Exhibit 10.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
ROCKY MOUNTAIN INTERNET, INC.
D/B/A XXX.XXX
AND
COLORADO MOUNTAIN NET, INC.,
XXXX XXXXXX, XXXX XXXXXXX, XXXXX XXXXXXXX AND XXXXX XXXXXXXX
JUNE 16, 1999
TABLE OF CONTENTS
1. Definitions ...................................................................................................7
2. Basic Transaction ............................................................................................13
(a) The Merger ..............................................................................................13
(b) The Closing .............................................................................................13
(c) Actions at the Closing ..................................................................................13
(d) Effect of Merger ........................................................................................13
(e) Procedure for Payment ...................................................................................17
(f) Closing of Transfer Records .............................................................................18
3. Representations and Warranties of the Company and the Company Stockholders ...................................18
(a) Status of Company Stockholders ..........................................................................18
(b) Authorization of Transaction ............................................................................18
(c) Noncontravention ........................................................................................19
(d) Brokers'Fees ............................................................................................19
(e) Company Shares ..........................................................................................19
(f) Organization, Qualification, and Corporate Power of the Company .........................................19
(g) Capitalization ..........................................................................................20
(h) Subsidiaries ............................................................................................20
(i) Financial Statements ....................................................................................20
(j) Events Subsequent to Most Recent Fiscal Month End .......................................................20
(k) Undisclosed Liabilities .................................................................................20
(l) Legal Compliance ........................................................................................21
(m) Title to Assets .........................................................................................21
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(n) Real Property ...........................................................................................21
(o) Intellectual Property ...................................................................................22
(p) Tangible Assets .........................................................................................24
(q) Inventory ...............................................................................................24
(r) Contracts ...............................................................................................24
(s) Notes and Accounts Receivable ...........................................................................26
(t) Powers of Attorney ......................................................................................26
(u) Insurance ...............................................................................................26
(v) Litigation ..............................................................................................27
(w) Warranties ..............................................................................................27
(x) Employees ...............................................................................................27
(y) Employee Benefits .......................................................................................28
(z) Tax Matters .............................................................................................28
(aa) Guaranties .............................................................................................29
(bb) Environmental, Health, and Safety Matters ..............................................................29
(cc) State PUC Authorizations and FCC Authorizations ........................................................29
(dd) Certain Business Relationships with the Company ........................................................29
(ee) Investment .............................................................................................30
(ff) Licenses and Permits ...................................................................................30
(gg) Accounts Payable .......................................................................................30
(hh) Prepaid Customer Fees ..................................................................................31
(ii) Capital Lease Obligations ..............................................................................31
(jj) Continuity of Interest .................................................................................31
(kk) Disclosure .............................................................................................31
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4. Representations and Warranties of the Buyer ..................................................................31
(a) Organization ............................................................................................31
(b) Capitalization ..........................................................................................31
(c) Authorization of Transaction ............................................................................31
(d) Noncontravention ........................................................................................32
(e) Brokers'Fees ............................................................................................32
(f) Continuity of Business Enterprise .......................................................................32
(g) Disclosure ..............................................................................................32
(h) SEC Documents ...........................................................................................32
(i) Absence of Certain Changes or Events ....................................................................33
(j) Litigation ..............................................................................................33
5. Covenants ....................................................................................................33
(a) General .................................................................................................33
(b) Notices and Consents ....................................................................................33
(c) Regulatory Matters and Other Approvals ..................................................................33
(d) Operation of Business ...................................................................................34
(e) Full Access .............................................................................................34
(f) Notice of Developments ..................................................................................34
(g) Exclusivity .............................................................................................34
(h) Continuity of Business Enterprise .......................................................................35
(i) Legend ..................................................................................................35
(i) Registration Rights Agreement ...........................................................................35
6. Conditions to Obligation to Close ............................................................................35
(a) Conditions to Obligation of the Buyer ...................................................................35
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(b) Conditions to Obligation of the Company and the Company Stockholders ....................................37
7. Termination ..................................................................................................38
(a) Termination of Agreement ................................................................................38
(b) Effect of Termination ...................................................................................38
8. Post-Closing Covenants .......................................................................................39
(a) General .................................................................................................39
(b) Litigation Support ......................................................................................39
(c) Transition ..............................................................................................39
(d) Confidentiality .........................................................................................39
(e) Covenant Not to Compete .................................................................................40
(f) Survival of Representations and Warranties ..............................................................40
(g) Indemnification Provisions for Benefit of the Buyer .....................................................40
(h) Indemnification Provisions for Benefit of the Company Stockholders ......................................41
(i) Matters Involving Third Parties .........................................................................42
(j) Other Indemnification Provisions ........................................................................43
(k) Cooperation and Exchange of Information .................................................................43
(l) Tax-Free Transaction ....................................................................................44
9. Indemnification Escrow Fund ..................................................................................44
10. Miscellaneous ...............................................................................................44
(a) Press Releases and Public Announcements .................................................................44
(b) No Third Party Beneficiaries ............................................................................44
(c) Entire Agreement ........................................................................................44
(d) Succession and Assignment ...............................................................................45
(e) Counterparts ............................................................................................45
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(f) Headings ................................................................................................45
(g) Notices .................................................................................................45
(h) Company Stockholders'Representative .....................................................................46
(i) Governing Law ...........................................................................................46
(j) Dispute Resolution ......................................................................................46
(k) Amendments and Waivers ..................................................................................47
(l) Severability ............................................................................................47
(m) Expenses ................................................................................................47
(n) Construction ............................................................................................48
(o) Incorporation of Exhibits and Schedules .................................................................48
Exhibit A--Certificate of Merger
Exhibit B--Articles of Merger
Exhibit C--Lockup Agreement
Exhibit D--Financial Statements
Exhibit E--Form of Opinion of Counsel to the Company
Exhibit F--Form of Opinion of Counsel to the Buyer
Exhibit G--Form of Escrow Agreement
Exhibit H--Form of Registration Rights Agreement
Disclosure Schedule--Exceptions to Representations and Warranties
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
"Agreement") is entered into as of this 16th day of June, 1999 by and among
ROCKY MOUNTAIN INTERNET, INC., a Delaware corporation d/b/a XXX.XXX (the
"Buyer"), and COLORADO MOUNTAIN NET, INC., a Colorado corporation (the
"Company") and XXXX XXXXXX, XXXX XXXXXXX, XXXXX XXXXXXXX AND XXXXX XXXXXXXX
(collectively, the "Company Stockholders"). The Buyer, the Company and the
Company Stockholders are referred to collectively herein as the "Parties".
RECITALS:
A. The Company Stockholders have all right, title and interest in
and to 4,000 shares of the issued and outstanding common stock,
with no par value, of the Company, representing all of the issued
and outstanding shares of stock of the Company (the "Company
Shares").
B. The Buyer wishes to acquire the Company Shares, and the Company
Stockholders are willing to sell the Company Shares to the Buyer
pursuant to the terms and conditions of this Agreement.
C. The Agreement contemplates a tax-free merger of the Company with
and into the Buyer in a reorganization pursuant to Code Section
368(a)(1)(A).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the Parties agree as follows:
AGREEMENT:
1. Definitions.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ACQUISITION PROPOSAL" means any proposal, other than the
transactions contemplated by this Agreement, for (i) any merger or other
business combination, including any transaction structured as a consolidation
or share exchange, involving the Company or the Company Stockholders, (ii)
the acquisition of the Company or a material equity interest in or a material
portion of the assets or properties of the Company or (iii) the dissolution
or liquidation of the Company.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement,
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liabilities, obligations, taxes, liens, losses, expenses, and fees, including
court costs and reasonable attorney's fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision
of state, local, or foreign law.
"AGREEMENT" has the meaning set forth in the preface above.
"ARTICLES OF MERGER" has the meaning set forth in Section 2(c) below.
"BUYER" has the meaning set forth in the preface above.
