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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13D
Information to be Included in Statements Filed Pursuant to Rule
13d-1(a) and Amendments Thereto Filed Pursuant to Rule 13d-2(a)
(Amendment No.__)*
The Network Connection, Inc.
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(Name of Issuer)
Common Stock par value $.001 per Share
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(Title of Class of Securities)
64120Q103
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(CUSIP Number)
Steven B. King, Esquire
Mesirov Gelman Jaffe Cramer & Jamieson, LLP
1735 Market Street
Philadelphia, PA 19103
(215) 994-1037
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
May 11, 1999
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
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* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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PAGE OF 8
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CUSIP NO. 64120Q103 SCHEDULE 13D
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)*
Interactive Flight Technologies, Inc.
IRS. ID No. 11-3197148
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS WC, OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) OR 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
7 SOLE VOTING POWER 2,232,216*
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8 SHARED VOTING POWER 0
NUMBER OF SHARES
BENEFICIALLY OWNED -----------------------------------------
BY EACH REPORTING
PERSON WITH 9 SOLE DISPOSITIVE POWER 2,232,216*
-----------------------------------------
10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON 2,232,216*
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 20%*
14 TYPE OF REPORTING PERSON CO
* Upon the approval of the shareholders of The Network Connection, Inc. (as
outlined in this Schedule 13D), the number of authorized shares of Common Stock
could be increased, allowing Interactive Flight Technologies, Inc. ("IFT") the
ability to convert its shares of the Company's Series C Shares (as defined
below) and the Company's Series D Shares (as defined below) into 882,446 and
15,090,569 shares of the Company's Common Stock, respectively. Upon the approval
of such shareholders and the conversion of all of the Series C Shares and all of
the Series D Shares, IFT would have the sole voting and sole dispositive power
over, and be the beneficial owner of, 18,205,231 shares of the Company's Common
Stock, or 76.9% of the then outstanding Common Stock of the Company. Certain
voting restrictions also apply to the Company Common Stock into which the Series
C Shares and Series D Shares may be converted, which restrictions are further
described below.
<PAGE>
Item 1 Security and Issuer
Common Stock, par value $.001 per share, of The Network Connection, Inc.
(the "Company"), 4041 North Central Avenue, Suite B 200, Phoenix, AZ
85012.
Item 2 Identity and Background
Name: Interactive Flight Technologies, Inc. ("IFT")
State of Incorporation: Delaware
Principal Business: Interactive electronic entertainment devices
Address of Principal Business and Principal Office: 4041 North Central
Avenue, Suite B 200, Phoenix, AZ 85012
Prior Noneinal Convictions or Proceedings:
Prior Civil (Securities) Convictions or Proceedings: None
Item 3 Source and Amount of Funds and Other Consideration:
On May 11, 1999, IFT acquired from The Shaar Fund, Ltd. ("Shaar") 1,500
shares of Series B 8% Convertible Preferred Stock of the Company, par
value $.01 per share, Stated Value $1,000 per share (the "Series B
Shares") and cash in the amount of $1,030,000 in exchange for (a) 3,000
shares of IFT's Series A 8% Convertible Preferred Stock, par value $.01
per share, Stated Value $1,000 per share and (b) warrants to purchase
87,500 shares of IFT's Class A Common Stock, $.01 par value per share, at
an exercise price of $3.00 per share. In connection with such
acquisition, IFT also received an assignment of (a) certain registration
rights under a Registration Rights Agreement dated October 23, 1998
between the Company and Shaar (the "Registration Rights Agreement") and
(b) certain rights of first refusal held by Shaar with respect to future
Company financings as set forth in that certain Securities Purchase
Agreement dated as of October 23, 1998 (the "Securities Purchase
Agreement").
The Series B Shares are convertible into the Common Stock of the Company
at a conversion price equal to the lower of (a) 75% of the Average Price
(as defined in the Articles of Amendment to the Articles of Incorporation
of The Network Connection, Inc., dated as of April 29, 1999) of the
Company's Common Stock calculated at the time of conversion; or (b) 75%
of such Average Price calculated as if April 29, 1999 were the conversion
date.
<PAGE>
Because 75% of the Average Price calculated as if April 29, 1999 were the
conversion date is $1.275, the Series B Shares are convertible into no
fewer than 1,176,471 shares of the Common Stock of the Company.
Also on May 11, 1999, IFT acquired directly from the Company 800 shares
of Series C 8% Convertible Preferred Shares of the Company, par value
$.01 per share, Stated Value $1,000 per share (the "Series C Shares") in
consideration for IFT's waiver of all prior Company defaults and
arrearages arising out of or related to the Series B Shares, including
but not limited to, the Company's failure to file a registration
statement with respect to the Common Stock as provided in the
Registration Rights Agreement, the failure to have such registration
statement declared effective by the Commission, the failure to pay
certain damages as provided in the Registration Rights Agreement, the
failure to declare or pay dividends on or with respect to the Series B
Shares to and including May 10, 1999, and any and all defaults, events of
default, and asserted failures and breaches by the Company under the
Securities Purchase Agreement and ancillary agreements with Shaar with
respect to redemption of the Series B Shares or otherwise. In connection
with these transactions, IFT also acquired the right to convert a Secured
Promissory Note made by the Company, payable to the order of IFT, and
with a principal balance of $750,000, into additional Series C Shares at
the rate of $1,000 per Series C Share.
The Series C Shares are convertible into the Common Stock of the Company
at a conversion price equal to the lowest of (a) $2.6875, (b) 66.67% of
the Average Price (as defined in the Articles of Amendment to the
Articles of Incorporation of The Network Connection, Inc., dated as of
April 30, 1999) or (c) if the Company (i) issues and sells pursuant to an
exemption from registration under the Securities Act (A) its Common Stock
at a purchase price on the date of issuance thereof that is lower than
the then applicable conversion price, (B) warrants or options with an
exercise price calculated as a percentage (less than 100%) of the Current
Market Price (however defined) or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than the Current
Market Price on the date of issuance or conversion, as applicable, of
such convertible, exchangeable or exercisable securities, except for
stock option agreements or stock incentive agreements, and (ii) grants
the right to the purchaser(s) thereof to demand that the Company register
under the Securities Act such Common Stock issued or the Common Stock for
which such warrants or options may be exercised or such convertible,
exchangeable or exercisable securities may be converted, exercised or
exchanged, then the conversion price shall, at the option of the holder
be reduced to equal the lowest of any such lower rates.
Based on the foregoing, and subject to shareholder approval of an
increase in the number of authorized shares of the Common Stock of the
Company, the Series C Shares owned by IFT are convertible into no fewer
than 450,462 shares of the Common Stock of the Company and the Series C
Shares which may be obtained by IFT upon conversion of the Secured
Promissory Note are convertible into no fewer than an additional 431,984
shares of the Common Stock of the Company.
On May 17, 1999, IFT acquired 1,055,745 shares of the Common Stock of the
Company, and 2,495,400 shares of the Series D Convertible
<PAGE>
Preferred Stock of the Company, par value $.01 per share, Stated Value
$10.00 per share, (the "Series D Shares") in exchange for certain assets
relating to its Interactive Entertainment Division, including all fixed
assets, inventory, intellectual property rights and other intangibles,
prepaid expenses, and other property of IFT used in such Division, plus
cash in the amount of $4,250,000. The cash transferred to the Company by
IFT was obtained from IFT's working capital. As part of the May 17, 1999
transaction, the Company also assumed certain liabilities related to the
IFT assets transferred.
Each Series D Share is convertible into 6.05 shares of Common Stock of
the Company.
<PAGE>
Based on the foregoing, and subject to shareholder approval of an
increase in the number of authorized shares of the Common Stock of the
Company, the Series D Shares owned by IFT are convertible into 15,090,569
shares of the Common Stock of the Company.
Item 4 Purpose of Transaction: IFT's purposes in engaging in these transactions
were to obtain a controlling interest in the Company (including its
technologies and expertise), and to take advantage of sales, marketing,
operational and managerial synergies between the related businesses of
the Company and IFT. IFT is currently negotiating with third parties the
possible purchase of (a) convertible notes issued by the Company (b)
shares of Company Common Stock and a warrant which entitles the holder to
purchase additional shares of Company Common Stock.
Item 5 Interest in Securities of the Issuer:
(a) The following table sets forth the aggregate number and percentage of
outstanding shares of the Company's common stock beneficially owned by
the undersigned as of the date of this report:
Number of Shares Percentage of Outstanding Shares
---------------- --------------------------------
2,232,216 20%
The Company has not authorized an adequate number of shares of Common
Stock to permit the conversion of the Series C Shares and the Series D
Shares. Upon the approval of the shareholders of the Company, the number
of shares of Common Stock could be increased, allowing Interactive Flight
Technologies, Inc. ("IFT") to convert its shares of the Company's Series
C Shares and the Company's Series D Shares into 882,446 and 15,090,569
shares of the Company's Common Stock, respectively. Upon the conversion
of all of the Series C Shares and all of the Series D Shares, IFT would
be the beneficial owner of 18,205,231 shares of the Company's Common
Stock, or 76.9% of the outstanding Common Stock of the Company.
(b) Voting Power and Dispositive Power*
Sole Power to Vote: 2,232,216
Shared Power to Vote: 0
Sole Power to Dispose: 2,232,216
Shared Power to Dispose: 0
*The holders of Series B Shares have no voting power.
Currently, the holders of Series C Shares have no voting power,
except that in the event that on or before July 15, 1999, the
<PAGE>
Company's Articles of Incorporation have not been amended to increase
the number of authorized shares of Common Stock sufficiently to
permit the Company to issue to IFT, upon the exercise of all options
and warrants and the conversion of all convertible securities held by
the IFT, that number of shares of Common Stock necessary to satisfy
the Company's obligations under all such securities, then the Series
C Shares, in combination with the Series B Shares, shall entitle the
holders thereof to cast that number of votes at any duly called
meeting of the shareholders of the Company which, when added to the
shares of Common Stock held by any of the holders of the Series B
Shares and the Series C Shares on the record date for such
stockholder meeting, shall be necessary to equal a majority of the
number of votes entitled to be cast at such stockholder meeting by
the holders of all voting shares of the Company.
Each Series D Share is entitled to 6.05 votes; however,
notwithstanding the voting rights, the Series D Shares cannot be
voted until the Company shareholders have approved of the transaction
entered into pursuant to the Asset Purchase and Sale Agreement, or
until July 15, 1999, whichever first occurs.
The Company has not authorized an adequate number of shares of Common
Stock to permit the conversion of the Series C Shares and the Series
D Shares. Upon the approval of the shareholders of the Company, the
number of shares of Common Stock could be increased, allowing
Interactive Flight Technologies, Inc. ("IFT") to convert its shares
of the Company's Series C Shares and the Company's Series D Shares
into 882,446 and 15,090,569 shares of the Company's Common Stock,
respectively. Upon the conversion of all of the Series C Shares and
all of the Series D Shares, IFT would have the sole voting and sole
dispositive power over 18,205,231 shares of the Company's Common
Stock, or 76.9% of the outstanding Common Stock of the Company.
(c) The following table reflects IFT's transactions in the Company's
Stock in the past 60 days:
<TABLE>
<CAPTION>
Date Description of Transaction Total Shares
---- -------------------------- Beneficially Held
-----------------
<S> <C> <C>
May 11, 1999 Purchase of 1,500 shares of Company 1,176,471
Series B Stock
May 11, 1999 Purchase of 800 shares of Company 1,176,471
Series C Stock and Right to acquire
750 shares of Company Series C Stock
May 17, 1999 Purchase of 2,495,400 shares of 2,232,216
Company Series D Stock and 1,055,745
shares of Company Common Stock
</TABLE>
<PAGE>
Item 6 Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer:
Irrevocable Proxy executed Barbara L. Riner on May 14, 1999 in favor
of Morris C. Aaron or Irwin L. Gross, Chief Financial Officer and
Chief Executive Officer of IFT. (Ms. Riner currently owns 392,000
shares of Company Common Stock.)
<PAGE>
Item 7 Material to be filed as Exhibit:
1. Asset Purchase and Sale Agreement dated as of April 29,
1999 by and between Interactive Flight Technologies, Inc.
and The Network Connection, Inc.
2. First Amendment to Asset Purchase and Sale Agreement dated
as of May 14, 1999 by and between Interactive Flight
Technologies, Inc. and The Network Connection, Inc.
3. Irrevocable Proxy of Barbara L. Riner in favor of Morris
C. Aaron or Irwin L. Gross dated May 14, 1999
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: May 28,1999 INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By: /s/ Irwin L. Gross
-------------------------------------------
Irwin L. Gross, Chief Executive Officer
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), is entered into
effective as of April 29, 1999, among INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT") and THE NETWORK CONNECTION, INC., a Georgia
corporation ("TNCI").
R E C I T A L S :
WHEREAS, IFT is engaged primarily in the interactive entertainment devices
business (the "Business");
WHEREAS, TNCI desires to purchase, and IFT desires to sell all of its
right, title and interest in and to all or substantially all of the tangible and
intangible assets relating to the Business as now conducted (the "Assets") and
specific liabilities relating to the Business ("Liabilities," with the Assets
"Net Assets") in exchange for restricted stock of TNCI.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
IFT and TNCI hereby agree as follows:
C O V E N A N T S :
1. Purchase and Sale of Assets. Subject to the terms and conditions of this
Agreement, on the Closing Date, as defined in Paragraph 4 (the "Closing Date")
IFT shall sell, convey, transfer and assign to TNCI, and TNCI shall purchase
from IFT, all of IFT's right, title and interest in and to the Assets described
in Schedule 1.1.1 (the "Assets"). TNCI shall pay the consideration set forth in
Paragraph 3, "Purchase Price," to purchase the Assets. All of the Exhibits and
Schedules referred to in this Agreement are made a part of the Agreement by this
reference.
