SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported): September 12, 1997
MILLENNIUM ELECTRONICS, INC.
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(Exact name of registrant as specified in it charter)
Nevada 000-22515 33-0750730
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(State of incorporation) (Commission (I.R.S. Employer
File Number) Identification Number)
31642 SOUTH COAST HIGHWAY, SUITE 100, LAGUNA BEACH, CALIFORNIA 92677
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(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 499-0877
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Exhibit Index at Page 6
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 30, 1997, Registrant entered into an agreement of
merger with NETRAM Components, Inc., a California corporation and a
manufacturer of high powered personal computers ("NETRAM"). Pursuant
to an Agreement of Merger by and among Registrant, Millennium
Memory, Inc., a California corporation and a wholly-owned subsidiary
of Registrant ("MMI"), NETRAM and the shareholders of NETRAM dated
as of September 30, 1997 (the "Agreement"), NETRAM was merged with
and into MMI, establishing a new business division for Registrant as
more fully described in the press release filed herewith as Exhibit
99.1.
In exchange for all of the issued and outstanding capital stock of
NETRAM, Registrant delivered to the NETRAM shareholders (the
"Shareholders") 576,000 shares of Registrant's Common Stock
(approximately 4.6033966 shares of Registrant's Common Stock for
each share of NETRAM capital stock) and an aggregate of $120,000.
The exchange rate was established in arms-length negotiations
between the parties. A copy of the Agreement is filed herewith as
Exhibit 2.1.
Item 5. OTHER EVENTS
Certain of the Company's outstanding Common Stock Purchase Warrants
and options to purchase the Company's Common Stock (collectively,
the "Warrants") originally issued by Beacon Capital Investment,
Inc., the Company's predecessor, were scheduled to expire September
30, 1997. On September 12, 1997, the Company's Board of Directors
adopted resolutions which extended the exercise period of the
Warrants to December 15, 1997.
If the Company's Common Stock issuable upon the exercise of the
Warrants requires registration, the Company has authority to suspend
the exercise of the Warrants until such registration is obtained.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and exhibits are filed as part of
this report:
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(a) Financial statements of business acquired, prepared pursuant
to Rule 3-05 of Regulation S-X:
The financial statements are unavailable as of the date of
this filing. Such information will be filed on or before the
sixtieth day following the filing date of this Current Report
on Form 8-K.
(b) Pro forma financial information required pursuant to Article
11 of Regulation S-X:
The pro forma financial information is unavailable as of the
date of this filing. Such information will be filed on or
before the sixtieth day following the filing date of this
Current Report on Form 8-K.
(c) Exhibits in accordance with Item 601 of Regulation S-K:
Exhibit No. Description
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2.1 Agreement of Merger, dated as of September 30, 1997 by and
among NETRAM Components, Inc., John Torres, Terry Tonini,
Jeff Hylton, Don Klosterman, David Erickson, Bret Pool,
Millennium Electronics, Inc. and Millennium Memory, Inc.
99.1 Press release dated October 7, 1997.
99.2 Form of Common Stock Purchase Warrant (the "Warrant")
which were part of the Units offered and sold in the initial
public offering of Beacon Capital Investment, Inc., the
Registrant's predecessor. (Incorporated herein by reference
to Exhibit 10.2 to Beacon Capital Investment, Inc.'s
registration statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on February 18, 1992.)
99.3 Option Agreement. (Incorporated herein by reference
to Exhibit 10.4 to Beacon Capital Investment, Inc.'s
registration statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on February 18, 1992.)
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99.4 Option Agreement. (Incorporated herein by reference
to Exhibit 10.5 to Beacon Capital Investment, Inc.'s
registration statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on February 18, 1992.)
99.5 Option Agreement. (Incorporated herein by reference
to Exhibit 10.6 to Beacon Capital Investment, Inc.'s
registration statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on February 18, 1992.)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
MILLENNIUM ELECTRONICS, INC.
Date: October 13, 1997 By: /s/ Troy D. Barnes
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Troy D. Barnes
President, Chief Executive Officer
and Chairman of the Board
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EXHIBIT INDEX
Exhibit No. Description Page
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2.1 Agreement of Merger, dated as of September 7
30, 1997 by and among NETRAM Components,
Inc., John Torres, Terry Tonini, Jeff Hylton,
Don Klosterman, David Erickson, Bret Pool,
Millennium Electronics, Inc. and Millennium
Memory, Inc.
99.1 Press release dated October 7, 1997. 52
99.2 Form of Common Stock Purchase Warrant (the
"Warrant") which were part of the Units
offered and sold in the initial public
offering of Beacon Capital Investment, Inc.,
the Registrant's predecessor. (Incorporated
herein by reference to Exhibit 10.2 to Beacon
Capital Investment, Inc.'s registration
statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on
February 18, 1992.)
99.3 Option Agreement. (Incorporated herein
by reference to Exhibit 10.4 to Beacon
Capital Investment, Inc.'s registration
statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on
February 18, 1992.)
99.4 Option Agreement. (Incorporated herein
by reference to Exhibit 10.5 to Beacon
Capital Investment, Inc.'s registration
statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on
February 18, 1992.)
99.5 Option Agreement. (Incorporated herein
by reference to Exhibit 10.6 to Beacon
Capital Investment, Inc.'s registration
statement, as amended, on Form S-18
(Registration No. 33-45838C) filed on
February 18, 1992.)
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EXHIBIT 2.1
AGREEMENT OF MERGER
BY AND AMONG
NETRAM COMPONENTS, INC.,
JOHN TORRES,
TERRY TONINI,
JEFF HYLTON,
DON KLOSTERMAN,
DAVID ERICKSON,
BRET POOL,
MILLENNIUM ELECTRONICS, INC.
AND
MILLENNIUM MEMORY, INC.
DATED AS OF SEPTEMBER 30, 1997
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TABLE OF CONTENTS
Page
RECITALS .................................................................1
AGREEMENT.................................................................2
ARTICLE 1 THE MERGER.....................................................2
1.1 The Merger................................................2
1.2 Succession of MMI.........................................2
1.3 Conversion of NETRAM Stock................................2
1.4 Exchange of Certificates and Cash
Consideration..........................................2
1.5 Reorganization............................................3
1.6 The Surviving Corporation.................................3
ARTICLE 2 EFFECTIVE DATE.................................................3
2.1 Effectiveness.............................................3
2.2 Other Matters.............................................4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TORRES
AND TONINI.....................................................4
3.1 Organization and Standing.................................4
3.2 Authority.................................................4
3.3 No Violation of Law and Agreements........................4
3.4 Capitalization of NETRAM.................................5
3.5 Consents Required.........................................5
3.6 Books and Records.........................................5
3.7 Financial Statements......................................6
3.8 Title to Assets...........................................6
3.9 Accounts Receivable.......................................6
3.10 Absence of Certain Changes................................6
3.11 Taxes.....................................................8
3.12 Compliance with Laws......................................9
3.13 Contracts and Other Agreements............................9
3.14 Intellectual Property.....................................9
3.15 Permits...................................................9
3.16 Labor and Employment Matters..............................9
3.17 Employees.................................................10
3.18 Employee Benefit Plans....................................10
3.19 Litigation................................................10
3.20 Brokerage.................................................11
3.21 Accuracy of Representations...............................11
3.22 Relations with Suppliers..................................11
3.23 Transactions with Affiliates..............................11
3.24 Condition of Tangible Assets and Inventories..............11
3.25 Absence of Certain Business Practices.....................12
3.26 Bank Accounts.............................................12
3.27 Reorganization Related Representations....................12
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF
HYLTON, KLOSTERMAN, ERICKSON AND POOL..........................14
4.1 No Violation of Law and Agreements........................14
4.2 Ownership of NETRAM Stock.................................14
4.3 Consents Required.........................................14
4.4 Litigation................................................15
4.5 Brokerage.................................................15
4.6 Accuracy of Representations...............................15
4.7 Reorganization Related Representations....................15
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF MMI..........................16
5.1 Organization and Standing.................................16
5.2 Authority.................................................16
5.3 No Violation of Law and Agreements........................16
5.4 Capitalization of MMI.....................................17
5.5 Consents Required.........................................17
5.6 Brokerage.................................................17
5.7 Reorganization Related Representations....................17
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF MEI..........................19
6.1 Organization and Standing.................................19
6.2 Authority.................................................20
6.3 No Violation of Law and Agreements........................20
6.4 Capitalization of MEI....................................20
6.5 Consents Required.........................................20
6.6 Brokerage.................................................21
6.7 Financial Statements......................................21
6.8 Accuracy of Representations...............................21
6.9 Reorganization Related Representations....................21
ARTICLE 7 COVENANTS AND AGREEMENTS OF NETRAM, TORRES
TONINI, HYLTON, KLOSTERMAN, ERICKSON AND POOL..................21
7.1 Conduct of Business.......................................21
7.2 Conditions................................................23
7.3 Litigation................................................23
7.4 Notice of Breach of Representations
and Warranties of NETRAM.................................23
7.5 Corporate Examinations and Investigations.................23
7.6 Further Assurances........................................23
7.7 Cooperation...............................................23
7.8 No Solicitation of Other Transactions.....................24
ARTICLE 8 CONDITIONS TO THE OBLIGATIONS OF NETRAM, TORRES,
TONINI, HYLTON, KLOSTERMAN, ERICKSON AND POOL..................24
8.1 Representations and Warranties.............................24
8.2 Compliance with Covenants..................................24
8.3 Corporate Action...........................................25
8.4 Litigation.................................................25
8.5 Absence of Adverse Governmental Action.....................25
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8.6 Approval of Documentation..................................25
8.7 Consents and Approvals.....................................25
8.8 No Material Adverse Changes................................25
8.9 Employment Agreements......................................26
ARTICLE 9 CONDITIONS TO THE OBLIGATIONS OF MMI AND MEI....................26
9.1 Representations and Warranties.............................26
9.2 Compliance with Covenants..................................26
9.3 Corporate Action...........................................26
9.4 Litigation.................................................26
9.5 Absence of Adverse Governmental Action.....................26
9.6 Consents and Approvals.....................................27
9.7 Approval of Documentation..................................27
9.8 No Material Adverse Changes................................27
9.9 Noncompetition Agreements..................................27
9.10 Employment Agreements......................................27
9.11 Clearance Certificates.....................................27
ARTICLE 10 SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION.................................27
10.1 Survival...................................................27
10.2 Indemnification............................................28
10.3 Recourse Limited to Stock..................................28
ARTICLE 11 MISCELLANEOUS...................................................29
11.1 Nature and Survival of Representations.....................29
11.2 Notices....................................................29
11.3 Entire Agreement...........................................30
11.4 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies........................30
11.5 Governing Law..............................................31
11.6 Arbitration of Disputes....................................31
11.7 Binding Effect; Assignment.................................32
11.8 No Third Party Beneficiaries...............................33
11.9 Counterparts...............................................33
11.10 Schedules and Exhibits ...................................33
11.11 Headings and Construction.................................33
11.12 Severability..............................................33
11.13 Time of Essence...........................................33
11.14 Attorneys' Fees...........................................34
ARTICLE 12 DEFINITIONS.....................................................34
12.1 Defined Terms..............................................34
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EXHIBIT INDEX
Exhibit A Short Form Agreement of Merger and Officers'
Certificates
Exhibit B Noncompetition Agreement
Exhibit C Employment Agreement
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DISCLOSURE SCHEDULE INDEX
Schedule 3.4 Capitalization of NETRAM
Schedule 3.5 Consents Required
Schedule 3.7 Liabilities
Schedule 3.8 Title to Assets
Schedule 3.9 Accounts Receivable
Schedule 3.10 Material Changes
Schedule 3.11 Tax Matters
Schedule 3.13 Contracts and Other Agreements
Schedule 3.14 Intellectual Property
Schedule 3.15 Permits
Schedule 3.16 Labor and Employment Matters
Schedule 3.17 Employees
Schedule 3.18 Employee Benefit Plans
Schedule 3.23 Transactions with Affiliates
Schedule 3.24 Inventory
Schedule 3.26 Bank Accounts
Schedule 5.5 Consents Required
Schedule 6.4 Capitalization of MEI
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered
into as of September 30, 1997 by and between Millennium Memory, Inc., a
California corporation ("MMI"), Millennium Electronics, Inc., a Nevada
corporation ("MEI"), NETRAM Components, Inc., a California corporation
("NETRAM"), Jeff Hylton, an individual ("Hylton"), John Torres, an individual
("Torres"), Terry Tonini, an individual ("Tonini"), Don Klosterman, an
individual ("Klosterman"), David Erickson, an individual ("Erickson"), and Bret
Pool, an individual ("Pool"). (Collectively, Torres, Tonini, Hylton, Klosterman,
Erickson, and Pool are referred to herein as the "Shareholders.")
