of certain information acquired
from the Shareholders pursuant to the transactions contemplated by this
Agreement . Additionally, the Shareholders hereby jointly and severally
acknowledge that an absence of such competition and the preservation of the
confidentiality of such information is an essential premise of the bargain by
and among the Shareholders and Purchaser, and that Purchaser would be
unwilling to enter into the Operative Documents in the absence of this Section
5.8. Accordingly, each Shareholder hereby agrees with Purchaser as follows:
(i) Neither of the Shareholders shall, directly or indirectly,
own, manage, operate, control or participate in any manner in the ownership,
management, operation or control of, or be connected as an officer, employee,
partner, director, principal, consultant, agent or otherwise with, or have any
financial interest in, or aid or assist any Person in the Restricted Territory
in any business or line of business in substantially the same field of
business as the Company, Purchaser or any of their affiliates, for the period
commencing on the Closing Date and ending twelve (12) months after the latter
of the dates on which the employment of Robert Du Gaue or Gloria Du Gaue is
terminated, regardless of whether such termination is by action of (A) the
Purchaser, the Company or any of their affiliates, or (B) the Shareholder(s).
Notwithstanding the foregoing, a Shareholder who owns less than five percent
(5%) of the outstanding stock of any publicly traded corporation shall not be
deemed, solely by reason of such ownership, to own, manage, operate, control,
participate in, be connected with, have any financial interest in, or so aid
or assist any Person in, the business of such corporation.
(ii) For the period commencing on the Closing and ending twelve
(12) months after the latter of the dates on which the employment of Robert Du
Gaue or Gloria Du Gaue is terminated (regardless of whether such termination
is by action of (A) the Purchaser, the Company or any of their affiliates, or
(B) the Shareholder(s)), neither of the Shareholders shall, directly or
indirectly, offer for sale or sell goods or solicit or provide services in
substantially the same field of business as the Company or Purchaser, as the
case may be, to any Person who or which was a customer of the Company, or of
Purchaser, at any time during the six (6) months immediately preceding the
date of such solicitation or provision of services.
(iii) For the period commencing on the Closing Date and ending
twelve (12) months after the latter of the dates on which the employment of
Robert Du Gaue or Gloria Du Gaue is terminated (regardless of whether such
termination is by action of (A) the Purchaser, the Company or any of their
affiliates, or (B) the Shareholder(s)), neither of the Shareholders shall,
directly or indirectly: (A) entice away or in any manner cause, persuade or
attempt to cause or persuade any officer, employee or agent of the Company to
discontinue his or her relationship with the Company; or (B) employ any person
who is then or had been an employee of the company at any time within the
prior six (6) month period; provided, however, that the Shareholders may hire
any employee that is terminated by Purchaser.
(iv) For the period commencing on the Closing Date, directly or
indirectly, in any way, utilize, disclose, copy, reproduce, or retain in its
or their possession Seller's proprietary rights or records, including, but not
limited to, any of its customer lists.
(b) Enforcement. The parties acknowledge and agree that, because
legal remedies may be inadequate in the event of a breach of, or other failure
to perform, the covenants and obligations set forth in this Section 5.8,
Purchaser may, in addition to obtaining any damages available to it, enforce
this Section 5.8 by injunction and other equitable remedies. Each of the
Shareholders also acknowledges and agrees that no breach by a party of, or
other failure by such party to perform, his or its covenants and obligations
under any of the Operative Documents or otherwise shall relieve such party of
any of his or its obligations under this Section 5.8.
(c) Severability; Etc. The parties agree that the provisions set
forth in this Section 5.8, including without limitation as to duration and
geographic scope, are reasonable to protect the legitimate interests of
Purchaser and the goodwill associated with the Company's business prior to the
Closing. The provisions of this Section 5.8 are severable, and in the event
that any provision hereof is, for any reason, held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof, and such invalid or unenforceable provision shall
be construed by limiting it so as to be valid and enforceable to the maximum
extent compatible with, and possible under, applicable law.
(d) Survival of Covenants. The covenants contained in this Section
5.8 shall survive the Closing.