2. Assumption of Liabilities. Subject to the terms and conditions of this
Agreement, TNCI shall assume the Liabilities of IFT as set forth in Schedule 2.1
(the "Assumed Liabilities"), which shall specifically include any and all
liabilities relating to any potential claims arising out of IFT's relationship
with Swissair all as set forth in more detail on Schedule 2.1. Except as set
forth in Schedule 2.1, TNCI shall not assume any other liabilities or
obligations in connection with its purchase of the Assets.
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<PAGE>
3. Purchase Price and Payment for Assets.
3.1 TNCI will acquire the Assets in consideration for:
3.1.1 its issuance to IFT of the greater of 1,055,745 restricted
shares of its voting common stock, $.001 par value ("Common Stock"), or the
maximum number of authorized but unissued shares of Common Stock of TNCI not
otherwise reserved for issuance as of the Closing Date provided TNCI has
received the approval of the Nasdaq Stock Market, Inc. to issue such maximum
number of shares as contemplated in Paragraph 9.2;
3.1.2 its issuance to IFT of that number of shares of its Series D
Preferred Stock (the terms and conditions of which are set forth on Schedule
3.1.1-A) such that the total of the number of shares of Common Stock into which
the Series D Preferred Stock is convertible plus the number of shares of Common
Stock issued to IFT under Paragraph 3.1.1 is equal to sixty percent (60%) of the
outstanding shares of capital stock of TNCI immediately following the Closing
Date, taking into account the issuance of such Common Stock to IFT under
Paragraph 3.1.1 and the conversion of Series D Preferred Stock into Common
Stock, and treating all convertible securities, options, warrants or other
rights to acquire securities of TNCI as if converted or exercised as of the
close of business on the date immediately preceding the Closing Date (whether or
not actually converted or exercised as of the Closing Date) into Common Stock.
The shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated by this Agreement are
collectively referred to in this Agreement as the "TNCI Shares." Schedule
3.1.1-B attached hereto sets forth the computation of the TNCI Shares to be
issued to IFT; and
3.1.3 The assumption by TNCI of the Liabilities.
3.2 The purchase price ("Purchase Price") shall be allocated among
the Assets according to Schedule 3.2.
3.3 TNCI and IFT will determine, as of the Closing Date, the number
of TNCI Shares to be issued to IFT pursuant to this Paragraph 3, and TNCI shall
deliver a certificate at closing, signed by the chief financial officer of TNCI,
certifying the accuracy of such number.
3.4 IFT will transfer title to the Assets and make the Corporate
Records of IFT available for copying to TNCI on the Closing Date. The term
"Corporate Records" shall mean any and all records kept by IFT regarding the
Assets and Assumed Liabilities identified on Schedule 3.4.
4. Closing Date.
4.1 The closing under this Agreement shall take place at the offices of
Streich Lang, P.A., Renaissance One, Two North Central, Phoenix, Arizona
85004-2391 on a date ("Closing Date") as soon as practicable after:
4.1.1 Execution of this Agreement;
4.1.2 Completion of the due diligence investigation contemplated
under Paragraph 8, "Due Diligence Inspection of Premises and Confidential
Information";
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<PAGE>
4.1.3 Satisfaction of all conditions to closing set forth in
Paragraph 9, "Conditions Precedent to Obligations of TNCI," and Paragraph 10,
"Conditions Precedent to the Obligations of IFT";
4.1.4 Receipt of any required approvals under Arizona and Georgia
corporate law and any other required regulatory approvals and all consents or
waivers from other parties to licenses, indentures, agreements and other
instruments that are required (except where the failure to obtain such would not
have a material adverse effect on either party): (i) in connection with the
sale, transfer, assignment or conveyance of the Assets and assignment of Assumed
Liabilities or the consummation of the transactions contemplated by this
Agreement or (ii) for preventing the acceleration or termination, or creating
the existence of a right to terminate or accelerate upon consummation of this
transaction, of any right, privilege, license, franchise, permit or agreement of
either IFT or TNCI, which consents or waivers shall have been obtained at the
expense of IFT or TNCI, as relevant; and
4.1.5 Receipt of a "fairness opinion" by TNCI, which fairness
opinion is satisfactory in form and scope to the board of directors of TNCI.
4.2 The Closing Date shall be no later than May 15, 1999, provided
that IFT may extend the Closing Date for up to an additional thirty (30) days.
5. Representations and Warranties of IFT. IFT represents and warrants to
TNCI that:
5.1 Organization and Good Standing. IFT is a corporation duly
organized and existing in good standing under the laws of the State of Delaware.
IFT has full corporate power and authority to carry on the Business as now
conducted and to own or lease and operate the Assets. IFT is duly qualified to
transact business in the State of Delaware, the State of Arizona, and in all
states and jurisdictions in which the Business or ownership of the Assets makes
it necessary so to qualify, and the failure to so qualify could have a material
adverse effect on the Assets or the Business of IFT.
5.2 Finders. No agent, broker, person or firm acting on behalf of
IFT is, or will be, entitled to any commission or broker's or finder's fees from
any of the parties to this Agreement, or from any person controlling, controlled
by or under common control with any of the parties to this Agreement, in
connection with any of the transactions contemplated in this Agreement.
5.3 Authority. IFT has the requisite power and authority to own and
transfer the Assets, to enter into this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by IFT has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon IFT, and is enforceable against IFT in
accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
5.4 Validity of Agreement. Neither the execution nor the delivery of
this Agreement by IFT, nor the performance by IFT of any of the respective
covenants or obligations to be performed by IFT hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to IFT, or in any breach of any terms or
provisions of either the Certificate of Incorporation or Bylaws of IFT, or
constitute a default under any indenture, mortgage, deed of trust or other
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<PAGE>
material contract to which IFT is a party or by which IFT or the Assets are
bound.
5.5 Absence of Undisclosed Liabilities and Obligations. IFT has no
liability of any nature (whether accrued, absolute, contingent or otherwise)
related to the Business or the Assets, except to the extent set forth in
Schedule 5.5, and as reflected on IFT's financial statements, delivered to TNCI
pursuant to paragraph 5.6 hereof.
5.6 Financial Statements and Public Reports. The audited consolidated
financial statements of IFT for the fiscal year ended October 31, 1998, with
accompanying notes, as contained in IFT's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1998, and the unaudited financial statements of
IFT for the fiscal quarter ended January 31, 1999, with accompanying notes, as
contained in IFT's Quarterly Report on Form 10-QSB for the fiscal quarter ended
January 31, 1999 delivered to TNCI, fairly and accurately present, in all
material respects, the financial condition, the assets and liabilities of IFT at
such dates, and the results of its operation and changes in its financial
position for the periods and years ended on such dates, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements (the "Financial Statements") have been prepared from the books and
records of IFT in accordance with GAAP, on a consistent basis, and contain and
reflect all necessary adjustments for a fair and accurate presentation of IFT's
financial condition as of the dates of such statements and for the year and
period, respectively, ended on such dates.
5.7 Absence of Certain Changes. During the period from January 31, 1999
through and including the Closing Date, IFT has not, with respect to the
Business and the Assets:
5.7.1 Suffered any material adverse change affecting the Assets,
Liabilities, or Business;
5.7.2 Sold or transferred any of the Assets or canceled any
indebtedness or claims owing to it which constitute part of the Business, except
in the ordinary course of business and consistent with its past practices;
5.7.3 Sold, assigned or transferred any formulas, trade secrets,
inventions, patents, patent applications, trademarks, trade names, copyrights,
copyright applications, licenses, computer programs or software, know-how or
other intangible assets, which constitute part of the Assets;
5.7.4 Amended or terminated any contract, agreement or license
constituting part of the Business to which it is a party otherwise than in the
ordinary course of business or as may be necessary for the consummation of the
transactions described herein;
5.7.5 Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any single instrument of indebtedness which constitutes
part of the Assumed Liabilities, in excess of $25,000, or incurred aggregate
additional indebtedness which constitutes part of the Assumed Liabilities in
excess of $50,000, except in the ordinary course of business and consistent with
its past practices;
5.7.6 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets, except in the ordinary course of business and
consistent with its past practices; or
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<PAGE>
5.7.7 Entered into or committed to any other material transaction as
part of the Business other than in the ordinary course of business, consistent
with past practices.
5.8 Taxes. IFT (and any predecessor corporation or partnership as to
which IFT is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 5.8, has paid, or accrued and
reserved for, all taxes, penalties and interest shown to be due or required to
be paid pursuant to the returns as filed, or as adjusted pursuant to amendment
or correction. IFT has also provided copies of all federal and state income and
sales tax returns filed, FICA and state income taxes withholding returns filed
and evidence of payment of such taxes as listed in Schedule 5.8 hereto. IFT has
(i) paid or will pay by the Closing Date any property taxes owed with respect to
the Assets that are due and payable through the Closing Date; and (ii) no
knowledge of any deficiency or assertion of any deficiency relating to property
taxes on the Assets. No examination, audit, or inquiry of any tax return,
federal, state or otherwise of IFT is currently in progress and IFT has not been
advised by any taxing authority of any intent to commence any inquiry, audit or
examination of any tax return from any taxing authority or of any issue or
questions relating to any return, report or declaration that would result in the
assertion of any deficiency for any federal state, local, or other tax or
interest or penalties in connection therewith. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of IFT.
5.9 Title to the Assets. IFT has good and marketable title to all of
the Assets, free and clear of all security interests, liens, encumbrances,
mortgages or charges of any nature whatsoever other than those liabilities set
forth in the Financial Statements. Any security interests, liens, encumbrances,
mortgages or charges on the Assets not set forth in IFT's Financial Statements
shall be discharged in full on or before the Closing Date and evidenced by UCC
Releases delivered by IFT on the Closing Date. The tangible personal property
(other than inventory) of IFT is in good working order, normal wear and tear
excepted.
5.10 Leases. Schedule 5.10 sets forth a list of each lease or
occupancy, possessory or similar agreement, as the same may have been amended or
modified under which IFT is lessee of, or holds or operates, any real property
owned by a third party and which is used in the Business (the "Leased Real
Property"). IFT has delivered a true and correct copy of each such agreement to
TNCI. IFT does not own any real property.
5.11 Accounts Receivable. No amount included in the accounts
receivable of IFT as of January 31, 1999, has been released or settled for an
amount less than the value at which it was included in the financial statements
as of that date. Except as to the Swissair accounts receivable, there are no
facts or circumstances (other than general economic conditions) which would
result in any material increase in the uncollectibility of such accounts
receivable over historical collection rates.
5.12 Material Documents. Set forth in Schedule 5.12 is a complete
list of all material documents with respect to the Assets or the Business to
which IFT is a party (the "Scheduled
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Agreements"). All such documents listed on and attached to Schedule 5.12 are
legal, valid, enforceable and accurate and complete copies of such material
documents (or, with the consent of TNCI, forms thereof) as have been requested
by TNCI have been provided to TNCI. As used herein, material documents shall
mean agreements, covenants and any other instrument that relates to an assets
that is material to the Business, or which otherwise involves an expenditure or
liability of IFT in excess of $30,000 in the aggregate. Except as set forth in
Schedule 5.12, consummation of the transactions contemplated hereby will not
cause a breach of or constitute a default (with or without the giving of notice
or the lapse of time or both) under any of the Scheduled Agreements, result in
the forfeiture or impairment of any rights thereunder, require the consent,
approval or act of, or the making of any filing with, any other Person pursuant
to the terms thereof (to the extent the absence of such consent or approval
would constitute a breach or default, or require or result in the payment of any
assignment or related fees or costs). Except as set forth in Schedule 5.12, IFT
has fulfilled and performed its material obligations under each of the Scheduled
Agreements and is not in breach or default under, nor, to IFT's knowledge, is
there any basis for termination of any of the Scheduled Agreements, and no other
party to any of such Scheduled Agreements has, to IFT's knowledge, breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice, or both,
would constitute such a default or breach by IFT or, by any such other party.
Except as set forth on Schedule 5.12, IFT is not currently renegotiating any of
the Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in Schedule 5.12 in which such Scheduled Agreement is listed.
5.13 Intellectual Property.
5.13.1 Schedule 5.13.1 contains a list and brief description of:
5.13.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and
trademark applications, service marks, trade names and copyrights and
copyright applications for which registrations have been issued or
applied for, and all other United States, state and foreign trademarks,
service marks, trade names and copyrights (other than for software)
owned or used by IFT;
5.13.1.2 all agreements, contracts, or licenses, relating or
pertaining to any asset, property or right of the character described in
the preceding clause (i) to which IFT is a party;
5.13.1.3 all licenses or agreements pertaining to mailing
lists, know-how, trade secrets, inventions, disclosures or uses of ideas
to which IFT is a party; and
5.13.1.4 all registered, assumed or fictitious names under
which IFT is conducting activities related to the Business or has within
the previous five years conducted activities related to the Business.
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5.13.2 Except as otherwise disclosed in Schedule 5.13.1.2, to
IFT's knowledge, all patents, trademarks and registered copyrights
owned, controlled or used by IFT are valid and in force and all patent
applications, trademark registrations and copyright registrations of IFT
listed therein are in good standing all, to the knowledge of IFT,
without challenge of any kind and except as otherwise disclosed in
Schedule 5.13.1.2, IFT owns the entire rights, title and interests in
and to such patents and patent applications free and clear of all
Encumbrances. To IFT's knowledge, all of the registrations for trade
names, trademarks, service marks and registered copyrights listed in
Schedule 5.13.1, as being owned, or used by IFT are valid and in force
and all applications for such registrations are in good standing, all
without challenge of any kind, and to IFT's knowledge, the entire right,
title and interest in and to each such trade name, trademark, service
mark and copyright so listed as well as the registrations and
application for registration therefor is owned by IFT, free and clear of
all encumbrances. Correct and complete copies of all the patents and
patent applications and of all of the trademarks, trade names, service
marks and copyrights and registrations, applications or deposits
therefor and all the licenses listed in Schedule 5.13.1, have heretofore
been delivered by IFT to TNCI.