"BUYER'S SEC FILINGS" has the meaning set forth in Section 3(ee)
below.
"BUYER SHARE" means any share of the common stock, $0.001 par value
per share, of the Buyer.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2(c)
below.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLORADO BUSINESS CORPORATION ACT" has the meaning set forth in
Section 2(d) below.
"COMPANY" has the meaning set forth in the preface above.
"COMPANY SHARES" has the meaning set forth in the preface above.
"COMPANY STOCKHOLDERS" has the meaning set forth in the preface
above.
"COMPANY STOCKHOLDERS' REPRESENTATIVE" has the meaning set forth in
Section 10(h) below.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Buyer and its Affiliates that is not already
generally available to the public.
"CONVERSION RATIO" has the meaning set forth in Section 2(d)(v)
below.
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"CURRENT ASSETS" means cash, accounts receivable for customer
accounts with balances of forty-five (45) days or less incurred in the
Ordinary Course of Business of the Company, prepaid expenses and other
current assets (which have value to the business after the Closing Date)
reflected on the balance sheet of the Company dated as of the Most Recent
Fiscal Month End immediately preceding the Closing Date and prepared in
accordance with GAAP.
"CURRENT LIABILITIES" means accounts payable and accrued expenses,
all accrued but unpaid taxes, all deferred revenues and any other current
Liability (except the current portion of any bank debt or line of credit)
reflected on the balance sheet of the Company dated as of the Most Recent
Fiscal Month End immediately preceding the Closing Date and prepared in
accordance with GAAP.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in
Reg. Section 1.1502-13.
"DELAWARE GENERAL CORPORATION LAW" means the General Corporation Law
of the State of Delaware, as amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"DISSENTING SHARE" means any Company Share which any Company
Stockholder who or which has exercised his, her or its appraisal rights under
the Delaware General Corporation Law holds of record.
"EFFECTIVE TIME" has the meaning set forth in Section 2(d)(i) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (c) qualified defined benefit retirement plan or arrangement
which is an Employee Pension Benefit Plan (including Multiemployer Plan), or
(d) Employee Welfare Benefit Plan or material fringe benefit or other
retirement, bonus, or incentive plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution
or protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge,
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release, threatened release, control, or cleanup of any hazardous materials,
substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and
as now or hereafter in effect.
"ESCROW AGENT" has the meaning set forth in Section 2(d)(viii)(A)
below.
"ESCROW AGREEMENT" has the meaning set forth in Section 9 below.
"ESCROW FUND" has the meaning set forth in Section 9 below.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"EXCHANGE AGENT" has the meaning set forth in Section 2(e)(i) below.
"FCC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by the Federal
Communications Commission or similar federal governmental agency to provide
the telecommunications services currently provided by the Company and to
conduct its businesses as currently conducted.
"FILED SEC DOCUMENTS" has the meaning set forth in Section 4(i)
below.
"FINANCIAL STATEMENTS" have the meaning set forth in Section 3(i)
below.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time.
"INDEMNIFICATION ESCROW SHARES" has the meaning set forth in
Section 2(d)(viii)(A) below.
"INDEMNIFICATION ESCROW TERM" has the meaning set forth in Section
2(d)(viii)(A) below.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(i)(i)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(i)(i)
below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all
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applications, registrations, and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form
or medium).
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LOCKUP AGREEMENT" has the meaning set forth in Section 2(d)(ix)
below.
"LOCKUP SHARES" has the meaning set forth in Section 2(d)(ix) below.
"LOCKUP TERM" has the meaning set forth in Section 2(d)(ix) below.
"LONG-TERM LIABILITIES" means any term loans (bank debt, lines of
credit, and other forms of debt, including the current portion thereof),
capital leases, operating leases,, and other liabilities, whether or not
identified on the Company's Most Recent Financial Statements.
"MERGER" has the meaning set forth in Section 2(a) below.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in
Section 3(i) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
3(i) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section
3(i) below.
"MULTIEMPLOYEE PLAN" has the meaning set forth in ERISA Section
3(37).
"NET WORKING CAPITAL" means the difference between the Company's
Current Assets and their Current Liabilities.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTY" has the meaning set forth in the preface above.
"PERMITS" has the meaning set forth in Section 3(ff) below.
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"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"PURCHASE PRICE" has the meaning set forth in Section 2(d)(v) below.
"RECURRING REVENUE RATE" has the meaning set forth in Section
2(d)(vi) below.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in Section
5(j) below.
"SEC" means the Securities and Exchange Commission.
"SEC DOCUMENTS" has the meaning set forth in Section 4(h) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments
under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
"STATE PUC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by any state or local
regulatory authority to provide the telecommunications services currently
provided by the Company and to conduct its businesses as currently conducted.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"SURVIVING CORPORATION" has the meaning set forth in Section 2(a)
below.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
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"TAX RETURN" means any return, declaration, report, claim for refund
or information returns or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(i)(i)
below.
2. Basic Transaction.
(a) THE MERGER. On and subject to the terms and conditions of this
Agreement, the Company will merge with and into the Buyer (the "Merger") at
the Effective Time. The Buyer shall be the corporation surviving the Merger
(the "Surviving Corporation").
(b) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Rocky
Mountain Internet, Inc., 000 00xx Xxxxxx, Xxxxx Xxxxx, 00xx Xxxxx, Xxxxxx,
Xxxxxxxx 00000, commencing at 4:00 p.m. local time on the earlier of (i) the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or (ii) June 16, 1999 (the "Closing Date");
PROVIDED, HOWEVER, that if the Closing does not occur by June 16, 1999, then
the Closing Date will be automatically extended until June 24, 1999, and such
Closing Date may be further extended only upon mutual agreement of the
Parties.
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Company
Stockholders and the Company shall deliver to the Buyer the various
certificates, instruments, and documents referred to in Section 6(a) below,
(ii) the Buyer shall deliver to the Company Stockholders and the Company the
various certificates, instruments, and documents referred to in Section 6(b)
below, (iii) each of the Company Stockholders shall deliver to the Buyer
stock certificates representing all of his or her Company Shares, endorsed in
blank or accompanied by duly executed assignment documents, (iv) the Buyer
and the Company Stockholders shall file with the (A) Secretary of State of
the State of Delaware a Certificate of Merger in the form attached hereto as
Exhibit A (the "Certificate of Merger"), and (B) Secretary of State of the
State of Colorado the Articles of Merger in the form attached hereto as
Exhibit B (the "Articles of Merger")and (v) the Buyer shall deliver to the
Company Stockholders and the Exchange Agent in the manner provided below in
this Section 2 the certificates evidencing the Buyer Shares issued pursuant
to this Agreement.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Company Stockholders file the
Certificate of Merger with the Secretary of State of the State of Delaware
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and the Articles of Merger with the Secretary of State of Colorado. The
Merger shall have the effect set forth in the Delaware General Corporation
Law and the Colorado Business Corporation Act. The Surviving Corporation
may, at any time after the Effective Time, take any action (including
executing and delivering any document) in the name and on behalf of either
the Buyer or the Company Stockholders in order to carry out and effectuate
the transactions contemplated by this Agreement.
(ii) CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of the Buyer in effect at and as of the Effective Time shall remain the
Certificate of Incorporation of the Surviving Corporation without any
modification or amendment in the Merger.