5.9 Employment.
(a) Purchaser agrees to continue the employment of Robert Du Gaue
for a period of two (2) years following the Closing (the "Term"), at a monthly
salary of Eight Thousand Dollars ($8,000), less applicable tax withholdings or
other deductions required by law, substantially under the terms and conditions
as set forth in the employment agreement attached hereto as Exhibit B (the
"Employment Agreement").
(b) Purchaser agrees to continue the employment of Gloria Du Gaue
for a period not less than six (6) months following the Closing, at a monthly
salary of Five Thousand Dollars ($5,000), less applicable tax withholdings or
other deductions required by law. Purchaser shall provide Gloria Du Gaue with
employment benefits customarily offered by Purchaser to its employees in
comparable position.
5.10 Tax Matters.
(a) Liability for Taxes and Related Matters.
(i) Shareholders' Liability for Taxes. Each of the
Shareholders shall be liable for and shall indemnify the Purchaser for all
Taxes (including without limitation any obligation to contribute to the
payment of a Tax determined on a consolidated, combined or unitary basis with
respect to a group of corporations that includes or included the Company)
imposed on the Company or for which the Company may otherwise be liable (1)
for any Taxable year or period ending on or prior to June 30, 1998, and (2)
Taxes owed by the Company, in the aggregate, in excess of $75,000 attributable
to (i) the 1999 Taxable Year (after taking into account all Taxes prepaid by
the Company), and/or (ii) any prior fiscal year of the Company. In the event
that the Company owes Taxes in excess of $75,000 attributable to the 1999
Taxable Year (after taking into account all Taxes which have been prepaid)
and/or any prior fiscal year, Purchaser may retain a number of Hold Back
Shares in accordance with Section 2.4(b).
(ii) Purchaser's Liability for Taxes. The Purchaser shall be
liable for and shall indemnify each of the Shareholders for the Taxes of the
Company for any Taxable year or period that begins on or after July 1, 1999.
(b) Assistance and Cooperation. After the Closing Date, each of
the Shareholders and the Purchaser shall:
(i) assist (and cause their respective affiliates and
subsidiaries to assist) the other party in preparing Returns that such other
party is responsible for preparing and filing;
(ii) cooperate fully in preparing for any audits of, or
disputes with Tax authorities regarding any Returns of the Company; and
(iii) make available to the other as reasonably requested all
information, records and documents relating to Taxes of the Company.
ARTICLE VI
CONDITIONS TO PURCHASER'S OBLIGATIONS
The purchase of the Stock by Purchaser on the Closing Date is conditioned
upon the satisfaction or waiver, at or prior to the Closing, of the following
conditions:
6.1 Accuracy of Representations and Warranties. Each representation and
warranty of the Shareholders and the Company contained in Article III hereof
shall be true on and as of the Closing Date with the same effect as though
such representation or warranty had been made on and as of the Closing Date.
6.2 Performance. Each of the Shareholders and the Company shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with respectively by the
Shareholders and/or the Company prior to or as of the Closing Date including,
without limitation, delivery of the items set forth in Section 8.2.
6.3 Satisfactory Completion of Due Diligence. Purchaser shall have
completed its due diligence review of the Company and shall be satisfied with
the results of such review.
6.4 Authorization of Transactions by Board. Prior to the execution of
this Agreement, the Board of Directors of Purchaser shall have authorized the
transactions contemplated by the Operative Documents.
6.5 Opinion of Counsel to the Shareholders. Purchaser shall have
received the legal opinion of Russell W. Carlson, Esq,, counsel to the
Shareholders, dated the Closing Date and addressed to Purchaser, substantially
in the form attached hereto as Exhibit C.
6.6 Employment Agreement. Robert Du Gaue shall have entered into the
Employment Agreement with Purchaser.
6.7 Compliance Certificate. The Company shall have delivered to
Purchaser a certificate, executed by the President of the Company and dated as
of the Closing Date, certifying (i) to the fulfillment of the conditions
specified in Article VII hereof, (ii) that he has made, or caused to be made,
such investigations as he deemed necessary to permit him to verify the
accuracy of the information set forth in such certificate, and (iii) that, to
the best of his knowledge, such certificate does not misstate any material
fact or omit any fact necessary to make the certificate not misleading in any
material respect.