5.13.3 To IFT's knowledge, IFT has good and marketable title
to that computer software described as "Owned Software" on Schedule
5.13.1.4 hereto (the "Owned Software"), free of all claims, including
claims or rights of employees, agents, consultants or other parties
involved in the development or creation of such computer software,
except as set forth on Schedule 5.13.1.4. Except as set forth on
Schedule 5.13.1.4 hereto, IFT has the right and license to use that
software described as "Licensed Software" on Schedule 5.13.1.4 hereto
(the "Licensed Software") free and clear of any limitations or
encumbrances except as may be set forth in any license agreements listed
in Schedule 5.13.1.4. Except as disclosed on Schedule 5.13.1.4, IFT is
in full compliance with all provisions of any license, lease or other
similar agreement pursuant to which it has rights to use the Licensed
Software. Except as disclosed on Schedule 5.13.1.4, none of the Licensed
Software has been incorporated into or made a part of any Owned Software
or any other Licensed Software and none of the Owned Software is
dependent on any Licensed Software in order to freely operate in the
manner in which it is intended. The Owned Software and Licensed Software
constitute all software used in the Business ("IFT's Software"). IFT has
not received notice that it is infringing any intellectual property
rights or any other person or entity with respect to IFT's Software, and
to the knowledge of IFT no other person or entity is infringing any
intellectual property rights of IFT with respect to IFT's Software which
IFT leases or licenses to it.
5.14 Governmental Permits.
5.14.1 IFT owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to
entitle it to own, lease, operate and use its assets and properties and
to carry on and conduct the Business as currently conducted (herein
collectively called "IFT Permits"). Schedule 5.14.1 sets forth a list
and brief description of each such IFT Permit held by IFT as of the date
of this Agreement. Complete and correct copies of all of the IFT Permits
listed in Schedule 5.14.1 have heretofore been delivered to TNCI by IFT.
5.14.2 IFT is in compliance in all material respects with each
of the IFT Permits owned, held or possessed by it, and no event has
occurred or condition or state of facts exists which constitutes or,
after notice or lapse of time or both, would constitute a breach or
default under any such IFT Permit. No notice of cancellation, of default
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or of any dispute, appeal or inquiry concerning any IFT Permit, or of
any event, condition or state of facts set forth in the preceding
sentence, has been received by IFT. Except as set forth in Schedule
5.14.3, each of the IFT Permits is valid subsisting and in full force
and effect without challenge of any kind.
5.15 Litigation. Except as set forth in Schedule 5.15, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body relating to the Assets or the
Business which may have an adverse effect on the Business, the Assets, or IFT's
financial condition. There is no action, suit, proceeding or investigation
pending or, to IFT's knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or which seeks to
prevent or materially delay the transactions contemplated by this Agreement.
5.16 Employees. Schedule 5.16 sets forth the name and current monthly
salary and any accrued benefit for each employee of IFT set forth on the
attached Schedule who the parties agree shall be offered employment by TNCI
immediately after the Closing. There will be no changes in Schedule 5.16 through
the Closing Date, unless TNCI is advised of such changes in advance; provided
that to the exact TNCI reasonably disapproves of such change, TNCI shall have
the right to not offer employment to such person after the Closing.
5.17 Compliance With Laws. Except as set forth in Schedule 5.17, IFT has
conducted and is continuing to conduct the Business in compliance in all
material respects with, and is in compliance in all material respects with, all
applicable orders, rules and regulations promulgated by governmental
authorities relating in any material respect to the conduct of the Business or
use of properties, including, without limitation, any applicable statute, order,
rule or regulation relating to (i) wages, hours, hiring, nondiscrimination,
retirement, benefits, pensions, working conditions, and worker safety and
health; (ii) air, water, toxic substances, noise, or solid, gaseous or liquid
waste generation, handling, storage, disposal or transportation of
environmentally hazardous materials ("Environmental Laws"); (iii) zoning and
building codes; (iv) the production, storage, processing, advertising, sale,
distribution, transportation, disposal, use and warranty of products; or (v)
trade and antitrust regulations. The execution, delivery and performance of this
Agreement by IFT and the consummation by IFT of the transactions contemplated by
this Agreement will not violate, contravene or constitute a default under any
applicable statutes, orders, rules and regulations promulgated by governmental
authorities or cause a lien on any property used, owned or leased by IFT to be
created thereunder, except to the extent it would not cause a material adverse
effect on the Assets or the Business. IFT has not taken any action that requires
notification of the employees of IFT pursuant to the provisions of the WARN Act
or that would cause IFT to have any liability thereunder. There are no
injunctions, orders, awards, decrees of any governmental body or political
subdivision currently in effect against IFT.
5.18 Filings. IFT has made all filings and reports required under all
local, state and federal laws and regulations with respect to the Business and
the Assets, except where the failure to make such filings and reports would not
have a material adverse effect on the Business or the Assets.
5.19 Insurance Coverage. The policies of fire, liability or other forms
of insurance of IFT relating to the Business and Assets are described in
Schedule 5.19.
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5.20 Charter and By-Laws. IFT has heretofore delivered to TNCI true,
accurate and complete copies of the Certificate of Incorporation and By-Laws of
IFT, together with all amendments to each of the same as of the date hereof.
5.21 Corporate Minutes. The minute books of IFT previously made
available to TNCI are the correct and only such minute books and do and will
contain complete and accurate records of any and all proceedings and actions at
all meetings, including written consents executed in lieu of meetings of its
stockholders, Board of Directors and committees thereof through the Closing
Date. The stock records of IFT previously delivered to TNCI at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of IFT.
5.22 Default on Indebtedness. IFT is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money, which is secured by a lien on the Assets.
5.23 Governmental Approvals. No consent, approval or authorization of,
or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by IFT, except for any filings required to be
made after the Closing Date, which are identified on Schedule 5.23.
5.24 Investment Intent.
5.24.1 Investigation; Investment Representation. IFT (i) possesses
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its investment hereunder; (ii) has
been afforded the opportunity to ask questions of, and receive answers from,
TNCI concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of TNCI; (iii) has examined, to
the extent it deems appropriate, all of the agreements and documents referred to
herein or in the schedules hereto and such other documents that it has
requested, and has been provided copies of and has reviewed (x) all of TNCI's
public filings made pursuant to the Securities Exchange Act of 1934, as amended,
which have been filed by TNCI since December 31, 1998, and (y) the Risk Factors
set forth on Schedule 5.24.1; and (iv) understands that the TNCI Shares are not
being registered under the 1933 Act, on the grounds that the issuance thereof is
exempt from registration under Paragraph 4(2) of the 1933 Act, as a transaction
by an issuer not involving a public offering, and TNCI's reliance on this
exemption is predicated in part on IFT's representations and warranties
contained in this Paragraph 5.24.1. IFT is acquiring the TNCI's Shares for its
own account, for investment purposes only and not with a view to the
distribution or resale thereof. IFT acknowledges that the certificates
evidencing the TNCI Shares shall bear restrictive securities legends and shall
not be transferable in the absence of the distribution thereof being registered
under the 1933 Act or any applicable state securities laws, or the applicability
of exemptions therefrom based upon an opinion of counsel acceptable to TNCI. IFT
is an "accredited investor," as that term is defined in Regulation D, as
promulgated under the 1933 Act.
5.24.2 Stop Transfer Instructions and Legend. IFT acknowledges
that TNCI may cause its transfer agent to establish appropriate stop transfer
instructions with respect to the TNCI Shares, and shall cause to be set forth on
the certificates representing any TNCI Shares, a legend substantially in the
following form:
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"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended, or under any
applicable state securities laws. No transfer of such securities shall be
valid or effective except in accordance with the applicable requirements of
the Securities Act of 1933, as amended, or applicable state securities laws.
In the absence of registration under the Securities Act of 1933 and
applicable state securities laws, no transfer of such securities shall be
made in the absence of an exemption therefrom."
5.25 Product Liability Claims; Product Warranties. Schedule 5.25 sets
forth all product liability claims pending or, to the knowledge of IFT,
threatened against IFT and all product liability claims paid by or on behalf of
IFT for the three (3) year period prior to the date of this Agreement. Except as
set forth on Schedule 5.25, IFT has not given or offered any warranty covering
any products sold or distributed by it, and IFT has not extended to its
customers any indemnification or guarantees.
5.26 Environmental Protection.
5.26.1 Except as set forth on Schedule 5.26.1;
5.26.1.1 The operations of IFT comply in all material
respects with all applicable Environmental Laws and there are no substances or
conditions existing at any facility that may support a claim or cause of action
against IFT or TNCI under any Environmental Laws.
5.26.1.2 IFT has obtained, or has taken
appropriate steps as required by Environmental Laws to obtain, all
environmental, health and safety permits necessary for its operations, and all
such permits are in good standing and IFT is currently incompliance with all
terms and conditions of such permits; and
5.26.1.3 IFT's facilities and operations at the
facilities are not subject to any judicial or administrative proceeding, order,
judgment, decree or settlement, or to the knowledge of IFT, any investigation,
alleging or addressing (i) violation of any Environmental Laws, or (ii) any
remedial action; and IFT has not received any notice of any claims or
liabilities and costs arising from the release or threatened release of a
contaminant into the environment, or claims, complaints, notices or requests for
information with respect to any alleged violation of any Environmental Laws or
complaints or notices regarding potential liability under any Environmental
Laws.
5.27 Employment Relations. IFT is in compliance with all Federal, state or
other applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labor practice which would result in a material
adverse effect on IFT; no unfair labor practice complaint against IFT is pending
before the National Labor Relations Board; there is no labor strike, dispute,
slow down or stoppage actually pending or, to IFT's knowledge, threatened
against or involving IFT; no labor representation question exists respecting the
employees of IFT; no grievance which might have an adverse effect upon IFT or
the conduct of its business has been filed against IFT; no arbitration
proceeding arising out of or under any collective bargaining agreement is
currently being negotiated by IFT; and IFT has not experienced any material
labor difficulty during the last three (3) years.
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5.28 Completeness of Representations and Schedules. The Schedules hereto,
where applicable to IFT, completely and correctly present in all material
respects the information required by this Agreement. This Agreement, the
certificates to be delivered by IFT at the Closing, the Schedules and the
representations and warranties contained in this Paragraph 5, and the documents
and written information pertaining to IFT furnished to TNCI or its agents by or
on behalf of IFT, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make this Agreement, or such
certificates, schedules, documents or written information not misleading.
60 Representations and Warranties of TNCI. TNCI represents and warrants to
IFT that:
6.1 Organization and Good Standing.
6.1.1 TNCI is a corporation duly organized and existing in good
standing under the laws of the State of Georgia. TNCI has full corporate power
and authority to carry on its business as now conducted. TNCI is duly qualified
to transact business in the States of Arizona and Georgia and in all states and
jurisdictions in which the business or ownership of its property makes it
necessary so to qualify and the failure to so qualify could have a material
adverse effect on the business, assets, financial condition, results of
operations, or prospects of TNCI.
6.1.2 TNCI is a publicly held company and is a reporting company
under the Securities Exchange Act of 1934 as amended ("Exchange Act") and
satisfies the informational reporting requirements under Rule 144 promulgated
under the Exchange Act. TNCI has filed all the material required to be filed
under the Exchange Act and such reports are true, correct and complete in all
material respects and comply as to for with the applicable requirements of the
Exchange Act and the rules and regulations promulgated thereunder.
6.2 Finders. No agent, broker, person or firm acting on behalf of
TNCI is, or will be, entitled to any commission or broker's or finder's fees
from any of the parties to this Agreement, or from any person controlling,
controlled by or under common control with any of the parties to this Agreement,
in connection with any of the transactions contemplated in this Agreement.
6.3 Authority and Consent. The execution, delivery and performance
of this Agreement by TNCI has been duly authorized by its Board of Directors.
This Agreement is valid and binding upon TNCI, and is enforceable against TNCI
in accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
6.4 Validity of Agreement. Neither the execution nor the delivery of
this Agreement by TNCI, nor the performance by TNCI of any of the respective
covenants or obligations to be performed by TNCI hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to TNCI, or in any breach of any terms or
provisions of either the Articles of Incorporation or Bylaws of TNCI, or
constitute a default under any indenture, mortgage, deed of trust or other
material contract to which TNCI is a party or by which TNCI or its assets or
properties are bound.
6.5 Capitalization. The authorized capital stock of TNCI consists
solely of 10,000,000 shares of Common Stock, $.001 par value per share, of which
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5,278,737 shares are issued and outstanding and 2,500,000 shares of Preferred
Stock, of which 1,500 shares of Series B Preferred Stock are issued and
outstanding ("TNCI Shares"). TNCI also has outstanding indebtedness, options,
warrants or other securities convertible into capital stock as set forth on
Schedule 6.5.1 outstanding (the "Convertible Securities"). TNCI Shares are
validly issued, are fully paid and non-assessable and are subject to no
restrictions on transfer (other than those provided under state and federal
securities laws). TNCI Shares shown as outstanding constitute the only
outstanding shares of the capital stock of TNCI of any nature whatsoever, voting
and non-voting. All TNCI Shares are required to be certificated, and TNCI has
executed and delivered no certificates for shares in excess of the number of
TNCI Shares set forth above. There are, and except as set forth on Schedule
6.5.2 as of the Closing Date there will be, no outstanding options, warrants,
rights, calls, commitments, conversion rights, plans or other agreements of any
character providing for the purchase, issuance or sale of, or any securities
convertible into, capital stock of TNCI, whether issued, unissued or held in its
treasury.