RECITALS
A. NETRAM, the offices of which are located at 31642 South
Coast Highway, Suite 202, Laguna Beach, California, is in the business
of manufacturing and distributing finished personal computer systems
(the "Business").
B. Torres, Tonini, Hylton, Klosterman, Erickson and Pool
are the sole shareholders of NETRAM.
C. MMI, the offices of which are located at 31642 South
Coast Highway, Suite 100, Laguna Beach, California, is in the business
of manufacturing, through subcontractors, and distributing memory
upgrade components for personal computers ("PC's"), laptop and
notebook computers, file servers and printers and of distributing the
PC's manufactured by NETRAM.
D. MMI is a wholly-owned subsidiary of MEI, the offices of
which are located at 31642 South Coast Highway, Suite 100, Laguna
Beach, California.
D. The Board of Directors of NETRAM believes that a merger
of NETRAM with MMI will increase the financial strength of the
Business and make available to the Business financing which might not
otherwise be available to it, thereby enabling the Business to
increase its volume of sales and profitability.
E. The Boards of Directors of MMI and MEI believe that a
merger with NETRAM will enable MMI to diversify its product line and
customer base, reduce concentrations of accounts receivable and sales,
enhance profitability and make greater lines of financing available to
MMI on better terms than are currently available.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of
the mutual covenants and agreements hereinafter set forth, the parties
to this Agreement agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions set
forth in this Agreement, on the Effective Date, NETRAM shall be merged
with and into MMI in accordance with the provisions of Sections 1101
and 1107 of the California Corporations Code and the separate
existence of NETRAM shall thereupon cease.
1.2 SUCCESSION OF MMI. On the Effective Date, subject to
the express terms of this Agreement, MMI shall succeed to and possess
all the properties, rights, privileges, powers, franchises, immunities
and purposes and shall succeed to and be subject to all of the debts,
liabilities, obligations, restrictions and duties of NETRAM, without
further action or deed.
1.3 CONVERSION OF NETRAM STOCK. On the Effective Date, all
of the issued and outstanding shares of the common stock of NETRAM
(the "NETRAM Common Stock") shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into shares
of the common stock of MEI (the "MEI Common Stock"). Each share of
NETRAM Common Stock shall be converted into 4.6033966 shares of the
MEI Common Stock; provided that Shareholders shall not be issued
fractional shares of MEI Common Stock and shall instead receive in
lieu thereof a cash payment equal to the value of such fraction. Each
share certificate which immediately prior to the Effective Date
represents NETRAM Common Stock shall be deemed for all purposes to
evidence ownership of, and to represent the number of shares of, MEI
Common Stock into which the shares of NETRAM Common Stock represented
by such certificate immediately prior to the Effective Date have been
converted pursuant to this Section 1.3. Each shareholder of NETRAM at
the Effective Date shall, until such holder's certificate for NETRAM
Common Stock has been surrendered for transfer or exchange, be
entitled to exercise any voting and other rights with respect thereto
and be entitled to receive any dividends or other distributions,
equivalent to the number of shares of MEI Common Stock into which the
shares of NETRAM Common Stock represented by such certificate has been
converted.
1.4 EXCHANGE OF CERTIFICATES AND CASH CONSIDERATION. On
the Effective Date, Torres, Tonini, Hylton, Klosterman,
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Erickson and Pool shall deliver to MMI, duly endorsed in blank
or accompanied by stock powers duly endorsed in blank,
certificates for all of the issued and outstanding shares of
NETRAM Common Stock and upon such tender MEI shall deliver to
Torres, Tonini, Hylton, Klosterman, Erickson and Pool in the
same proportion as the shares of NETRAM Common Stock owned by
each of them certificates evidencing 576,000 shares of the MEI
Common Stock and checks totaling One Hundred Twenty Dollars
($120,000). The MEI share certificates will bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW AND
MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND QUALIFIED OR REGISTERED
FOR SALE UNDER APPLICABLE STATE SECURITIES LAWS,
(B) MEI HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
ACCEPTABLE TO IT TO THE EFFECT THAT NO SUCH REGISTRA-
TION OR QUALIFICATION IS REQUIRED FOR SUCH TRANSFER
OR (C) THE TRANSFER IS IN COMPLIANCE WITH RULE 144 OF
THE SECURITIES AND EXCHANGE COMMISSION, OR ANY
SUCCESSOR THERETO, AND A COMPARABLE EXEMPTION UNDER
STATE LAW.
1.5 REORGANIZATION. It is the intent of the parties that
the Merger will qualify as a tax-free reorganization under Section
368(a)(1)(A) of the Internal Revenue Code (the "Code"); and the
parties shall report the Merger accordingly for federal, state and
local income tax purposes.
1.6 THE SURVIVING CORPORATION. In the Merger, NETRAM shall
merge into MMI and MMI shall be the surviving corporation. The
Articles of Incorporation and Bylaws of MMI in effect at the Effective
Date shall be the Articles of Incorporation and Bylaws of the
surviving corporation until amended in accordance with applicable law.
The directors and officers of MMI immediately prior to the Effective
Date shall be and shall constitute the directors and officers of the
surviving corporation to serve in accordance with the Bylaws of the
surviving corporation until their respective successors have been duly
elected or appointed and qualified.
ARTICLE 2
EFFECTIVE DATE
2.1 EFFECTIVENESS. The Merger shall become effective upon
the filing with the Secretary of State for the State of California of
a properly executed Short-form Agreement of Merger and Officers'
Certificate in the form of those attached hereto as Exhibit A (the
"Effective Date").
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2.2 OTHER MATTERS. The Employment and Noncompetition
Agreements in the forms of those attached hereto as Exhibits B and C
shall be executed and delivered to the parties thereto. Torres,
Tonini, Hylton, Klosterman, Erickson, Pool, MEI and MMI shall deliver
the certificates described in Sections 1.4, 7.2 and 8.2.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TORRES AND TONINI
Except as otherwise set forth in the Schedules delivered
to MMI and MEI contemporaneously with the execution and delivery of
this Agreement, Torres and Tonini hereby jointly and severally
represent and warrant to MMI and MEI as follows:
3.1 ORGANIZATION AND STANDING. NETRAM is a corporation
duly organized, validly existing and in good standing under the laws
of the State of California. NETRAM has all necessary corporate power
and authority to carry on the Business as it is now being conducted
and to own or use the properties and assets that it purports to own or
use. The copies of NETRAM's Articles of Incorporation (certified by
the California Secretary of State) and Bylaws (certified by the
corporate secretary), and all amendments thereto (similarly
certified), delivered to MMI and MEI concurrently herewith are
accurate and complete as of the date hereof.
3.2 AUTHORITY. NETRAM has all requisite corporate power
and authority, and has taken all corporate action necessary, to
execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations under such
agreement. This Agreement has been duly authorized, executed and
delivered by NETRAM and constitutes the legal, valid and binding
obligation of NETRAM enforceable against NETRAM in accordance with its
terms.
3.3 NO VIOLATION OF LAW AND AGREEMENTS. To the best
of their knowledge and belief, the execution, delivery and
performance of this Agreement do not and will not, directly or
indirectly (with or without notice or lapse of time),
(a) conflict with or violate any provision of the Articles of
Incorporation or Bylaws of NETRAM; (b) conflict with, violate,
result in a breach of, or cause a default under (i) any
provision of any federal, state or local law or regulation,
(ii) any material provision of any order, arbitration award,
judgment or decree to which NETRAM or any of its Assets, Torres
or Tonini or their stock in NETRAM is subject, or (iii) any
provision of any material agreement or instrument to which
NETRAM or its Assets, Torres or Tonini or their stock in NETRAM
is subject or (iv) any other material restriction of any kind
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or character to which NETRAM or its Assets, Torres or Tonini or
their stock in NETRAM is subject; (c) result in the imposition
or creation of any encumbrance upon or with respect to any of
the Assets of NETRAM.
3.4 CAPITALIZATION OF NETRAM. The authorized
capital stock of NETRAM consists of 500,000 shares of Common
Stock, 125,125 shares of which Common Stock are issued and
outstanding. No other class of capital stock of NETRAM is
authorized. Except as set forth in Schedule 3.4 hereto, there
are no outstanding subscriptions, options, rights, warrants or
other agreements obligating NETRAM, Torres or Tonini to sell
or issue any shares of stock of any class or any securities
convertible into shares of stock of any class of NETRAM.
NETRAM will not make any changes in its capitalization prior
to the Effective Date and the total number of shares of Common
Stock of NETRAM so issued and outstanding will remain
unchanged as of the Effective Date. Torres, Tonini, Hylton,
Klosterman, Erickson and Pool are the sole shareholders of
NETRAM. Torres owns of record and beneficially 60,000 shares
of the Common Stock of NETRAM; Tonini owns of record and
beneficially 40,000 shares of the Common Stock of NETRAM;
Hylton owns of record and beneficially 100 shares of the
Common Stock of NETRAM; Klosterman owns of record and
beneficially 8,342 shares of the Common Stock of NETRAM;
Erickson owns of record and beneficially 8,342 shares of the
Common Stock of NETRAM; Pool owns of record and beneficially
8,341 shares of the Common Stock of NETRAM.
3.5 CONSENTS REQUIRED. To the best of their
knowledge and belief, the execution, delivery and performance
of this Agreement by NETRAM, Torres, Tonini, Hylton,
Klosterman, Erickson and Pool and the consummation of the
transactions contemplated hereby do not require NETRAM or any
of the Shareholders to obtain any consent (except as indicated
in Schedule 3.5), approval or action of, or make any filing
with or give notice to, any corporation, partnership, person,
firm or other entity or any public, governmental or judicial
authority for any reason where the failure to do so would have
a material adverse effect on MMI, NETRAM, the Business or the
Assets.