6.8 No Injunction. No court or other government body or public
authority shall have issued, or threatened to issue, an order which shall then
be in effect restraining or prohibiting the completion of the transactions
contemplated by the Operative Documents.
6.9 Qualification. The Company shall have obtained all necessary
federal, foreign, state and local authorizations, approvals, permits and
qualifications, or secured an exemption therefrom, required for the
consummation of the transactions contemplated by the Operative Documents and
the continuing operation of the Company's business following the Closing.
6.10 Termination of Plans. The Shareholders shall have caused the
Company to terminate the Company's 401(k) Plan effective before the Closing
Date, and the profit-sharing, stock option, deferred compensation and life
insurance plans as listed on Schedule 3.22 effective on or before the Closing
Date.
6.11 Leases. The Company shall have entered into and obtained from the
Company's landlord(s) a consent to assignment and estoppel certificate in form
and substance satisfactory to the Purchaser with respect to each lease listed
on Schedule 3.14(b).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS
The sale of the Stock by the Shareholders on the Closing Date is
conditioned upon satisfaction or waiver, at or prior to the Closing, of the
following conditions:
7.1 Accuracy of Representations and Warranties. Each representation and
warranty of Purchaser contained in Article IV hereof shall be true on and as
of the Closing Date with the same effect as though such representation or
warranty had been made on and as of the Closing Date.
7.2 Performance. Purchaser shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by Purchaser prior to or as of the Closing Date including,
without limitation, delivery of the items set forth in Section 8.3 below.
7.3 Employment Agreement. Purchaser shall have entered into the
Employment Agreement with Robert Du Gaue.
7.4 Compliance Certificate. Purchaser shall have delivered to the
Company a certificate, executed by the President of Purchaser, dated as of the
Closing Date, certifying (i) to the fulfillment of the conditions specified in
Article VI hereof, (ii) that he has made, or caused to be made, such
investigations as he deemed necessary in order to permit him to verify the
accuracy of the information set forth in such certificate, and (iii) to the
best of his knowledge, such certificate does not misstate any material fact or
omit any fact necessary to make the certificate not misleading in any material
respect.
ARTICLE VIII
CLOSING AND DELIVERIES
8.1 Closing. The purchase and sale referred to in Section 2.1 above
(the "Closing") shall take place at 10:00 a.m. at the offices of Purchaser at
600 South Cherry Street, Suite 305, Denver Colorado 80246 on July ___, 1999
or at such other time, date and place as the parties hereto may by written
instrument designate. Such time and date are herein referred to as the
"Closing Date".
8.2 Deliveries at Closing by the Shareholders and/or the Company. At
the Closing, provided Purchaser has duly performed its obligations hereunder,
the Shareholders and/or the Company shall deliver or cause to be delivered to
Purchaser the following:
(a) The Operative Documents, duly executed by an authorized officer
of the Company and/or by the Shareholder(s), as applicable;
(b) Certificates representing not less than all of the Stock, duly
endorsed for transfer or with duly executed stock powers attached, free of any
liens, encumbrances, restrictions on transfer, charges or claims;
(c) A copy of the Company's (i) Articles of Organization, and (ii)
Bylaws, in each case as amended as of the Closing Date and certified by the
Secretary of the Company;
(d) A Certificate of Good Standing of the Company, issued as of a
recent date by the Secretary of State of the State of California;
(e) A Tax Status Certificate issued by the California Franchise Tax
Board;
(f) All consents of any Person, whether or not a party to this
Agreement, which are necessary to effectuate the transfer of the Stock, the
consummation of the transactions contemplated by this Agreement, and the
retention or maintenance by the Company of all required Permits; and
(g) Resignations of the officers and directors of the Company.
