ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), is entered into
effective as of April 29, 1999, among INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT") and THE NETWORK CONNECTION, INC., a Georgia
corporation ("TNCI").
R E C I T A L S :
WHEREAS, IFT is engaged primarily in the interactive entertainment
devices business (the "Business");
WHEREAS, TNCI desires to purchase, and IFT desires to sell all of its
right, title and interest in and to all or substantially all of the tangible and
intangible assets relating to the Business as now conducted (the "Assets") and
specific liabilities relating to the Business ("Liabilities," with the Assets
"Net Assets") in exchange for restricted stock of TNCI.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, IFT and TNCI hereby agree as follows:
C O V E N A N T S :
1. PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, on the Closing Date, as defined in Paragraph 4 (the "Closing
Date") IFT shall sell, convey, transfer and assign to TNCI, and TNCI shall
purchase from IFT, all of IFT's right, title and interest in and to the Assets
described in Schedule 1.1.1 (the "Assets"). TNCI shall pay the consideration set
forth in Xxxxxxxxx 0, "Xxxxxxxx Price," to purchase the Assets. All of the
Exhibits and Schedules referred to in this Agreement are made a part of the
Agreement by this reference.
2. ASSUMPTION OF LIABILITIES. Subject to the terms and conditions of
this Agreement, TNCI shall assume the Liabilities of IFT as set forth in
Schedule 2.1 (the "Assumed Liabilities"), which shall specifically include any
and all liabilities relating to any potential claims arising out of IFT's
relationship with Swissair all as set forth in more detail on Schedule 2.1.
Except as set forth in Schedule 2.1, TNCI shall not assume any other liabilities
or obligations in connection with its purchase of the Assets.
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3. PURCHASE PRICE AND PAYMENT FOR ASSETS.
3.1 TNCI will acquire the Assets in consideration for:
3.1.1 its issuance to IFT of the greater of 1,055,745 restricted
shares of its voting common stock, $.001 par value ("Common Stock"), or the
maximum number of authorized but unissued shares of Common Stock of TNCI not
otherwise reserved for issuance as of the Closing Date provided TNCI has
received the approval of the Nasdaq Stock Market, Inc. to issue such maximum
number of shares as contemplated in Paragraph 9.2;
3.1.2 its issuance to IFT of that number of shares of its Series D
Preferred Stock (the terms and conditions of which are set forth on Schedule
3.1.1-A) such that the total of the number of shares of Common Stock into which
the Series D Preferred Stock is convertible plus the number of shares of Common
Stock issued to IFT under Paragraph 3.1.1 is equal to sixty percent (60%) of the
outstanding shares of capital stock of TNCI immediately following the Closing
Date, taking into account the issuance of such Common Stock to IFT under
Paragraph 3.1.1 and the conversion of Series D Preferred Stock into Common
Stock, and treating all convertible securities, options, warrants or other
rights to acquire securities of TNCI as if converted or exercised as of the
close of business on the date immediately preceding the Closing Date (whether or
not actually converted or exercised as of the Closing Date) into Common Stock.
The shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated by this Agreement are
collectively referred to in this Agreement as the "TNCI Shares." Schedule
3.1.1-B attached hereto sets forth the computation of the TNCI Shares to be
issued to IFT; and
3.1.3 The assumption by TNCI of the Liabilities.
3.2 The purchase price ("Purchase Price") shall be allocated among the
Assets according to Schedule 3.2.
3.3 TNCI and IFT will determine, as of the Closing Date, the number of
TNCI Shares to be issued to IFT pursuant to this Paragraph 3, and TNCI shall
deliver a certificate at closing, signed by the chief financial officer of TNCI,
certifying the accuracy of such number.
3.4 IFT will transfer title to the Assets and make the Corporate
Records of IFT available for copying to TNCI on the Closing Date. The term
"Corporate Records" shall mean any and all records kept by IFT regarding the
Assets and Assumed Liabilities identified on Schedule 3.4.
4. CLOSING DATE.
4.1 The closing under this Agreement shall take place at the offices
of Xxxxxxx Xxxx, P.A., Renaissance Xxx, Xxx Xxxxx Xxxxxxx, Xxxxxxx, Xxxxxxx
00000-0000 on a date ("Closing Date") as soon as practicable after:
4.1.1 Execution of this Agreement;
4.1.2 Completion of the due diligence investigation
contemplated under Paragraph 8, "Due Diligence Inspection of Premises and
Confidential Information";
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4.1.3 Satisfaction of all conditions to closing set forth in
Paragraph 9, "Conditions Precedent to Obligations of TNCI," and Paragraph 10,
"Conditions Precedent to the Obligations of IFT";
4.1.4 Receipt of any required approvals under Arizona and
Georgia corporate law and any other required regulatory approvals and all
consents or waivers from other parties to licenses, indentures, agreements and
other instruments that are required (except where the failure to obtain such
would not have a material adverse effect on either party): (i) in connection
with the sale, transfer, assignment or conveyance of the Assets and assignment
of Assumed Liabilities or the consummation of the transactions contemplated by
this Agreement or (ii) for preventing the acceleration or termination, or
creating the existence of a right to terminate or accelerate upon consummation
of this transaction, of any right, privilege, license, franchise, permit or
agreement of either IFT or TNCI, which consents or waivers shall have been
obtained at the expense of IFT or TNCI, as relevant; and
4.1.5 Receipt of a "fairness opinion" by TNCI, which fairness
opinion is satisfactory in form and scope to the board of directors of TNCI.
4.2 The Closing Date shall be no later than May 15, 1999, provided
that IFT may extend the Closing Date for up to an additional thirty (30) days.
5. REPRESENTATIONS AND WARRANTIES OF IFT. IFT represents and warrants
to TNCI that:
5.1 ORGANIZATION AND GOOD STANDING. IFT is a corporation duly
organized and existing in good standing under the laws of the State of Delaware.
IFT has full corporate power and authority to carry on the Business as now
conducted and to own or lease and operate the Assets. IFT is duly qualified to
transact business in the State of Delaware, the State of Arizona, and in all
states and jurisdictions in which the Business or ownership of the Assets makes
it necessary so to qualify, and the failure to so qualify could have a material
adverse effect on the Assets or the Business of IFT.
5.2 FINDERS. No agent, broker, person or firm acting on behalf of
IFT is, or will be, entitled to any commission or broker's or finder's fees from
any of the parties to this Agreement, or from any person controlling, controlled
by or under common control with any of the parties to this Agreement, in
connection with any of the transactions contemplated in this Agreement.
5.3 AUTHORITY. IFT has the requisite power and authority to own and
transfer the Assets, to enter into this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by IFT has been duly authorized by its Board of Directors. This
Agreement is valid and binding upon IFT, and is enforceable against IFT in
accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
5.4 VALIDITY OF AGREEMENT. Neither the execution nor the delivery of
this Agreement by IFT, nor the performance by IFT of any of the respective
covenants or obligations to be performed by IFT hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to IFT, or in any breach of any terms or
provisions of either the Certificate of Incorporation or Bylaws of IFT, or
constitute a default under any indenture, mortgage, deed of trust or other
material contract to which IFT is a party or by which IFT or the Assets are
bound.
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5.5 ABSENCE OF UNDISCLOSED LIABILITIES AND OBLIGATIONS. IFT has no
liability of any nature (whether accrued, absolute, contingent or otherwise)
related to the Business or the Assets, except to the extent set forth in
Schedule 5.5, and as reflected on IFT's financial statements, delivered to TNCI
pursuant to paragraph 5.6 hereof.
5.6 FINANCIAL STATEMENTS AND PUBLIC REPORTS. The audited
consolidated financial statements of IFT for the fiscal year ended October 31,
1998, with accompanying notes, as contained in IFT's Annual Report on Form
10-KSB for the fiscal year ended October 31, 1998, and the unaudited financial
statements of IFT for the fiscal quarter ended January 31, 1999, with
accompanying notes, as contained in IFT's Quarterly Report on Form 10-QSB for
the fiscal quarter ended January 31, 1999 delivered to TNCI, fairly and
accurately present, in all material respects, the financial condition, the
assets and liabilities of IFT at such dates, and the results of its operation
and changes in its financial position for the periods and years ended on such
dates, in conformity with generally accepted accounting principles consistently
applied. Such financial statements (the "Financial Statements") have been
prepared from the books and records of IFT in accordance with GAAP, on a
consistent basis, and contain and reflect all necessary adjustments for a fair
and accurate presentation of IFT's financial condition as of the dates of such
statements and for the year and period, respectively, ended on such dates.