3.6 BOOKS AND RECORDS. NETRAM has maintained (and
given MMI and MEI access to) Books and Records and accounts
which are substantially complete and correct and accurately
reflect the activities of NETRAM relating to the Business, and
which have been kept in accordance with NETRAM's normal
business practices. The copies of the minute books of NETRAM
previously delivered to MMI and MEI contain accurate and
complete records of all actions previously taken by the
shareholders, board of directors and committees of the board
of directors of NETRAM relating to the Business.
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3.7 FINANCIAL STATEMENTS. Schedule 3.7 hereto is a
(a) true and complete list of all of NETRAM's material
liabilities (excluding any income tax liabilities) as of
September 13, 1997 and (b) a true and complete list of all of
NETRAM's material assets. To the best of the knowledge of
Torres and Tonini, except as set forth in SCHEDULE 3.7, NETRAM
has no material liabilities, obligations or commitments of any
nature (whether known or unknown, and whether absolute,
accrued, contingent or otherwise, and whether matured or
unmatured), except liabilities the amounts of which are
disclosed or reserved against on Schedule 3.7, income tax
liabilities, and liabilities (which may be material) incurred
in the ordinary course of business and consistent with past
practice since September 13, 1997.
3.8 TITLE TO ASSETS. NETRAM has and, upon the
consummation of the transactions contemplated hereby, MMI will
acquire, good and marketable title to or other right to use
all of the Assets, in each case free and clear of all liens or
encumbrances of any kind, other than those set forth in
SCHEDULE 3.8, and liens for taxes or other statutory or
governmental charges not yet due. The Assets include, without
limitation, all assets heretofore used in the conduct of the
Business.
3.9 ACCOUNTS RECEIVABLE. All accounts receivable
of NETRAM are reflected properly on its books and records, and
represent valid and enforceable obligations arising from bona
fide transactions in the ordinary course of business. Except
as set forth on Schedule 3.9 hereto, such accounts receivable
are subject to no defenses, claims or rights of set off, and
are fully collectible in the ordinary course of business
within ninety days after the date on which they first become
due and payable, respectively, without cost in collection
efforts therefor. Except as set forth in SCHEDULE 3.9, (i) no
account debtor is delinquent in its payment by more than sixty
(60) days, (ii) no account debtor has refused or threatened to
refuse to pay its obligations for any reason, (iii) no account
debtor is, to the knowledge of NETRAM, insolvent or bankrupt,
and (iv) no account receivable is pledged to any third party.
3.10 ABSENCE OF CERTAIN CHANGES. Since January 1,
1997, NETRAM has not suffered any material adverse change in
its condition (financial or otherwise) or the results of its
operations or in its Assets, Business or prospects considered
as a whole or, except as specifically contemplated by this
Agreement or as set forth in SCHEDULE 3.10:
(a) entered into any transaction, contract or
commitment or incurred any obligation or liability (fixed or
contingent) which is not in the ordinary course of business or
which is materially adverse to the Business or financial
condition of NETRAM as a whole;
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(b) transferred or granted any material
rights under any concessions, leases, licenses, agreements,
patents, inventions, trade names, trademarks, service marks,
brand marks, brand names or copyrights, or registrations or
licenses thereof or applications therefor, or with respect to
any know- how or other proprietary or trade rights;
(c) made or granted any wage or salary
increase except in the ordinary course of business consistent
with past practices, increased or established any bonus,
insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock appreciation
rights, performance award, stock awards, stock purchase or
other employee benefit plan, or otherwise changed the
compensation payable or to become payable to any officer or
key employees, entered into or begun negotiations with respect
to any employment contract with any officer or employee or
made any loan (excluding advances for normal reimbursable
business expenses) to, or entered into any transaction of any
other nature with, any officer or director or gained any
knowledge of any plans of any key employee or employees to
terminate their employment, the absence of whom would have a
material adverse effect on the ability of NETRAM to conduct
the Business after the Effective Date;
(d) suffered any material adverse change in
its financial condition or results of operations or in its
assets, properties, business or operations considered as a
whole;
(e) granted any stock options or other rights
to purchase securities of NETRAM, declared any dividend or
made any payment in respect of the capital stock of NETRAM;
(f) suffered any damage to or loss of any
asset or property, whether or not covered by insurance,
materially and adversely affecting the Business, financial
condition or prospects of NETRAM as a whole;
(g) suffered any change in employee relations
which has or is reasonably likely to have an adverse effect on
the Business or NETRAM's financial condition or results of
operations or the relationships between NETRAM'S employees and
management;
(h) paid, loaned or abandoned (other than
payment of salaries or benefits or reimbursement of expenses)
any amount to, or sold, transferred or leased any properties
or assets to, or entered into any contract with, any of its
Shareholders, officers or directors, or any affiliate or
associate of any of its Shareholders, officers or directors;
(i) experienced any other event or condition
which in any one case or in the aggregate has or might be
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reasonably expected to have a material adverse effect on
NETRAM; or
(j) entered into any negotiation or agreement
to do any of the things described in this Section 3.10.
Since September 13, 1997, NETRAM has operated in the ordinary
course consistent with its past practice so as to preserve the
Business intact, to keep available to NETRAM the services of
NETRAM's employees, and to preserve the Business and the
goodwill of NETRAM's suppliers, customers, distributors and
others having business relations with it.
3.11 TAXES. NETRAM has never filed any federal or
state income tax returns or reports and has to date not been
required to do so. Except as set forth on SCHEDULE 3.11,
NETRAM is not to the best of their knowledge and belief
subject to tax in any state, local or foreign jurisdiction
other than California. Since and including its first fiscal
year, NETRAM has been and remains an S Corporation under
Section 1361 of the Internal Revenue Code and the
corresponding provisions of the California Revenue and
Taxation Code. Except as set forth on SCHEDULE 3.11:
(a) No extension or waiver of any statute of
limitations has been requested of or granted by NETRAM with
respect to any tax for any period, and no extension or waiver
of time within which to file any tax return or report has been
requested by or granted to NETRAM.
(b) No deficiency, delinquency, or default
for any taxes has been claimed, proposed or assessed against
NETRAM, Torres or Tonini nor has NETRAM, Torres or Tonini
received notice of any such deficiency, delinquency, or
default; and there is no audit, examination, investigation,
claim, assessment, action, suit, proceeding, lien or
encumbrance in effect, pending or proposed by any tax
authority with respect to any such taxes or with respect to
any tax return or report of NETRAM, Torres or Tonini. No claim
has been made by an authority in any state, local or foreign
jurisdiction other than California that NETRAM is subject to
taxation by that jurisdiction. There are no liens for taxes
(other than for current Taxes not yet due and payable) on the
Assets.
(c) NETRAM has withheld and paid all taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee and, to the best of
their knowledge and belief, any independent contractor,
creditor, stockholder or third party.
(d) There is no tax ruling, request for
ruling, or settlement, compromise, closing or tax collection
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agreement in effect or pending which does or could affect the
liability of NETRAM for taxes for any period after the Effective
Date.
3.12 COMPLIANCE WITH LAWS. To the best knowledge
and belief of Torres and Tonini, and except for NETRAM's
failure to maintain workers compensation insurance, NETRAM has
not violated and is in material compliance with all laws,
statutes, ordinances, regulations, rules and orders of all
foreign, federal, state and local governments and governmental
departments and agencies, and all judgments, decisions,
decrees and orders of all courts and governmental agencies,
departments or authorities which apply to or have jurisdiction
over NETRAM or any of the Assets.
3.13 CONTRACTS AND OTHER AGREEMENTS. SCHEDULE 3.13
sets forth all of the material contracts and other agreements
to which NETRAM is a party or by or to which it or the Assets
or any of the outstanding shares of NETRAM are bound or
subject.
3.14 INTELLECTUAL PROPERTY. SCHEDULE 3.14 lists
all trademarks, service marks, trade names, brand marks, brand
names, patents (other than patents that have expired),
trademark service mark and patent applications and employee
invention disclosure agreements and disclosures, copyrights
and custom computer software (collectively, the "Intellectual
Property") used in connection with the Business. To the extent
any Intellectual Property is the subject of a licensing
agreement, such licensing agreement and the parties thereto
are described in SCHEDULE 3.14. Except as disclosed in
SCHEDULE 3.14, NETRAM has not received notice that it is
infringing upon any intellectual property right of any other
party or any application pending therefor and NETRAM does not
know of any basis for any such claim of infringement.
3.15 PERMITS. SCHEDULE 3.15 sets forth all Permits
held by NETRAM. To the best of their information and belief,
no Permit other than those listed on SCHEDULE 3.15 is
necessary for the transaction of the Business as currently
conducted except where the failure to hold such Permit would
result in a material adverse effect on NETRAM, the Business or
the Assets. All such Permits of NETRAM are transferable to
MMI, except for those Permits specifically listed as
non-transferable on SCHEDULE 3.15. All such Permits are
currently in force. No notice of any violation has been
received in respect of any such Permit, and neither Torres nor
Tonini has any knowledge of any proceeding which is pending or
threatened that would suspend or revoke or limit any such
Permit.
3.16 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth in SCHEDULE 3.16,
NETRAM (i) has withheld and paid to the appropriate
Governmental Authorities, or is withholding for payment not
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yet due to such authorities, all amounts required to be withheld
from its employees; (ii) is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply
with any of the foregoing; and (iii) except for NETRAM's
failure to maintain workers compensation insurance, has
complied in all material respects with all applicable laws,
rules and regulations relating to the employment of labor,
including Title VII of the Federal Civil Rights Act of 1964, as
amended, OSHA, and those relating to hours, wages, collective
bargaining and the payment and withholding of taxes and other
sums as required by appropriate authorities.
(b) NETRAM is not a party to any collective
bargaining agreement or other labor contract applicable to the
employees of NETRAM; and NETRAM is not subject to any (i)
unfair labor practice complaint pending before the National
Labor Relations Board or any other federal, state, local or
foreign agency, (ii) pending or threatened labor strike,
slowdown, work stoppage, lockout, or other organized labor
disturbance, or threat thereof, (iii) pending grievance
proceeding, (iv) pending representation question respecting
the employees of NETRAM, or (v) attempt by any union to
represent employees of NETRAM as a collective bargaining
agent.
3.17 EMPLOYEES. SCHEDULE 3.17 sets forth a list of
the names of all of NETRAM's current employees (the
"Employees") and indicates the current salary or wage rate of
each Employee. All of such salaries, wages and benefits will
be paid by NETRAM when due for all periods through the
Effective Date.
3.18 EMPLOYEE BENEFIT PLANS. Except as set forth
in SCHEDULE 3.18, NETRAM does not have any employee welfare
benefit or employee pension benefit plans, medical, dental,
disability or life insurance program, or stock option,
incentive and deferred compensation plans or other similar
fringe or employee benefit plans, programs or arrangements for
the benefit of employees of the Business.
3.19 LITIGATION. There is no litigation, action,
suit, proceeding or investigation (collectively, "Actions")
presently pending against NETRAM, Torres, Tonini (or, to the
best of their knowledge, Hylton, Klosterman, Erickson or Pool)
or affecting the Assets or Business or the outstanding Common
Stock of NETRAM, nor does Torres or Tonini have any knowledge
of any Actions threatened against either of them or NETRAM or
affecting the Assets or Business or restricting or prohibiting
the consummation of the transactions contemplated by this
Agreement before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign.