8.3 Deliveries by Purchaser and SkyLynx. At the Closing, provided the
Shareholders and the Company have fully performed all of their respective
obligations hereunder, Purchaser and/or SkyLynx shall deliver or cause to be
delivered to the Shareholders the following:
(a) The Operative Documents, duly executed by an authorized officer
of Purchaser;
(b) The Cash Portion of the Preliminary Purchase Price; the
certificates representing the SkyLynx Shares, less the Hold Back Shares, shall
be delivered within 10 days following the Closing;
(c) A certified copy of resolutions duly adopted by Purchaser's
Board of Directors approving and authorizing the transactions provided for in
the Operative Documents, the execution thereof and the performance of all acts
required to be performed by Purchaser thereunder, accompanied by an
appropriate certificate of incumbency;
(d) A copy of Purchaser's (i) Certificate of Incorporation, and
(ii) Bylaws, in each case as amended as of the Closing Date and certified by
the Secretary of Purchaser;
(e) A certified copy of resolutions duly adopted by SkyLynx's Board
of Directors approving and authorizing the transactions provided for in the
Operative Documents; and
(f) All consents of any Person, whether or not a party to this
Agreement, which are necessary to effectuate the consummation of the
transactions contemplated by the Operative Documents.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations. The parties hereto agree that all
representations, warranties and covenants made in the Operative Documents
shall survive for a period of three (3) years after the Closing Date and shall
not be extinguished by the Closing or any investigation made by or on behalf
of any party hereto. Notwithstanding the foregoing, (a) the representations
and warranties set forth in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.8, 3.10,
3.14(a), 4.1, and 4.2 shall survive for a period of five (5) years after the
Closing Date, (b) the representations and warranties set forth in Section 3.17
and 3.24 shall survive until the thirtieth day following expiration of the
applicable statute of limitations; (c) the covenants and agreements set forth
in Sections 5.1 and 5.7 shall survive indefinitely; (d) the covenants of the
Shareholders set forth in Section 5.8 shall survive for a period of five (5)
years; (e) the provisions of this Article IX shall survive indefinitely; and
(f) any representation, warranty and covenant for which a timely action,
proceeding or claim is made pursuant to the provisions of this Article IX
shall survive beyond such applicable survival period until any such action,
proceeding or claim is finally determined and paid in full.
9.2 Indemnification of Purchaser. Each Shareholder agrees to jointly
and severally indemnify and hold Purchaser and its affiliates and their
respective directors, officers and employees (the "Purchaser Indemnitees")
from and against (a) any and all payments, damages, claims, demands, losses,
expenses, costs, obligations and liabilities, including reasonable attorneys'
fees, which may be asserted against or sustained or incurred by the Purchaser
Indemnitees in connection with, arising out of or related to (i) any
inaccuracy in, misrepresentation, breach or alleged breach of any of the
representations, warranties, agreements, commitments, obligations, covenants
or conditions made by the Company or any Shareholder hereunder, (ii) the
establishment, administration or termination of any Plan on or prior to the
Closing Date; (iii) any audit of a Plan performed by any governmental unit,
including but not limited to the IRS and the U.S. Department of Labor,
relating to periods prior to the Closing Date; or (iv) the failure of the
transfer and assignment of the Stock from the Shareholders to Purchaser to
cause Purchaser to acquire good and marketable title to the Stock, free and
clear of any Encumbrances unless such failure is caused by the action of
Purchaser; and (b) any and all costs and expenses (including, but not limited
to, reasonable legal expenses) incurred by the Purchaser Indemnitees in
connection with the enforcement of their respective rights hereunder.
9.3 Indemnification of the Shareholders. Purchaser agrees to indemnify
and hold each of the Shareholders (the "Shareholder Indemnitees") from and
against (a) any and all payments, damages, claims, demands, losses, expenses,
costs, obligations and liabilities, including reasonable attorneys' fees,
which may be asserted against or sustained or incurred by the Shareholder
Indemnitees in connection with, arising out of or related to any inaccuracy
in, misrepresentation, breach or alleged breach of any of the representations,
warranties, agreements, commitments, obligations, covenants or conditions made
by Purchaser hereunder; and (b) any and all costs and expenses (including, but
not limited to, reasonable legal expenses) incurred by the Shareholder
Indemnitees in connection with the enforcement of their respective rights
hereunder.