(iii) BYLAWS. The Bylaws of the Buyer in effect at and as of the
Effective Time shall remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) DIRECTORS AND OFFICERS. The directors and officers of the Buyer
in office at and as of the Effective Time shall remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) CONVERSION OF COMPANY SHARES. At the Closing, (A) each Company
Share (other than any Dissenting Shares) shall be converted into the right
to receive the number of the Buyer Shares equal to six hundred fifty
thousand and no/100ths dollars ($650,000), less one half the combined
dollar value of (i) the Company's prepaid customer fees as of May, 1999,
and (ii) capital lease obligations as of May, 1999, divided by the average
closing price per share of the Buyer Shares for the five (5) day period
ending on the day prior to the Closing Date, divided by the number of
Company Shares outstanding (the "Purchase Price") (the ratio of the Buyer
Shares to the Company Shares is referred to herein as the "Conversion
Ratio"), and (B) each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Delaware General Corporation Law;
PROVIDED, HOWEVER, that the Conversion Ratio shall be subject to adjustment
in the event of any adjustment in the Purchase Price as contemplated under
Section 2(d)(vi) below, or any stock split, stock dividend, reverse stock
split, or other change in the number of the Company Shares outstanding. No
Company Share shall be deemed to be outstanding or to have any rights other
than those set forth above in this Section 2(d)(v) after the Effective Time.
(vi) ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price set forth
in Section 2(d)(v) above is based upon a monthly recurring dial-up, web and
dedicated access revenue rate of the Company for the month
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immediately preceding the Closing Date of forty one thousand six hundred
and sixty seven and no/100ths dollars ($41,667) (the "Recurring Revenue
Rate"), and the status of the Company's Net Working Capital and Long Term
Liabilities. The Purchase Price is subject to adjustment as follows:
(A) In the event that the Recurring Revenue Rate exceeds
or is less than $41,667, the Purchase Price shall be increased or
reduced, whichever may be the case, by eighteen dollars and 75/100
($18.75) for each dollar that the Recurring Revenue Rate exceeds or
is less than such amount;
(B) In the event that the Company's Net Working Capital is
positive or negative, whichever may be the case, the Purchase Price
shall be increased or reduced dollar for dollar in an amount equal
to the positive or negative Net Working Capital, as applicable; and
(C) Except as provided in Section 2(d)(v) above relating
to capital lease obligations, the Purchase Price shall be reduced
dollar for dollar by the amount of any Long Term Liabilities assumed
by the Buyer at the Closing.
In the event of any adjustments to the Purchase Price pursuant to
this Section 2(d)(vi), the Conversion Ratio shall be adjusted accordingly.
(vii) BUYER SHARES. Each Buyer Share issued and outstanding at and
as of the Closing Date shall remain issued and outstanding. The Buyer
Shares to be issued pursuant to this Agreement shall be registered in
accordance with Sections 2(d)(viii) and 2(d)(ix) below. The number of Buyer
Shares to be issued pursuant to this Section 2 shall be allocated among and
distributed to the Company Stockholders in the amount of twenty-five
percent (25%) each.
(viii) ESCROW OF BUYER SHARES.
(A) At and as of the Effective Time, to secure its
obligations under Section 8 below and such other obligations as
the Buyer shall reasonably determine to be necessary, and as more
fully described in Section 9 below, the Company Stockholders will
deposit with an escrow agent (the "Escrow Agent"), that number of
Buyer Shares equal to ten percent (10%) of the Buyer Shares payable
to the Company Stockholders hereunder (the "Indemnification Escrow
Shares"), which Escrow Shares shall be held by the Escrow Agent
until the second anniversary of the Closing Date (the
"Indemnification Escrow Term"). The
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Indemnification Escrow Shares shall be registered by the Buyer prior
to the termination of the Indemnification Escrow Term.
(B) The Buyer hereby agrees to begin the registration
process relating to the Indemnification Escrow Shares no later than
ninety (90) days prior to the expiration of the Indemnification
Escrow Term. In the event that the Indemnification Escrow Shares
have not been registered at the conclusion of the Indemnification
Escrow Term, the Buyer shall pay to the Company Stockholders
interest, until such Buyer Shares have been registered under the
Securities Act, at the rate of twelve percent (12%) per annum on
the fair market value of the Indemnification Escrow Shares, from
and after of the date of the termination of the Indemnification
Escrow Term. Any interest due hereunder shall be paid in immediately
available funds monthly, within five (5) days after the end of each
respective calendar month. The Company Stockholders acknowledge and
agree that the Buyer may, at its discretion, deposit with the
Escrow Agent a number of registered Buyer Shares equal to the number
of Indemnification Escrow Shares and exchange such registered Buyer
Shares for the Indemnification Escrow Shares prior to the expiration
of the Indemnification Escrow Term. For the purposes of this
Section 2(d)(viii) "fair market value" shall be determined by the
average closing price of the Buyer Shares for the five (5) day
period ending on the day prior to the date of expiration of the
Escrow Term.
(C) At and as of the Effective Time, the Buyer will
deliver to the Company Stockholders that number of Buyer Shares
equal to fifty percent (50%) of the Buyer Shares payable to the
Company Stockholders that are registered under the Securities Act.
After the Effective Time, the Company Stockholders will be allowed
to sell, trade and otherwise transfer the Buyer Shares as
contemplated herein; PROVIDED, HOWEVER, that the Company
Stockholders may not collectively sell, trade or otherwise transfer
more than 10,000 Buyer Shares in any one trading day.
(ix) LOCKUP OF BUYER SHARES.
(A) At and as of the Effective Time, forty percent (40%)
of the Buyer Shares to be issued to the Company Stockholders
pursuant to this Section 2 (the "Lockup Shares") shall be subject
to a Lockup Agreement, in the form attached hereto as Exhibit C
(the "Lockup Agreement"), which will prohibit any transfer, sale or
other disposition of such Buyer Shares for a period of one (1) year
following the Closing Date (the "Lockup Term"). The Lockup
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Shares shall be registered prior to the termination of the Lockup
Term.
(B) The Buyer hereby agrees to begin the
registration process relating to such Lockup Shares no later than
ninety (90) days prior to the expiration of the Lockup Term. In the
event that the Lockup Shares have not been registered at the
conclusion of the Lockup Term, the Buyer shall pay to the Company
Stockholders interest, until such Lockup Shares have been registered
under the Securities Act by the Buyer and delivered to the Company
Stockholders, at the rate of twelve percent (12%) per annum on the
fair market value of the Lockup Shares from and after the date of
the termination of the Lockup Term. The Company Stockholders
acknowledge and agree that the Buyer may, at its discretion,
exchange with the Company Stockholders a number of registered
Buyer Shares equal to the number of the Lockup Shares, prior to
expiration of the Lockup Term. In addition, in the event of a sale
of the Buyer, or of a merger in which the Buyer is merged with and
into another company, the Lockup Shares shall be released to the
Company Stockholders no later than twenty-four (24) hours prior to
the consummation of such sale or merger. Any interest due hereunder
shall be paid in immediately available funds monthly, within five
(5) days after the end of each respective calendar month.
(e) PROCEDURE FOR PAYMENT.
(i) Subject to Section (d) above, immediately after the Effective
Time, (A) the Buyer shall furnish to American Securities Transfer
& Trust, Inc. (the "Exchange Agent") a stock certificate (issued in
the name of the Exchange Agent or its nominee) representing that
number of Buyer Shares equal to the product of (I) the Conversion
Ratio TIMES (II) the number of outstanding Company Shares (other
than any Dissenting Shares) and (B) the Buyer shall cause the
Exchange Agent to mail a certified letter of transmittal (with
instructions for its use) to each record holder of outstanding
Company Shares for the holder to use in surrendering the
certificates which represented his/her or its Company Shares in
exchange for a certificate representing the number of Buyer Shares
to which he/she or it is entitled.
(ii) The Buyer shall not pay any dividend or make any
distribution on the Buyer Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Company Shares until
the holder surrenders for exchange his/her or its certificates which
represented the Company Shares. The Buyer shall instead pay the dividend
or make the distribution to the Exchange Agent in trust for the
17
benefit of the holder pending surrender and exchange. The Buyer shall
cause the Exchange Agent to make prompt payment of any cash the Exchange
Agent receives from the Buyer as a dividend or distribution to the
holders of outstanding Company Shares as necessary. In no event,
however, will any holder of outstanding Company Shares be entitled to
any interest or earnings on any dividend or distribution pending receipt
of the Buyer Shares.