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<PAGE>
3.20 BROKERAGE. No broker or finder has acted,
directly or indirectly, for NETRAM, Torres or Tonini nor has
NETRAM, Torres or Tonini incurred any obligation to pay any
brokerage, finder's fee or other commission in connection with
the transactions contemplated by this Agreement. Torres and
Tonini shall severally, but not jointly, indemnify and hold
MMI and MEI harmless with respect to any and all claims for
brokers' fees, commissions or other similar fees arising out
of their conduct or that of NETRAM.
3.21 ACCURACY OF REPRESENTATIONS. No
representation, warranty, statement or schedule furnished by
NETRAM, Torres or Tonini to MMI or MEI in connection with the
transactions contemplated hereby contains any untrue statement
of material fact or omits to state any material fact necessary
to make the statements contained herein or therein not
misleading.
3.22 RELATIONS WITH SUPPLIERS. No supplier has
canceled any contract or order for provisions of, and, to the
best of their knowledge and belief, there has been no threat
by any supplier not to provide, products, supplies, or
services (including utilities) to NETRAM between January 1,
1997 and the date of this Agreement. NETRAM's relationships
with its suppliers are good, and neither Torres nor Tonini is
aware of anything that would lead them to conclude that any
such relationship may be in jeopardy.
3.23 TRANSACTIONS WITH AFFILIATES. SCHEDULE 3.23
is a true, correct and complete list of all existing business
relationships between NETRAM and any of the officers,
directors, or Shareholders of NETRAM or any of such officer's,
directors, or shareholder's affiliates.
3.24 CONDITION OF TANGIBLE ASSETS AND INVENTORIES.
(a) To the best of Torres and Tonini's
knowledge and belief, all items of machinery, equipment, and
other tangible assets of NETRAM are in good operational
condition, have been regularly and properly serviced and
maintained in a manner that would not void or limit the
coverage of any warranty thereon, other than items currently
under, or scheduled for, repair or construction, and are
adequate and fit to be used for the purposes for which they
are currently used in the manner they are currently used.
(b) Except as set forth in SCHEDULE 3.24, the
Inventory consists of items of merchantable quality and
quantity usable or salable in the ordinary course of the
Business at prevailing market prices not less than the book
value amounts thereof, and are not obsolete, damaged,
slow-moving or defective. To the best of Torres and Tonini's
knowledge and belief, no item included in the Inventory has
been the subject of recall by a government agency. The value
at which Inventories are carried on the Books and Records of
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<PAGE>
NETRAM reflects the customary inventory valuation policy of
NETRAM (which fairly reflects the value of obsolete or excess
inventory) for stating Inventory in accordance with generally
accepted accounting principles consistently applied.
3.25 ABSENCE OF CERTAIN BUSINESS PRACTICES.
Neither NETRAM nor any officer, employee or agent of NETRAM
acting on its behalf has, directly or indirectly, (a) within
the past three years given any gift or similar benefit to any
customer, supplier, competitor or governmental employee or
official which would subject NETRAM to any damage or penalty
in any civil, criminal or governmental litigation or
proceeding and which would have a material adverse effect on
the assets, condition (financial or otherwise) or business of
NETRAM, or (b) acted in any other unlawful manner with, to, or
in connection with NETRAM's customers, suppliers, or
competitors which would have a material adverse effect on the
assets, condition (financial or otherwise) or business of
NETRAM.
3.26 BANK ACCOUNTS. SCHEDULE 3.26 sets forth the
names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which
NETRAM maintains accounts of any nature, the account numbers
of all such accounts and the names of all persons authorized
to draw thereon or make withdrawals therefrom.
3.27 REORGANIZATION RELATED REPRESENTATIONS.
3.27.1 There is no plan or intention by any
of the Shareholders to sell, exchange, or otherwise dispose of
a number of shares of MEI Common Stock received in the Merger
that would reduce the Shareholders' ownership of MEI Common
Stock to a number of shares having a value, as of the
Effective Date, of less than 50% of the value of all of the
formerly outstanding NETRAM Common Stock of as of the same
date. NETRAM Common Stock and MEI Common Stock held by the
Shareholders and otherwise sold, redeemed, or disposed of
prior to, subsequent to or as part of the Merger have been
considered in making this representation.
3.27.2 Following the Effective Date, MMI will
hold at least 90% of the fair market value of its net assets
and at least 70% of the fair market value of its gross assets,
and at least 90% of the fair market value of NETRAM's net
assets and at least 70% of the fair market value of NETRAM's
gross assets held immediately prior to the Effective Date. For
purposes of this representation, amounts used by MMI or NETRAM
to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by
MMI, are included as assets of MMI or NETRAM, respectively,
immediately prior to the Effective Date.
3.27.3 NETRAM, MMI, MEI and each of the
Shareholders will pay their respective expenses, if any,
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<PAGE>
incurred in connection with the transaction contemplated by
this Agreement.
3.27.4 The liabilities of NETRAM assumed by
MEI and the liabilities to which the Assets are subject were
incurred by NETRAM in the ordinary course of its business.
3.27.5 There is no intercorporate
indebtedness existing between NETRAM and MEI which was issued,
acquired, or will be settled at a discount.
3.27.6 The fair market value of the MEI
Common Stock and other consideration received by each
Shareholder will be approximately equal to the fair market
value of the NETRAM Common Stock surrendered in the Merger.
3.27.7 At the Effective Date, 100% of the
issued and outstanding shares of NETRAM Common Stock will be
exchanged solely for voting stock of MEI and $120,000 in cash.
3.27.8 At the Effective Date, NETRAM will not
have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any
person could acquire stock in NETRAM that, if exercised or
converted, would affect MEI's acquisition or retention of
control of NETRAM or MMI, as defined in Section 368(c) of the
Code.
3.27.9 NETRAM is not an investment company as
defined in Section 368(a)(2)(f)(iii) and (iv) of the Code.
3.27.10 On the Effective Date, the fair
market value of the assets of NETRAM will exceed the sum of
its liabilities plus the amount of liabilities, if any, to
which its assets are subject.
3.27.11 NETRAM is not under the jurisdiction
of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
3.27.12 Other than the $120,000 to be paid to
the Shareholders pursuant to Section 1.4 hereof, none of the
compensation received by the Shareholders will be separate
consideration for, or allocable to, any of their shares of
NETRAM Common Stock. None of the shares of MEI Common Stock
received by any Shareholder will be separate consideration
for, or allocable to, any employment agreement; and the
compensation paid to any Shareholder will be for services
actually rendered and will be commensurate with amounts paid
to third parties bargaining at arms-length for similar
services.
3.27.13 No order has been entered revolving
or suspending for cause any license, permit or other authority
of any director or officer of NETRAM, or of any corporation of
which such person is an officer or director, to engage in the
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<PAGE>
securities business or in the sale of a particular security or
temporarily or permanently restraining or enjoining any such
person or any corporation of which he is an officer or director
from engaging in or continuing any conduct, practice or
employment in connection with the purchase or sale of
securities, or convicting such person of any felony or
misdemeanor involving a security or any aspect of 'the
securities business, or of any felony.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
HYLTON, KLOSTERMAN, ERICKSON AND POOL
Except as otherwise set forth in any Schedule
delivered to MMI and MEI contemporaneously with the execution
and delivery of this Agreement, Hylton, Klosterman, Erickson
and Pool hereby severally (but not jointly) represent and
warrant to MMI and MEI each as to himself only as follows:
4.1 NO VIOLATION OF LAW AND AGREEMENTS. The
execution, delivery and performance of this Agreement by
Klosterman, Erickson and Pool do not and will not, directly or
indirectly (with or without notice or lapse of time), (a) any
provision of any order, arbitration award, judgment or decree
to which Hylton, Klosterman, Erickson or Pool or their stock
in NETRAM is subject, (b) any material provision of any
material agreement or instrument to which Hylton, Klosterman,
Erickson or Pool or their stock in NETRAM are subject or (c)
any other material restriction of any kind or character to
which Hylton, Klosterman, Erickson or Pool or their stock in
NETRAM are subject.
4.2 OWNERSHIP OF NETRAM STOCK. There are no
outstanding subscriptions, options, rights, warrants or other
agreements obligating Hylton, Klosterman, Erickson or Pool to
sell any shares of stock of any class or any securities
convertible into shares of stock of any class of NETRAM.
Hylton owns of record and beneficially 100 shares of the
Common Stock of NETRAM; Klosterman owns of record and
beneficially 8,342 shares of the Common Stock of NETRAM;
Erickson owns of record and beneficially 8,342 shares of the
Common Stock of NETRAM; Pool owns of record and beneficially
8,341 shares of the Common Stock of NETRAM.
4.3 CONSENTS REQUIRED. The execution, delivery and
performance of this Agreement by Hylton, Klosterman, Erickson
and Pool and the consummation of the transactions contemplated
hereby by Hylton, Klosterman, Erickson and Pool do not require
them to obtain any consent, approval or action of, or make any
filing with or give notice to, any corporation, partnership,
person, firm or other entity or any public, governmental or
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judicial authority for any reason where the failure to do so
would have a material adverse effect on MMI, NETRAM, the
Business or the Assets.
4.4 LITIGATION. There is no litigation, action,
suit, proceeding or investigation (collectively, "Actions")
presently pending against Hylton, Klosterman, Erickson or Pool
nor does Hylton, Klosterman, Erickson or Pool have any
knowledge of any Actions threatened against any of them
restricting or prohibiting the consummation of the
transactions contemplated by this Agreement before any court
or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign.
4.5 BROKERAGE. No broker or finder has acted,
directly or indirectly, for Hylton, Klosterman, Erickson or
Pool nor has Hylton, Klosterman, Erickson or Pool incurred any
obligation to pay any brokerage, finder's fee or other
commission in connection with the transactions contemplated by
this Agreement. Hylton, Klosterman, Erickson and Pool shall
indemnify and hold MMI and MEI harmless with respect to any
and all claims for brokers' fees, commissions or other similar
fees arising out of their conduct.
4.6 ACCURACY OF REPRESENTATIONS. No
representation, warranty, statement or schedule furnished by
Hylton, Klosterman, Erickson or Pool to MMI or MEI in
connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state any
material fact necessary to make the statements contained
herein or therein not misleading.
4.7 REORGANIZATION RELATED REPRESENTATIONS.
4.7.1 Each of Hylton, Klosterman, Erickson
and Pool will pay his respective expenses, if any, incurred in
connection with the transaction contemplated by this
Agreement.
4.7.2 At the Effective Date, neither Hylton,
Klosterman, Erickson nor Pool will hold any outstanding
warrants, options, convertible securities, or any other type
of right issued by NETRAM pursuant to which any person could
acquire stock in NETRAM.
4.7.3 Other than the $120,000 to be paid to
the Shareholders pursuant to Section 1.4 hereof, there will be
no compensation received by Hylton, Klosterman, Erickson or
Pool which will be separate consideration for, or allocable
to, any of their shares of NETRAM Common Stock. None of the
shares of MEI Common Stock received by any such Shareholder
will be separate consideration for, or allocable to, any
employment agreement; and all compensation for services, if
any, paid to Hylton, Klosterman, Erickson and Pool will be for
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services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arms-length for similar services.