5.7 ABSENCE OF CERTAIN CHANGES. During the period from January 31,
1999 through and including the Closing Date, IFT has not, with respect to the
Business and the Assets:
5.7.1 Suffered any material adverse change affecting the
Assets, Liabilities, or Business;
5.7.2 Sold or transferred any of the Assets or canceled any
indebtedness or claims owing to it which constitute part of the Business, except
in the ordinary course of business and consistent with its past practices;
5.7.3 Sold, assigned or transferred any formulas, trade
secrets, inventions, patents, patent applications, trademarks, trade names,
copyrights, copyright applications, licenses, computer programs or software,
know-how or other intangible assets, which constitute part of the Assets;
5.7.4 Amended or terminated any contract, agreement or license
constituting part of the Business to which it is a party otherwise than in the
ordinary course of business or as may be necessary for the consummation of the
transactions described herein;
5.7.5 Borrowed any money or incurred, directly or indirectly
(as a guarantor or otherwise), any single instrument of indebtedness which
constitutes part of the Assumed Liabilities, in excess of $25,000, or incurred
aggregate additional indebtedness which constitutes part of the Assumed
Liabilities in excess of $50,000, except in the ordinary course of business and
consistent with its past practices;
5.7.6 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets, except in the ordinary course of business and
consistent with its past practices; or
5.7.7 Entered into or committed to any other material
transaction as part of the Business other than in the ordinary course of
business, consistent with past practices.
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5.8 TAXES. IFT (and any predecessor corporation or partnership as to
which IFT is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 5.8, has paid, or accrued and
reserved for, all taxes, penalties and interest shown to be due or required to
be paid pursuant to the returns as filed, or as adjusted pursuant to amendment
or correction. IFT has also provided copies of all federal and state income and
sales tax returns filed, FICA and state income taxes withholding returns filed
and evidence of payment of such taxes as listed in Schedule 5.8 hereto. IFT has
(i) paid or will pay by the Closing Date any property taxes owed with respect to
the Assets that are due and payable through the Closing Date; and (ii) no
knowledge of any deficiency or assertion of any deficiency relating to property
taxes on the Assets. No examination, audit, or inquiry of any tax return,
federal, state or otherwise of IFT is currently in progress and IFT has not been
advised by any taxing authority of any intent to commence any inquiry, audit or
examination of any tax return from any taxing authority or of any issue or
questions relating to any return, report or declaration that would result in the
assertion of any deficiency for any federal state, local, or other tax or
interest or penalties in connection therewith. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of IFT.
5.9 TITLE TO THE ASSETS. IFT has good and marketable title to all of
the Assets, free and clear of all security interests, liens, encumbrances,
mortgages or charges of any nature whatsoever other than those liabilities set
forth in the Financial Statements. Any security interests, liens, encumbrances,
mortgages or charges on the Assets not set forth in IFT's Financial Statements
shall be discharged in full on or before the Closing Date and evidenced by UCC
Releases delivered by IFT on the Closing Date. The tangible personal property
(other than inventory) of IFT is in good working order, normal wear and tear
excepted.
5.10 LEASES. Schedule 5.10 sets forth a list of each lease or
occupancy, possessory or similar agreement, as the same may have been amended or
modified under which IFT is lessee of, or holds or operates, any real property
owned by a third party and which is used in the Business (the "Leased Real
Property"). IFT has delivered a true and correct copy of each such agreement to
TNCI. IFT does not own any real property.
5.11 ACCOUNTS RECEIVABLE. No amount included in the accounts
receivable of IFT as of January 31, 1999, has been released or settled for an
amount less than the value at which it was included in the financial statements
as of that date. Except as to the Swissair accounts receivable, there are no
facts or circumstances (other than general economic conditions) which would
result in any material increase in the uncollectibility of such accounts
receivable over historical collection rates.
5.12 MATERIAL DOCUMENTS. Set forth in Schedule 5.12 is a complete
list of all material documents with respect to the Assets or the Business to
which IFT is a party (the "Scheduled Agreements"). All such documents listed on
and attached to Schedule 5.12 are legal, valid, enforceable and accurate and
complete copies of such material documents (or, with the consent of TNCI, forms
thereof) as have been requested by TNCI have been provided to TNCI. As used
herein, material documents shall mean agreements, covenants and any other
instrument that relates to an assets that is material to the Business, or which
otherwise involves an expenditure or liability of IFT in excess of $30,000 in
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the aggregate. Except as set forth in Schedule 5.12, consummation of the
transactions contemplated hereby will not cause a breach of or constitute a
default (with or without the giving of notice or the lapse of time or both)
under any of the Scheduled Agreements, result in the forfeiture or impairment of
any rights thereunder, require the consent, approval or act of, or the making of
any filing with, any other Person pursuant to the terms thereof (to the extent
the absence of such consent or approval would constitute a breach or default, or
require or result in the payment of any assignment or related fees or costs).
Except as set forth in Schedule 5.12, IFT has fulfilled and performed its
material obligations under each of the Scheduled Agreements and is not in breach
or default under, nor, to IFT's knowledge, is there any basis for termination of
any of the Scheduled Agreements, and no other party to any of such Scheduled
Agreements has, to IFT's knowledge, breached or defaulted thereunder, and no
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice, or both, would constitute such a
default or breach by IFT or, by any such other party. Except as set forth on
Schedule 5.12, IFT is not currently renegotiating any of the Scheduled
Agreements or paying liquidated damages in lieu of performance thereunder.
Complete and correct copies of each of the written Scheduled Agreements
(including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in Schedule 5.12 in which such Scheduled Agreement is listed.
5.13 INTELLECTUAL PROPERTY.
5.13.1 Schedule 5.13.1 contains a list and brief description of:
5.13.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and trademark
applications, service marks, trade names and copyrights and copyright
applications for which registrations have been issued or applied for, and all
other United States, state and foreign trademarks, service marks, trade names
and copyrights (other than for software) owned or used by IFT;
5.13.1.2 all agreements, contracts, or licenses, relating or
pertaining to any asset, property or right of the character described in the
preceding clause (i) to which IFT is a party;
5.13.1.3 all licenses or agreements pertaining to mailing
lists, know-how, trade secrets, inventions, disclosures or uses of ideas to
which IFT is a party; and
5.13.1.4 all registered, assumed or fictitious names under
which IFT is conducting activities related to the Business or has within the
previous five years conducted activities related to the Business.
5.13.2 Except as otherwise disclosed in Schedule 5.13.1.2, to IFT's
knowledge, all patents, trademarks and registered copyrights owned, controlled
or used by IFT are valid and in force and all patent applications, trademark
registrations and copyright registrations of IFT listed therein are in good
standing all, to the knowledge of IFT, without challenge of any kind and except
as otherwise disclosed in Schedule 5.13.1.2, IFT owns the entire rights, title
and interests in and to such patents and patent applications free and clear of
all Encumbrances. To IFT's knowledge, all of the registrations for trade names,
trademarks, service marks and registered copyrights listed in Schedule 5.13.1,
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as being owned, or used by IFT are valid and in force and all applications for
such registrations are in good standing, all without challenge of any kind, and
to IFT's knowledge, the entire right, title and interest in and to each such
trade name, trademark, service xxxx and copyright so listed as well as the
registrations and application for registration therefor is owned by IFT, free
and clear of all encumbrances. Correct and complete copies of all the patents
and patent applications and of all of the trademarks, trade names, service marks
and copyrights and registrations, applications or deposits therefor and all the
licenses listed in Schedule 5.13.1, have heretofore been delivered by IFT to
TNCI.
5.13.3 To IFT's knowledge, IFT has good and marketable title
to that computer software described as "Owned Software" on Schedule 5.13.1.4
hereto (the "Owned Software"), free of all claims, including claims or rights of
employees, agents, consultants or other parties involved in the development or
creation of such computer software, except as set forth on Schedule 5.13.1.4.
Except as set forth on Schedule 5.13.1.4 hereto, IFT has the right and license
to use that software described as "Licensed Software" on Schedule 5.13.1.4
hereto (the "Licensed Software") free and clear of any limitations or
encumbrances except as may be set forth in any license agreements listed in
Schedule 5.13.1.4. Except as disclosed on Schedule 5.13.1.4, IFT is in full
compliance with all provisions of any license, lease or other similar agreement
pursuant to which it has rights to use the Licensed Software. Except as
disclosed on Schedule 5.13.1.4, none of the Licensed Software has been
incorporated into or made a part of any Owned Software or any other Licensed
Software and none of the Owned Software is dependent on any Licensed Software in
order to freely operate in the manner in which it is intended. The Owned
Software and Licensed Software constitute all software used in the Business
("IFT's Software"). IFT has not received notice that it is infringing any
intellectual property rights or any other person or entity with respect to IFT's
Software, and to the knowledge of IFT no other person or entity is infringing
any intellectual property rights of IFT with respect to IFT's Software which IFT
leases or licenses to it.