(iii) The Buyer may cause the Exchange Agent to return any Buyer
Shares and any dividends and distributions thereon remaining unclaimed
one hundred and eighty (180) days after the Effective Time, and
thereafter each remaining record holder of outstanding Company Shares
shall be entitled to look to the Buyer (subject to abandoned property,
escheat and other similar laws) as a general creditor thereof with
respect to the Buyer Shares and dividends and distributions thereon to
which he/she or it is entitled upon surrender of his/her or its
certificates.
(iv) The Buyer shall bear all charges and expenses of the
Exchange Agent.
(f) CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Company Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of the
Surviving Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
STOCKHOLDERS. Each of the Company and the Company Stockholders jointly and
severally represents and warrants to the Buyer that the statements contained
in this Section 3, relating to both the Company and the Company Stockholders,
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3), except as set forth in the disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Disclosure Schedule"). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 3.
(a) STATUS OF COMPANY STOCKHOLDERS. Each Company Stockholder is a
natural person.
(b) AUTHORIZATION OF TRANSACTION. Each of the Company and the Company
Stockholders has full right, power and authority to execute and deliver
this Agreement, to perform its, his or her obligations hereunder and to
transfer and convey his or her Company Shares to the Buyer. This Agreement
constitutes the valid and legally binding obligation of each of the Company
and the Company Stockholders, enforceable in accordance with its terms and
conditions. Neither the Company nor any of the Company Stockholders need to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval
18
of any third person or party, including, without limitation, any government
or governmental agency, in order to consummate the transactions
contemplated by this Agreement.
(c) NONCONTRAVENTION. To the Knowledge of the Company and the Company
Stockholders, neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company or any of the Company
Stockholders is subject, or any provision of the articles of incorporation
or bylaws of the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or
other arrangement to which the Company or any of the Company Stockholders
is a party or by which it, he or she is bound or to which any of its, his
or her assets is subject (or result in the imposition of any Security
Interest upon any of such assets). Neither the Company, nor any of the
Company Stockholders, need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(d) BROKERS' FEES. Except as set forth in Section 3(d)(i) of the
Disclosure Schedule, neither the Company, nor any of the Company
Stockholders, has any Liability or obligation to pay any fees or commissions
to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(e) COMPANY SHARES. Each of the Company Stockholders holds of record,
is the sole beneficial owner of, and has good and marketable title to, the
Company Shares delivered by such Company Stockholder to the Buyer pursuant
to this Agreement, free and clear of any restrictions on transfer, Taxes,
Security Interests, options, warrants, purchase rights, preemptive rights,
contracts, commitments, equities, claims and demands. No Company Stockholder
is a party to any option, warrant, purchase right or other contract or
commitment that could require such Company Stockholder to sell, transfer or
otherwise dispose of any capital stock of the Company (other than this
Agreement). None of the Company Stockholders is a party to any voting trust,
proxy or other agreement or understanding with respect to the voting of any
capital stock of the Company.
(f) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER OF THE COMPANY.
The Company is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. The
Company is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required
except where the lack of
19
such qualification would not have a material adverse effect on the
financial condition of the Company taken as a whole or on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
The Company has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned
and used by it.
(g) CAPITALIZATION. The entire authorized capital stock of the Company
consists of 4,000 Company Shares, all of which are issued and outstanding.
All of the issued and outstanding Company Shares have been duly authorized
and are validly issued, fully paid, and nonassessable, and are held of
record by the respective Company Stockholders in the amounts set forth in
Section 3(g) of the Disclosure Schedule.
(h) SUBSIDIARIES. The Company does not now have, nor has ever had, any
Subsidiaries.
(i) FINANCIAL STATEMENTS. Attached hereto as Exhibit D are the
following financial statements (collectively the "Financial Statements") of
the Company: (i) audited balance sheets and statements of income, changes
in stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1997 and 1998 (the "Most Recent Fiscal Year End") for the
Company; and (ii) unaudited balance sheet and statements of income, changes
in stockholders' equity, and cash flow as of and for the month ended May 31,
1999 (the "Most Recent Fiscal Month End") (collectively, the "Most Recent
Financial Statements") for the Company. The Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and
are consistent with the books and records of the Company (which books and
records are correct and complete); PROVIDED, HOWEVER, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will
not be material individually or in the aggregate) and lack footnotes and
other presentation items. All costs and fees relating to the preparation
of the Financial Statements shall be borne by the Company.
(j) EVENTS SUBSEQUENT TO MOST RECENT FISCAL MONTH END. Since the Most
Recent Fiscal Month End, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or
future prospects of the Company taken as a whole.
(k) UNDISCLOSED LIABILITIES. The Company has no Liabilities except for
(i) Liabilities set forth on the face of the balance sheet dated as of the
Most Recent Financial Statements, and (ii) Liabilities which have arisen
after the date of the Most Recent Fiscal Month End in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
nature of, or was caused
20
by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(l) LEGAL COMPLIANCE. The Company, and its predecessors and
Affiliates, has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against any of them alleging any failure so to
comply.
(m) TITLE TO ASSETS. Except as reflected otherwise on the Most Recent
Financial Statements, the Company has good and marketable title to, or a
valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Financial Statements, or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Financial Statements.
(n) REAL PROPERTY. The Company does not own any interest in any real
property. Section 3(n) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company. The Company
Stockholders have delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 3(n) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in
Section 3(n) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
21
(vi) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (v) above are true and
correct with respect to the underlying lease;
(vii) The Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold
or subleasehold;
(viii) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations; and
(ix) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities.
(o) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the business of the Company
as presently conducted. Each item of Intellectual Property owned or used
by the Company immediately prior to the Effective Time will be owned or
available for use by the Buyer on identical terms and conditions
immediately subsequent to the Effective Time. The Company has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and the Company has never received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that the Company must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of the
Company and the Company Stockholders, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of the Company.
(iii) Section 3(o)(iii) of the Disclosure Schedule identifies
each patent, trademark, tradename, service xxxx, or other registration
which has been issued to the Company with respect to any of their
Intellectual Property, identifies each pending application or
application for registration which the Company have made with respect
to any of its Intellectual Property, and identifies each license,
agreement, or other permission
22
which the Company has granted to any third party with respect to any of
their Intellectual Property (together with any exceptions). The Company
Stockholders have delivered to the Buyer correct and complete copies of
all such patents, trademarks, tradenames, services marks, and other
registrations, applications, licenses, agreements, and permissions (as
amended to date) and have made available to the Buyer correct and
complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item. With respect to each
item of Intellectual Property required to be identified in Section
3(o)(iii) of the Disclosure Schedule:
(A) The Company possesses all right, title, and interest
in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) The item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) No action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) The Company has not agreed to indemnify any Person
for or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(iv) Section 3(o)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission.
The Company Stockholders has delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions
(as amended to date). With respect to each item of Intellectual Property
required to be identified in Section 3(o)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred
which
23
with notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D) above are
true and correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(v) The Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation
of its business as presently conducted.
(p) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of
its businesses as presently conducted. Each such tangible asset is free from
defects (patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it
presently is used.
(q) INVENTORY. The inventory of the Company consists of equipment,
materials, supplies, parts, and goods, all of which is merchantable and fit
for the purpose for which it was procured or manufactured, and a material
portion of which is neither obsolete, damaged, nor defective, subject only to
the reserve for inventory writedown set forth on the face of the Most Recent
Financial Statements (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom
and practice of the Company.