4.7.4 No order has been entered revolving or
suspending for cause any license, permit or other authority of
Hylton, Klosterman, Erickson or Pool, or of any corporation of
which such person is an officer or director, to engage in the
securities business or in the sale of a particular security or
temporarily or permanently restraining or enjoining any such
person or any corporation of which he is an officer or
director from engaging in or continuing any conduct, practice
or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or
misdemeanor involving a security or any aspect of the
securities business, or of any felony.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF MMI
MMI represents and warrants to NETRAM, Torres,
Tonini, Hylton, Klosterman, Erickson and Pool as follows:
5.1 ORGANIZATION AND STANDING. MMI is a
corporation duly organized, validly existing and in good
standing under the laws of the State of California. MMI has
all necessary corporate power and authority to carry on its
business as it is now being conducted, to own or use the
properties and assets that it purports to own or use. Copies
of MMI's Articles of Incorporation (certified by the
California Secretary of State) and Bylaws (certified by the
corporate secretary), and all amendments thereto (similarly
certified), delivered to NETRAM concurrently herewith are
accurate and complete as of the date hereof.
5.2 AUTHORITY. MMI has all requisite corporate
power and authority, and has taken all corporate action
necessary, to execute and deliver this Agreement and the
Ancillary Agreements (to which it is a party), to consummate
the transactions contemplated hereby and to perform its
obligations under such agreements. Each of this Agreement and
the Ancillary Agreements (to which MMI is a party) have been
duly authorized, executed and delivered by MMI and constitute
the legal, valid and binding obligations of MMI enforceable
against MMI in accordance with its terms.
5.3 NO VIOLATION OF LAW AND AGREEMENTS. The
execution, delivery and performance of this Agreement does not
and will not, directly or indirectly (with or without notice
or lapse of time), (a) conflict with or violate any provision
of the Articles of Incorporation or Bylaws of MMI; (b) conflict
with, violate, result in a breach of, or cause a default under
(i) any provision of any federal, state or local law or
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regulation, (ii) any provision of any order, arbitration award,
judgment or decree to which MMI or any of its properties or
assets is subject, or (iii) any provision of any material
agreement or instrument to which MMI or its properties or
assets are subject or (iv) to the knowledge of MMI, any other
restriction of any kind or character to which MMI or its
properties are subject; (c) cause MMI or MEI to become subject
to, or to become liable for the payment of, any tax of any
kind, levy or other like assessment, custom, duty, impost,
charge or fee; or (d) result in the imposition or creation of
any encumbrance upon or with respect to any of MMI's properties
or assets.
5.4 CAPITALIZATION OF MMI. The authorized capital
stock of MMI consists of 7,000,000 shares of Common Stock, no
par value, 100 shares of which Common Stock are issued and
outstanding. No other class of capital stock of MMI is
authorized. There are no outstanding subscriptions, options,
rights, warrants or other agreements obligating MMI to sell or
issue any shares of stock of any class or any securities
convertible into shares of stock of any class of MMI. MMI will
not make any changes in its capitalization prior to the
Effective Date and the total number of shares of Common Stock
of MMI so issued and outstanding will remain unchanged as of
the Effective Date. MEI is the sole shareholder of MMI.
5.5 CONSENTS REQUIRED. Except as set forth in
SCHEDULE 5.5, the execution, delivery and performance of this
Agreement by MMI and the consummation of the transactions
contemplated hereby do not require MMI to obtain any consent,
approval or action of, or make any filing with or give notice
to, any corporation, partnership, person, firm or other entity
or any public, governmental or judicial authority for any
reason.
5.6 BROKERAGE. No broker or finder has acted,
directly or indirectly, for MMI, nor has MMI incurred any
obligation to pay any brokerage, finder's fee or other
commission in connection with the transactions contemplated by
this Agreement. MMI agrees to indemnify and hold Torres,
Tonini, Hylton, Klosterman, Erickson and Pool harmless with
respect to any and all claims for brokers' fees, commissions
or other similar fees arising out of the conduct of MMI.
5.7 REORGANIZATION RELATED REPRESENTATIONS.
5.7.1 This Agreement has been negotiated
between MMI, MEI, NETRAM and the Shareholders at arms' length.
The fair market value of the MEI Common Stock and the cash
received by each Shareholder in the Merger will be
approximately equal to the fair market value of the NETRAM
Common Stock surrendered in the Merger.
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5.7.2 Following the Effective Date, MMI will
hold at least 90% of the fair market value of its net assets
and at least 70% of the fair market value of its gross assets,
and at least 90% of the fair market value of NETRAM's net
assets and at least 70% of the fair market value of NETRAM's
gross assets held immediately prior to the Merger. For
purposes of this representation, amounts used by MMI or NETRAM
to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by
MMI or NETRAM are included as assets of MMI or NETRAM,
respectively, immediately prior to the Effective Date.
5.7.3 Immediately prior to the Effective
Date, MEI will be in control of MMI within the meaning of
Section 368(c) of the Code.
5.7.4 MEI has no plan or intention to, and
will not, following the Merger, issue additional shares of
stock that would result in MEI losing control of MMI within
the meaning of Section 368(c) of the Code.
5.7.5 MEI has no plan or intention to
reacquire any of its stock issued in the Merger.
5.7.6 MEI has no plan or intention to
liquidate MMI, to merge MMI with or into another corporation;
to sell or otherwise dispose of the stock of MMI except for
transfers of stock to corporations controlled by MEI; or to
cause MMI to sell or otherwise dispose of any of its assets or
any of the assets acquired from NETRAM, except for
dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by MMI.
5.7.7 Following the Effective Date, MEI will
cause MMI to continue the historic businesses of MMI and
NETRAM or use a significant portion of the historic business
assets of both MMI and NETRAM in a business.
5.7.8 MEI, MMI, NETRAM and the Shareholders
will pay their respective expenses, if any, incurred in
connection with the transactions contemplated in this
Agreement.
5.7.9 There is no intercorporate indebtedness
existing between MEI and NETRAM, or between MMI and NETRAM,
which was issued, acquired, or will be settled at a discount.
No stock of MMI will be issued in the Merger.
5.7.10 On the Effective Date, shares of
NETRAM Common Stock representing control of NETRAM, as defined
in Section 368(c) of the Code, will be exchanged solely for
voting stock of MEI plus $120,000. No consideration other than
MEI Common Stock and $120,000 in cash will be paid or received
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(directly or indirectly, actually or constructively) for NETRAM
Common Stock.
5.7.11 Neither MEI nor MMI owns, nor has
either owned during the past five years, any shares of the
stock of NETRAM.
5.7.12 Neither MEI nor MMI is an investment
company as defined in Section 368(a)(2)(f)(iii) and (iv) of
the Code.
5.7.13 Other than the $120,000 to be paid to
the Shareholders pursuant to Section 1.4 hereof, none of the
compensation received by any Shareholder will be separate
consideration for, or allocable to, any of their shares of
NETRAM Common Stock. None of the shares of MEI Common Stock
received by any Shareholder-employees will be separate
consideration for, or allocable to, any employment agreement;
and the compensation paid to any Shareholder-employees will be
for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arms-length for
similar services.
5.7.14 No order has been entered revoking or
suspending for cause any license, permit or other authority of
any director or officer of MEI or MMI, or of any corporation
of which such person is an officer or director, to engage in
the securities business or in the sale of a particular
security or temporarily or permanently restraining or
enjoining any such person or any corporation of which he is an
officer or director from engaging in or continuing any
conduct, practice or employment in connection with the
purchase or sale of securities, or convicting such person of
any felony or misdemeanor involving a security or any aspect
of the securities business, or of any felony.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF MEI
MEI represents and warrants to NETRAM, Torres,
Tonini, Hylton, Klosterman, Erickson and Pool as follows:
6.1 ORGANIZATION AND STANDING. MEI is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Nevada. MEI has all necessary
corporate power and authority to carry on its business as it
is now being conducted, to own or use the properties and
assets that it purports to own or use. Copies of MEI's Articles
of Incorporation (certified by the Nevada Secretary of State)
and Bylaws (certified by the corporate secretary), and all
amendments thereto (similarly certified), delivered to NETRAM
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concurrently herewith are accurate and complete as of the date
hereof.
6.2 AUTHORITY. MEI has all requisite corporate
power and authority, and has taken all corporate action
necessary, to execute and deliver this Agreement and the
Ancillary Agreements (to which it is a party), to consummate
the transactions contemplated hereby and to perform its
obligations under such agreements. Each of this Agreement and
the Ancillary Agreements (to which MEI is a party) have been
duly authorized, executed and delivered by MEI and constitute
the legal, valid and binding obligations of MEI enforceable
against MEI in accordance with its terms.
6.3 NO VIOLATION OF LAW AND AGREEMENTS. The
execution, delivery and performance of this Agreement does not
and will not, directly or indirectly (with or without notice
or lapse of time), (a) conflict with or violate any provision
of the Articles of Incorporation or Bylaws of MEI; (b)
conflict with, violate, result in a breach of, or cause a
default under (i) any provision of any federal, state or local
law or regulation, (ii) any provision of any order,
arbitration award, judgment or decree to which MEI or any of
its properties or assets is subject, or (iii) any provision of
any material agreement or instrument to which MEI or its
properties or assets are subject or (iv) to the knowledge of
MEI, any other restriction of any kind or character to which
MEI or its properties are subject; (c) cause MMI or MEI to
become subject to, or to become liable for the payment of, any
tax of any kind, levy or other like assessment, custom, duty,
impost, charge or fee; or (d) result in the imposition or
creation of any encumbrance upon or with respect to any of
MEI's properties or assets.
6.4 CAPITALIZATION OF MEI. The authorized capital
stock of MEI consists of 25,000,000 shares of Common Stock,
$.001 par value, 7,243,054 shares of which Common Stock are
issued and outstanding. No other class of capital stock of MEI
is authorized. Other than as set forth in SCHEDULE 6.4 hereto,
there are no outstanding subscriptions, options, rights,
warrants or other agreements obligating MEI to sell or issue
any shares of stock of any class or any securities convertible
into shares of stock of any class of MEI. MEI will not make
any changes in its capitalization prior to the Effective Date
and the total number of shares of Common Stock of MEI so
issued and outstanding will remain unchanged as of the Closing
Date.
6.5 CONSENTS REQUIRED. Except as set forth in
SCHEDULE 5.5, the execution, delivery and performance of this
Agreement by MEI and the consummation of the transactions
contemplated hereby do not require MEI to obtain any consent,
approval or action of, or make any filing with or give notice
to, any corporation, partnership, person, firm or other entity
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or any public, governmental or judicial authority for any
reason.
6.6 BROKERAGE. No broker or finder has acted,
directly or indirectly, for MEI, nor has MEI incurred any
obligation to pay any brokerage, finder's fee or other
commission in connection with the transactions contemplated by
this Agreement. MEI agrees to indemnify and hold Torres,
Tonini, Hylton, Klosterman, Erickson and Pool harmless with
respect to any and all claims for brokers' fees, commissions
or other similar fees arising out of the conduct of MEI.