9.4 Procedure for Indemnification. Any party making a claim for
indemnification hereunder (the "Indemnitee") shall promptly notify the
indemnifying party (the "Indemnifying Party") of the claim in writing,
describing the claim, the amount thereof, and the basis therefor. The
Indemnifying Party shall respond to each such claim within thirty (30) days of
receipt of such notice. No action shall be taken pursuant to the provisions
of this Agreement or otherwise by the Indemnitee until the later of (a) the
expiration of the thirty (30) day response period (unless reasonably necessary
to protect the rights of the Indemnitee), or (b) thirty (30) days following
the receipt of a response within such thirty (30) day period by the Indemnitee
requesting an opportunity to cure the matter giving rise to indemnification
(and, in such event, the amount of such claim for indemnification shall be
reduced to the extent so cured within such thirty (30) day cure period). If
such demand is based on a claim by a third party, the Indemnifying Party shall
have the right to assume the entire control of the defense, compromise or
settlement thereof, including at its own expense, employment of counsel
reasonably satisfactory to the Indemnitee, and, in connection therewith, the
Indemnitee shall cooperate fully to make available to the Indemnifying Party
all pertinent information under its control. The Indemnifying Party shall not
concede, settle or compromise any such third-party claim without the consent
of the Indemnitee, which consent shall not be unreasonably withheld or
delayed. No claim for indemnification resulting from the breach or falsity of
any of the representations or warranties set forth herein or in any
certificate or other instrument delivered pursuant hereto shall be made after
a date on which such representation, warranty or agreement shall have expired
under the provisions of Section 9.1 hereof.
9.5 Purchaser's Right to Offsets; Security. As security for the
obligations of the Shareholders under this Article IX and the other payment
obligations under this Agreement, the Shareholders hereby grant a first
priority security interest in, and pledge and instruct SkyLynx to set aside
and hold stock certificates of SkyLynx representing the Hold Back Shares.
SkyLynx and the Purchaser may set off against the Hold Back Shares (i) amounts
owed Purchaser under this Article IX, (ii) the Net Worth Deficiency, and (iii)
a certain amount of the aggregate Taxes attributable to the 1999 Taxable Year
and/or any prior fiscal year in excess of $75,000, as set forth in Section
2.4(b). In addition to its indemnity rights hereunder, Purchaser shall have
the right to offset any amounts otherwise payable to the Shareholders under
the Employment Agreement and the Hold Back Shares against any indemnity claims
against the Shareholders. The parties agree that Purchaser's right to offsets
hereunder shall not be Purchaser's exclusive recourse, and shall in no way
limit the indemnity obligations of the Shareholders hereunder.
9.6 Treatment of Indemnification Payments. Any payment by an
Indemnifying Party under this Article 9 will be an adjustment to the Final
Purchase Price unless a determination (as defined in Section 1313 of the Code)
with respect to the Indemnitee causes any such payment not to constitute an
adjustment to the Final Purchase Price for United States federal income tax
purposes.
ARTICLE X
SECURITIES LAW MATTERS
10.1 Disposition of SkyLynx Shares. The Seller represents and warrants
that the SkyLynx Shares being acquired by the Seller hereunder are being
acquired and will be acquired for its own account, and will not be sold or
otherwise disposed of, except pursuant to (a) an exemption from the
registration requirements under the Securities Act, which does not require the
filing by SkyLynx with the SEC of any registration statement, offering
circular or other documents, in which case, the Seller shall first supply to
SkyLynx an opinion of counsel (which counsel and opinions shall be
satisfactory to SkyLynx) that such exception is available, or (b) an effective
registration statement filed by SkyLynx with the SEC under the Securities Act.