6.6 No Additional Outstanding Options and Warrants. TNCI has not,
and as of the Closing Date will not, issue any additional shares of its capital
stock or any Convertible Securities or grant any rights to acquire or agree to
issue any additional shares of its capital stock or any Convertible Securities.
6.7 No Subsidiaries. TNCI has no subsidiaries and does not own five
percent (5%) or more of the securities having voting power of any corporation
(or would own such securities in such amount upon the closing of any existing
purchase obligations for securities).
6.8 Government Approvals. No consent, approval or authorization of,
or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by TNCI.
6.9 Financial Statements and Public Reports. The audited
onsolidated financial statements of TNCI for the fiscal year ended December 31,
1998 with accompanying notes, all as contained in TNCI's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 delivered to IFT, fairly and
accurately present, in all material respects, the financial condition, assets
and liabilities of TNCI at such date, the results of its operation and changes
in its financial position for the year ended on such date, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements have been prepared from the books and records of TNCI in accordance
with GAAP, on a consistent basis, and contain and reflect all necessary
adjustments for a fair and accurate presentation of TNCI's financial condition
as of the date of such statements and for the year ended on such date. TNCI has
not had any disputes or disagreements during the last three (3) years with its
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
6.10 Absence of Undisclosed Liabilities and Obligations. TNCI has no
liabilities or obligations of any nature in excess of $5,000 individually or
$15,000 in the aggregate (whether accrued, absolute, contingent or otherwise)
except to the extent set forth in Schedule 6.10 and as reflected on its
Financial Statements. Except as set forth on Schedule 6.10, TNCI has no
liabilities or obligations secured by a lien or security interest in any of its
assets.
6.11 Absence of Certain Changes. Except as set forth in Schedule
6.11, during the period from December 31, 1998 through and including the Closing
Date, TNCI has not:
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6.11.1 Suffered any material adverse change affecting its
assets, liabilities, financial condition or business;
6.11.2 Made any change in the compensation payable or to
become payable to any of its employees or agents, or made any bonus
payments, except for the bonuses which have historically been made in
the ordinary course of business or compensation arrangements to or with
any of its employees or agents, whether direct or indirect;
6.11.3 Paid or declared any dividends, distributions or other
payments due or owing to its stockholders;
6.11.4 Issued any stock, or granted any stock options or
warrants to purchase stock or issued any securities convertible into
common stock of TNCI;
6.11.5 Sold or transferred any of its assets or canceled any
indebtedness or claims owing to it, except in the ordinary course of
business and consistent with its past practices;
6.11.6 Sold, assigned, encumbered or transferred any
formulas, trade secrets, inventions, patents, patent applications,
trademarks, trade names, copyrights, copyright application, licenses,
computer programs or software, know-how or other intangible assets;
6.11.7 Amended or terminated any contract, agreement or
license to which it is a party otherwise than in the ordinary course of
business or as may be necessary or appropriate for the consummation of
the transactions described herein;
6.11.8 Borrowed any money or incurred, directly or indirectly
(as a guarantor or otherwise), any single instrument of indebtedness in
excess of $25,000, or incurred additional aggregate indebtedness in
excess of $50,000, except in the ordinary course of business and
consistent with its past practices;
6.11.9 Discharged or satisfied any lien or encumbrance or
paid any obligation or liability (absolute or contingent), other than
current liabilities shown in the Financial Statements or current
liabilities incurred since such date in the ordinary course of business,
consistent with its past practices;
6.11.10 Mortgaged, pledged or subjected to lien, charge or
other encumbrance any of its assets, except in the ordinary course of
business and consistent with its past practices; or
6.11.11 Entered into or committed to any other material
transaction other than in the ordinary course of business, consistent
with past practices.
6.12 Taxes. TNCI (and any predecessor corporation or partnership as to
which TNCI is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
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law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 6.12.1, has paid, or accrued
and reserved for, all taxes, penalties and interest shown to be due or required
to be paid pursuant to the returns as filed, or as adjusted pursuant to
amendment or correction. TNCI has also provided copies of all federal and state
income and sales tax returns filed, FICA and state income taxes withholding
returns filed and evidence of payment of such taxes as listed in Schedule 6.12.2
hereto. No examination, audit, or inquiry of any tax return, federal, state or
otherwise of TNCI is currently in progress and TNCI has not been advised by any
taxing authority of any intent to commence any inquiry, audit or examination of
any tax return from any taxing authority or of any issue or question relating to
any return, report or declaration that could result in the assertion of any
deficiency for any federal, state, local, or other tax or interest or penalties
in connection therewith. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of
TNCI.
6.13 Accounts Receivable. Except as specifically noted in Schedule 6.13,
no amount included in the accounts receivable of TNCI as of December 31, 1998,
has been released or settled for an amount less than the value at which it was
included in the financial statements as of that date. Except as specifically
noted in Schedule 6.13, there are no facts or circumstances (other than general
economic conditions) which would result in any material increase in the
uncollectibility of such accounts receivable over historical collection rates.
6.14 Material Documents. Set forth in Schedule 6.14.1 is a complete list
of all material documents to which TNCI is a party (the "Scheduled Agreements").
All such documents listed on and attached to Schedule 6.14.1 are legal, valid,
enforceable and accurate and complete copies of such material documents (or,
with the consent of TNCI, forms thereof) as have been requested by IFT have been
provided to IFT. As used herein, material documents shall mean agreements,
covenants and any other instrument that relates to an asset that is material to
the business of TNCI or which otherwise involves an expenditure or liability of
TNCI that is in excess of $30,000 in the aggregate. Except as set forth in
Schedule 6.14.2, consummation of the transactions contemplated hereby will not
cause a breach of or constitute a default (with or without the giving of notice
or the lapse of time or both) under any of the Scheduled Agreements, result in
the forfeiture or impairment of any rights thereunder, require the consent,
approval or act of, or the making of any filing with, any other Person pursuant
to the terms thereof (to the extent the absence of such consent or approval
would constitute a breach or default, or require or result in the payment of any
assignment or related fees or costs). Except as set forth in Schedule 6.14.2
TNCI has fulfilled and performed its material obligations required to be
performed prior to the date hereof, under each of the Scheduled Agreements and
is not in, breach or default under nor, to TNCI's knowledge is there any basis
for termination of any of the Scheduled Agreements, and no other party to any of
such Scheduled Agreements has, to TNCI's knowledge breached or defaulted
thereunder, and no event has occurred and no condition or state of facts exists
which, with the passage of time or the giving of notice, or both, would
constitute such a default or breach by TNCI or, by any such other party. Except
as set forth on Schedule 6.14.2, TNCI is not currently renegotiating any of the
Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in the Schedule in which such Scheduled Agreement is listed.
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6.15 Intellectual Property.
6.15.1 Schedule 6.15.1 contains a list and brief description of:
6.15.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and
trademark applications, service marks, trade names and copyrights and
copyright applications for which registrations have been issued or
applied for, and all other United States, state and foreign trademarks,
service marks, trade names and copyrights (other than the software)
owned or used by TNCI;
6.15.1.2 all agreements, contracts or licenses, relating or
pertaining to any asset, property or right of the character described in
the preceding clause (i) to which TNCI is a party;
6.15.1.3 all licenses or agreements pertaining to mailing
lists, know-how, trade secrets, inventions, disclosures or uses of ideas
to which TNCI is a party; and
6.15.1.4 all registered, assumed or fictitious names under
which TNCI is conducting activities or has within the previous five
years conducted activities.
6.15.2 Except as otherwise disclosed in Schedule 6.15.2, to TNCI's
knowledge, all patents, trademarks and registered copyrights owned, controlled
or used by TNCI are valid and in force and all patent applications, trademark
registrations and copyright registrations of TNCI listed therein are in good
standing all, to the knowledge of TNCI, without challenge of any kind and except
as otherwise disclosed in Schedule 6.15.2, TNCI owns the entire rights, title
and interests in and to such patents and patent applications free and clear of
all Encumbrances. To TNCI's knowledge, all of the registrations for trade names,
trademarks, service marks and copyrights listed in Schedule 6.15.1, as being
owned, controlled, or used by TNCI are valid and in force and all applications
for such registrations are in good standing, all without challenge of any kind,
and to TNCI's knowledge, the entire right, title and interest in and to each
such trade name, trademark, service mark and copyright so listed as well as the
registrations and application for registration therefor is owned by TNCI, free
and clear of all encumbrances. Correct and complete copies of all the patents
and patent applications and of all of the trademarks, trade names, service marks
and copyrights and registrations, applications or deposits therefor and all the
licenses listed in Schedule 6.15.1, have heretofore been delivered by TNCI to
IFT.
6.15.3 To TNCI's knowledge, TNCI has good and marketable title to
that computer software described as "TNCI Owned Software" on Schedule 6.15.3
hereto (the "TNCI Owned Software"), free of all claims, including claims or
rights of employees, agents, consultants or other parties involved in the
development or creation of such computer software, except as set forth on
Schedule 6.15.3. Except as set forth on Schedule 6.15.3 hereto, TNCI has the
right and license to use that software described as "TNCI Licensed Software" on
Schedule 6.15.3 hereto (the "TNCI Licensed Software") free and clear of any
limitations or encumbrances except as may be set forth in any license agreements
listed in Schedule 6.15.3. Except as disclosed on Schedule 6.15.3, TNCI is in
full compliance with all provisions of any license, lease or other similar
agreement pursuant to which it has rights to use the TNCI Licensed Software.
Except as disclosed on Schedule 6.15.3, none of the TNCI Licensed Software has
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been incorporated into or made a part of any TNCI Owned Software or any other
TNCI Licensed Software and none of the TNCI Owned Software is dependent on any
TNCI Licensed Software in order to freely operate in the manner in which it is
intended. The TNCI Owned Software and TNCI Licensed Software constitute all
software used by TNCI ("TNCI's Software"). TNCI has not received notice that it
is infringing any intellectual property rights or any other person or entity
with respect to TNCI's Software, and to the knowledge of TNCI no other person or
entity is infringing any intellectual property rights of TNCI with respect to
TNCI's Software which TNCI leases or licenses to it.
6.16 Governmental Permits.
6.16.1 TNCI owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "TNCI
Permits"). Schedule 6.16.1 sets forth a list and brief description of each such
TNCI Permit held by TNCI as of the date of this Agreement. Complete and correct
copies of all of the TNCI Permits listed in Schedule 6.16.1 have heretofore been
delivered to IFT by TNCI.
6.16.2 TNCI is in compliance in all material respects with each
of the TNCI Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such TNCI
Permit. No notice of cancellation, of default or of any dispute, appeal or
inquiry concerning any TNCI Permit, or of any event, condition or state of facts
set forth in the preceding sentence, has been received by TNCI. Except as set
forth in Schedule 6.16.2, each of the TNCI Permits is valid subsisting and in
full force and effect without challenge of any kind.
6.17 Litigation. Except as set forth in Schedule 6.17, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body against TNCI, the Assets, or TNCI's
employees which may have an adverse effect on TNCI or TNCI's financial
condition. There is no action, suit, proceeding or investigation pending or, to
TNCI's knowledge, threatened which questions the legality or properties of the
transactions contemplated by this Agreement or which seeks to prevent or
materially delay the transactions contemplated by this Agreement.
6.18 Employees. Schedule 6.18 hereto sets forth the name and current
monthly salary and any accrued benefit for each employee of TNCI. There will be
no changes in Schedule 6.18 through the Closing Date, except in the ordinary
course of business.
6.19 Compliance With Laws. TNCI has conducted and is continuing to
conduct its business in material compliance with, and is in material compliance
with, all applicable statutes, orders, rules and regulations promulgated by
governmental authorities relating in any material respect to its operations,
conduct of business or use of properties, including, without limitation, any
applicable statute, order, rule or regulation relating to (i) wages, hours,
hiring, nondiscrimination, retirement, benefits, pensions, working conditions,
and worker safety and health; (ii) air, water, toxic substances, noise, or
solid, gaseous or liquid waste generation, handling, storage, disposal or
transportation; (iii) zoning and building codes; (iv) the production, storage,
processing, advertising, sale, distribution, transportation, disposal, use and
warranty of products; or (v) trade and antitrust regulations. The execution,
delivery and performance of this Agreement by TNCI and the consummation by TNCI
of the transactions contemplated by this Agreement will not violate, contravene
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or constitute a default under any applicable statutes, orders, rules and
regulations promulgated by governmental authorities or cause a lien on any
material property used, owned or leased by TNCI to be created thereunder. To the
knowledge of TNCI there are no proposed changes in any applicable statutes,
orders, rules and regulations promulgated by governmental authorities that would
cause any representation or warranty contained in this Paragraph 6.19 to be
untrue or have an adverse effect on its operations, conduct of business or use
of properties. TNCI has not taken any action that requires notification of the
employees of TNCI pursuant to the provisions of the WARN Act or that would cause
TNCI to have any liability thereunder. There are no injunctions, orders, awards,
decrees of any governmental body or political subdivision currently in effect
against IFT.
6.20 Filings. TNCI has made all filings and reports required under all
local, state and federal laws and regulations with respect to its business and
assets and of any predecessor entity or partnership, except where the failure to
make such filings and reports would not have a material adverse affect on the
business, assets, financial condition, or results of operations or prospects of
TNCI.