6.7 FINANCIAL STATEMENTS. MEI has delivered to
Torres and Tonini: a true, complete and correct copy of MEI's
interim balance sheet (the "Interim Balance Sheet") dated June
30, 1997 (the "Interim Balance Sheet Date") and the related
statements of income and retained earnings and cash flow for
the period ended on the Interim Balance Sheet Date
(collectively, the "Financial Statements"). The Financial
Statements (i) are in accordance with the books and records of
MEI, (ii) have been prepared in accordance with generally
accepted accounting principles consistently applied throughout
the periods covered thereby, and (iii) fairly and accurately
present the assets, liabilities (including all reserves) and
financial position of MEI as of the Interim Balance Sheet Date
and the results of operations and changes in stockholders'
equity and cash flow for the period then ended, subject to
normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, be materially
adverse) and the absence of notes.
6.8 ACCURACY OF REPRESENTATIONS. No
representation, warranty, statement or schedule furnished by
MEI to NETRAM, Torres, Tonini, Hylton, Klosterman, Erickson or
Pool in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to
state any material fact necessary to make the statements
contained herein or therein not misleading.
6.9 REORGANIZATION RELATED REPRESENTATIONS. All of
the warranties and representations set forth in Section 5.7 of
this Agreement are true and correct.
ARTICLE 7
COVENANTS AND AGREEMENTS OF NETRAM, TORRES
TONINI, HYLTON, KLOSTERMAN, ERICKSON AND POOL
7.1 CONDUCT OF BUSINESS. From the date hereof to
the Effective Date, NETRAM shall conduct the Business
substantially in the manner in which it is presently conducted
and, without the prior written consent of MMI and MEI, not to
undertake any of the actions specified in Section 3.10.
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Without limiting the generality of the foregoing, NETRAM shall
not, without the prior written consent of MEI and MMI:
(a) make any change in its Articles of
Incorporation or Bylaws;
(b) make any change in the authorized or
issued shares except as contemplated by this Agreement;
(c) make any payment or distribution to
Shareholders or purchase or redeem any shares of capital stock
except for a distribution to the Shareholders of the amount
required to permit them to pay the federal and state income
tax on the income of NETRAM prior to the Effective Date;
(d) mortgage, pledge, or subject to lien or
encumbrance any of its assets, tangible or intangible;
(e) cancel any debts or claims or waive any
rights of value;
(f) incur any indebtedness or guarantees or
enter into any commitment or make any material capital
expenditures or investments;
(g) make any loan, accrual or arrangement for
or payment of bonuses or special compensation of any kind or
any severance or termination pay to either of the Shareholders
or any of its present or former officers or employees;
(h) make any material change in its method of
management, operation, or accounting; or
(i) except in the ordinary course of
business, enter into any other material transactions;
(j) hire any person as an employee except in
the ordinary course of business;
(k) adopt any profit sharing, bonus, deferred
compensation, insurance, pension, retirement, or other
employee benefit plan, payment, or arrangement made to, for,
or with its officers, directors, or employees.
(l) grant or agree to grant any options,
warrants, or other rights for its stocks, bonds, or other
corporate securities calling for the issuance thereof;
(m) sell or transfer any of its assets,
property, or rights other than in the ordinary course of
business or cancel or agree to cancel, any debts or claims; or
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(n) make or permit any amendment or
termination of any material contract, agreement, or license to
which it is a party.
7.2 CONDITIONS. From the date hereof to the
Effective Date NETRAM, Torres, Tonini, Hylton, Klosterman,
Erickson and Pool shall use their best efforts to satisfy the
conditions precedent to consummation of the transactions
contemplated by this Agreement to the extent they are to be
performed by them, their agents or representatives and to
obtain any consents which may be required to permit such
consummation.
7.3 LITIGATION. From the date hereof through the
Effective Date, NETRAM shall notify MMI and MEI promptly of
(i) any actions or proceedings that, from the date hereof, are
threatened or commenced against NETRAM or against any officer,
director, employee, properties or Assets of NETRAM, (ii) any
action or proceeding threatened or commenced against NETRAM
which could impair its ability to perform its obligations
under this Agreement, and (iii) any requests for additional
information or documentary materials by any Governmental
Authority in connection with the transactions contemplated
hereby.
7.4 NOTICE OF BREACH OF REPRESENTATIONS AND
WARRANTIES OF NETRAM. From the date hereof through the
Effective Date, NETRAM shall promptly notify MMI and MEI of
any event, condition or circumstance occurring from the date
hereof through the Effective Date that would constitute a
violation or breach of this Agreement by NETRAM and of any
changes to the Schedules to this Agreement, PROVIDED, HOWEVER,
that such notification shall not be deemed to cure any breach
of a representation, warranty, covenant or agreement or to
satisfy any condition.
7.5 CORPORATE EXAMINATIONS AND INVESTIGATIONS.
Prior to the Effective Date, MMI and MEI shall be entitled,
through their employees and representatives, to make such
investigation of the assets, liabilities, Assets, business and
operations of NETRAM, and such examination of the books,
records and financial condition of NETRAM, as MMI or MEI
reasonably determines is necessary.
7.6 FURTHER ASSURANCES. NETRAM, Torres, Tonini,
Hylton, Klosterman, Erickson and Pool shall execute such
documents and other papers and take such further actions as
may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
NETRAM shall use its best efforts to fulfill or obtain the
fulfillment of the conditions to the Effective Date as
promptly as practicable.
7.7 COOPERATION. NETRAM, Torres, Tonini, Hylton,
Klosterman, Erickson and Pool shall provide MMI and MEI with
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any other document that MMI or MEI may reasonably request and
shall otherwise cooperate in MMI and MEI's examination of the
Business.
7.8 NO SOLICITATION OF OTHER TRANSACTIONS. Neither
NETRAM, Torres, Tonini, Hylton, Klosterman, Erickson nor Pool
shall, and shall cause their officers, directors, employees,
affiliates, representatives or agents not to, directly or
indirectly solicit, encourage, initiate or hold discussions or
negotiations with, provide any nonpublic information to, or
enter into any agreement with, any person (other than MMI or
MEI) (a "Third Party") concerning the Business in connection
with any merger, consolidation, sale of substantial assets or
of a significant amount of assets, sale of securities,
acquisition of beneficial ownership of or to vote securities
of NETRAM, liquidation, dissolution or similar transaction or
business combination (each being hereinafter referred to as an
"Acquisition Transaction") involving NETRAM. NETRAM shall
promptly inform MMI and MEI of any inquiry (including the
terms thereof and the identity of the Third Party making such
inquiry) which it may receive in respect of an Acquisition
Transaction involving the stock, Assets or Business of NETRAM
and, if in writing, furnish to MMI and MEI a copy of any such
inquiry.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF NETRAM, TORRES,
TONINI, HYLTON, KLOSTERMAN, ERICKSON AND POOL
The obligations of NETRAM, Torres, Tonini, Hylton,
Klosterman, Erickson and Pool to enter into and complete the
Merger is subject to the fulfillment on or prior to the
Effective Date of the following conditions, any one or more of
which may be waived by any such party as a condition to its
performance, to the extent permitted by law:
8.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of MMI and MEI contained in
this Agreement shall be true and correct in all material
respects on and as of the Effective Date as though made at and
as of that date, and each of MMI and MEI shall have delivered
to NETRAM an officer's certificate to that effect as to such
corporation.
8.2 COMPLIANCE WITH COVENANTS. MMI and MEI shall
in all material respects have performed and complied with all
terms, agreements, covenants and conditions of this Agreement
to be performed or complied with by them on or prior to the
Effective Date, and each of MMI and MEI shall have delivered
to NETRAM an officer's certificate to that effect as to such
corporation.
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8.3 CORPORATE ACTION. NETRAM shall have received
certified copies of the Articles of Incorporation and Bylaws
of both MMI and MEI, and all amendments thereto, and of
resolutions of the Boards of Directors of MMI and MEI and of
MEI as the sole shareholder of MMI, in form reasonably
satisfactory to NETRAM, approving the execution and delivery
of this Agreement and the Ancillary Agreements and the
transactions contemplated hereby and thereby.
8.4 LITIGATION. On the Effective Date, there shall
be no litigation, proceeding or investigation pending or
threatened pertaining to the transactions contemplated by this
Agreement or to its consummation, or which, if decided
adversely, would materially affect the value of the Business
or the ability of MMI to operate the Business or to own and
use the Assets.
8.5 ABSENCE OF ADVERSE GOVERNMENTAL ACTION. No
action shall have been taken, proposed or threatened and no
statute, rule, regulation or order shall have been proposed,
enacted or entered by any Governmental Authority or by any
court with jurisdiction over the transaction contemplated
herein which threatens to prohibit or unduly delay
consummation of such transaction on the terms and provisions
herein set forth.
8.6 APPROVAL OF DOCUMENTATION. The form and
substance of all certificates, instruments and other documents
delivered to NETRAM, Torres, Tonini, Hylton, Klosterman,
Erickson and Pool under this Agreement shall be satisfactory
in all reasonable respects to them and their counsel.
8.7 CONSENTS AND APPROVALS. All waivers,
licenses, agreements, permits, consents, approvals or
authorizations of third parties or governmental agencies or any
modifications or amendments to existing agreements with third
parties required to be obtained by NETRAM, MMI or MEI shall
have been obtained and shall be in full force and effect and
without conditions or limitations which unreasonably restrict
the ability of the parties hereto to carry out the transactions
contemplated hereby and NETRAM shall have been furnished with
appropriate evidence, reasonably satisfactory to it and its
counsel, of the granting of same. The waiting period required
by any regulatory agency shall have expired.
8.8 NO MATERIAL ADVERSE CHANGES. Since the date
hereof, there shall not have been any material adverse changes
in the financial condition or the results of operations of the
Business of NETRAM and the Business and Assets of NETRAM shall
not have sustained any material loss or damage, whether or not
insured.
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8.9 EMPLOYMENT AGREEMENTS. MMI shall have entered
into Employment Agreements with each of Torres and Tonini,
substantially in the form of EXHIBIT B hereto.
8.10 TAX DISTRIBUTIONS. The Shareholders shall
have received distributions from NETRAM to enable them to pay
the federal and state income tax on the income of NETRAM prior
to the Effective Date.
ARTICLE 9
CONDITIONS TO THE OBLIGATIONS OF MMI AND MEI
The obligation of MMI and MEI to enter into and
complete the Merger is subject to the fulfillment on or prior
to the Effective Date of the following conditions, any one or
more of which may be waived by them, to the extent permitted
by law.
9.1 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Torres, Tonini, Hylton,
Klosterman, Erickson and Pool contained in this Agreement
shall be true and correct in all material respects on and as
of the Effective Date as though made at and as of that date,
and the Shareholders shall have delivered to MMI and MEI a
certificate to such effect.
9.2 COMPLIANCE WITH COVENANTS. NETRAM, Torres,
Tonini, Hylton, Klosterman, Erickson and Pool shall in all
material respects have performed and complied with all terms,
agreements, covenants and conditions of this Agreement to be
performed or complied with by them on or prior to the
Effective Date, and the Shareholders shall have delivered to
MMI a certificate to that effect.
9.3 CORPORATE ACTION. MMI shall have received
certified copies of NETRAM's Articles of Incorporation and
Bylaws, and all amendments thereto. and of resolutions of
NETRAM's Board of Directors and Shareholders, in form
reasonably satisfactory to MMI and MEI, approving the
execution and delivery of this Agreement and the Ancillary
Agreements and the transactions contemplated hereby and
thereby.
9.4 LITIGATION. On the Effective Date there shall
be no litigation, proceeding or investigation pending or
threatened pertaining to the transactions contemplated by this
Agreement or to its consummation, or which, if decided
adversely, would materially affect NETRAM, the Common Stock of
NETRAM, the Business or the right of MMI to acquire the Assets
of NETRAM or to continue the operation of its Business.