(r) CONTRACTS. Section 3(r) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company is a party:
24
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments;
(ii) any agreement (or group of related agreements) for the
purchase or sale of equipment, raw materials, supplies, products, or
other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year, result in a material loss to the Company, or involve
consideration in excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of
$10,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement involving any of the Company Stockholders;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan
or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing severance
benefits;
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Company Stockholders have delivered to the Buyer a correct and
complete copy of each written agreement listed in Section 3(r) of the
Disclosure
25
Schedule and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 3(r) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
(s) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Financial Statements (rather than in any notes
thereto), as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
(t) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
(u) INSURANCE. Section 3(u) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
since the Company's incorporation:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate)
of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy will
continue to
26
be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the
policy has repudiated any provision thereof. The Company has been covered
during the past five (5) years by insurance in scope and amount customary and
reasonable for the business in which it has engaged during the aforementioned
period. Section 3(u) of the Disclosure Schedule describes any self-insurance
arrangements affecting any of the Company.
(v) LITIGATION. Except as set forth in Section 3(v) of the
Disclosure Schedule, the Company is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge, nor is it a party or,
to the Knowledge of the Company and the Company Stockholders, is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. The
Company Stockholders do not have any reason to believe that any such action,
suit, proceeding, hearing, or investigation may be brought or threatened
against the Company.
(w) WARRANTIES. Each product or service, sold, leased, or delivered
by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for warranty claims set forth on the face of the Most Recent Financial
Statements (rather than in any notes thereto) as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice
of the Company. No product or service, sold, leased, or delivered by the
Company is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. Section 3(w) of
the Disclosure Schedule includes copies of the standard terms and conditions
of sale or lease for the (containing applicable guaranty, warranty, and
indemnity provisions).
(x) EMPLOYEES. To the Knowledge of the Company and the Company
Stockholders, no executive or key employee, or group of employees, has any
plans to terminate employment with the Company. The Company is not a party to
or bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
The Company has no knowledge of any organizational effort presently being
made or
27
threatened by or on behalf of any labor union with respect to employees of
the Company.
(y) EMPLOYEE BENEFITS. The Company has no Employee Benefit Plan
that it maintains, or to which it contributes, nor does it have any
obligation to contribute to any Employee Benefit Plan.
(z) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any
Tax Return) have been paid. The Company currently is not the beneficiary
of any extension of time within which to file any Tax Return. No claim
has ever been made by an authority in a jurisdiction where the Company
does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no Security Interests on any of the assets
of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employee, independent contractor, creditor, member, or other third
party.
(iii) The Company does not expect any authority to assess any
additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Company
either (A) claimed or raised by any authority in writing or (B) as to
which the Company or any of the Company Stockholders have Knowledge
based upon personal contact with any agent of such authority. The
Company Stockholders have delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company
covering calendar years 1995, 1996, 1997, and 1998.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) The unpaid Taxes of the Company (A) did not, as of the
Most Recent Fiscal Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face
of the balance sheets of the Most Recent Fiscal Month End (rather than
in any notes thereto) and (B) do not exceed that reserve as adjusted for
the
28
passage of time through the Closing Date in accordance with the past
custom and practice of the Company Stockholders in filing their Tax
Returns.
(vi) The Company has not filed a consent under Code Section
341(f). None of the Liabilities described in Section 5(k) above is an
obligation to make a payment that will not be deductible under Code
Section 280G. The Company has disclosed on their federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Code Section 6662. The Company is not a party to any Tax allocation or
sharing agreement. The Company (A) has not been a member of an Affiliated
Group filing a consolidated federal income Tax Return at any time during
its existence, and (B) does not have Liability for the Taxes of any
Person (other than any of the Company Stockholders) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(vii) Section 3(bb) of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of the Company in its assets; (B) the
amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution
allocable to the Company; and (C) the amount of any deferred gain or
loss allocable to the Company arising out of any Deferred Intercompany
Transaction.
(aa) GUARANTIES. The Company is not a guarantor or otherwise are
liable for any Liability or obligation (including indebtedness) of any other
Person.
(bb) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. The Company, and its
respective predecessors and Affiliates, has complied, and are in compliance,
with all Environmental, Health, and Safety Requirements.
(cc) STATE PUC AUTHORIZATIONS AND FCC AUTHORIZATIONS. The Company
has all State PUC Authorizations or FCC Authorizations necessary and
advisable for the conduct of its businesses as presently conducted and as
presently contemplated to be conducted after the Closing Date by the Buyer.
(dd) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. None of the
Company Stockholders or their respective Affiliates has been involved in any
business arrangement or relationship with the Company within the past twelve
(12) months, and none of the Company Stockholders and their respective
Affiliates owns any asset, tangible or intangible, which is used in the
business of
29
any of the Company, except as described in Section 3(dd) of the
Disclosure Schedule.
(ee) INVESTMENT. Each of the Company and the Company
Stockholders understand and acknowledge that (i) certain of the Buyer
Shares have not been registered, and will not be registered, under the
Securities Act, or under any state securities laws, prior to the
Closing Date, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering;
(ii) the Company is acquiring the Buyer Shares solely for its own
account for investment purposes, and not with a view to the distribution
thereof (except to the Company Stockholders); (iii) the Company and the
Company Stockholders are sophisticated investors with knowledge and
experience in business and financial matters; (iv) the Company and the
Company Stockholders have received and reviewed the Buyer's most recent
(A) annual report on Form 10-K, dated Xxxxx 00, 0000, (X) quarterly
report on Form 10-Q dated May 14, 1999, and (C) registration statement
on Form S 4 filed with the SEC in connection with the issuance of the
Buyer Shares (the "Buyer's SEC Filings"), and have had the opportunity
to obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the Buyer Shares; (v) the
Company and the Company Stockholders, together with their legal, tax,
and financial advisors have investigated the Buyer and its business and
have negotiated the transactions contemplated herein and have
independently determined to enter into such transactions; (vi)
notwithstanding the foregoing, the Company and the Company Stockholders
shall be entitled to rely on the representations and warranties made by
the Buyer as set forth herein and nothing herein shall limit or diminish
the right of the Company or the Company Stockholders to such
representations and warranties; and (vii) the Company and the Company
Stockholders are Accredited Investors.
(ff) LICENSES AND PERMITS. The Company Stockholders have
delivered to the Buyer true and accurate copies of, and Section 3(ff) of
the Disclosure Schedule correctly and completely lists, every license,
permit, registration and governmental approval, agreement and consent
applied for, pending by, issued or given to the Company, and every
agreement with governmental authorities (federal, state, local or
foreign) entered into by the Company, which is in effect or has been
applied for or is pending (the "Permits"). Such Permits constitute all
licenses, permits, registrations, approvals, agreements and consents
which are required in order for the Company to conduct its businesses
as presently conducted, are valid and enforceable and remain in full
force and effect.
(gg) ACCOUNTS PAYABLE. Section 3(gg) of the Disclosure Schedule
lists each account payable of the Company as of the date of the Most
Recent Fiscal Month Ended, and will list each account payable of the
Company as of the Closing. With respect to each account payable: (A) the
account payable arose from a bona fide transaction completed in
accordance with the terms of any documents or agreements pertaining to
such transaction; (B) the account payable
30
is not evidenced by a judgment and there is no material dispute
respecting it; (C) the account payable arose in the Ordinary Course of
Business of the Company; and (D) each account payable is correct in
amount and relates solely to the businesses of the Company.
(hh) PREPAID CUSTOMER FEES. Section 3(hh) of the Disclosure
Schedule correctly and accurately sets forth the combined dollar value of
the Company's prepaid customer fees for the Most Recent Fiscal Year End.
(ii) CAPITAL LEASE OBLIGATIONS. Section 3(ii) of the Disclosure
Schedule correctly and accurately sets forth all of the Company's capital
lease obligations for the Most Recent Fiscal Year End.
(jj) CONTINUITY OF INTEREST. The Company Stockholders have no
present plan, intention, or arrangement to dispose of any of the Buyer
Shares received in the Merger in a manner that would cause the Merger to
violate the continuity of interest requirement set forth in Reg. Section
1.368-1
(kk) DISCLOSURE. This Agreement and the Exhibits and Schedules
hereto do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made,
not misleading.
4. Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Company Stockholders that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the
Disclosure Schedule. The Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this
Section 4.
(a) ORGANIZATION. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation.