10.2 Legend. The certificates representing the SkyLynx Shares shall bear
the following legend:
THE SALE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"). NO SALE, HYPOTHECATION, PLEDGE OR
OTHER DISPOSITION OF THESE SECURITIES MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO UNLESS THE SALE OR OTHER DISPOSITION IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT OR THE HOLDER OF
SUCH SECURITIES PROVIDES AN OPINION OF COUNSEL
SATISFACTORY TO SKYLYNX COMMUNICATIONS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
10.3 Contractual Restriction Legend.
The Hold Back Shares shall bear the following legend:
THE SALE OR OTHER TRANSFER OF THE SHARES REPRESENTED
HEREBY HAS BEEN CONTRACTUALLY RESTRICTED. THE HOLDER
AGREES THAT SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF SKYLYNX
COMMUNICATIONS, INC., UNTIL THE EXPIRATION OF SUCH
RESTRICTION ON JULY ___, 2000.
10.4 Delivery of the Hold Back Shares.
At the end of the Hold Back Period, the Contractual Restriction Legend
found in Section 10.3 shall be removed from the Hold Back Shares to reflect
the expiration of the Hold Back Period. SkyLynx shall cause shares to be
issued and delivered to the Shareholders, subject to adjustments that may be
required to the Hold Back Shares, including but not limited to, stock splits,
dividends, redemptions, and any forfeiture of the Hold Back Shares, or any
portion thereof; provided, however, that should an adjustment or forfeiture to
the Hold Back Shares be required, Purchaser or SkyLynx shall provide to the
Shareholders a written accounting of any adjustments that may be made by
Purchaser or SkyLynx. Notwithstanding the foregoing, in the event that at the
end of the Hold Back Period there are unresolved claims of Purchaser for
indemnification under Article IX as to which notice has been given, a number
of Hold Back Shares shall be retained by SkyLynx equal in value to the amount
of such claims plus anticipated court costs and attorneys fees and expenses
until such claims have been resolved.
10.5 No Bar. If the Hold Back Shares are insufficient to set off any
claim for any amounts owed Purchaser or SkyLynx hereunder (or have been
delivered in whole or part to the Shareholders prior to the making or
resolution of such claim), then Purchaser or SkyLynx may take any action or
exercise any remedy available to them by appropriate legal proceeding to
collect amounts owed to them under this Agreement.
ARTICLE XI
EVENTS OF TERMINATION
11.1 Events of Termination. This Agreement may be terminated upon the
occurrence of any of the following (each, an "Event of Termination"):
(a) Purchaser and the Shareholders may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(b) Purchaser may terminate this Agreement by giving written notice
to the Shareholders at any time prior to the Closing (i) in the event the
Shareholders and/or the Company have breached any of their respective
representations, warranties or covenants contained in the Operative Documents
in any material respect, or (ii) if the Closing shall not have occurred on or
before August 31, 1999, by reason of the failure of any condition precedent
set forth in Article VI (unless the failure results primarily from Purchaser
itself breaching any of its representations, warranties or covenants contained
in the Operative Documents); and
(c) The Shareholders may terminate this Agreement by giving written
notice to Purchaser at any time prior to the Closing (A) in the event
Purchaser has breached any representation, warranty or covenant contained in
the Operative Documents in any material respect, or (B) if the Closing shall
not have occurred on or before August 31, 1999, by reason of the failure of
any condition precedent set forth in Article VII (unless the failure results
primarily from the Shareholders breaching any of their respective
representations, warranties or covenants contained in the Operative
Documents).
11.2 Effect of Termination. In the event this Agreement shall be
terminated pursuant to the provisions of Section 11.1, 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, and the confidentiality provisions hereunder.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. Each of the parties hereto shall bear its own expenses
relating to the transactions contemplated by the Operative Documents
including, without limitation, the fees and expenses of its counsel.
12.2 Transfer Taxes. All stamp, transfer, documentary, sales, use,
registration and other such taxes and fees, if any, incurred in connection
with the sale of the Stock shall be paid by the Shareholders.
12.3 No Waiver. No failure to exercise and no delay in exercising, on
the part of Purchaser, the Company or the Shareholders, any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The rights provided are cumulative and not exclusive of any rights provided by
law.
12.4 Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the party
waiving such term or provision.