9.5 ABSENCE OF ADVERSE GOVERNMENTAL ACTION. No
action shall have been taken, proposed or threatened and no
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statute, rule, regulation or order shall have been proposed,
enacted or entered by any Governmental Authority or by any
court with jurisdiction over the transaction contemplated
herein which threatens to prohibit or unduly delay consummation
of such transaction on the terms and provisions herein set
forth.
9.6 CONSENTS AND APPROVALS. All waivers, licenses,
agreements, permits, consents, approvals or authorizations of
third parties or governmental agencies or any modifications or
amendments to existing agreements with third parties required
to be obtained by NETRAM, MMI or MEI shall have been obtained
and shall be in full force and effect and without conditions
or limitations which unreasonably restrict the ability of the
parties hereto to carry out the transactions contemplated
hereby and MMI and MEI shall have been furnished with
appropriate evidence, reasonably satisfactory to them and
their counsel, of the granting of same. The waiting period
required by any regulatory agency shall have expired.
9.7 APPROVAL OF DOCUMENTATION. The form and
substance of all certificates, instruments and other documents
delivered to MMI and MEI under this Agreement shall be
satisfactory in all reasonable respects to MMI and MEI and
their counsel.
9.8 NO MATERIAL ADVERSE CHANGES. Since the date
hereof, there shall not have been any material adverse changes
in the financial condition or the results of operations of the
Business and the Business and Assets of NETRAM shall not have
sustained any material loss or damage, whether or not insured.
9.9 NONCOMPETITION AGREEMENTS. MMI shall have
entered into Noncompetition Agreements with each of Torres and
Tonini substantially in the form of EXHIBIT C hereto.
9.10 EMPLOYMENT AGREEMENTS. MMI shall have entered
into Employment Agreements with each of Torres and Tonini,
substantially in the form of EXHIBIT B hereto.
9.11 CLEARANCE CERTIFICATES. NETRAM shall have
furnished MMI and MEI with a tax clearance certificate from
the California Franchise Tax Board dated no more than 15 days
prior to the Effective Date.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 SURVIVAL. All statements contained in the
schedules attached hereto or in any certificate, schedule,
exhibit or instrument or conveyance delivered by or on behalf
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of the parties pursuant to this Agreement or in connection with
the transactions contemplated hereby shall be deemed to be
representations and warranties by the parties hereunder.
Except as otherwise expressly provided herein, all of the
representations, warranties, covenants and agreements of the
parties hereto shall survive the execution and delivery of this
Agreement and the Effective Date, and shall in no way be
affected by any investigation of the subject matter thereof
made by or on behalf of any other party. The representations
and warranties contained in Sections 3.14, 4.7, 5.6 and 6.6
(Brokerage) shall survive for the period of the applicable
statute of limitations (with extensions) with respect to the
matters addressed in such sections. The termination of the
representations and warranties provided herein shall not affect
the rights of a party in respect of any claim made by such
party in a writing received by the other party prior to the
expiration of the applicable survival period provided herein.
10.2 INDEMNIFICATION. Each party to this Agreement
shall severally, but not jointly, indemnify and hold harmless
each other party at all times after the date of this Agreement
against and in respect of any liability, damage, or
deficiency, all actions, suits, proceedings, demands,
assessments, judgments, costs, and expenses ("Damages") which
exceed, in the aggregate, $50,000, exclusive of attorney's
fees, incident to any of the foregoing, resulting from any
misrepresentations, breach of covenant or warranty, or
nonfulfillment of any agreement on the part of such party
under this Agreement or from any misrepresentation in or
omission from any certificate furnished or to be furnished to
a party hereunder (a "Breach"). This $50,000 threshold shall
be an individual threshold for any claim by MEI or MMI against
a Shareholder but an aggregate threshold for claims by the
Shareholders against MEI and MMI. Subject to such $50,000
limitation, and the terms of this Agreement, the party
committing the Breach shall reimburse the other party or
parties on demand, for any reasonable payment made by said
parties at any time after the Effective Date, in respect of
any liability or claim to which the foregoing indemnity
relates, if such payment is made after reasonable notice to
the other party to defend or satisfy the same and such party
failed to defend or satisfy the same. No liability shall arise
against a party hereof regarding a settlement of any claim
unless such settlement was previously approved by such party.
10.3 RECOURSE LIMITED TO STOCK. If, as a result of
a Breach by any Shareholder(s), the aggregate Damages to MMI
and MEI exceed $50,000, MEI shall, on a pro rata basis and as
its sole recourse, cancel shares of the MEI Common Stock which
were issued in the Merger to the Shareholder(s) committing the
Breach. The number of shares to be canceled hereunder shall be
valued at the then current market value. The amount of loss or
damages which are to be off set by the cancellation of
additional shares of MEI Common Stock pursuant to this Section
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10.3 shall be determined by the independent certifying public
accountants of MEI or by any other independent accountant or
professional selected by the MEI Board of Directors who is
engaged in the business of valuating businesses or losses to
businesses. The foregoing limitation shall not be applicable
to Damages resulting from breaches of representations and
warranties which constitute fraud as defined at common law (but
with a standard of actual knowledge at the time of the
execution of this Agreement or the Effective Date).
10.4 INDEMNIFICATION FOR NETRAM TAX LIABILITIES.
In the event any Shareholder is personally responsible for the
payment of any federal or state income taxes with respect to
any pre-Effective Date income of NETRAM and such tax liability
exceeds the amount which may be distributed to him under
Section 7.1(c) hereof, MMI shall indemnify and hold harmless
such Shareholder from such tax liability; provided, however,
that such Shareholder shall contest, at MMI's request and
expense, any tax liability which may in good faith be
contested.
ARTICLE 11
MISCELLANEOUS
11.1 NATURE AND SURVIVAL OF REPRESENTATIONS. All
representations, warranties, and covenants made by any party
to this Agreement shall survive the Effective Date.
11.2 NOTICES. Any notice or other communication
required or permitted hereunder shall be in writing and shall
be delivered personally or sent by Federal Express or other
comparable overnight messenger service to the parties at the
following addresses:
(i) If to MMI or MEI to:
Millennium Memory, Inc. or
Millennium Electronics, Inc. (as
appropriate)
31642 South Coast Highway, Suite 100
Laguna Beach, California 92677
Attention: Troy D. Barnes, President
with a copy to:
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP
650 Town Center Drive, 4th Floor
Costa Mesa, California 92626
Attention: John J. Giovannone, Esquire
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(ii) If to NETRAM, Torres or Tonini to:
NETRAM Components, Inc.
31642 South Coast Highway, Suite 202
Laguna Beach, California 92677
Attention: John Torres
with a copy to:
BROBECK, PHLEGER & HARRISON LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Gabrielle M. Wirth, Esquire
(iii) If to Hylton to:
85 Argonaut, Suite 100
Aliso Viejo, California 92656
(iv) If to Klosterman, Erickson or Pool, to such
person at:
575 Anton Boulevard, Suite 480
Costa Mesa, California 92626
with a copy to:
MILLS & MILLS
11755 Wilshire Boulevard, Suite 1400
Los Angeles, California 90024
Attention: Michael E. Mills, Esq.
Personally delivered notices and other communications
shall be deemed given upon actual personal delivery to the
intended recipient. Notices sent via Federal Express (or other
comparable overnight messenger service) shall be deemed given
upon the immediately following business day. Any party may by
notice given in accordance with this Section 10.2 to the other
parties designate another address or person for receipt of
notices hereunder.
11.3 ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits attached hereto) contains the entire
agreement of the parties with respect to the subject matter
hereof and supersedes all prior agreements, written or oral,
with respect thereto.
11.4 WAIVERS AND AMENDMENTS; NON-CONTRACTUAL
REMEDIES; PRESERVATION OF REMEDIES. This Agreement may be
amended, superseded, canceled, renewed or extended, and the
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terms hereof may be waived, only by a written instrument signed
by each of the parties or, in the case of a waiver, by the
party waiving compliance. The failure of any party to insist,
in any one or more instances, upon performance of the terms or
conditions of this Agreement shall not be construed as a waiver
or relinquishment of any right granted hereunder or of the
future performance of any such term, covenant or condition. No
waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such
right, power or privilege, shall preclude any further exercise
thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that
any party may otherwise have at law or in equity. The rights
and remedies of any party based upon, arising out of or
otherwise in respect of any inaccuracy in or breach of any
representation, warranty, covenant or agreement contained in
this Agreement shall in no way be limited by the fact that the
act, omission, occurrence or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be
the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any
other agreement between the parties) as to which there is no
inaccuracy or breach.
11.5 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the substantive and
procedural laws of the State of California applicable to
agreements made and to be performed entirely within such State.
11.6 ARBITRATION OF DISPUTES.
(a) All disputes arising under this Agreement
shall be settled by arbitration in Orange County and judgment
upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. Except as specifically
provided herein, the arbitration shall proceed in accordance
with the laws of the State of California. Either party
requesting arbitration shall serve a written demand for
arbitration on the other party(ies) in the manner provided in
Section 11.2 hereto. The demand shall set forth a statement of
the nature of the dispute, the amount involved and the remedies
sought. No later than 20 calendar days after a demand for
arbitration is served, the parties shall jointly select and
appoint a disinterested person to act as the arbitrator. In
the event that the parties do not agree on the selection of an
arbitrator, each party shall select an arbitrator within
10 days after the date on which the parties do not agree on the
selection of a sole arbitrator and the two arbitrators so
selected shall select a third arbitrator within 10 days after
the parties select their arbitrators; the provisions set forth
herein regarding the single arbitrator shall apply to the three
arbitrators so selected. In the event the two arbitrators
cannot agree on a third arbitrator, the third arbitrator shall
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<PAGE>
be designated by the presiding judge of the Orange County
Superior Court. No later than 10 calendar days after appoint-
ment of an arbitrator, the parties shall jointly prepare and
submit to the arbitrator a set of rules for the arbitration.
In the event that the parties cannot agree on the rules for the
arbitration, the arbitrator shall apply the provisions of
sections 1282, 1283 and 1284 of the California Code of Civil
Procedure. No later than 10 calendar days after the
arbitrator(s) is (are) appointed, the arbitrator(s) shall
schedule the arbitration for a hearing to commence on a
mutually convenient date. The hearing shall commence no later
than 120 calendar days after the arbitrator(s) is (are)
appointed and shall continue from day to day until completed.
The arbitrator(s) shall issue his (their) award in writing no
later than 20 calendar days after the conclusion of the
hearing. In rendering his (their) award, the parties to this
Agreement agree that the arbitrator(s) shall have no
jurisdiction to consider evidence with respect to or render any
award or judgment for punitive or exemplary damages or any
other amount awarded for purposes of imposing a penalty. The
parties to this Agreement specifically waive any claims for
punitive or exemplary damages (or any other amount awarded for
the purpose of imposing a penalty) that arise out of or relate
to this Agreement or the conduct of the parties in connection
with this Agreement. Any party may petition any court having
jurisdiction to confirm an award of the arbitrator(s) in
accordance with section 1285 of the California Code of Civil
Procedure and any party aggrieved from any such order may
appeal that order pursuant to section 1294 of the California Code of
Civil Procedure. All discovery shall be completed no later
than the commencement of the arbitration hearing or
120 calendar days after the date that a proper demand for
arbitration is served, whichever occurs earlier, unless upon a
showing of good cause the arbitrator(s) extends or shortens
that period. The fees and expenses of such arbitration
(including reasonable attorneys' fees) or any action to enforce
an arbitration award shall be paid by the party that does not
prevail in such arbitration. The arbitrator(s) shall not have
the power to amend this Agreement in any respect.