5.14 GOVERNMENTAL PERMITS.
5.14.1 IFT owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "IFT
Permits"). Schedule 5.14.1 sets forth a list and brief description of each such
IFT Permit held by IFT as of the date of this Agreement. Complete and correct
copies of all of the IFT Permits listed in Schedule 5.14.1 have heretofore been
delivered to TNCI by IFT.
5.14.2 IFT is in compliance in all material respects with each
of the IFT Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such IFT Permit.
No notice of cancellation, of default or of any dispute, appeal or inquiry
concerning any IFT Permit, or of any event, condition or state of facts set
forth in the preceding sentence, has been received by IFT. Except as set forth
in Schedule 5.14.3, each of the IFT Permits is valid subsisting and in full
force and effect without challenge of any kind.
5.15 LITIGATION. Except as set forth in Schedule 5.15, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body relating to the Assets or the
Business which may have an adverse effect on the Business, the Assets, or IFT's
financial condition. There is no action, suit, proceeding or investigation
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pending or, to IFT's knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or which seeks to
prevent or materially delay the transactions contemplated by this Agreement.
5.16 EMPLOYEES. Schedule 5.16 sets forth the name and current
monthly salary and any accrued benefit for each employee of IFT set forth on the
attached Schedule who the parties agree shall be offered employment by TNCI
immediately after the Closing. There will be no changes in Schedule 5.16 through
the Closing Date, unless TNCI is advised of such changes in advance; provided
that to the exact TNCI reasonably disapproves of such change, TNCI shall have
the right to not offer employment to such person after the Closing.
5.17 COMPLIANCE WITH LAWS. Except as set forth in Schedule 5.17, IFT
has conducted and is continuing to conduct the Business in compliance in all
material respects with, and is in compliance in all material respects with, all
applicable statutes, orders, rules and regulations promulgated by governmental
authorities relating in any material respect to the conduct of the Business or
use of properties, including, without limitation, any applicable statute, order,
rule or regulation relating to (i) wages, hours, hiring, nondiscrimination,
retirement, benefits, pensions, working conditions, and worker safety and
health; (ii) air, water, toxic substances, noise, or solid, gaseous or liquid
waste generation, handling, storage, disposal or transportation of
environmentally hazardous materials ("Environmental Laws"); (iii) zoning and
building codes; (iv) the production, storage, processing, advertising, sale,
distribution, transportation, disposal, use and warranty of products; or (v)
trade and antitrust regulations. The execution, delivery and performance of this
Agreement by IFT and the consummation by IFT of the transactions contemplated by
this Agreement will not violate, contravene or constitute a default under any
applicable statutes, orders, rules and regulations promulgated by governmental
authorities or cause a lien on any property used, owned or leased by IFT to be
created thereunder, except to the extent it would not cause a material adverse
effect on the Assets or the Business. IFT has not taken any action that requires
notification of the employees of IFT pursuant to the provisions of the WARN Act
or that would cause IFT to have any liability thereunder. There are no
injunctions, orders, awards, decrees of any governmental body or political
subdivision currently in effect against IFT.
5.18 FILINGS. IFT has made all filings and reports required under
all local, state and federal laws and regulations with respect to the Business
and the Assets, except where the failure to make such filings and reports would
not have a material adverse effect on the Business or the Assets.
5.19 INSURANCE COVERAGE. The policies of fire, liability or other
forms of insurance of IFT relating to the Business and Assets are described in
Schedule 5.19.
5.20 CHARTER AND BY-LAWS. IFT has heretofore delivered to TNCI true,
accurate and complete copies of the Certificate of Incorporation and By-Laws of
IFT, together with all amendments to each of the same as of the date hereof.
5.21 CORPORATE MINUTES. The minute books of IFT previously made
available to TNCI are the correct and only such minute books and do and will
contain complete and accurate records of any and all proceedings and actions at
all meetings, including written consents executed in lieu of meetings of its
stockholders, Board of Directors and committees thereof through the Closing
Date. The stock records of IFT previously delivered to TNCI at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of IFT.
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5.22 DEFAULT ON INDEBTEDNESS. IFT is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money, which is secured by a lien on the Assets.
5.23 GOVERNMENTAL APPROVALS. No consent, approval or authorization
of, or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by IFT, except for any filings required to be
made after the Closing Date, which are identified on Schedule 5.23.
5.24 INVESTMENT INTENT.
5.24.1 Investigation; Investment Representation. IFT (i)
possesses such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of its investment hereunder;
(ii) has been afforded the opportunity to ask questions of, and receive answers
from, TNCI concerning the terms and conditions of its investment, the
transactions contemplated hereby and the business and affairs of TNCI; (iii) has
examined, to the extent it deems appropriate, all of the agreements and
documents referred to herein or in the schedules hereto and such other documents
that it has requested, and has been provided copies of and has reviewed (x) all
of TNCI's public filings made pursuant to the Securities Exchange Act of 1934,
as amended, which have been filed by TNCI since December 31, 1998, and (y) the
Risk Factors set forth on Schedule 5.24.1; and (iv) understands that the TNCI
Shares are not being registered under the 1933 Act, on the grounds that the
issuance thereof is exempt from registration under Paragraph 4(2) of the 1933
Act, as a transaction by an issuer not involving a public offering, and TNCI's
reliance on this exemption is predicated in part on IFT's representations and
warranties contained in this Paragraph 5.24.1. IFT is acquiring the TNCI's
Shares for its own account, for investment purposes only and not with a view to
the distribution or resale thereof. IFT acknowledges that the certificates
evidencing the TNCI Shares shall bear restrictive securities legends and shall
not be transferable in the absence of the distribution thereof being registered
under the 1933 Act or any applicable state securities laws, or the applicability
of exemptions therefrom based upon an opinion of counsel acceptable to TNCI. IFT
is an "accredited investor," as that term is defined in Regulation D, as
promulgated under the 0000 Xxx.
5.24.2 Stop Transfer Instructions and Legend. IFT acknowledges
that TNCI may cause its transfer agent to establish appropriate stop transfer
instructions with respect to the TNCI Shares, and shall cause to be set forth on
the certificates representing any TNCI Shares, a legend substantially in the
following form:
"The securities represented by this certificate have not been
registered under the United States Securities Act of 1933, as amended,
or under any applicable state securities laws. No transfer of such
securities shall be valid or effective except in accordance with the
applicable requirements of the Securities Act of 1933, as amended, or
applicable state securities laws. In the absence of registration under
the Securities Act of 1933 and applicable state securities laws, no
transfer of such securities shall be made in the absence of an
exemption therefrom."
5.25 PRODUCT LIABILITY CLAIMS; PRODUCT WARRANTIES. Schedule 5.25
sets forth all product liability claims pending or, to the knowledge of IFT,
threatened against IFT and all product liability claims paid by or on behalf of
IFT for the three (3) year period prior to the date of this Agreement. Except as
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set forth on Schedule 5.25, IFT has not given or offered any warranty covering
any products sold or distributed by it, and IFT has not extended to its
customers any indemnification or guarantees.
5.26 ENVIRONMENTAL PROTECTION.
5.26.1 Except as set forth on Schedule 5.26.1;
5.26.1.1 The operations of IFT comply in all material
respects with all applicable Environmental Laws and there are no substances or
conditions existing at any facility that may support a claim or cause of action
against IFT or TNCI under any Environmental Laws.
5.26.1.2 IFT has obtained, or has taken appropriate
steps as required by Environmental Laws to obtain, all environmental, health and
safety permits necessary for its operations, and all such permits are in good
standing and IFT is currently incompliance with all terms and conditions of such
permits; and
5.26.1.3 IFT's facilities and operations at the
facilities are not subject to any judicial or administrative proceeding, order,
judgment, decree or settlement, or to the knowledge of IFT, any investigation,
alleging or addressing (i) violation of any Environmental Laws, or (ii) any
remedial action; and IFT has not received any notice of any claims or
liabilities and costs arising from the release or threatened release of a
contaminant into the environment, or claims, complaints, notices or requests for
information with respect to any alleged violation of any Environmental Laws or
complaints or notices regarding potential liability under any Environmental
Laws.
5.27 EMPLOYMENT RELATIONS. IFT is in compliance with all Federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on IFT; no unfair labor practice complaint against
IFT is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to IFT's knowledge,
threatened against or involving IFT; no labor representation question exists
respecting the employees of IFT; no grievance which might have an adverse effect
upon IFT or the conduct of its business has been filed against IFT; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by IFT; and IFT has not experienced any
material labor difficulty during the last three (3) years.