12.5 Governing Law; Headings. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado without regard
to the conflict of law principles thereof. The descriptive headings of the
several Articles and Sections hereof are for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
12.6 Gender. Wherever reference is made herein to the male, female or
neuter genders, such reference shall be deemed to include any of the other
genders, as the context may require.
12.7 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person, including without limitation any employee
of the Company, other than the parties hereto and their respective successors
and permitted assigns.
12.8 Succession and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns. No party hereto
may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other parties;
provided, however, that Purchaser 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.
12.9 Publicity. Except as otherwise required by law or regulation, none
of the parties hereto shall issue any press release or make any other public
statement, in each case relating to or connected with or arising out of this
Agreement or the matters contained herein, without obtaining the prior
approval of the other parties hereto to the contents and the manner of
presentation and publication thereof; provided, however, that, any
announcement with respect to the matters provided herein made by the Company
or Purchaser to its own employees shall not be deemed to be a public statement
for purposes of this Section 13.9. The requirements of this Section 12.9
shall be in addition to those included in the Confidentiality Agreement.
12.10 Notices. Any notice or other communication required or
permitted hereunder shall be sufficiently given if delivered in person or sent
by confirmed facsimile transmission or by registered or certified mail,
postage prepaid, addressed as follows:
(a) If to Purchaser or, following the Closing:
SkyLynx Communications of California, Inc.
600 South Cherry Street, Suite 305
Denver, Colorado 80246
Attention: CEO and President
Fax: (303) 316-0404
With a copy to:
McDermott, Will & Emery
600 13th Street, N.W.
Washington, D.C. 2005-3096
Attention: Robert N. Jensen, Esq.
Fax: (202) 756-8087
(b) If to SkyLynx prior to or following the Closing
SkyLynx Communications, Inc.
600 South Cherry Street, Suite 305
Denver, Colorado 80246
Attention: CEO and President
Fax: (303) 316-0404
With a copy to:
McDermott, Will & Emery
600 13th Street, N.W.
Washington, D.C. 2005-3096
Attention: Robert N. Jensen, Esq.
Fax: (202) 756-8087
(c) If to the Shareholders prior to the Closing
Robert and Gloria Du Gaue
8660 Hillmon Court
Sacramento, California 95825
With a copy to:
Russell W. Carlson, Esq.
6018 3rd Avenue
Sacramento, California 95817-2512
Fax: (916) 929-3706
or to such other address or number as shall be furnished in writing by any
such party. Except as otherwise provided in this Agreement, all notices and
communications hereunder shall be deemed to have been duly given when
transmitted by facsimile transmission and confirmed, when personally delivered
or, in the case of a mailed notice, four (4) business days after the date
deposited in the mails, postage prepaid, in each case given or addressed as
aforesaid.
12.11 Counterparts. This Agreement may be executed in two or more
counterparts, and by different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.12 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the other Operative Documents which form a part hereof,
and the Confidentiality Agreement, contain the entire understanding of the
parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter other than the
Confidentiality Agreement.
12.13 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
IN WITNESS WHEREOF, each of Purchaser, SkyLynx and the Company has caused
its corporate name to be hereunto subscribed by its respective officer
thereunto duly authorized and each of the Shareholders has executed this
Agreement, all under seal as of the day and year first above written.
SKYLYNX COMMUNICATIONS, INC.
By: /s/ Jeffery A. Mathias
---------------------------------
Jeffery A. Mathias, President
SKYLYNX COMMUNICATIONS OF CALIFORNIA, INC.