(b) CAPITALIZATION. The entire authorized capital stock of the
Buyer consists of 25,000,000 Buyer Shares, of which 11,200,000 Buyer
Shares are issued and outstanding and 20,000 Buyer Shares are held in
treasury. All of the Buyer Shares to be issued pursuant to this Agreement
have been duly authorized and, upon consummation of the transactions
contemplated herein, will be validly issued, fully paid, and
nonassessable.
(c) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement
31
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions.
(d) NONCONTRAVENTION. To the Knowledge of the Buyer, neither
the execution and the delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of the charter or
bylaws of the Buyer or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or
other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse
effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement. To the Knowledge of the Buyer, and other
than in connection with the provisions of the Delaware General
Corporation Law, the Securities Exchange Act, the Securities Act, and the
state securities laws, the Buyer does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except where
the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a material adverse effect on the
ability of the Parties to consummate the transactions contemplated by
this Agreement.
(e) BROKERS' FEES. The Buyer does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which any of the Company Stockholders and its Subsidiaries could
become liable or obligated.
(f) CONTINUITY OF BUSINESS ENTERPRISE. It is the present
intention of the Buyer to continue at least one significant historic
business line of the Company, or to use at least a significant portion of
the Company's historic business assets in a business, in each case within
the meaning of Reg. Section 1.368-1(d).
(g) DISCLOSURE. This Agreement and the Exhibits and Schedules
hereto do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they will be made,
not misleading.
(h) SEC DOCUMENTS. The Buyer has filed all required reports,
schedules, forms, statements and other documents with the SEC since
January 1, 1998 (the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of
the Securities Act or
32
the Securities Exchange Act, as the case may be, the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the SEC Documents filed and publicly available prior to the date of
this Agreement (as amended to the date of this Agreement, the "Filed SEC
Documents"), since the date of the most recent audited financial
statements included in the Filed SEC Documents, there has not been any
material adverse change in the business financial condition, operations,
or future prospects of the Buyer as a whole of the Buyer.
(j) LITIGATION. Except as disclosed in the Filed SEC Documents,
there is no suit, action or proceeding (including any proceeding pending
or, to the knowledge of the Buyer, threatened) against or affecting the
Buyer that individually or in the aggregate could reasonably be expected
to (i) have a material adverse effect on the Buyer, (ii) impair the
ability of the Buyer to perform its obligations under this Agreement in
any material respect, or (iii) delay in any material respect or prevent
the consummation of any of the transactions contemplated by this
Agreement.
5. Covenants. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver,
of the closing conditions set forth in Section 6 below). The Company
Stockholders will not cause or permit the Company to take any action that
could reasonably be expected to adversely affect the transactions
contemplated by this Agreement or the assets, businesses or financial
conditions or prospects of the Company.
(b) NOTICES AND CONSENTS. The Company Stockholders will give
any notices to third parties, and will use their reasonable best efforts
to obtain any third party consents, that the Buyer reasonably may request
in connection with the matters referred to in Section 3 above.
(c) REGULATORY MATTERS AND OTHER APPROVALS. Each of the Parties
will give any notices to, make any filings with, and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters
referred to in Section 3 and Section 4 above. Without limiting the
generality of the foregoing, the Company
33
will call a special meeting of its stockholders (the "Special Company
Stockholder Meeting") as soon as reasonably practicable in order that
their stockholders may consider and vote upon the adoption of this
Agreement and the approval of the Merger in accordance with the Delaware
General Corporation Law and the Colorado Business Corporation Act.
(d) OPERATION OF BUSINESS. The Company will not engage in any
practice, take any action, or enter into any transaction outside the
Ordinary Course of Business. Without limiting the generality of the
foregoing:
(i) the Company will not authorize or effect any change
in its articles of incorporation or bylaws;
(ii) the Company will not grant any options, warrants,
or other rights to purchase or obtain any of its capital stock,
or issue, sell, or otherwise dispose of any of its capital stock
(except upon the conversion or exercise of options, warrants and
other rights currently outstanding);
(iii) the Company will not declare, set aside or pay any
dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase or otherwise
acquire any of its capital stock;
(iv) the Company will not issue any note, bond or other
debt security or create, incur, assume or guarantee any
indebtedness for borrowed money or capitalized lease obligation
outside the Ordinary Course of Business; and
(v) the Company will not acquire or accrue any capital
assets having an individual cost in excess of $2,500, or an
aggregate cost in excess of $10,000, or incur any liability in
excess of $10,000, without the prior written consent of the Buyer.
(e) FULL ACCESS. The Company Stockholders and the Company will
permit representatives of the Buyer to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company, to all premises, properties, personnel, books,
records (including tax records), contracts, and documents of or
pertaining to the Company.
(f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach
of any of its own representations and warranties in Section 3 and Section
4 above. No disclosure by any Party pursuant to this Section 5(g),
however, shall be deemed to amend or supplement the Disclosure Schedule
or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
(g) EXCLUSIVITY. The Company Stockholders and the Company will
not solicit, initiate, or encourage the submission of any proposal or
offer from any
34
Person relating to an Acquisition Proposal, supply any non-public
information concerning the Company's businesses, properties or assets to
anyone who may be contemplating an Acquisition Proposal, or disclose to
any Person, other than legal or accounting representatives who agree to
be bound by this provision, the existence or terms of this Agreement;
PROVIDED, HOWEVER, that the Company Stockholders will remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any
of the foregoing to the extent their fiduciary duties may require. The
Company Stockholders shall notify the Buyer immediately if any Person
makes any Acquisition Proposal.
(h) CONTINUITY OF BUSINESS ENTERPRISE. The Buyer will continue
at least one significant historic business line of the Company, or use at
least a significant portion of the Company's historic business assets in
a business, in each case within the meaning of Reg. Section 1.368-1(d).
(i) LEGEND. Those Buyer Shares deposited in the Escrow Fund
pursuant to Sections 2 and 9 herein, shall bear the following legend
during the relevant Escrow Period:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AS SET FORTH IN THAT AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF JUNE 16, 1999 BY AND AMONG ROCKY MOUNTAIN INTERNET, INC. AND
COLORADO MOUNTAIN NET, INC., XXXX XXXXXX, XXXX XXXXXXX, XXXXX XXXXXXXX AND XXXXX
XXXXXXXX.
(j) REGISTRATION RIGHTS AGREEMENT. The Company shall agree, and
upon any distribution of the Buyer Shares to the Company Stockholders,
the Company Stockholders shall agree, to become a party to and be bound
by a Registration Rights Agreement in the form attached hereto as Exhibit
H (the "Registration Rights Agreement"), setting forth the terms of
ownership of the Buyer Shares; PROVIDED, HOWEVER, that the Company
Stockholder receiving the Buyer Shares shall not be entitled to any
demand registration rights.