5.28 COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules
hereto, where applicable to IFT, completely and correctly present in all
material respects the information required by this Agreement. This Agreement,
the certificates to be delivered by IFT at the Closing, the Schedules and the
representations and warranties contained in this Paragraph 5, and the documents
and written information pertaining to IFT furnished to TNCI or its agents by or
on behalf of IFT, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make this Agreement, or such
certificates, schedules, documents or written information not misleading.
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6. REPRESENTATIONS AND WARRANTIES OF TNCI. TNCI represents and warrants
to IFT that:
6.1 ORGANIZATION AND GOOD STANDING.
6.1.1 TNCI is a corporation duly organized and existing in
good standing under the laws of the State of Georgia. TNCI has full corporate
power and authority to carry on its business as now conducted. TNCI is duly
qualified to transact business in the States of Arizona and Georgia and in all
states and jurisdictions in which the business or ownership of its property
makes it necessary so to qualify and the failure to so qualify could have a
material adverse effect on the business, assets, financial condition, results of
operations, or prospects of TNCI.
6.1.2 TNCI is a publicly held company and is a reporting
company under the Securities Exchange Act of 1934 as amended ("Exchange Act")
and satisfies the informational reporting requirements under Rule 144
promulgated under the Exchange Act. TNCI has filed all the material required to
be filed under the Exchange Act and such reports are true, correct and complete
in all material respects and comply as to for with the applicable requirements
of the Exchange Act and the rules and regulations promulgated thereunder.
6.2 FINDERS. No agent, broker, person or firm acting on behalf of
TNCI is, or will be, entitled to any commission or broker's or finder's fees
from any of the parties to this Agreement, or from any person controlling,
controlled by or under common control with any of the parties to this Agreement,
in connection with any of the transactions contemplated in this Agreement.
6.3 AUTHORITY AND CONSENT. The execution, delivery and performance
of this Agreement by TNCI has been duly authorized by its Board of Directors.
This Agreement is valid and binding upon TNCI, and is enforceable against TNCI
in accordance with its terms, subject to bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
6.4 VALIDITY OF AGREEMENT. Neither the execution nor the delivery of
this Agreement by TNCI, nor the performance by TNCI of any of the respective
covenants or obligations to be performed by TNCI hereunder, will result in any
violation of any order, decree or judgment of any court or other governmental
body, or statute or law applicable to TNCI, or in any breach of any terms or
provisions of either the Articles of Incorporation or Bylaws of TNCI, or
constitute a default under any indenture, mortgage, deed of trust or other
material contract to which TNCI is a party or by which TNCI or its assets or
properties are bound.
6.5 CAPITALIZATION. The authorized capital stock of TNCI consists
solely of 10,000,000 shares of Common Stock, $.001 par value per share, of which
5,278,737 shares are issued and outstanding and 2,500,000 shares of Preferred
Stock, of which 1,500 shares of Series B Preferred Stock are issued and
outstanding ("TNCI Shares"). TNCI also has outstanding indebtedness, options,
warrants or other securities convertible into capital stock as set forth on
Schedule 6.5.1 outstanding (the "Convertible Securities"). TNCI Shares are
validly issued, are fully paid and non-assessable and are subject to no
restrictions on transfer (other than those provided under state and federal
securities laws). TNCI Shares shown as outstanding constitute the only
outstanding shares of the capital stock of TNCI of any nature whatsoever, voting
and non-voting. All TNCI Shares are required to be certificated, and TNCI has
executed and delivered no certificates for shares in excess of the number of
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TNCI Shares set forth above. There are, and except as set forth on Schedule
6.5.2 as of the Closing Date there will be, no outstanding options, warrants,
rights, calls, commitments, conversion rights, plans or other agreements of any
character providing for the purchase, issuance or sale of, or any securities
convertible into, capital stock of TNCI, whether issued, unissued or held in its
treasury.
6.6 NO ADDITIONAL OUTSTANDING OPTIONS AND WARRANTS. TNCI has not,
and as of the Closing Date will not, issue any additional shares of its capital
stock or any Convertible Securities or grant any rights to acquire or agree to
issue any additional shares of its capital stock or any Convertible Securities.
6.7 NO SUBSIDIARIES. TNCI has no subsidiaries and does not own five
percent (5%) or more of the securities having voting power of any corporation
(or would own such securities in such amount upon the closing of any existing
purchase obligations for securities).
6.8 GOVERNMENT APPROVALS. No consent, approval or authorization of,
or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by TNCI.
6.9 FINANCIAL STATEMENTS AND PUBLIC REPORTS. The audited
consolidated financial statements of TNCI for the fiscal year ended December 31,
1998 with accompanying notes, all as contained in TNCI's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 delivered to IFT, fairly and
accurately present, in all material respects, the financial condition, assets
and liabilities of TNCI at such date, the results of its operation and changes
in its financial position for the year ended on such date, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements have been prepared from the books and records of TNCI in accordance
with GAAP, on a consistent basis, and contain and reflect all necessary
adjustments for a fair and accurate presentation of TNCI's financial condition
as of the date of such statements and for the year ended on such date. TNCI has
not had any disputes or disagreements during the last three (3) years with its
auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
6.10 ABSENCE OF UNDISCLOSED LIABILITIES AND OBLIGATIONS. TNCI has no
liabilities or obligations of any nature in excess of $5,000 individually or
$15,000 in the aggregate (whether accrued, absolute, contingent or otherwise)
except to the extent set forth in Schedule 6.10 and as reflected on its
Financial Statements. Except as set forth on Schedule 6.10, TNCI has no
liabilities or obligations secured by a lien or security interest in any of its
assets.
6.11 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
6.11, during the period from December 31, 1998 through and including the Closing
Date, TNCI has not:
6.11.1 Suffered any material adverse change affecting its
assets, liabilities, financial condition or business;
6.11.2 Made any change in the compensation payable or to
become payable to any of its employees or agents, or made any bonus payments,
except for the bonuses which have historically been made in the ordinary course
of business or compensation arrangements to or with any of its employees or
agents, whether direct or indirect;
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6.11.3 Paid or declared any dividends, distributions or other
payments due or owing to its stockholders;
6.11.4 Issued any stock, or granted any stock options or
warrants to purchase stock or issued any securities convertible into common
stock of TNCI;
6.11.5 Sold or transferred any of its assets or canceled any
indebtedness or claims owing to it, except in the ordinary course of business
and consistent with its past practices;
6.11.6 Sold, assigned, encumbered or transferred any formulas,
trade secrets, inventions, patents, patent applications, trademarks, trade
names, copyrights, copyright application, licenses, computer programs or
software, know-how or other intangible assets;
6.11.7 Amended or terminated any contract, agreement or
license to which it is a party otherwise than in the ordinary course of business
or as may be necessary or appropriate for the consummation of the transactions
described herein;
6.11.8 Borrowed any money or incurred, directly or indirectly
(as a guarantor or otherwise), any single instrument of indebtedness in excess
of $25,000, or incurred additional aggregate indebtedness in excess of $50,000,
except in the ordinary course of business and consistent with its past
practices;
6.11.9 Discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities shown in the Financial Statements or current liabilities incurred
since such date in the ordinary course of business, consistent with its past
practices;
6.11.10 Mortgaged, pledged or subjected to lien, charge or
other encumbrance any of its assets, except in the ordinary course of business
and consistent with its past practices; or
6.11.11 Entered into or committed to any other material
transaction other than in the ordinary course of business, consistent with past
practices.
6.12 TAXES. TNCI (and any predecessor corporation or partnership as
to which TNCI is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 6.12.1, has paid, or accrued
and reserved for, all taxes, penalties and interest shown to be due or required
to be paid pursuant to the returns as filed, or as adjusted pursuant to
amendment or correction. TNCI has also provided copies of all federal and state
income and sales tax returns filed, FICA and state income taxes withholding
returns filed and evidence of payment of such taxes as listed in Schedule 6.12.2
hereto. No examination, audit, or inquiry of any tax return, federal, state or
otherwise of TNCI is currently in progress and TNCI has not been advised by any
taxing authority of any intent to commence any inquiry, audit or examination of
any tax return from any taxing authority or of any issue or question relating to
any return, report or declaration that could result in the assertion of any
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deficiency for any federal, state, local, or other tax or interest or penalties
in connection therewith. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of
TNCI.