By: /s/ Jeffery A. Mathias
---------------------------------
Jeffery A. Mathias, President
SHAREHOLDERS:
/s/ Robert Du Gaue
---------------------------------
Robert Du Gaue
/s/ Gloria Du Gaue
---------------------------------
Gloria Du Gaue
<PAGE>
<PAGE>
EXHIBIT A
Shareholders
Name and Address Number of Shares
<PAGE>
<PAGE>
EXHIBIT B
Employment Agreement
<PAGE>
<PAGE>
EXHIBIT C
Opinion of Counsel
<PAGE>
<PAGE>
SCHEDULE 3.24
ENVIRONMENTAL ISSUES
"Environmental Laws" means the Comprehensive Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act
(42 U.S.C. Section 9601 et seq.) ("CERCLA") and/or the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.) ("RCRA") and/or the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.) ("TSCA") and/or the Federal Insecticide,
Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.) ("FIFRA") and/or
the Clean Air Act (42 U.S.C. Section 7401 et seq.) ("CAA") and/or the Federal
Water Pollution Control Act (33 U.S.C. Section 1251 et seq.) ("FWPCA") and/or
the Safe Drinking Water Act (42 U.S.C. Section 300f et seq.) ("SDWA")
including any amendments or extensions thereof; and all statutes, laws,
regulations, rules, ordinances, codes, licenses, permits, guidelines,
standards, orders, requirements, approvals and similar items of all
governmental agencies, departments, commissions, boards and instrumentalities
of the United States, any foreign country, or any state, or any political
subdivision thereof relating to pollution and/or the protection of human
health and/or the environment, including, without limitation, those relating
to reporting, licensing, permitting, investigating, removing or remediating
Materials of Environmental Concern (as hereinafter defined).
"Materials of Environmental Concern" means any substance:
(a) the presence of which requires investigation or remediation
under any Environmental Law; or
(b) which is defined as a "hazardous waste," "hazardous substance,"
"hazardous material," toxic substance, pollutant or contaminant under any
Environmental Law; or
(c) which is identified under any Environmental Laws as toxic,
explosive, corrosive, flammable, ignitable, reactive, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is or becomes restricted or
regulated by any governmental, quasi-governmental or regulatory authority,
agency, department, commission, board, agency or instrumentality of the United
States, any foreign country, or any state, or any political subdivision
thereof; or
(d) without limitation, which includes or contains gasoline, diesel
fuel or other petroleum hydrocarbons or byproducts.
"Environmental Claim" means any claim, order, investigation, action,
suit, proceeding, injunction, demand or violation of any Environmental Law or
liability under common law with respect to pollution and/or protection of
human health and/or the environment (including any release, emission,
discharge, presence or disposal of any Materials of Environmental Concern),
including, without limitation, any claim, order investigation, action, suit,
proceeding, injunction, demand or violation with respect to health effects to
persons, investigation and cleanup costs, property damage and/or damage to
natural resources brought or alleged by any governmental, quasi-governmental
or regulatory authority, agency, department, commission, board, agency or
instrumentality of the United States, any foreign country, or any state, or
any political subdivision thereof, or from any director, officer, employee,
agent, contractor or any other private or third party, and any notice, whether
oral or written, advising the Company of any of the foregoing or of any fact,
event or condition which could reasonably be the basis for the assertion of
any of the foregoing.
<PAGE>
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit A Shareholders
Exhibit B Employment Agreement
Exhibit C Opinion of Russell W. Carlson, counsel to the Shareholders
SCHEDULES
Schedule 3.5 Litigation
Schedule 3.8 Foreign Qualification
Schedule 3.10 Capital Stock and Options, Warrants, Etc.
Schedule 3.11 Subsidiaries and Interests in Other Entities
Schedule 3.12 Financial Statements
Schedule 3.13(a) Undisclosed Liabilities/ordinary course of business
Schedule 3.13(b) Undisclosed Liabilities/workers' compensation, employers'
liability, and group health plan
Schedule 3.14(a) Title to Property; Encumbrances
Schedule 3.14(b) Leases
Schedule 3.14(c) Motor Vehicles
Schedule 3.15 Material Contracts
Schedule 3.16 No Violations
Schedule 3.17 Taxes
Schedule 3.18 Conduct of Business
Schedule 3.19 Intellectual Property
Schedule 3.20 Compliance with Laws
Schedule 3.21 Employment or Consulting Contracts
Schedule 3.22 Employee Benefits
Schedule 3.23 Insurance
Schedule 3.24 Environmental and Safety Laws
Schedule 3.26 Banking Relationships
Schedule 3.27 Required Consents, Etc.
Schedule 3.29 Company Litigation
Schedule 3.30 Inventory