6.21 Certain Activities. TNCI has not, directly or indirectly, engaged
in or been a party to any of the following activities:
6.21.1 Bribes, kickbacks or gratuities to any person or entity,
including domestic or foreign government officials or any other payments to any
such persons or entity, whether legal or not legal, to obtain or retain business
or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
6.21.2 Contributions (including gifts), whether legal or not legal,
made to any domestic or foreign political party, political candidate or holder
of political office (except where such is in compliance with applicable law);
6.21.3 Holding of or participation in bank accounts, funds or pools
of funds created or maintained in the United States or any foreign country,
without being reflected on the corporate books of account, or as to which
receipts or disbursements therefrom have not been reflected on such books, the
purpose of which is to obtain or retain business or to receive favorable
treatment with regard to business;
6.21.4 Receiving or disbursing monies, the actual nature of which
has been improperly disguised or intentionally misrecorded on or improperly
omitted from the corporate books of account;
6.21.5 Paying fees to domestic or foreign consultants or commercial
agents which exceed the reasonable value of the ordinary and customary
consulting and agency services purported to have been rendered;
6.21.6 Paying or reimbursing (including gifts) personnel of TNCI for
the purpose of enabling them to expend time or to make contributions or payments
of the kind or for the purposes referred to in Paragraphs 6.21.1 through 6.21.5
above;
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6.21.7 Participating in any manner in any activity which is illegal
under the international boycott provisions of the Export Administration Act, as
amended, or the international boycott provisions of the Internal Revenue Code,
or guidelines or regulations thereunder; and
6.21.8 Making or permitting unlawful charges, mischarges or
defective or fraudulent pricing under any contract or subcontract under a
contract with any department, agency or subdivision thereof, of the United
States government, state or municipal government or foreign government.
6.22 Employment Relations. TNCI is in compliance with all Federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on TNCI; no unfair labor practice complaint against
TNCI is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to TNCI's knowledge,
threatened against or involving TNCI; no labor representation question exists
respecting the employees of TNCI; no grievance which might have an adverse
effect upon TNCI or the conduct of its business has been filed against TNCI; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by TNCI; and TNCI has not experienced
any material labor difficulty during the last three (3) years.
6.23 Insurance Coverage. The policies of fire, liability or other
forms of insurance of TNCI are described in Schedule 6.23.
6.24 Charter and By-Laws. TNCI has heretofore delivered to TNCI true,
accurate and complete copies of the Articles of Incorporation and By-Laws of
TNCI, together with all amendments to each of the same as of the date hereof.
6.25 Corporate Minutes. The minute books of TNCI made available to
IFT previously and at the Closing are the correct and only such minute books and
do and will contain complete and accurate records of any and all proceedings and
actions at all meetings, including written consents executed in lieu of meetings
of its stockholders, Board of Directors and committees thereof through the
Closing Date. The stock records of TNCI delivered to IFT at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of TNCI.
6.26 Default on Indebtedness. TNCI is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money.
6.27 Indebtedness. Except as described in Schedule 6.27, TNCI's
shareholders, and any corporation or entity with which they are affiliated, are
not indebted to TNCI, and TNCI has no indebtedness or liability to its
shareholders and any corporation or entity with which they are affiliated.
6.28 Product Liability Claims; Product Warranties. Schedule 6.28 sets
forth all product liability claims pending or, to the knowledge of TNCI,
threatened against TNCI and all product liability claims paid by or on behalf of
TNCI for the three (3) year period prior to the date of this Agreement. Except
as set forth on Schedule 6.29, TNCI has not given or offered any warranty
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covering any products sold or distributed by it, and TNCI has not extended to
its customers and indemnification or guarantees.
6.29 Environmental Protection. Except as set forth on Schedule 6.29,
6.29.1 The operations of TNCI comply in all material respects with
all applicable Environmental Laws and there are no substances or conditions
existing at any facility that may support a claim or cause of action under any
Environmental Laws.
6.29.2 TNCI has obtained, or has taken appropriate steps as required
by Environmental Laws to obtain, all environmental, health and safety permits
necessary for its operations, and all such permits are in food standing and TNCI
is currently in compliance with all terms and conditions of such permits;
6.29.3 TNCI's facilities and operations at the facilities are not
subject to any judicial or administrative proceeding, order, judgment, decree or
settlement, or to the knowledge of TNCI, any investigation, alleging or
addressing (i) violation of any Environmental Laws, or (ii) any remedial action;
and TNCI has not received any notice of any claims or liabilities and costs
arising from the release or threatened release of a contaminant into the
environment, or claims, complaints, notices or requests for information with
respect to any alleged violation of any Environmental Laws or complaints or
notices regarding potential liability under any Environmental Laws.
6.30 Completeness of Representations and Schedules. The Schedules
and Exhibits hereto completely and correctly present in all material respects
the information required by this Agreement. This Agreement, the certificates to
be delivered by the officers of TNCI at the Closing, any Schedules and Exhibits
to be delivered under this Agreement and the representations and warranties of
this Paragraph 6, and the documents and written information pertaining to TNCI
furnished to IFT or its agents by or on behalf of TNCI, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make this Agreement, or such certificates, schedules, documents or
written information, not misleading.
70 Covenants.
7.1 Affirmative Covenants of IFT. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by TNCI, IFT will:
7.1.1 Operate the Business and the Assets in accordance with all
applicable laws and regulations, and in the ordinary course of business except
where the failure to do so will not result in a material adverse effect on the
Business and the Assets;
7.1.2 Provide TNCI with all information regarding IFT which is
reasonably required in connection with TNCI's preparation of its proxy materials
relating to the transaction contemplated by this Agreement. Such information
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements, in light of the circumstances in
which they were made, not misleading. IFT will promptly furnish amended and
supplemental information as may be necessary, in light of developments occurring
subsequent to the mailing of a proxy statement by TNCI to its shareholders, to
ensure that information regarding IFT does not, as of the date of the TNCI
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shareholders' meeting, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
7.1.3 Promptly inform TNCI in writing of any variances from
the representations and warranties contained in Paragraph 5 hereof;
7.1.4 Take all such actions as necessary to obtain shareholder
approval, if necessary for consummation of the transactions contemplated by this
Agreement and to approve the transactions contemplated hereby; and
7.1.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby and to
cause all conditions to the closing to be satisfied.
7.2 Affirmative Covenants of TNCI. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by IFT, TNCI will:
7.2.1 Conduct its operations according to the ordinary and usual
course of business, and use best efforts to preserve intact its business
organization and material rights and franchises, proprietary rights, permits,
licenses, and maintain satisfactory relationship with licensors, suppliers,
distributors, customers and others having relationships with TNCI;
7.2.2 Provide IFT with all information regarding TNCI which is
reasonably required in connection with IFT's preparation of its proxy materials
relating to the transaction contemplated by this Agreement. Such information
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements, in light of the circumstances in
which they were made, not misleading. TNCI will promptly furnish amended and
supplemental information as may be necessary, in light of developments occurring
subsequent to the mailing of a proxy statement by IFT to its stockholders,
ensure that information regarding TNCI does not, as of the date of the IFT
stockholders' meeting, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
7.2.3 Promptly inform IFT in writing of any variances from the
representations and warranties contained in paragraph 6 hereof;
7.2.4 Take all such actions as necessary to obtain shareholder
approval, if necessary, to effectuate this transaction and to approve the
transactions contemplated hereby and to amend TNCI's Articles of Incorporation
to increase the number of authorized shares to 30,000,000;
7.2.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby, and
to cause all conditions to the closing to be satisfied.
7.2.6 Use its best efforts to obtain the approval of the Nasdaq
Stock Market, Inc. to the proposed transaction as contemplated by Paragraph 9.2;
and
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7.2.7 Use its best efforts to obtain the irrevocable proxies in
favor of IFT as contemplated by Paragraphs 10.13.1, 10.13.2 and 10.13.3.
7.3 Negative Covenants of IFT. Prior to the Closing Date, without
the prior written consent of TNCI or as otherwise contemplated by this
Agreement, IFT will not:
7.3.1 Voluntarily take any action that would result in a breach of
IFT's representations and warranties under Paragraph 5 of this Agreement;
7.3.2 Incur any liabilities or obligations relating to the Business,
or increases in salaries of the employees set forth in Schedule 5.16, other than
those incurred in the ordinary and necessary course of business, or undertake
any extraordinary capital expenditures relating to the Business; or
7.3.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon the Assets or the Business.
7.4 Negative Covenants of TNCI . Prior to the Closing Date, without
the prior written consent of IFT, TNCI will not:
7.4.1 Voluntarily take any action that would result in a breach of
TNCI's representations and warranties under Paragraph 6 of this Agreement;
7.4.2 Incur any liabilities or obligations, or increases in salaries
or other direct or indirect corporation expenses, other than those incurred in
the ordinary and necessary course of business and not exceeding $1,000 in
aggregate, or undertake any extraordinary capital expenditures in excess of
$5,000 in the aggregate;
7.4.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon its business, operations,
financial condition, operating results, or assets;
7.4.4 Issue any additional shares of its capital stock or any
Convertible Securities or grant any rights to acquire or agree to issue any
additional shares of its capital stock or any Convertible Security; or
7.4.5 Undertake any debt or equity financing.
7.5 Noncompetition.
7.5.1 IFT acknowledges and recognizes the highly competitive nature
of the business in which it is engaged and accordingly agrees that, in the event
that the transaction contemplated hereby closes, to induce TNCI to consummate
the transaction contemplated by this Agreement, IFT shall not, for a period of
three (3) years after the Closing Date: (i) engage directly or indirectly in any
Competitive Business (as defined below) anywhere in the Restricted Territory (as
defined below), whether such engagement be as an employer, officer, director,
owner, investor, employee, partner, consultant or other participant in any
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Competitive Business; (ii) solicit or accept business for any Competitive
Business from anyone who is or becomes an active or prospective customer of TNCI
or its Affiliates or who was an active or prospective customer of the business
at or prior to the Closing Date; (iii) solicit for employment or hire any
employee of IFT, TNCI, or its Affiliates; or (iv) attempt to do any of the
things or assist anyone else in doing any of the things specified in
subparagraphs (i), (ii) or (iii) above. Notwithstanding the foregoing, the
ownership or control of up to no more than 5% of the outstanding securities of
any company which has a class of securities traded on any national or regional
stock exchange or on the NASDAQ market and ownership of shares issued by TNCI,
shall not be deemed a violation of this Paragraph 7.5.1.
7.5.2 As used in this Paragraph 7.5.1: (i) "Competitive Business"
means and includes any business, individual, corporation or other entity which
is engaged wholly or partly in any business directly competitive with the
Business as conducted at the Closing; and (ii) "Restricted Territory" means
anywhere in the world.
7.5.3 Not later than the Closing, IFT and TNCI shall have obtained
non-competition agreements from the current officers of IFT and TNCI, containing
terms substantially identical to the terms of Paragraph 7.5.1.
7.6 No Public Announcements. Prior to Closing, without the prior
written consent of the other parties, neither IFT nor TNCI shall make any press
release or other public disclosure, or make any statement to any customer,
supplier or other person with regard to the transactions contemplated by this
Agreement, except as may be required by any applicable securities laws or
regulations; provided, however, that TNCI and IFT may each issue a press release
and file such other reports and make such other disclosure as may be required by
applicable securities law or the rules or regulations of NASDAQ or the Boston
Stock Exchange upon execution of this Agreement. Each party shall provide the
other with any such press release or other disclosure document prior to its
release for review and comment. After Closing, without the prior written consent
of each of TNCI and IFT, neither party shall make any press release or other
public disclosure, or make any statement to any customer, supplier or other
person with regard to the transactions contemplated by this Agreement, except as
required by applicable securities laws or regulations or the rules of
regulations of NASDAQ or the Boston Stock Exchange.
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80 Due Diligence Inspection and Confidential Information.
8.1 Due Diligence Inspection. During the seven (7) day period after
execution of this Agreement, IFT and its representatives shall have the right to
inspect all plant, equipment and operations of TNCI, its premises and its
financial and other records at reasonable times. IFT shall also have the right
to discuss the affairs of TNCI with the managers, customers, prospective
customers, employees, suppliers, advertisers, retailers, banking and other
financial institutions, lessors and such other parties as IFT deems appropriate,
upon reasonable notice of the proposed times and dates thereof. IFT shall
complete its due diligence, provided it has received the cooperation of TNCI
contemplated in this Paragraph, no later than seven (7) days following the
execution and delivery of this Agreement by the parties. TNCI shall likewise
have the right, upon the execution of this Agreement, to inspect IFT, its
financial and other records and to discuss the affairs of IFT with appropriate
parties under the same terms and conditions and upon the same schedule as IFT
shall have to complete its preliminary due diligence. IFT and TNCI will
cooperate with all reasonable requests by the other party for information and
will use their best efforts to secure the cooperation of the foregoing third
parties who may reasonably be requested to furnish information to each other.
8.2 Confidential Information. IFT shall keep all confidential
information derived from TNCI relating to the business of TNCI confidential
pending the Closing of the transaction contemplated by this Agreement. TNCI
shall keep all confidential information derived from IFT relating to the
business of IFT confidential pending the Closing. No party to this Agreement
shall be liable for disclosure of confidential information if such disclosure is
required by law or if the disclosure is of information already publicly
available.
8.3 Return of Confidential Information. If this Agreement should be
terminated pursuant to Paragraph 12 of this Agreement, TNCI and IFT shall return
all such confidential information and documents which they have received and
agree not to disclose or use such information in any manner which damages the
businesses or prospects of IFT or TNCI, as the case may be.
9. Conditions Precedent to the Obligations of TNCI. The obligations of
TNCI pursuant to this Agreement are, at the option of TNCI, subject to the
fulfillment to TNCI's reasonable satisfaction on or before the Closing Date of
each of the following conditions:
9.1 Execution of Agreement. IFT has duly executed and delivered this
Agreement to TNCI.
9.2 Approval. TNCI shall have obtained the written approval of the
Nasdaq Stock Market, Inc. to issue the TNCI capital stock contemplated by this
Agreement without shareholder approval; provided that TNCI waives this condition
precedent if TNCI has not obtained such approval by the Closing Date.