6.13 ACCOUNTS RECEIVABLE. Except as specifically noted in Schedule
6.13, no amount included in the accounts receivable of TNCI as of December 31,
1998, has been released or settled for an amount less than the value at which it
was included in the financial statements as of that date. Except as specifically
noted in Schedule 6.13, there are no facts or circumstances (other than general
economic conditions) which would result in any material increase in the
uncollectibility of such accounts receivable over historical collection rates.
6.14 MATERIAL DOCUMENTS. Set forth in Schedule 6.14.1 is a complete
list of all material documents to which TNCI is a party (the "Scheduled
Agreements"). All such documents listed on and attached to Schedule 6.14.1 are
legal, valid, enforceable and accurate and complete copies of such material
documents (or, with the consent of TNCI, forms thereof) as have been requested
by IFT have been provided to IFT. As used herein, material documents shall mean
agreements, covenants and any other instrument that relates to an asset that is
material to the business of TNCI or which otherwise involves an expenditure or
liability of TNCI that is in excess of $30,000 in the aggregate. Except as set
forth in Schedule 6.14.2, consummation of the transactions contemplated hereby
will not cause a breach of or constitute a default (with or without the giving
of notice or the lapse of time or both) under any of the Scheduled Agreements,
result in the forfeiture or impairment of any rights thereunder, require the
consent, approval or act of, or the making of any filing with, any other Person
pursuant to the terms thereof (to the extent the absence of such consent or
approval would constitute a breach or default, or require or result in the
payment of any assignment or related fees or costs). Except as set forth in
Schedule 6.14.2 TNCI has fulfilled and performed its material obligations
required to be performed prior to the date hereof, under each of the Scheduled
Agreements and is not in, breach or default under nor, to TNCI's knowledge is
there any basis for termination of any of the Scheduled Agreements, and no other
party to any of such Scheduled Agreements has, to TNCI's knowledge breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice, or both,
would constitute such a default or breach by TNCI or, by any such other party.
Except as set forth on Schedule 6.14.2, TNCI is not currently renegotiating any
of the Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in the Schedule in which such Scheduled Agreement is listed.
6.15 INTELLECTUAL PROPERTY.
6.15.1 Schedule 6.15.1 contains a list and brief description
of:
6.15.1.1 all United States and foreign patents and
patent applications, all United States, state and foreign trademarks and
trademark applications, service marks, trade names and copyrights and copyright
applications for which registrations have been issued or applied for, and all
other United States, state and foreign trademarks, service marks, trade names
and copyrights (other than the software) owned or used by TNCI;
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6.15.1.2 all agreements, contracts or licenses, relating
or pertaining to any asset, property or right of the character described in the
preceding clause (i) to which TNCI is a party;
6.15.1.3 all licenses or agreements pertaining to
mailing lists, know-how, trade secrets, inventions, disclosures or uses of ideas
to which TNCI is a party; and
6.15.1.4 all registered, assumed or fictitious names
under which TNCI is conducting activities or has within the previous five years
conducted activities.
6.15.2 Except as otherwise disclosed in Schedule 6.15.2, to
TNCI's knowledge, all patents, trademarks and registered copyrights owned,
controlled or used by TNCI are valid and in force and all patent applications,
trademark registrations and copyright registrations of TNCI listed therein are
in good standing all, to the knowledge of TNCI, without challenge of any kind
and except as otherwise disclosed in Schedule 6.15.2, TNCI owns the entire
rights, title and interests in and to such patents and patent applications free
and clear of all Encumbrances. To TNCI's knowledge, all of the registrations for
trade names, trademarks, service marks and copyrights listed in Schedule 6.15.1,
as being owned, controlled, or used by TNCI are valid and in force and all
applications for such registrations are in good standing, all without challenge
of any kind, and to TNCI's knowledge, the entire right, title and interest in
and to each such trade name, trademark, service xxxx and copyright so listed as
well as the registrations and application for registration therefor is owned by
TNCI, free and clear of all encumbrances. Correct and complete copies of all the
patents and patent applications and of all of the trademarks, trade names,
service marks and copyrights and registrations, applications or deposits
therefor and all the licenses listed in Schedule 6.15.1, have heretofore been
delivered by TNCI to IFT.
6.15.3 To TNCI's knowledge, TNCI has good and marketable title
to that computer software described as "TNCI Owned Software" on Schedule 6.15.3
hereto (the "TNCI Owned Software"), free of all claims, including claims or
rights of employees, agents, consultants or other parties involved in the
development or creation of such computer software, except as set forth on
Schedule 6.15.3. Except as set forth on Schedule 6.15.3 hereto, TNCI has the
right and license to use that software described as "TNCI Licensed Software" on
Schedule 6.15.3 hereto (the "TNCI Licensed Software") free and clear of any
limitations or encumbrances except as may be set forth in any license agreements
listed in Schedule 6.15.3. Except as disclosed on Schedule 6.15.3, TNCI is in
full compliance with all provisions of any license, lease or other similar
agreement pursuant to which it has rights to use the TNCI Licensed Software.
Except as disclosed on Schedule 6.15.3, none of the TNCI Licensed Software has
been incorporated into or made a part of any TNCI Owned Software or any other
TNCI Licensed Software and none of the TNCI Owned Software is dependent on any
TNCI Licensed Software in order to freely operate in the manner in which it is
intended. The TNCI Owned Software and TNCI Licensed Software constitute all
software used by TNCI ("TNCI's Software"). TNCI has not received notice that it
is infringing any intellectual property rights or any other person or entity
with respect to TNCI's Software, and to the knowledge of TNCI no other person or
entity is infringing any intellectual property rights of TNCI with respect to
TNCI's Software which TNCI leases or licenses to it.
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6.16 GOVERNMENTAL PERMITS.
6.16.1 TNCI owns, holds or possesses all governmental
licenses, franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "TNCI
Permits"). Schedule 6.16.1 sets forth a list and brief description of each such
TNCI Permit held by TNCI as of the date of this Agreement. Complete and correct
copies of all of the TNCI Permits listed in Schedule 6.16.1 have heretofore been
delivered to IFT by TNCI.
6.16.2 TNCI is in compliance in all material respects with
each of the TNCI Permits owned, held or possessed by it, and no event has
occurred or condition or state of facts exists which constitutes or, after
notice or lapse of time or both, would constitute a breach or default under any
such TNCI Permit. No notice of cancellation, of default or of any dispute,
appeal or inquiry concerning any TNCI Permit, or of any event, condition or
state of facts set forth in the preceding sentence, has been received by TNCI.
Except as set forth in Schedule 6.16.2, each of the TNCI Permits is valid
subsisting and in full force and effect without challenge of any kind.
6.17 LITIGATION. Except as set forth in Schedule 6.17, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body against TNCI, the Assets, or TNCI's
employees which may have an adverse effect on TNCI or TNCI's financial
condition. There is no action, suit, proceeding or investigation pending or, to
TNCI's knowledge, threatened which questions the legality or properties of the
transactions contemplated by this Agreement or which seeks to prevent or
materially delay the transactions contemplated by this Agreement.
6.18 EMPLOYEES. Schedule 6.18 hereto sets forth the name and current
monthly salary and any accrued benefit for each employee of TNCI. There will be
no changes in Schedule 6.18 through the Closing Date, except in the ordinary
course of business.
6.19 COMPLIANCE WITH LAWS. TNCI has conducted and is continuing to
conduct its business in material compliance with, and is in material compliance
with, all applicable statutes, orders, rules and regulations promulgated by
governmental authorities relating in any material respect to its operations,
conduct of business or use of properties, including, without limitation, any
applicable statute, order, rule or regulation relating to (i) wages, hours,
hiring, nondiscrimination, retirement, benefits, pensions, working conditions,
and worker safety and health; (ii) air, water, toxic substances, noise, or
solid, gaseous or liquid waste generation, handling, storage, disposal or
transportation; (iii) zoning and building codes; (iv) the production, storage,
processing, advertising, sale, distribution, transportation, disposal, use and
warranty of products; or (v) trade and antitrust regulations. The execution,
delivery and performance of this Agreement by TNCI and the consummation by TNCI
of the transactions contemplated by this Agreement will not violate, contravene
or constitute a default under any applicable statutes, orders, rules and
regulations promulgated by governmental authorities or cause a lien on any
material property used, owned or leased by TNCI to be created thereunder. To the
knowledge of TNCI there are no proposed changes in any applicable statutes,
orders, rules and regulations promulgated by governmental authorities that would
cause any representation or warranty contained in this Paragraph 6.19 to be
untrue or have an adverse effect on its operations, conduct of business or use
of properties. TNCI has not taken any action that requires notification of the
employees of TNCI pursuant to the provisions of the WARN Act or that would cause
TNCI to have any liability thereunder. There are no injunctions, orders, awards,
decrees of any governmental body or political subdivision currently in effect
against IFT.