6. Conditions to Obligation to Close.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) this Agreement and the Merger shall have received
the approval of the shareholders of the Company, as described in
Section 5(c) above, and the number of Dissenting Shares shall not
exceed five percent (5%) of the number of outstanding Company
Shares;
35
(ii) the Company and the Company Stockholders shall have
procured all of the third party consents specified in Section 5(b)
above;
(iii) the representations and warranties set forth in
Section 3 above shall be true and correct in all material respects
at and as of the Closing Date;
(iv) the Company and the Company Stockholders shall have
performed and complied with all of their covenants hereunder in
all material respects through the Closing;
(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement, (B) cause
any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the
right of the Surviving Corporation to own the former assets, and
to operate the former businesses of the Company (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(vi) the Parties shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 5(c);
(vii) the Company and the Company Stockholders shall have
delivered to the Buyer a certificate to the effect that each of
the conditions specified above in Section 6(a)(i)-(vi) is
satisfied in all respects;
(viii) this Agreement shall have received the requisite
Buyer approval;
(ix) the Buyer shall have received from counsel to the
Company an opinion in form and substance as set forth in Exhibit E
attached hereto, addressed to the Buyer, and dated as of the
Closing Date;
(x) the Buyer shall have received the resignations,
effective as of the Closing, of each director and officer of the
Company, other than those whom the Buyer shall have specified in
writing at least five (5) business days prior to the Closing; and
(xi) all actions to be taken by the Company Stockholders
in connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to
36
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE COMPANY AND THE COMPANY
STOCKHOLDERS. The obligation of the Company and the Company Stockholders
to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects
at and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement, (B) cause
any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the
right of the Surviving Corporation to own the former assets, and
to operate the former businesses of the Company (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies
referred to in Section 5(c) above;
(v) the Buyer shall have delivered to the Company
Stockholders a certificate to the effect that each of the
conditions specified above in Section 6(b)(i)-(iv) is satisfied in
all respects;
(vi) the Company and the Company Stockholders shall have
received from counsel to the Buyer an opinion in form and
substance as set forth in Exhibit F attached hereto, addressed
to the Company and the Company Stockholders, and dated as of the
Closing Date; and
(vii) all actions to be taken by the Buyer in
connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments, and other
documents required to effect the
37
transactions contemplated hereby will be reasonably satisfactory
in form and substance to the Company and the Company Stockholders.
The Company and the Company Stockholders may waive any condition
specified in this Section 6(b) if it executes a writing so stating at or
prior to the Closing.
7. Termination.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer may terminate this Agreement by giving
written notice to the Company Stockholders at any time prior to
the Closing Date (A) in the event any of the Company and the
Company Stockholders has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Company and the Company
Stockholders of the breach, and the breach has continued without
cure for a period of thirty (30) days after the notice of breach,
or (B) if the Closing shall not have occurred on or before June
16, 1999, by reason of the failure of any condition precedent
under Section 6(a) hereof (unless the failure results primarily
from the Buyer breaching any representation, warranty, or covenant
contained in this Agreement);
(ii) the Company and the Company Stockholders may
terminate this Agreement by giving written notice to the Buyer at
any time prior to the Closing Date (A) in the event the Buyer has
breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Company
Stockholders have notified the Buyer of the breach, and the breach
has continued without cure for a period of thirty (30) days after
the notice of breach, or (B) if the Closing shall not have
occurred on or before June 16, 1999 by reason of the failure of
any condition precedent under Section 6(b) hereof (unless the
failure results primarily from the Company and the Company
Stockholders breaching any representation, warranty, or covenant
contained in this Agreement);
(iii) the Buyer may terminate this Agreement by giving
written notice to the other Party at any time prior to the Closing
Date in the event this Agreement fails to receive the requisite
Buyer board of director approval.
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Section 7(a) (i) and (ii) above, the liability of
any Party then in breach shall be agreed to be an amount equal to
$125,000.00; PROVIDED, HOWEVER, that the confidentiality provisions
contained in Section 8(d) below shall survive any such termination.
38
8. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this
Agreement, each of the Parties will take such further action (including
the execution and delivery of such further instruments and documents) as
any other Party reasonably may request, all at the sole cost and expense
of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Section 8(g) or Section (8)(h) below). The
Company Stockholders acknowledge and agree that, from and after the
Closing, the Buyer will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of
any sort relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
in connection with (i) any transaction contemplated under this Agreement
or (ii) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or
transaction on or prior to the Closing Date involving the Company
Stockholders, each of the other Parties will cooperate with the
contesting or defending Party and his or its counsel in the contest or
defense, make available his or its personnel, and provide such testimony
and access to his or its books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense
of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8(g) or
Section 8(h) below).
(c) TRANSITION. None of the Company or the Company Stockholders
will take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Company Stockholders or the Company from maintaining the
same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. The Company
Stockholders will refer to the Buyer all customer inquiries relating to
the businesses of the Buyer from and after the Closing.
(d) CONFIDENTIALITY. Each of the Company and the Company
Stockholders will treat and hold as such all of the Confidential
Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to the
Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in
his/her or its possession. In the event that any of the Company
Stockholders is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential
39
Information, that Company Stockholder will notify the Buyer promptly of
the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section
8(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Company Stockholders is, on the advice of
counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Company Stockholder may
disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER,
that the disclosing Company Stockholder shall use his or her reasonable
best efforts to obtain, at the reasonable request of the Buyer, an order
or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the
Buyer shall designate.
(e) COVENANT NOT TO COMPETE. For a period of two (2) years from
and after the Closing Date, none of the Company Stockholders will (i)
engage directly or indirectly in any business similar to, or competitive
with, the businesses that the Company conducts as of the Closing Date in
any geographic area in which the Company conducts its businesses as of
the Closing Date, or (ii) solicit any employees of the Company retained
by the Buyer after the Closing Date; PROVIDED, HOWEVER, that no owner of
less than 1% of the outstanding stock of any publicly traded corporation
shall be deemed to engage in a business similar to, or competitive with,
the businesses of the Company solely by reason thereof in any of its
businesses. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 8(e) is invalid or
unenforceable, the Parties agree that the court making the determination
of invalidity or unenforceability shall have the power to reduce the
scope, duration, or area of the term or provision, to delete specific
words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be
appealed.
(f) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing (even if the damaged Party knew or had reason
to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of three (3)
years thereafter (subject to any applicable statutes of limitations).
(g) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event any of the Company or the Company
Stockholders breaches (or in the event any third party alleges
facts that, if true, would mean any of the Company or the Company
Stockholders has breached) any of his/her or its representations,
warranties, and covenants contained in this Agreement, and, if
there is an applicable survival period
40
pursuant to Section 8(f) above, provided that the Buyer makes a
written claim for indemnification against the Company Stockholders
within such survival period, then the Company Stockholders agree
to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after the
date of the claim for indemnification resulting from, arising out
of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
(ii) Each of the Company Stockholders agrees to indemnify
the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of the
Company which is not reflected on the Most Recent Financial
Statements (including any Liability of the Company that becomes a
Liability of the Buyer under any bulk transfer law of any
jurisdiction, under any Environmental, Health, and Safety
Requirements, for unpaid Taxes, or otherwise by operation of law);
(iii) Each of the Company Stockholders agrees to indemnify
the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by (a) any Liability of
the Company for Taxes of the Company with respect to any Tax year
or portion thereof ending on or before the Closing Date, to the
extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) shown
on the face of the Most Recent Financial Statements (rather than
in any notes thereto), as such reserve is adjusted for the passage
of time through the Closing Date in accordance with the past
custom and practice of the Company in filing its Tax Returns and
(b) for the unpaid Taxes of any Person (other than the Company
Stockholders) under Reg.ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(h) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY
STOCKHOLDERS.
(i) In the event the Buyer breaches (or in the event any
third party alleges facts that, if true, would mean the Buyer has
breached) any of its representations, warranties, and covenants
contained in this Agreement, and, if there is an applicable
survival period pursuant to Section 8(f) above, provided that the
Company Stockholders make a written claim for indemnification
against the Buyer within such survival period, then the Buyer
agrees to indemnify each of the Company Stockholders from and
against the entirety of any Adverse Consequences the Company
Stockholders may suffer through and after the date of the claim
for
41
indemnification resulting from, arising out of, relating to,
in the nature of, or caused by the breach (or the alleged breach).
(ii) The Buyer agrees to indemnify each of the Company
Stockholders from and against the entirety of any Adverse
Consequences the Company Stockholders may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any
Liability reflected on the Most Recent Financial Statements.
(i) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this Section 8,
then the Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; PROVIDED, HOWEVER, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Party so
long as (A) the Indemnifying Party notifies the Indemnified Party
in writing within fifteen (15) after the Indemnified Party has
given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety
of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable
to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (C) the Third
Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to
the continuing business interests of the Indemnified Party, and
(E) the Indemnifying Party conducts the defense of the Third Party
Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section
8(i)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) the
42
Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C) the Indemnifying Party will
not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event any of the conditions in Section
8(i)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate
(and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B)
the Indemnifying Party will reimburse the Indemnified Party
promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Party will remain responsible
for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in
this Section 8(i).