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9.3 Representations and Warranties Accurate.
9.3.1 IFT shall deliver the Disclosure Schedule to this
Agreement no later than seven (7) days from the date of this Agreement. TNCI
shall have seven (7) days after its receipt of the Disclosure Schedule to
determine, in its sole discretion, whether or not TNCI shall accept the
representations and warranties as modified or amplified by the Disclosure
Schedule. If TNCI determines that any part of the Disclosure Schedule is
unacceptable, TNCI may provide IFT additional time to remedy the matter or may
terminate this Agreement in accordance with its provisions.
9.3.2 All representations and warranties of IFT contained in
this Agreement shall be true in all respects when made on the date of execution
of this Agreement, and also at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date. IFT
shall furnish TNCI with a certificate, dated the Closing Date and signed on
behalf of IFT and by a duly authorized officer thereof stating the above in such
form as TNCI may reasonably request. The acceptance of the Purchase Price by IFT
shall constitute an affirmation by IFT of the truth, as of the Closing Date, of
the representations and warranties made by in this Agreement.
9.4 Performance of IFT. IFT shall have performed and complied with
all agreements, terms and conditions required by this Agreement to be performed
or complied with and IFT shall deliver a certificate, in form and substance
satisfactory to TNCI, to that effect, dated the Closing Date, and signed in the
manner set forth in Paragraph 9.3.2, on or before the Closing Date.
9.5 Title. At or prior to the Closing Date, there shall have been
delivered to TNCI in form reasonably satisfactory to TNCI, the following
documents transferring title to the Assets to TNCI:
9.5.1 Appropriate bills of sales, assignments and other
instruments giving and conveying to TNCI all right, title and interest in and to
the Assets described in Schedule 1.1; and
9.5.2 Duly executed UCC-2 Releases, as described in Paragraph
5.12, "Title to the Assets," of this Agreement, or evidence that no liens have
been recorded against the Assets and consents to the assignment and transfer by
IFT to TNCI of all rights of IFT in and to all contracts, agreements,
commitments and other assets to be assigned and transferred to TNCI hereunder in
all instances in which the same may be necessary to vest in TNCI all of IFT's
right, title and interest therein and thereto.
9.5.3 Evidence that all trademarks, trade names, service
marks, patents, licenses or other rights IFT uses in connection with the
Business are free and clear of any encumbrances, controversies, infringement or
other claims or obligations on the Closing Date.
9.6 Consents. Prior to Closing, IFT shall have obtained all
approvals in conjunction with the transfer of the Assets to TNCI as may be
required by any contracts between IFT and any of its customers or other third
parties required to effect the sale and transfer of the Assets, and such
approvals shall be issued in written form and substance satisfactory to TNCI and
its counsel or TNCI shall have waived such requirements.
9.7 Possession. IFT shall deliver to TNCI possession of the Assets.
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9.8 Opinion of Counsel. TNCI shall have received an opinion of
counsel for IFT substantially in the form set forth in Exhibit A.
9.9 Fairness Opinion. TNCI shall have received a "fairness opinion"
with respect to the fairness, from a financial point of view, of the
transactions contemplated by this Agreement to the shareholders of TNCI, which
fairness opinion is satisfactory in form and scope to TNCI's board of directors.
9.10 Financial and Other Conditions. IFT shall have no contingent or
other material liabilities connected with the Business, except as disclosed in
the financial statements or as described in Schedule 2.1.
9.11 Legal Prohibition. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation threatening to restrain
prohibiting or invalidating the consummation of the transactions contemplated by
this Agreement, or which might affect TNCI's right to own, operate, and have
assigned to it the Assets.
9.12 [INTENTIONALLY OMITTED].
9.13 Material Changes. There shall be no material adverse change in
the Business, financial condition, results of operates or prospects of the
Business from the date of this Agreement to the Closing Date.
10. Conditions Precedent to the Obligations of IFT . The obligations of
IFT under this Agreement are, at the option of IFT, subject to the fulfillment
to IFT's reasonable satisfaction on or before the Closing Date of each of the
following conditions:
10.1 Execution of this Agreement. TNCI shall have duly executed and
delivered this Agreement to IFT.
10.2 Approval. IFT shall have obtained the approval of its
stockholders if required under Delaware law and the requirements of the Nasdaq
Stock Market, Inc.
10.3 [INTENTIONALLY OMITTED].
10.4 Payment. Subject to the terms and conditions hereof, TNCI shall
have transferred the TNCI Shares free and clear of any liens, encumbrances or
other obligations and assumed the Assumed Liabilities of IFT in exchange for the
Assets as described in Paragraph 3, "Purchase Price."
10.5 Representations and Warranties Accurate.
10.5.1 TNCI shall deliver the Disclosure Schedule to this Agreement
no later than seven (7) days after the date of this Agreement. IFT shall have
seven (7) days after its receipt of the Disclosure Schedule to determine, in its
sole discretion, whether or not IFT shall accept the representations and
warranties as modified or amplified by the Disclosure Schedule. If IFT
determines that any party of the Disclosure Schedule is unacceptable, IFT may
provide TNCI additional time to remedy the matter or may terminate this
Agreement in accordance with its provisions.
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10.5.2 All representations and warranties of TNCI contained in
this Agreement shall have been true in all respects when made on the date of
execution of this Agreement, and also at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date. TNCI
shall furnish IFT with a certificate, dated the Closing Date and signed on
behalf of TNCI and by a duly authorized officer thereof stating the above in
such form as IFT may reasonably request. The acceptance of the Assets by TNCI
shall constitute an affirmation by TNCI of the truth, as of the Closing Date, of
the representations and warranties made by in this Agreement.
10.6 Performance of TNCI. TNCI shall have performed and complied
with all agreements, terms and conditions required by this Agreement to be
performed or complied with and TNCI shall deliver a certificate, in form and
substance satisfactory to IFT, to that effect, dated the Closing Date, and
signed in the manner set forth in Paragraph 10.5.2, on or before the Closing
Date.
10.7 Consents. Prior to Closing, TNCI shall have obtained all consents
and approvals in conjunction with the transfer of the TNCI Shares to IFT as may
be required to effect such transfer and such consents and approvals shall be
issued in written form and substance reasonably satisfactory to IFT and its
counsel, or IFT shall have waived such requirements.
10.8 Opinion of Counsel. IFT shall have received an opinion of counsel
for TNCI substantially in the form set forth in Exhibit B.
10.9 [INTENTIONALLY OMITTED].
10.10 [INTENTIONALLY OMITTED].
10.11 Financial Statements. TNCI's financial statements, shall be
acceptable to IFT, in its sole discretion, and IFT shall have the opportunity in
the due diligence process to review such Financial Statements with TNCI's
independent auditors, PriceWaterhouseCoopers;
10.12 Board of Directors. The directors of TNCI shall have appointed
to the Board of Directors of TNCI those persons set forth in Paragraph 16
hereof, and the directors shall have appointed as the officers of TNCI those
persons set forth in Paragraph 16, to take effect upon consummation of the
transaction.
10.13 Convertible Securities. On or before the execution of this
Agreement, the holders of the outstanding shares of Preferred Stock, convertible
notes, and related warrants of TNCI shall have reached agreements with IFT or
TNCI, as the case may be, on terms satisfactory to IFT, regarding the
disposition or conversion into shares of TNCI Common Stock of their holdings.
Without limiting the foregoing, the following shall have occurred prior to the
Closing:
10.13.1 The Holders of all of the outstanding Series A Notes,
Series D Notes and Series E Notes shall have converted such Preferred Stock and
notes into that number of shares of Common Stock of TNCI on terms approved by
IFT and shall have granted IFT irrevocable proxies to vote such shares and
executed lock-up agreements respecting the shares for the duration of the
proxies on terms acceptable to IFT, in its discretion;
10.13.2 Wil Riner and his wife, James Riner and his wife, Wil
Riner, Jr. and his wife and Bryan Carr and his wife shall have granted IFT
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irrevocable proxies to vote their shares of Common Stock of TNCI on terms
acceptable to IFT, in its discretion. The foregoing proxies shall be limited to
voting to approve the terms of this Agreement, increase the number of authorized
shares of Common Stock to at least 30,000,000 and effect any other action or
matter required to complete the transactions contemplated by this Agreement.
These proxies will terminate upon the earlier of IFT obtaining the approval of
TNCI's shareholders on the foregoing matters or September 30, 1999, provided
that such date may be extended up to December 31, 1999 if any legal or
regulatory action prevents consideration of such matters by the shareholders on
or before September 30, 1999. The parties granting these proxies shall not be
permitted to sell, transfer, assign or pledge their shares unless their proposed
transferees or pledgees agree to be bound by the terms of these proxies; and
10.13.3 TNCI shareholders in addition to those set forth in
Paragraphs 10.13.1 and 10.13.2 shall have provided irrevocable proxies to IFT to
vote their shares of Common Stock of TNCI on terms acceptable to IFT in its
discretion, which shares when added to the shares subject to the proxies granted
to IFT in Paragraphs 10.13.1 and 10.13.2 and such other shares of voting capital
stock of TNCI held by IFT shall equal at least 50.1% of the outstanding voting
capital stock of TNCI. The foregoing proxies shall be limited to voting to
approve the terms of this Agreement, increase the number of authorized shares of
Common Stock to at least 30,000,000 and effect any other action or matter
required to complete the transactions contemplated by this Agreement. These
proxies will terminate upon the earlier of IFT obtaining the approval of TNCI's
shareholders on the foregoing matters or September 30, 1999, provided that such
date may be extended up to December 31, 1999 if any legal or regulatory action
prevents consideration of such matters by the shareholders on or before
September 30, 1999. The parties granting these proxies shall not be permitted to
sell, transfer, assign or pledge their shares unless their transferees or
pledgees agree to be bound by the terms of these proxies.
10.14 Other Issues. IFT shall have acquired the Series B Preferred
Stock and the IFT secured note shall have been amended on terms acceptable to
IFT. IFT shall have received proxies from certain shareholders of TNCI as
determined by IFT.
10.15 Directors and Officers Coverage. TNCI shall have purchased
Directors and Officers liability insurance policies in favor of the existing
directors and officers and the officers and directors set forth in Paragraph 16
in amounts and on terms reasonably acceptable to IFT, but in any event with
limits not less than Fifteen Million Dollars ($15,000,000), to be effective
immediately following the Closing Date and with an insurer reasonably acceptable
to IFT.
10.16 Material Changes. There shall be no material adverse change in
the business, financial conditions, results of operations or prospects of TNCI
from the date of this Agreement to the Closing Date.
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11. Indemnification.
11.1 Survival of Representations, Warranties and Certain Covenants.
The representations and warranties made by the parties in this Agreement and in
the certificates delivered at the Closing, and all of the covenants of the
parties in this Agreement, shall survive the execution and delivery of this
Agreement and the Closing Date and shall expire on the first anniversary of the
Closing Date. Any claim for indemnification shall be effective only if notice of
such claim is given by the party claiming indemnification or other relief to the
party against whom such indemnification or other relief is claimed on or before
the first anniversary of the Closing Date (other than in Paragraphs 5.8, 5.9 and
6.12, and any of which results from fraud, the survival period for which shall
be sixty (60) days following the end of the applicable statute of limitations
period).
11.1.1 The representations and warranties of the parties shall
not be affected or diminished by any investigation at any time by or on behalf
of the party for whose benefit such representations and warranties were made.
11.1.2 The expiration of any representation or warranty shall
not affect any parties' right to pursue any claim made prior to such expiration.
11.2 Indemnification by TNCI.
11.2.1 TNCI agrees to indemnify and hold IFT harmless, from and
after the Closing Date, against and in respect of all matters in connection with
any losses, liabilities, costs or damages (including reasonable attorneys' fees)
incurred by IFT that result from any misrepresentation or breach of the
warranties by TNCI in Paragraph 6, "Representations and Warranties of TNCI," or
any breach or nonfulfillment of any agreement or covenant on the part of TNCI
contained in this Agreement, and all suits, actions, proceedings, demands,
judgments, costs and expenses incident to the foregoing matters, including
reasonable attorneys' fees.
11.2.2 No claim for indemnification may be made under this Paragraph
11 after the first anniversary of the Closing Date, except in accordance with
Paragraph 11.1. Notwithstanding the foregoing, no claim for indemnification
under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by an indemnified party
against an indemnifying party unless and until the cumulative total of all
losses suffered by such indemnified party and covered by such Paragraphs (the
"Losses") exceeds $100,000 (the "Threshold"). Once Losses exceed the Threshold,
the indemnified party suffering such Losses may recover all Losses which exceed
the Threshold, without being able to recover any Losses which do not exceed the
Threshold.
11.3 Indemnification by IFT.
11.3.1 IFT agrees to indemnify and hold TNCI, its officers,
directors and representatives, (the "TNCI Parties") harmless, from and after the
Closing Date, against and in respect of all matters in connection with any
losses, liabilities, costs or damages (including reasonable attorneys' fees)
incurred by TNCI that result from any misrepresentation or breach of the
warranties by IFT in Paragraph 5, "Representations and Warranties of IFT," or
any breach or nonfulfillment of any agreement or covenant on the part of IFT
contained in this Agreement, and all suits, actions, proceedings, demands,
judgments, costs and expenses incident to the foregoing matters, including
reasonable attorneys' fees.
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11.3.2 No claim for indemnification may be made under this
Paragraph 11 after the first anniversary of the Closing Date, except in
accordance with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by an
indemnified party against an indemnifying party unless and until the cumulative
total of all losses suffered by such indemnified party and covered by such
paragraphs (the "Losses") exceeds $100,000 (the "Threshold"). Once Losses exceed
the Threshold, the indemnified party suffering such Losses may recover all
Losses which exceed the Threshold, without being able to recover any Losses
which do not exceed the Threshold.