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6.20 FILINGS. TNCI has made all filings and reports required under
all local, state and federal laws and regulations with respect to its business
and assets and of any predecessor entity or partnership, except where the
failure to make such filings and reports would not have a material adverse
affect on the business, assets, financial condition, or results of operations or
prospects of TNCI.
6.21 CERTAIN ACTIVITIES. TNCI has not, directly or indirectly,
engaged in or been a party to any of the following activities:
6.21.1 Bribes, kickbacks or gratuities to any person or
entity, including domestic or foreign government officials or any other payments
to any such persons or entity, whether legal or not legal, to obtain or retain
business or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
6.21.2 Contributions (including gifts), whether legal or not
legal, made to any domestic or foreign political party, political candidate or
holder of political office (except where such is in compliance with applicable
law);
6.21.3 Holding of or participation in bank accounts, funds or
pools of funds created or maintained in the United States or any foreign
country, without being reflected on the corporate books of account, or as to
which receipts or disbursements therefrom have not been reflected on such books,
the purpose of which is to obtain or retain business or to receive favorable
treatment with regard to business;
6.21.4 Receiving or disbursing monies, the actual nature of
which has been improperly disguised or intentionally misrecorded on or
improperly omitted from the corporate books of account;
6.21.5 Paying fees to domestic or foreign consultants or
commercial agents which exceed the reasonable value of the ordinary and
customary consulting and agency services purported to have been rendered;
6.21.6 Paying or reimbursing (including gifts) personnel of
TNCI for the purpose of enabling them to expend time or to make contributions or
payments of the kind or for the purposes referred to in Paragraphs 6.21.1
through 6.21.5 above;
6.21.7 Participating in any manner in any activity which is
illegal under the international boycott provisions of the Export Administration
Act, as amended, or the international boycott provisions of the Internal Revenue
Code, or guidelines or regulations thereunder; and
6.21.8 Making or permitting unlawful charges, mischarges or
defective or fraudulent pricing under any contract or subcontract under a
contract with any department, agency or subdivision thereof, of the United
States government, state or municipal government or foreign government.
6.22 EMPLOYMENT RELATIONS. TNCI is in compliance with all Federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on TNCI; no unfair labor practice complaint against
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TNCI is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to TNCI's knowledge,
threatened against or involving TNCI; no labor representation question exists
respecting the employees of TNCI; no grievance which might have an adverse
effect upon TNCI or the conduct of its business has been filed against TNCI; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by TNCI; and TNCI has not experienced
any material labor difficulty during the last three (3) years.
6.23 INSURANCE COVERAGE. The policies of fire, liability or other
forms of insurance of TNCI are described in Schedule 6.23.
6.24 CHARTER AND BY-LAWS. TNCI has heretofore delivered to TNCI
true, accurate and complete copies of the Articles of Incorporation and By-Laws
of TNCI, together with all amendments to each of the same as of the date hereof.
6.25 CORPORATE MINUTES. The minute books of TNCI made available to
IFT previously and at the Closing are the correct and only such minute books and
do and will contain complete and accurate records of any and all proceedings and
actions at all meetings, including written consents executed in lieu of meetings
of its stockholders, Board of Directors and committees thereof through the
Closing Date. The stock records of TNCI delivered to IFT at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of TNCI.
6.26 DEFAULT ON INDEBTEDNESS. TNCI is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money.
6.27 INDEBTEDNESS. Except as described in Schedule 6.27, TNCI's
shareholders, and any corporation or entity with which they are affiliated, are
not indebted to TNCI, and TNCI has no indebtedness or liability to its
shareholders and any corporation or entity with which they are affiliated.
6.28 PRODUCT LIABILITY CLAIMS; PRODUCT WARRANTIES. Schedule 6.28
sets forth all product liability claims pending or, to the knowledge of TNCI,
threatened against TNCI and all product liability claims paid by or on behalf of
TNCI for the three (3) year period prior to the date of this Agreement. Except
as set forth on Schedule 6.29, TNCI has not given or offered any warranty
covering any products sold or distributed by it, and TNCI has not extended to
its customers and indemnification or guarantees.
6.29 ENVIRONMENTAL PROTECTION. Except as set forth on Schedule 6.29,
6.29.1 The operations of TNCI comply in all material respects
with all applicable Environmental Laws and there are no substances or conditions
existing at any facility that may support a claim or cause of action under any
Environmental Laws.
6.29.2 TNCI has obtained, or has taken appropriate steps as
required by Environmental Laws to obtain, all environmental, health and safety
permits necessary for its operations, and all such permits are in food standing
and TNCI is currently in compliance with all terms and conditions of such
permits;
6.29.3 TNCI's facilities and operations at the facilities are
not subject to any judicial or administrative proceeding, order, judgment,
decree or settlement, or to the knowledge of TNCI, any investigation, alleging
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or addressing (i) violation of any Environmental Laws, or (ii) any remedial
action; and TNCI has not received any notice of any claims or liabilities and
costs arising from the release or threatened release of a contaminant into the
environment, or claims, complaints, notices or requests for information with
respect to any alleged violation of any Environmental Laws or complaints or
notices regarding potential liability under any Environmental Laws.
6.30 COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules
and Exhibits hereto completely and correctly present in all material respects
the information required by this Agreement. This Agreement, the certificates to
be delivered by the officers of TNCI at the Closing, any Schedules and Exhibits
to be delivered under this Agreement and the representations and warranties of
this Paragraph 6, and the documents and written information pertaining to TNCI
furnished to IFT or its agents by or on behalf of TNCI, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make this Agreement, or such certificates, schedules, documents or
written information, not misleading.
7. COVENANTS.
7.1 AFFIRMATIVE COVENANTS OF IFT. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by TNCI, IFT will:
7.1.1 Operate the Business and the Assets in accordance with
all applicable laws and regulations, and in the ordinary course of business
except where the failure to do so will not result in a material adverse effect
on the Business and the Assets;
7.1.2 Provide TNCI with all information regarding IFT which is
reasonably required in connection with TNCI's preparation of its proxy materials
relating to the transaction contemplated by this Agreement. Such information
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements, in light of the circumstances in
which they were made, not misleading. IFT will promptly furnish amended and
supplemental information as may be necessary, in light of developments occurring
subsequent to the mailing of a proxy statement by TNCI to its shareholders, to
ensure that information regarding IFT does not, as of the date of the TNCI
shareholders' meeting, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
7.1.3 Promptly inform TNCI in writing of any variances from
the representations and warranties contained in Paragraph 5 hereof;
7.1.4 Take all such actions as necessary to obtain shareholder
approval, if necessary for consummation of the transactions contemplated by this
Agreement and to approve the transactions contemplated hereby; and
7.1.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby and to
cause all conditions to the closing to be satisfied.
7.2 AFFIRMATIVE COVENANTS OF TNCI. Between the date hereof and the
Closing Date, except as otherwise contemplated by this Agreement or as consented
to by IFT, TNCI will:
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7.2.1 Conduct its operations according to the ordinary and
usual course of business, and use best efforts to preserve intact its business
organization and material rights and franchises, proprietary rights, permits,
licenses, and maintain satisfactory relationship with licensors, suppliers,
distributors, customers and others having relationships with TNCI;
7.2.2 Provide IFT with all information regarding TNCI which is
reasonably required in connection with IFT's preparation of its proxy materials
relating to the transaction contemplated by this Agreement. Such information
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements, in light of the circumstances in
which they were made, not misleading. TNCI will promptly furnish amended and
supplemental information as may be necessary, in light of developments occurring
subsequent to the mailing of a proxy statement by IFT to its stockholders,
ensure that information regarding TNCI does not, as of the date of the IFT
stockholders' meeting, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
7.2.3 Promptly inform IFT in writing of any variances from the
representations and warranties contained in paragraph 6 hereof;
7.2.4 Take all such actions as necessary to obtain shareholder
approval, if necessary, to effectuate this transaction and to approve the
transactions contemplated hereby and to amend TNCI's Articles of Incorporation
to increase the number of authorized shares to 30,000,000;
7.2.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby, and
to cause all conditions to the closing to be satisfied.
7.2.6 Use its best efforts to obtain the approval of the
Nasdaq Stock Market, Inc. to the proposed transaction as contemplated by
Paragraph 9.2; and
7.2.7 Use its best efforts to obtain the irrevocable proxies
in favor of IFT as contemplated by Paragraphs 10.13.1, 10.13.2 and 10.13.3.