(j) OTHER INDEMNIFICATION PROVISIONS. The indemnification
provisions set forth in Section 8(g), Section 8(h) and Section 8(i) above
are in addition to, and not in derogation of, any statutory, equitable,
or common law remedy (including without limitation any such remedy
arising under Environmental, Health, and Safety Requirements) any Party
may have with respect to the Company Stockholders, or the transactions
contemplated by this Agreement. Each of the Company Stockholders hereby
agrees that he/she or it will not make any claim for indemnification
against any of the Buyer and its Subsidiaries by reason of the fact that
he/she or it was a director, officer, employee, or agent of the Company
or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such
claim is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint,
claim, or demand brought by the Buyer against such Company Stockholders
(whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
(k) COOPERATION AND EXCHANGE OF INFORMATION. The Company
Stockholders and the Buyer agree to furnish, or to cause to be furnished
in good faith to each other, such cooperation and assistance as is
reasonably necessary to respond to audits, to negotiate settlements with
Tax authorities, and to prosecute and defend against Tax claims.
43
(l) TAX-FREE TRANSACTION. The Parties hereto intend, but do not
guarantee, that the Merger contemplated herein shall be treated as a
tax-free reorganization under the Code to the extent the Purchase Price
is Buyer Shares, they shall report the Merger as such for federal and
state income tax purposes, and shall take no action after the Effective
Time to adversely affect the status of the Merger as a tax-free
reorganization under the Code to the extent the Purchase Price is Buyer
Shares.
9. INDEMNIFICATION ESCROW FUND. As security for the indemnity of the
Buyer by the Company Stockholders provided for in Section 8 above, the
Indemnification Escrow Shares shall be registered in the name of the Company
Stockholders, and deposited (with an executed assignment in blank) with Norwest
Bank, N.A., as Escrow Agent such deposit to constitute an escrow fund (the
"Indemnification Escrow Fund") to be governed by the terms set forth herein and
in the escrow agreement to be signed by all parties thereto (the "Escrow
Agreement"). In the event of any conflict between the terms of this Agreement
and the Escrow Agreement, the terms of the Escrow Agreement shall govern. All
costs and fees of the Escrow Agent for establishing and administering the
Indemnification Escrow Fund shall be borne by the Buyer. Upon compliance with
the terms hereof, the Buyer shall be entitled to obtain indemnity first from the
Indemnification Escrow Fund for all Adverse Consequences covered by the
indemnity provided for in Section 8 above. If the Indemnification Escrow Fund is
not sufficient to cover any such Adverse Consequences covered by Section 8
above, then the Buyer shall be entitled to seek payment from the Company
Stockholders personally. The form of the Escrow Agreement is attached hereto as
Exhibit G.
10. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of
the other Party; PROVIDED, HOWEVER, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities
(in which case the disclosing Party will use its reasonable best efforts
to advise the other Party prior to making the disclosure).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and
their respective successors and permitted assigns; PROVIDED, HOWEVER,
that the provisions in Section 8 above concerning insurance and
indemnification are intended for the benefit of the individuals specified
therein and their respective legal representatives.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties
and supersedes any prior understandings, agreements, or representations
by or
44
between the Parties, written or oral, to the extent they related in any
way to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. This Agreement may
be executed by facsimile, provided that original signature pages shall be
provided by each of the Parties within two (2) business days after
facsimile execution.
(f) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if
delivered personally or if (and then two business days after) it is sent
by a reputable overnight courier (such as Federal Express, DHL, etc.) or
by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
IF TO THE COMPANY:
Colorado Mountain Net, Inc.
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Mr. Xxxx Xxxxxx
COPY TO:
Klauzer & Tremaine, LLC
000 Xxxxxxx Xxxxxx, Xxxxxx Xxxxx
Xxxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxx Xxxxxxxx
IF TO THE COMPANY STOCKHOLDERS' REPRESENTATIVE:
Mr. Xxxx Xxxxxx
Colorado Mountain Net, Inc.
45
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx Xxxxxxx, Xxxxxxxx 00000
IF TO THE BUYER:
Rocky Mountain Internet, Inc.
000 00xx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxx
COPIES TO:
Rocky Mountain Internet, Inc.
000 00xx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxx X. Xxxxxxx
Holland & Xxxx LLP
000 Xxxxx Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000-0000
Attention: Xx. Xxxxx X. Xxxx
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(h) COMPANY STOCKHOLDERS' REPRESENTATIVE. The Company
Stockholders hereby select as their representative Xxxx Xxxxxx (the
"Company Stockholders' Representative") who shall be authorized by the
Company Stockholders to receive all notices and certificates provided for
in this Agreement, and shall be authorized to communicate with the Escrow
Agent and the Buyer on behalf of the Company Stockholders.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the
State of Colorado.
(j) DISPUTE RESOLUTION. The Parties hereby covenant and agree
that, except as otherwise set forth in this Agreement, any suit, dispute,
claim, demand,
46
controversy or cause of action of every kind and nature whatsoever, known
or unknown, fixed or contingent, that the Parties may now have or at any
time in the future claim to have based in whole or in part, or arising
from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"Disputes") shall be completely and finally settled by submission of
any such Disputes to arbitration under the Commercial Rules of
Arbitration of the American Arbitration Association ("AAA") then in
effect. If the parties to the Dispute are unable to agree on a single
arbitrator, then such binding arbitration shall be conducted before a
panel of three (3) arbitrators that shall be comprised of one (1)
arbitrator designated by each party to the Dispute and a third arbitrator
designated by the two (2) arbitrators selected by the parties to the
Dispute. Unless the parties to the Dispute agree otherwise, the
arbitration proceedings shall take place in Denver, Colorado and the
arbitrator(s) shall apply the law of the State of Colorado, USA, to all
issues in dispute, in accordance with Section 10(i) above. The findings
of the arbitrator(s) shall be final and binding on the parties to the
Dispute. Judgment on such award may be entered in any court of
appropriate jurisdiction, or application may be made to that court for a
judicial acceptance of the award and an order of enforcement, as the
Party seeking to enforce that award may elect. Notwithstanding any
applicable rules of arbitration, all arbitral awards shall be in writing
and shall set forth in particularity the findings of fact and conclusions
of law of the arbitrator or arbitrators.
(k) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Closing Date with
the prior authorization of their respective boards of directors;
PROVIDED, HOWEVER, that any amendment effected subsequent to shareholder
approval will be subject to the restrictions contained
in the Delaware General Corporation Act. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by both of the Parties. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder
or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(l) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term
or provision in any other situation or in any other jurisdiction.
(m) EXPENSES. Except as otherwise set forth herein, each of the
Parties will bear its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
47
(n) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or
burden of proof shall arise favoring or disfavoring any Party by virtue
of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall
be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires. The word "including"
shall mean including without limitation. Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule
identifies the exception with reasonable particularity and describes the
relevant facts in reasonable detail. Without limiting the generality of
the foregoing, the mere listing (or inclusion of a copy) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or other item
itself). The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of
the relative levels of specificity) which the Party has not breached
shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(o) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
*****
48
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the date first above written.
ROCKY MOUNTAIN INTERNET, INC.
D/B/A XXX.XXX
By:
--------------------------------------
Xxxxxxx X. Xxxxxx
Chairman and Chief Executive Officer
COLORADO MOUNTAIN NET, INC.
By:
--------------------------------------
Print Name:
------------------------------
Its:
-------------------------------------
COMPANY STOCKHOLDERS
-----------------------------------------
Xxxx Xxxxxx
-----------------------------------------
Xxxx Xxxxxxx
-----------------------------------------
Xxxxx Xxxxxxxx
-----------------------------------------
Xxxxx Xxxxxxxx
49