11.4 Mediation. If any TNCI Party believes that a matter has
occurred that entitles it to indemnification under Paragraph 11.3,
"Indemnification by IFT," or any IFT Party believes that a matter has occurred
that entitles it to indemnification under Paragraph 11.2, "Indemnification by
TNCI," the TNCI Party or IFT Party as the case may be (the "Indemnified Party"),
shall give written notice to the party or parties against whom indemnification
is sought (each of whom is referred to herein as an "Indemnifying Party")
describing such matter in reasonable detail (the "Dispute Notice"). The
Indemnified Party shall be entitled to give such notice prior to the
establishment of the amount of its losses, liabilities, costs or damages, and to
supplement its claim from time to time thereafter by further notices as they are
established. Each Indemnifying Party shall send a written response to such claim
for indemnification within thirty (30) days after receipt of the claim stating
its acceptance or objection to the indemnification claim, and explaining its
position in respect thereto in reasonable detail. If such Indemnifying Party
does not timely so respond, it will be deemed to have accepted the Indemnified
Party's indemnification claim as specified in the notice given by the
Indemnified Party. If the Indemnifying Party gives a timely objection notice,
then the parties shall resolve the dispute by binding mediation in Phoenix,
Arizona under the Commercial Mediation Rules of the American Arbitration
Association (AAA) in effect on the date of the Dispute Notice. If the parties
cannot agree on the selection of a mediator within twenty (20) days after
delivery of the Dispute Notice, the mediator will be selected by the AAA. The
prevailing party in any such mediation shall be entitled to recover from, and
have paid by, the other party hereto all fees and disbursements of such
mediation, including its reasonable attorneys.
11.5 Indemnification Shares. The parties agree that if it is
determined that IFT is entitled to indemnification pursuant to Paragraph 11.4,
then at the option of IFT's Board of Directors, TNCI shall compensate IFT by
issuing to IFT shares of TNCI Common Stock. The number of shares to be issued
pursuant to this paragraph (the "Indemnification Shares") shall be determined by
dividing the dollar amount of TNCI's obligation for indemnification by the
average of the closing prices of the TNCI Common Stock as reported on the
principal trading market for TNCI Common Stock for the twenty (20) trading days
immediately preceding the date that the notice of claim is given to TNCI. The
parties agree that this measure of damages is equitable in light of the method
of payment of the Purchase Price.
11.6 No Finders. TNCI represents and warrants to IFT and IFT
represents and warrants to TNCI that there are no obligations to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement. TNCI agrees to indemnify and hold
harmless IFT from any breach of TNCI's representation in the previous sentence,
and IFT agrees to indemnify and hold TNCI harmless from any breach of its
representation in the previous sentence.
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11.7 Third Person Claim Procedures. If any third person asserts a
claim against an Indemnified Party in connection with the matter involved in
such claim, the Indemnified Party shall promptly (but in no event later than ten
(10) days prior to the time at which an answer or other responsive pleading or
notice with respect to the claim is required) notify the Indemnifying Party of
such claim. The Indemnifying Party shall have the right, at its election, to
take over the defense or settlement of such claim by giving prompt notice to the
Indemnified Party that it will do so, such election to be made and notice given
in any event at least five (5) days prior to the time at which an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, the Indemnifying Party may conduct the
defense of such claim through counsel of its choosing (subject to the
Indemnified Party's approval, not to be unreasonably withheld), will be
responsible for the expenses of such defense, and shall be bound by the results
of its defense or settlement of the claim to the extent it produces damage or
loss to the Indemnified Party. The Indemnifying Party shall not settle such
claims without prior notice to and consultation with the Indemnified Party, and
no such settlement involving any injunction or material and adverse effect on
the Indemnified Party may be agreed to without its consent. Notwithstanding the
assumption of the defense of any claim by the indemnifying party, the
indemnified party(ies) shall have the right to employ a single, separate legal
counsel (together with appropriate local counsel) and to participate in the
defense of such claim, and the indemnifying party shall bear the reasonable
fees, out-of-pocket costs and expenses of such single, separate legal counsel to
the indemnified party(ies) if (and only if): (x) the indemnifying party shall
have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
indemnifying party, based upon an opinion of counsel in writing, reasonably
acceptable to the indemnifying party, shall have concluded that representation
of the indemnified party(ies) and the indemnifying party by the same legal
counsel would not be appropriate due to actual (i) conflicts of interest between
such parties in the conduct of the defense of such claim, or (ii) if there may
be legal defenses available to the indemnified party(ies) that are in addition
to or disparate from those available to the indemnifying party and which can not
be presented by counsel to the indemnifying party, or (z) the indemnifying party
shall have failed to employ legal counsel reasonably satisfactory to the
indemnified party(ies) within a reasonable period of time after notice of the
commencement of such claim [it being recognized and acknowledged that Nixon,
Hargrave, Devans & Doyle LLP and Streich Lang, PA, shall be regarded as such
reasonably satisfactory counsel to the indemnified party(ies)]. IF the
indemnifying party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the indemnified party(ies). As long
as the Indemnifying Party is diligently contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. If the
Indemnifying Party does not make such election, or having made such election
does not proceed diligently to defend such claim prior to the time at which an
answer or other responsive pleading or notice with respect thereto is required,
or does not continue diligently to contest such claim, then the Indemnified
Party may take over defense and proceed to handle such claim in its exclusive
discretion, and the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make in good faith with respect to
such claim and shall pay the reasonable attorneys fees of such defense, subject
to paying for only one counsel. The parties agree to cooperate in defending such
third party claims, and the defending party shall have access to records,
information and personnel in control of the other part which are pertinent to
the defense thereof.
11.8 Limitation of Remedies. No party to this Agreement shall be
liable to any other party or parties or have any remedies against any other
party or parties under this Agreement other than as provided in Paragraph 11,
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"Indemnification," and Paragraph 12, "Termination." The parties understand that
this requires that all disputed claims shall be submitted to arbitration in
accordance with Paragraph 10.4, "Arbitration."
12. Termination.
12.1 Termination Events. This Agreement may be terminated and
abandoned prior to the closing thereof, by notice given in the manner
hereinafter provided:
12.1.1 By TNCI, (a) if without a material breach of the terms
or conditions of this Agreement by TNCI, all of the conditions set forth in
Paragraph 9, "Conditions Precedent to the Obligations of TNCI," shall not have
been satisfied on or before the Closing Date and have not been waived by TNCI on
or before such dates, as the case may be, or (b) a material breach of the terms
or conditions of this Agreement by IFT occurs which breach is not cured within
ten (10) days following the giving of written notice thereof to IFT.
12.1.2 By IFT, (a) if without a material breach of the terms or
conditions of this Agreement by IFT occurs which breach is not cured within ten
(10) days following the giving of written notice thereof to IFT, all of the
conditions set forth in Paragraph 10, "Conditions Precedent to the Obligations
of IFT," shall not have been satisfied on or before the Closing Date and have
not been waived by IFT on or before such date, as the case may be, or (b) a
material breach of the terms or conditions of this Agreement by TNCI occurs
which breach is not cured within ten (10) days following the giving of written
notice thereof to TNCI.
12.1.3 By the mutual agreement of TNCI and IFT.
12.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Paragraph 12.1, "Termination Events," this Agreement
shall forthwith become void, and, there shall be no liability or continuing
obligations on the part of the parties hereunder, except as provided below:
12.2.1 no party may terminate this Agreement pursuant to
Paragraph 12.1.1(b) or 12.1.2(b) if such party is in material breach of the
terms of this Agreement;
12.2.2 TNCI shall continue to be bound by Paragraph 7.4.5
through November 14, 1999 so long as IFT owns at least 20% of the outstanding
Common Stock of TNCI, computed by assuming that all Preferred Stock or
convertible notes held by IFT have been converted into Common Stock of TNCI; and
provided that if IFT does not give its consent to a proposed transaction during
the foregoing period, which consent shall not be unreasonably withheld, TNCI may
purchase the Common Stock and Common Stock equivalents based on conversion of
Preferred Stock and convertible debt held by IFT at a price equal to the greater
of $3.50 per share or the average of the bid and ask prices of the Common Stock
on the principal market on which the Common Stock is traded on the date of
purchase; and
12.2.3 after November 14, 1999 IFT shall have a right of first
refusal, for a period of fifteen (15) days after receipt of written notice from
TNCI, to purchase any debt or equity securities of TNCI on the same terms and
conditions as any bona fide third party. IFT shall have the foregoing right of
first refusal so long as IFT owns at least 20% of the outstanding Common Stock
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of TNCI, computed by assuming that all Preferred Stock and convertible debt held
by IFT have been converted into Common Stock of TNCI.
12.2.4 TNCI shall grant IFT a license to use TNCI's technology
under terms of a license agreement attached as Exhibit C hereto, which license
shall (i) permit TNCI to continue to utilize such technology directly in its
business, but not license such technology to any third party; (ii) be for a
fifteen (15) year term; (iii) permit IFT to license the technology on a
royalty-free basis; and (iv) give IFT a first right of refusal to purchase the
technology on the same terms and conditions as TNCI proposes to sell the
technology to a bona fide third party purchaser.
13. Expenses and Transfer Taxes.
13.1 TNCI shall be solely responsible for paying its own expenses
and costs incident to the preparation of this Agreement and to the consummation
of the transactions contemplated by this Agreement, and shall have no obligation
for paying such expenses or costs of IFT.
13.2 IFT shall be solely responsible for paying is own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation to
reimburse the expenses or costs of TNCI.
13.3 Notwithstanding any of the other provisions hereof, in the
event of arbitration with respect to the interpretation or enforcement of this
Agreement in accordance with Paragraph 11.4 hereof, the prevailing party in any
such matter shall be entitled to recover from the other party their or its
reasonable costs and expense, including reasonable attorneys' fees, incurred in
such arbitration and/or litigation. For purposes of this subparagraph 13.3, a
party shall be deemed to be the prevailing party only if such party (A)(i)
receives an award or judgment in such arbitration and/or litigation for more
than 50% of the disputed amount involved in such matter, or (ii) is ordered to
pay the other party less than 50% of the disputed amount involved in such matter
or (B)(i) succeeds in having imposed a material equitable remedy on the other
party (such as an injunction or order compelling specific performance), or (ii)
succeeds in defeating the other party's request for such an equitable remedy.
13.4 TNCI and IFT do not believe any sales or transfer taxes will be
due as a result of the sale and transfer of the Assets as contemplated in this
Agreement. TNCI shall, however, pay any sales or transfer taxes which may become
due on the sale or transfer of the Assets to TNCI and the other transactions
contemplated under this Agreement.
14. Risk of Loss. The risk of loss or destruction of all or any part
of the Assets prior to the Closing Date from any cause (including, without
limitation, fire, theft, acts of God or public enemy) shall be upon IFT. Such
risk shall be upon TNCI if such loss occurs after the Closing Date.
15. Notification of Claims. Each party will promptly notify the other of
any third party claims against any party relating to TNCI or the Assets of which
it receives knowledge or notice so as to permit such party an opportunity to
prepare a timely defense to such claim or to attempt settlement.
16. TNCI Board of Directors. On the Closing Date, the Board of Directors
and officers of TNCI shall consist of the following seven (7) persons; Irwin L.
Gross (Chairman), Wilbur Riner, Sr. (President and CEO), Morris C. Aaron
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(Executive Vice President), Frank E. Gomer (Executive Vice President), two (2)
outside directors to be determined by IFT, and one (1) outside director to be
determined by TNCI.
17. Miscellaneous.
17.1 Binding Agreement. The parties covenant and agree that this
Agreement, when executed and delivered by the parties, will constitute a legal,
valid and binding agreement between the parties and will be enforceable in
accordance with its terms.
17.2 Negotiations with Third Parties. In consideration of the
undertakings by the parties of the substantial legal, accounting and other
expenses incident to the parties proceeding toward the closing of the
transaction contemplated hereby the parties agree that, through the earlier of
May 15, 1999 or the Closing Date, neither party will enter into or pursue any
arrangements or negotiations with any other party relative to (i) the merger of
TNCI into any other party or any purchase or sale of substantially all of the
assets or control relative to any extraordinary transaction, in the case of
TNCI, without the consent of IFT, and (ii) the acquisition by IFT of all or
substantially all of the assets, or the voting control, of a company whose
business is related to or in competition with the business conducted by TNCI,
without the consent of TNCI.
17.3 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, their
legal representatives, successors and assigns.
17.4 Entire Agreement. This Agreement and its exhibits and schedules
constitute the entire contract among the parties hereto with respect to the
subject matter thereof, superseding all prior communications and discussions and
no party hereto shall be bound by any communication on the subject matter hereof
unless such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
17.5 Modification. This Agreement may be waived, changed, amended,
discharged or terminated only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, amendment, discharge or
termination is sought.
17.6 Notices. All notices, requests, demands and other
communications shall be deemed to have been duly given three (3) days after
postmark of deposit in the United States mail, if mailed, certified or
registered mail, postage prepaid, one day after delivery to a nationally
recognized overnight courier, upon receipt by facsimile (with confirmation
back), or upon hand delivery:
If to IFT:
Interactive Flight Technologies, Inc.
4041 North Central Avenue, Suite B-200
Phoenix, Arizona 85012
Attn: Irwin L. Gross, Chief Executive Officer
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With copy to:
Christian J. Hoffmann, III
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004-2391
If to TNCI:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Attn: Wilbur Riner, Sr., President
With a copy to:
Peter W. Rothberg, Esq.
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
or to such other address as any party shall designate to the other in writing.
The parties shall promptly advise each other of changes in addresses for such
notices.
17.7 Choice of Law. This Agreement shall be governed by, construed,
interpreted and enforced according to the laws of the State of Delaware.