7.3 NEGATIVE COVENANTS OF IFT. Prior to the Closing Date, without
the prior written consent of TNCI or as otherwise contemplated by this
Agreement, IFT will not:
7.3.1 Voluntarily take any action that would result in a
breach of IFT's representations and warranties under Paragraph 5 of this
Agreement;
7.3.2 Incur any liabilities or obligations relating to the
Business, or increases in salaries of the employees set forth in Schedule 5.16,
other than those incurred in the ordinary and necessary course of business, or
undertake any extraordinary capital expenditures relating to the Business; or
7.3.3 Take or omit to take any action which could be
reasonably anticipated to have a material adverse effect upon the Assets or the
Business.
7.4 NEGATIVE COVENANTS OF TNCI . Prior to the Closing Date, without
the prior written consent of IFT, TNCI will not:
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7.4.1 Voluntarily take any action that would result in a
breach of TNCI's representations and warranties under Paragraph 6 of this
Agreement;
7.4.2 Incur any liabilities or obligations, or increases in
salaries or other direct or indirect corporation expenses, other than those
incurred in the ordinary and necessary course of business and not exceeding
$1,000 in aggregate, or undertake any extraordinary capital expenditures in
excess of $5,000 in the aggregate;
7.4.3 Take or omit to take any action which could be
reasonably anticipated to have a material adverse effect upon its business,
operations, financial condition, operating results, or assets;
7.4.4 Issue any additional shares of its capital stock or any
Convertible Securities or grant any rights to acquire or agree to issue any
additional shares of its capital stock or any Convertible Security; or
7.4.5 Undertake any debt or equity financing.
7.5 NONCOMPETITION.
7.5.1 IFT acknowledges and recognizes the highly competitive
nature of the business in which it is engaged and accordingly agrees that, in
the event that the transaction contemplated hereby closes, to induce TNCI to
consummate the transaction contemplated by this Agreement, IFT shall not, for a
period of three (3) years after the Closing Date: (i) engage directly or
indirectly in any Competitive Business (as defined below) anywhere in the
Restricted Territory (as defined below), whether such engagement be as an
employer, officer, director, owner, investor, employee, partner, consultant or
other participant in any Competitive Business; (ii) solicit or accept business
for any Competitive Business from anyone who is or becomes an active or
prospective customer of TNCI or its Affiliates or who was an active or
prospective customer of the business at or prior to the Closing Date; (iii)
solicit for employment or hire any employee of IFT, TNCI, or its Affiliates; or
(iv) attempt to do any of the things or assist anyone else in doing any of the
things specified in subparagraphs (i), (ii) or (iii) above. Notwithstanding the
foregoing, the ownership or control of up to no more than 5% of the outstanding
securities of any company which has a class of securities traded on any national
or regional stock exchange or on the NASDAQ market and ownership of shares
issued by TNCI, shall not be deemed a violation of this Paragraph 7.5.1.
7.5.2 As used in this Paragraph 7.5.1: (i) "Competitive
Business" means and includes any business, individual, corporation or other
entity which is engaged wholly or partly in any business directly competitive
with the Business as conducted at the Closing; and (ii) "Restricted Territory"
means anywhere in the world.
7.5.3 Not later than the Closing, IFT and TNCI shall have
obtained non-competition agreements from the current officers of IFT and TNCI,
containing terms substantially identical to the terms of Paragraph 7.5.1.
7.6 NO PUBLIC ANNOUNCEMENTS. Prior to Closing, without the prior
written consent of the other parties, neither IFT nor TNCI shall make any press
release or other public disclosure, or make any statement to any customer,
supplier or other person with regard to the transactions contemplated by this
Agreement, except as may be required by any applicable securities laws or
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regulations; provided, however, that TNCI and IFT may each issue a press release
and file such other reports and make such other disclosure as may be required by
applicable securities law or the rules or regulations of NASDAQ or the Boston
Stock Exchange upon execution of this Agreement. Each party shall provide the
other with any such press release or other disclosure document prior to its
release for review and comment. After Closing, without the prior written consent
of each of TNCI and IFT, neither party shall make any press release or other
public disclosure, or make any statement to any customer, supplier or other
person with regard to the transactions contemplated by this Agreement, except as
required by applicable securities laws or regulations or the rules of
regulations of NASDAQ or the Boston Stock Exchange.
8. DUE DILIGENCE INSPECTION AND CONFIDENTIAL INFORMATION.
8.1 DUE DILIGENCE INSPECTION. During the seven (7) day period after
execution of this Agreement, IFT and its representatives shall have the right to
inspect all plant, equipment and operations of TNCI, its premises and its
financial and other records at reasonable times. IFT shall also have the right
to discuss the affairs of TNCI with the managers, customers, prospective
customers, employees, suppliers, advertisers, retailers, banking and other
financial institutions, lessors and such other parties as IFT deems appropriate,
upon reasonable notice of the proposed times and dates thereof. IFT shall
complete its due diligence, provided it has received the cooperation of TNCI
contemplated in this Paragraph, no later than seven (7) days following the
execution and delivery of this Agreement by the parties. TNCI shall likewise
have the right, upon the execution of this Agreement, to inspect IFT, its
financial and other records and to discuss the affairs of IFT with appropriate
parties under the same terms and conditions and upon the same schedule as IFT
shall have to complete its preliminary due diligence. IFT and TNCI will
cooperate with all reasonable requests by the other party for information and
will use their best efforts to secure the cooperation of the foregoing third
parties who may reasonably be requested to furnish information to each other.
8.2 CONFIDENTIAL INFORMATION. IFT shall keep all confidential
information derived from TNCI relating to the business of TNCI confidential
pending the Closing of the transaction contemplated by this Agreement. TNCI
shall keep all confidential information derived from IFT relating to the
business of IFT confidential pending the Closing. No party to this Agreement
shall be liable for disclosure of confidential information if such disclosure is
required by law or if the disclosure is of information already publicly
available.
8.3 RETURN OF CONFIDENTIAL INFORMATION. If this Agreement should be
terminated pursuant to Paragraph 12 of this Agreement, TNCI and IFT shall return
all such confidential information and documents which they have received and
agree not to disclose or use such information in any manner which damages the
businesses or prospects of IFT or TNCI, as the case may be.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TNCI. The obligations of
TNCI pursuant to this Agreement are, at the option of TNCI, subject to the
fulfillment to TNCI's reasonable satisfaction on or
before the Closing Date of each of the following conditions:
9.1 EXECUTION OF AGREEMENT. IFT has duly executed and delivered this
Agreement to TNCI.
9.2 APPROVAL. TNCI shall have obtained the written approval of the
Nasdaq Stock Market, Inc. to issue the TNCI capital stock contemplated by this
Agreement without shareholder approval; provided that TNCI waives this condition
precedent if TNCI has not obtained such approval by the Closing Date.
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9.3 REPRESENTATIONS AND WARRANTIES ACCURATE.
9.3.1 IFT shall deliver the Disclosure Schedule to this
Agreement no later than seven (7) days from the date of this Agreement. TNCI
shall have seven (7) days after its receipt of the Disclosure Schedule to
determine, in its sole discretion, whether or not TNCI shall accept the
representations and warranties as modified or amplified by the Disclosure
Schedule. If TNCI determines that any part of the Disclosure Schedule is
unacceptable, TNCI may provide IFT additional time to remedy the matter or may
terminate this Agreement in accordance with its provisions.
9.3.2 All representations and warranties of IFT contained in
this Agreement shall be true in all respects when made on the date of execution
of this Agreement, and also at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date. IFT
shall furnish TNCI with a certificate, dated the Closing Date and signed on
behalf of IFT and by a duly authorized officer thereof stating the above in such
form as TNCI may reasonably request. The acceptance of the Purchase Price by IFT
shall constitute an affirmation by IFT of the truth, as of the Closing Date, of
the representations and warranties made by in this Agreement.
9.4 PERFORMANCE OF IFT. IFT shall have performed and complied with
all agreements, terms and conditions required by this Agreement to be performed
or complied with and IFT shall deliver a certificate, in form and substance
satisfactory to TNCI, to that effect, dated the Closing Date, and signed in the
manner set forth in Paragraph 9.3.2, on or before the Closing Date.