(b) The parties agree that all facts and
information relating to any arbitration arising under this
Agreement shall be kept confidential to the extent possible.
The parties agree that all documents filed with any court in
connection with the resolution of any dispute hereunder shall
be filed under seal. The parties further agree and acknowledge
that a claim for damages for breach of the agreement to
maintain confidentiality shall not provide an adequate remedy
and acknowledge that a claim for specific performance or
injunctive relief is appropriate.
11.7 BINDING EFFECT; ASSIGNMENT. This Agreement
shall be binding upon and inure to the benefit of the parties
and their respective successors and assigns and legal
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<PAGE>
representatives. Neither this Agreement, nor any right
hereunder, may be assigned by any party without the written
consent of the other parties hereto; provided, however, MMI
shall be permitted to assign all of its rights and obligations
hereunder to an affiliate without the consent of NETRAM or the
Shareholders. Any non-permitted assignment or attempted
assignment shall be void.
11.8 NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement is intended or shall be construed to give any person
any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
Without limiting the generality of the foregoing, no provision
in this Agreement shall create any third party beneficiary or
other right in any employee, consultant or agent or former
employee, consultant or agent of NETRAM (including any
beneficiary or dependent thereof) in respect of continued
employment (or resumed employment) with MMI, MEI or NETRAM or
in respect of any benefits that may be provided, directly or
indirectly, under any Benefit Plan.
11.9 COUNTERPARTS. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all
of the parties hereto.
11.10 SCHEDULES AND EXHIBITS. The Schedules and
Exhibits are parts of this Agreement as if fully set forth
herein. All references herein to Articles, Sections,
paragraphs, schedules and exhibits shall be deemed references
to such parts of this Agreement unless otherwise specified.
11.11 HEADINGS AND CONSTRUCTION. The headings in
this Agreement are for reference only, and shall not affect the
interpretation of this Agreement. This Agreement has been
drafted with the joint participation of the parties hereto and
shall be construed to be neither against nor in favor of any
party hereto but rather in accordance with the fair meaning
thereof.
11.12 SEVERABILITY. Whenever possible, each
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.13 TIME OF ESSENCE. Time is of the essence
for each and every provision of this Agreement.
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<PAGE>
11.14 ATTORNEYS' FEES. If any legal action or
other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other
relief to which it may be entitled.
11.15 PAYMENT OF INDEBTEDNESS TO TORRES.
Promptly following the Effective Date, MMI shall repay NETRAM's
$110,000 indebtedness to Torres.
ARTICLE 12
DEFINITIONS
12.1 DEFINED TERMS. As used herein, the terms below
shall have the following meanings. Any of such terms, unless
the context otherwise requires, may be used in the singular or
plural, depending upon the reference.
"ANCILLARY AGREEMENTS" means all agreements and
instruments to be delivered by any of the parties under this
Agreement including, but not limited to, the Noncompetition
Agreements substantially in the form attached hereto as
EXHIBIT C and the Employment Agreements substantially in the
form of EXHIBIT B.
"ASSETS" shall mean all of the right, title and
interest in and to the business, properties, assets and rights
of NETRAM of any kind, whether tangible or intangible, real or
personal, and constituting, or used or useful in connection
with, or related to, the Business, including without limitation
all of NETRAM's right, title and interest in and to the
following:
(a) all Inventory;
(b) all Equipment;
(c) all accounts receivable;
(d) all contract rights;
(e) all intangible assets, including all
Intellectual Property:
(f) all Books and Records;
(g) all insurance policies;
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<PAGE>
(h) all computers and software used in or
pertaining to the Business;
(i) all available supplies, sales literature,
promotional literature, customer, supplier and distributor
lists, telephone and fax numbers and purchasing records related
to the Business;
(j) all rights under or pursuant to all
warranties, representations and guarantees made by suppliers in
connection with the Assets or services furnished to NETRAM
pertaining to the Business or affecting the Assets;
(k) all claims, causes of action, choses in
action, rights of recovery and rights of set-off of any kind,
against any person or entity and related to the Business,
including, without limitation, any liens, security interests,
pledges or other rights to payment or to enforce payment in
connection with products delivered by NETRAM on or prior to the
Effective Date;
(l) all goodwill relating to the Business; and
(m) all Permits, to the extent transferable.
"BOOKS AND RECORDS" means originals or copies of
all of NETRAM's books and records, including books of account,
minute books and stock record books, and accounting records,
sales data, customer lists, information relating to customers,
supplier lists, mailing lists, brochures, advertising
materials, business and marketing plans, and operating records
of every kind.
"EQUIPMENT" means all of the machinery, spare
parts, supplies, equipment and other tangible personal property
owned by NETRAM, including all such items used in connection
with, and located at any office or other facility of, the
Business.
"GOVERNMENTAL AUTHORITY" means any foreign,
domestic, federal, territorial, state or local governmental
authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission,
tribunal or organization or any regulatory, administrative or
other agency, or any political or other subdivision, department
or branch of any of the foregoing.
"INVENTORY" shall mean all of NETRAM's inventory
of goods, including all merchandise, raw materials, work in
progress and finished products, wrapping, supply and packaging
items and similar items, held for resale or used in connection
with the Business, in each case wherever the same may be
located.
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<PAGE>
"LIABILITIES" means any and all liabilities or
obligations of NETRAM, whether actual or contingent, matured or
unmatured, liquidated or unliquidated, or known or unknown,
whether arising out of occurrences prior to, at or after the
date hereof.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE
CHANGE" means any significant and substantial adverse effect or
change in the condition (financial or other), business, results
of operations, public image, prospects, assets, liabilities or
operations of NETRAM or on the ability of NETRAM to consummate
the transactions contemplated hereby, or any event or condition
which would, with the passage of time, constitute a "material
adverse effect" or "material adverse change."
"PERMITS" means all licenses, permits,
franchises, approvals, authorizations, consents or orders of,
or filings with, any Governmental Authority, whether foreign,
federal, state or local, or any other person, necessary or
desirable for the past, present or anticipated conduct of, or
relating to the operation of the Business.
IN WITNESS WHEREOF, the parties hereto have duly
executed and delivered this Agreement as of the date first
above written.
"NETRAM"
NETRAM COMPONENTS, INC.,
a California corporation
By /s/ John Torres
---------------------------------
John Torres, President
---------------------------------
[Printed Name and Title (Pres. or
Chair)]
By /s/ Terry Tonini
---------------------------------
Terry Tonini , Secretary
------------------
[Printed Name]
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<PAGE>
"MMI"
MILLENNIUM MEMORY, INC.,
a California corporation
By /s/ Troy D. Barnes
---------------------------------
Troy D. Barnes, President
By /s/ Troy D. Barnes
---------------------------------
Troy D. Barnes, Secretary
"MEI"
MILLENNIUM ELECTRONICS, INC.,
a Nevada corporation
By /s/ Troy D. Barnes
---------------------------------
Troy D. Barnes, President
By /s/ Celeste Barnes
---------------------------------
Celeste Barnes, Secretary
"Torres"
/s/ John Torres
--------------------------------------
JOHN TORRES, an individual
"Tonini"
/s/ Terry Tonini
--------------------------------------
TERRY TONINI, an individual
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<PAGE>
"Hylton"
/s/ Jeff Hylton
--------------------------------------
JEFF HYLTON, an individual
"Klosterman"
/s/ Don Klosterman
--------------------------------------
DON KLOSTERMAN, an individual
"Erickson"
/s/ David D. Erickson
--------------------------------------
DAVID D. ERICKSON, an individual
"Pool"
/s/ Bret Pool
--------------------------------------
BRET POOL, an individual
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<PAGE>
THE EXHIBITS AND SCHEDULES
LISTED ON PAGES 11 AND 12 OF THIS
CURRENT REPORT ON FORM 8-K HAVE BEEN OMITTED.
THE REGISTRANT WILL FURNISH A COPY OF ANY SUCH
EXHIBIT OR SCHEDULE TO THE COMMISSION UPON REQUEST.
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<PAGE>
Exhibit 99.1
NEWS RELEASE
To: Millennium Electronics, Inc.
31642 South Coast Highway
Laguna Beach, CA 92677
Contact: Troy D. Barnes
President and Chief Executive Officer
714.499.0877
Michael Pollock/Cecilia Wilkinson
Pondel Parsons & Wilkinson
310.207.9300
FOR IMMEDIATE RELEASE
MILLENNIUM ELECTRONICS and NETRAM
AGREE TO MERGER
Laguna Beach, California -- October 7, 1997 -- Millennium
Electronics, Inc. (OTC:MILM), today announced that it has completed its
acquisition, through a merger, of privately held NetRam(TM) Components, Inc., a
system manufacturer of high powered personal computers. The merger establishes
an important new business division for Millennium, which previously focused
solely on the manufacture and distribution of DRAM memory products through its
Millennium Memory(TM) subsidiary.
As part of the transaction, NetRam's six stockholders will divide
576,000 shares of Millennium common stock and a cash payment of $120,000.
In conjunction with the merger, John Torres, NetRam's founder and
president, will continue to head NetRam's division as its president, and Terry
Tonini will continue as NetRam's vice president of retail sales and marketing.
NetRam, also based in Laguna Beach, markets to major electronics
retailers and a nationwide network of value-added resellers (VARs).
"This is an important strategic move by Millennium Electronics to
diversify our revenue base and add important new retail channels to our growing
list of customers," said Troy D. Barnes, Millennium's president and chief
executive officer. "Millennium and NetRam will benefit from a combined
infrastructure to support our fast growing sales. Both companies focus on
providing quality products, at competitive prices."
Barnes added: "John Torres is a leader in the PC industry and we
look forward to working together in a common goal to build on NetRam's success.
The merger of our companies will produce important advantages in terms of
shared resources. Millennium and NetRam have a history of working together,
and we are looking forward to a quick and comfortable integration of our
operations."
Torres said: "I believe this merger provides an excellent
environment for NetRam to achieve profitable growth within a focused
organization. The quality of Millennium's management team and access to
financing will help secure NetRam's position as a leading manufacturer of high
quality, high-speed computer systems."
NetRam's multi-media computer systems are based on Intel's
Pentium(R) and the newest Pentium(R) II processors.
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<PAGE>
Millennium is a nationwide provider of Dynamic Random Access
Memory (DRAM) memory upgrade components for personal computers, laptop and
notebook computers, file servers and printers to retailers, resellers,
value-added resellers, value-added distributors and original equipment
manufacturers. The company's standard memory modules incorporate industry
standard specifications and are designed to be incorporated into a wide variety
of computing and electronic equipment.
This news release contains certain forward-looking statements that
involve risk and uncertainties, such as statements of the company's plans,
objectives, expectations and intentions. The company's actual results could
differ materially from those indicated by such statements as a result of
various factors, including those discussed in the company's Form 10-Q on file
with the Securities and Exchange Commission.
# # #
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