17.8 Severability. If any portion of this Agreement shall be finally
determined by any court or governmental agency of competent jurisdiction to
violate applicable law or otherwise not to conform to requirements of law and,
therefore, to be invalid, the parties will cooperate to remedy or avoid the
invalidity, but, in any event, will not upset the general balance of
relationships created or intended to be created between them as manifested by
this Agreement and the instruments referred to herein. Except insofar as it
would be an abuse of the foregoing principle, the remaining provisions hereof
shall remain in full force and effect.
17.9 Other Documents. The parties shall upon reasonable request of
the other, execute such documents as may be reasonably necessary to carry out
the intent of this Agreement.
17.10 Headings and the Use of Pronouns. The paragraph headings
hereof are intended solely for convenience of reference and shall not be
construed to explain any of the provisions of this Agreement. All pronouns and
any variations thereof and other words, as applicable, shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as the identity of the
person or matter may require.
17.11 Time is of the Essence. Time is of the essence of this Agreement.
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17.12 No Waiver and Remedies. No failure or delay on a parties part
to exercise any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by a party of a right or remedy hereunder
preclude any other or further exercise. No remedy or election hereunder shall be
deemed exclusive but it shall, where ever possible, be cumulative with all other
remedies in law or equity.
17.13 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17.14 Further Assurances. Each of the parties hereto shall use
commercially practicable efforts to fulfill all of the conditions set forth in
this Agreement over which it has control or influence (including obtaining any
consents necessary for the performance of such party's obligations hereunder)
and to consummate the transactions contemplated hereby, and shall execute and
deliver such further instruments and provide such documents as are reasonably
necessary to effect this Agreement.
17.15 Rules of Construction. The normal rules of construction which
require the terms of an agreement to be construed most strictly against the
drafter of such agreement are hereby waived since each party has been
represented by counsel in the drafting and negotiation of this Agreement.
17.16 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
17.17 Bulk Sales; Sales Tax. The parties hereby waive compliance
with the requirements of any applicable bulk sales or bulk transfer statutes of
any states having jurisdiction, and IFT hereby agrees to be responsible for and
shall indemnify and hold harmless TNCI against any liability that may arise as a
result of any obligations imposed by such statutes. Additionally, IFT shall be
responsible for and shall indemnify and hold harmless TNCI for any sales tax due
upon the transfer of the Assets pursuant to this Agreement or any sales tax
which should have been collected by IFT in connection with operation of the
Business being transferred on or prior to the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
IFT: TNCI:
INTERACTIVE FLIGHT TECHNOLOGIES, INC., THE NETWORK CONNECTION, INC., a
a Delaware Corporation Georgia corporation
- --------------------------------------- ----------------------------
Irwin L. Gross, Wilbur Riner, Sr.,
Chief Executive Officer President
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FIRST AMENDMENT
TO
ASSET PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT (the "Amendment") to that certain Asset Purchase and
Sale Agreement dated as of April 29, 1999 (the "Purchase Agreement"), is entered
into as of this 14th day of May, 1999 by and among Interactive Flight
Technologies, Inc. ("IFT"), and The Network Connection, Inc. ("TNCI").
WHEREAS, the parties have previously entered into the Purchase Agreement;
and
WHEREAS, the parties now wish to amend the Purchase Agreement to provide
for the other matters set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. Section 7 is hereby amended by adding a new Section 7.7 which shall read
in its entirety as follows:
7.7. Payment of Net Litigation and Other Proceeds; Performance of
Contracts.
7.7.1 IFT shall pay to TNCI the Net Swissair Proceeds (as defined
below) actually collected by IFT with respect to existing accounts receivable
identified on Schedule 1.1 from Swissair Swiss Air Transport Company, Ltd., SR
Technics, Ltd. and SAIR Group (the "Accounts"), and other amounts sought to be
recovered from such parties pursuant to the Complaint filed by IFT in the United
States District Court for the District of Arizona on May 6, 1999 (Civ.
99-0836PHX SMM) (collectively with the Accounts, the "Swissair Claims"). As used
herein, Net Swissair Proceeds shall mean the aggregate amounts actually received
by IFT with respect to such Swissair Claims, net of (i) any cost or expenses,
direct or indirect, incurred by IFT in connection with the collection of such
Swissair Claims (including without limitation, any and all costs of litigation,
attorneys' fees, court costs, and the like, incurred either in connection with
the prosecution of such Swissair Claims or in defending any counterclaims in
connection therewith; (ii) any costs or expenses of performing any IFT
obligations under any of the existing contracts, or otherwise incurred with
respect to such receivables, which are incurred following the Closing Date;
(iii) any counterclaims or other amounts paid or payable by IFT to such parties;
<PAGE>
and (iv) state and federal taxes paid by IFT with respect to amounts received by
IFT pursuant to the Swissair claims, the amounts of which tax payments have been
approved by TNCI, which approval will not be unreasonably withheld. In
connection therewith, TNCI agrees that it shall perform on behalf of IFT any
obligations required of IFT under any contracts with such parties and shall
indemnify, defend, and hold harmless IFT from any costs and expenses incurred by
IFT as a result of TNCI's performance.
7.7.2 IFT shall pay to TNCI the Net Other Proceeds (as defined
below) actually received by IFT in connection with the pending litigation
against Avnet/Hamilton Hallmark, FortuNet, and the employees set forth in
Schedule 7.7.2 (collectively, the "Miscellaneous Claims"). As used herein, Net
Other Proceeds shall mean the aggregate amounts actually received by IFT with
respect to such Miscellaneous Claims, net of (i) any costs or expenses, direct
or indirect, incurred by IFT in connection with the collection of such
Miscellaneous Claims (including, without limitation, any and all costs of
litigation, attorneys' fees, court costs, and the like, incurred either in
connection with the prosecution of such Miscellaneous Claims or in defending any
counterclaims in connection therewith; (ii) any costs or expenses of performing
any IFT obligations under the FortuNet agreement; (iii) any counterclaims or
other amounts paid or payable by IFT to such parties; and (iv) taxes paid by IFT
with respect to amounts received by IFT pursuant to the Swissair claims, the
amounts of which tax payments have been approved by TNCI, which approval will
not be unreasonably withheld. Such amounts shall also be reduced by the amount
of any judgments or amounts payable to such parties pursuant to any
counterclaims or otherwise. In connection therewith TNCI agrees that it shall
perform on behalf of IFT any obligations of IFT under the FortuNet contract.
2. Section 7 is hereby further amended by adding a new Section 7.8 which
shall read in its entirety as follows:
7.8 Upon a determination by TNCI that such transfers are desirable, IFT
shall use reasonable efforts to effect the transfers of the permits set forth in
Schedule 5.14.1 with all required approvals.
3. Section 8.1 is hereby amended to read in its entirety as follows:
8.1 Due Diligence Inspection. During the period from the date hereof
until and through May 14, 1999, IFT and its representatives shall have the right
to inspect all plant, equipment and operations of TNCI, its premises and its
financial and other records at reasonable times. IFT shall also have the right
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<PAGE>
to discuss the affairs of TNCI with the managers, customers, prospective
customers, employees, suppliers, advertisers, retailers, banking and other
financial institutions, lessors and such other parties as IFT deems appropriate,
upon reasonable notice of the proposed times and dates thereof. IFT shall
complete its due diligence, provided it has received the cooperation of TNCI
contemplated in this Paragraph, no later than May 14, 1999. TNCI shall likewise
have the right, upon the execution of this Agreement, to inspect IFT, its
financial and other records and to discuss the affairs of IFT with appropriate
parties under the same terms and conditions and upon the same schedule as IFT
shall have to complete its preliminary due diligence. IFT and TNCI will
cooperate with all reasonable requests by the other party for information and
will use their best efforts to secure the cooperation of the foregoing third
parties who may reasonably be requested to furnish information to each other.
4. Section 9.3.1 is hereby amended to read in its entirety as follows:
9.3.1 IFT shall deliver the Disclosure Schedule to this
Agreement no later than May 14, 1999. TNCI shall have the lesser of seven (7)
days after its receipt of the Disclosure Schedule or the remaining time until
the Closing Date to determine, in its sole discretion, whether or not TNCI shall
accept the representations and warranties as modified or amplified by the
Disclosure Schedule. If TNCI determines that any part of the Disclosure Schedule
is unacceptable, TNCI may provide IFT additional time to remedy the matter or
may terminate this Agreement in accordance with its provisions.
5. Section 10.5.1 is hereby amended to read in its entirety as follows:
10.5.1 TNCI shall deliver the Disclosure Schedule to this
Agreement no later than May 14, 1999. IFT shall have the lesser of seven (7)
days after its receipt of the Disclosure Schedule or the remaining time until
the Closing Date to determine, in its sole discretion, whether or not IFT shall
accept the representations and warranties as modified or amplified by the
Disclosure Schedule. If IFT determines that any party of the Disclosure Schedule
is unacceptable, IFT may provide TNCI additional time to remedy the matter or
may terminate this Agreement in accordance with its provisions.
6. A new Section 10.13.1 is hereby added to read in its entirety as
follows:
10.13.1 To the extent any holder of the outstanding Series A
Notes, Series D Notes, and Series E Notes refuses to convert such notes into
capital stock on terms verbally agreed to with IFT as reflected in Schedule
3.1.1-B after the Closing Date, and IFT issues more shares or other
consideration than originally agreed to, IFT will be reimbursed to the extent of
such additional consideration by TNCI issuing that number of additional shares
of TNCI common stock (based upon the conversion price set forth in the Allonge
pertaining to such notes that were not so converted) equal to the value of the
additional consideration paid by IFT which shall be measured as of the date it
is agreed to in writing to be given by IFT. If the consideration consists of
securities traded on a stock exchange or automated quotation system, the value
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<PAGE>
of such securities shall be the average closing price for the five trading days
preceding the date of determination.
7. Section 10.14 is hereby amended to read in its entirety as follows:
10.14 Other Issues. IFT shall have acquired from The Shaar Fund, Ltd.
the 1,500 shares of the Series B Preferred Stock of TNCI which are outstanding
and the secured note dated January 25, 1999 (as amended), payable to the order
of IFT by TNCI in the original face amount of $500,000 shall have been amended
on terms acceptable to IFT. IFT shall have received proxies from certain
shareholders of TNCI as determined by IFT.
8. Section 11.1 is hereby amended by adding the following at the end of the
Section after the word "period":
,and other than as a result of breach of the agreements to perform certain
obligations and to indemnify IFT set forth in Sections 7.7 and 11.2.2 as to
which such time limit shall not apply.
9. Section 11.2.2 is hereby renumbered as Section 11.2.3 and a new Section
11.2.2 is hereby added to read in its entirety as follows:
11.2.2. TNCI hereby agrees to indemnify IFT as set forth in Section 7.7
hereof.
10. Section 16 is hereby amended to read in its entirety as follows:
On the Closing Date, the Board of Directors and officers of TNCI shall
consist of the following seven (7) persons; Irwin L. Gross (Chairman),
Wilbur Riner, Sr. (Executive Vice President-Business Development), Morris
C. Aaron (Executive Vice President and Chief Financial Officer), Frank E.
Gomer (President and Chief Executive Officer), two (2) outside directors to
be determined by IFT and one (1) outside director to be determined by TNCI.
11. Section 2 is hereby amended by deleting everything after "(the "Assumed
Liabilities")" from the first sentence thereof [thereby deleting reference to
certain Swissair liabilities], and replacing the "," with a period.
12. The first "Whereas" clause in the Recitals is amended by deleting the
work "primarily" and inserting in its place the words "in part."
13. Section 7 is further amended by deleting Section 7.2.2 in its entirety
and replacing that section with the words "Intentionally Omitted."
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
_____ day of May, 1999.
- -------------------------------------------------------------------------------
IFT:
INTERACTIVE FLIGHT TECHNOLOGIES, INC.,
a Delaware corporation
By:
Its:
TNCI:
THE NETWORK CONNECTION, INC.
By:
Its:
5
IRREVOCABLE PROXY
The undersigned hereby appoints Morris C. Aaron or Irwin L. Gross,
or either one of them acting in the absence of the other, with full power of
substitution, the true and lawful attorneys and proxies of the undersigned, and
hereby authorizes either of them to represent and vote all of the shares of
Common Stock, par value $.001 per share, of The Network Connection, Inc., a
Georgia corporation (the "Company"), (and any other voting stock if applicable)
held of record by the undersigned on the date of exercise hereof, or at any
meeting or at any other time a vote of the shareholders of such Company is
taken, in connection with (i) any vote or other action of the Shareholders of
the Company to approve that certain Asset Purchase and Sale Agreement (the
"Agreement"), by and between the Company and Interactive Flight Technologies,
Inc., dated as of April 29, 1999, and/or any of the transactions contemplated
thereby; (ii) any votes or other action of the shareholders to increase the
number of authorized shares of Common Stock of the Company, and (iii) any votes
or other action of the shareholders to effect any other action or matter
required to complete the transactions contemplated by the Agreement. This
Irrevocable Proxy is coupled with an interest and shall be valid, effective and
irrevocable commencing on the date hereof through the earlier of September 30,
1999 or the approval by the required number of shareholders of all the foregoing
items, provided that such
<PAGE>
date may be extended up to December 31, 1999 if any legal or regulatory action
prevents consideration of the matters by the shareholders on or before
September 30, 1999.
Dated: May 14, 1999
Signed:
------------------------------
------------------------------
(Print Name)
Signed:
------------------------------
(Co-Owner, if any)
------------------------------
(Print Name)
When signing as executor, administrator,
attorney, trustee or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by president or
other authorized officer. If a partnership,
please sign in partnership name by
authorized person. If a joint tenancy,
please have both joint tenants sign.
2