9.5 TITLE. At or prior to the Closing Date, there shall have been
delivered to TNCI in form reasonably satisfactory to TNCI, the following
documents transferring title to the Assets to TNCI:
9.5.1 Appropriate bills of sales, assignments and other
instruments giving and conveying to TNCI all right, title and interest in and to
the Assets described in Schedule 1.1; and
9.5.2 Duly executed UCC-2 Releases, as described in Paragraph
5.12, "Title to the Assets," of this Agreement, or evidence that no liens have
been recorded against the Assets and consents to the assignment and transfer by
IFT to TNCI of all rights of IFT in and to all contracts, agreements,
commitments and other assets to be assigned and transferred to TNCI hereunder in
all instances in which the same may be necessary to vest in TNCI all of IFT's
right, title and interest therein and thereto.
9.5.3 Evidence that all trademarks, trade names, service
marks, patents, licenses or other rights IFT uses in connection with the
Business are free and clear of any encumbrances, controversies, infringement or
other claims or obligations on the Closing Date.
9.6 CONSENTS. Prior to Closing, IFT shall have obtained all
approvals in conjunction with the transfer of the Assets to TNCI as may be
required by any contracts between IFT and any of its customers or other third
parties required to effect the sale and transfer of the Assets, and such
approvals shall be issued in written form and substance satisfactory to TNCI and
its counsel or TNCI shall have waived such requirements.
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9.7 POSSESSION. IFT shall deliver to TNCI possession of the Assets.
9.8 OPINION OF COUNSEL. TNCI shall have received an opinion of
counsel for IFT substantially in the form set forth in Exhibit A.
9.9 FAIRNESS OPINION. TNCI shall have received a "fairness opinion"
with respect to the fairness, from a financial point of view, of the
transactions contemplated by this Agreement to the shareholders of TNCI, which
fairness opinion is satisfactory in form and scope to TNCI's board of directors.
9.10 FINANCIAL AND OTHER CONDITIONS. IFT shall have no contingent or
other material liabilities connected with the Business, except as disclosed in
the financial statements or as described in Schedule 2.1.
9.11 LEGAL PROHIBITION. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation threatening to restrain
prohibiting or invalidating the consummation of the transactions contemplated by
this Agreement, or which might affect TNCI's right to own, operate, and have
assigned to it the Assets.
9.12 [INTENTIONALLY OMITTED].
9.13 MATERIAL CHANGES. There shall be no material adverse change in
the Business, financial condition, results of operates or prospects of the
Business from the date of this Agreement to the Closing Date.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF IFT . The obligations of
IFT under this Agreement are, at the option of IFT, subject to the fulfillment
to IFT's reasonable satisfaction on or before the Closing Date of each of the
following conditions:
10.1 EXECUTION OF THIS AGREEMENT. TNCI shall have duly executed and
delivered this Agreement to IFT.
10.2 APPROVAL. IFT shall have obtained the approval of its
stockholders if required under Delaware law and the requirements of the Nasdaq
Stock Market, Inc.
10.3 [INTENTIONALLY OMITTED].
10.4 PAYMENT. Subject to the terms and conditions hereof, TNCI shall
have transferred the TNCI Shares free and clear of any liens, encumbrances or
other obligations and assumed the Assumed Liabilities of IFT in exchange for the
Assets as described in Xxxxxxxxx 0, "Xxxxxxxx Price."
10.5 REPRESENTATIONS AND WARRANTIES ACCURATE.
10.5.1 TNCI shall deliver the Disclosure Schedule to this
Agreement no later than seven (7) days after the date of this Agreement. IFT
shall have seven (7) days after its receipt of the Disclosure Schedule to
determine, in its sole discretion, whether or not IFT shall accept the
representations and warranties as modified or amplified by the Disclosure
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Schedule. If IFT determines that any party of the Disclosure Schedule is
unacceptable, IFT may provide TNCI additional time to remedy the matter or may
terminate this Agreement in accordance with its provisions.
10.5.2 All representations and warranties of TNCI contained in
this Agreement shall have been true in all respects when made on the date of
execution of this Agreement, and also at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date. TNCI
shall furnish IFT with a certificate, dated the Closing Date and signed on
behalf of TNCI and by a duly authorized officer thereof stating the above in
such form as IFT may reasonably request. The acceptance of the Assets by TNCI
shall constitute an affirmation by TNCI of the truth, as of the Closing Date, of
the representations and warranties made by in this Agreement.
10.6 PERFORMANCE OF TNCI. TNCI shall have performed and complied
with all agreements, terms and conditions required by this Agreement to be
performed or complied with and TNCI shall deliver a certificate, in form and
substance satisfactory to IFT, to that effect, dated the Closing Date, and
signed in the manner set forth in Paragraph 10.5.2, on or before the Closing
Date.
10.7 CONSENTS. Prior to Closing, TNCI shall have obtained all
consents and approvals in conjunction with the transfer of the TNCI Shares to
IFT as may be required to effect such transfer and such consents and approvals
shall be issued in written form and substance reasonably satisfactory to IFT and
its counsel, or IFT shall have waived such requirements.
10.8 OPINION OF COUNSEL. IFT shall have received an opinion of
counsel for TNCI substantially in the form set forth in Exhibit B.
10.9 [INTENTIONALLY OMITTED].
10.10 [INTENTIONALLY OMITTED].
10.11 FINANCIAL STATEMENTS. TNCI's financial statements, shall be
acceptable to IFT, in its sole discretion, and IFT shall have the opportunity in
the due diligence process to review such Financial Statements with TNCI's
independent auditors, PriceWaterhouseCoopers;
10.12 BOARD OF DIRECTORS. The directors of TNCI shall have appointed
to the Board of Directors of TNCI those persons set forth in Paragraph 16
hereof, and the directors shall have appointed as the officers of TNCI those
persons set forth in Paragraph 16, to take effect upon consummation of the
transaction.
10.13 CONVERTIBLE SECURITIES. On or before the execution of this
Agreement, the holders of the outstanding shares of Preferred Stock, convertible
notes, and related warrants of TNCI shall have reached agreements with IFT or
TNCI, as the case may be, on terms satisfactory to IFT, regarding the
disposition or conversion into shares of TNCI Common Stock of their holdings.
Without limiting the foregoing, the following shall have occurred prior to the
Closing:
10.13.1 The Holders of all of the outstanding Series A Notes,
Series D Notes and Series E Notes shall have converted such Preferred Stock and
notes into that number of shares of Common Stock of TNCI on terms approved by
IFT and shall have granted IFT irrevocable proxies to vote such shares and
executed lock-up agreements respecting the shares for the duration of the
proxies on terms acceptable to IFT, in its discretion;
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10.13.2 Xxx Xxxxx and his wife, Xxxxx Xxxxx and his wife, Xxx
Xxxxx, Xx. and his wife and Xxxxx Xxxx and his wife shall have granted IFT
irrevocable proxies to vote their shares of Common Stock of TNCI on terms
acceptable to IFT, in its discretion. The foregoing proxies shall be limited to
voting to approve the terms of this Agreement, increase the number of authorized
shares of Common Stock to at least 30,000,000 and effect any other action or
matter required to complete the transactions contemplated by this Agreement.
These proxies will terminate upon the earlier of IFT obtaining the approval of
TNCI's shareholders on the foregoing matters or September 30, 1999, provided
that such date may be extended up to December 31, 1999 if any legal or
regulatory action prevents consideration of such matters by the shareholders on
or before September 30, 1999. The parties granting these proxies shall not be
permitted to sell, transfer, assign or pledge their shares unless their proposed
transferees or pledgees agree to be bound by the terms of these proxies; and
10.13.3 TNCI shareholders in addition to those set forth in
Paragraphs 10.13.1 and 10.13.2 shall have provided irrevocable proxies to IFT to
vote their shares of Common Stock of TNCI on terms acceptable to IFT in its
discretion, which shares when added to the shares subject to the proxies granted
to IFT in Paragraphs 10.13.1 and 10.13.2 and such other shares of voting capital
stock of TNCI held by IFT shall equal at least 50.1% of the outstanding voting
capital stock of TNCI. The foregoing proxies shall be limited to voting to
approve the terms of this Agreement, increase the number of authorized shares of
Common Stock to at least 30,000,000 and effect any other action or matter
required to complete the transactions contemplated by this Agreement. These
proxies will terminate upon the earlier of IFT obtaining the approval of TNCI's
shareholders on the foregoing matters or September 30, 1999, provided that such
date may be extended up to December 31, 1999 if any legal or regulatory action
prevents consideration of such matters by the shareholders on or before
September 30, 1999. The parties granting these proxies shall not be permitted to
sell, transfer, assign or pledge their shares unless their transferees or
pledgees agree to be bound by the terms of these proxies.
10.14 OTHER ISSUES. IFT shall have acquired the Series B Preferred
Stock and the IFT secured note shall have been amended on terms acceptable to
IFT. IFT shall have received proxies from certain shareholders of TNCI as
determined by IFT.
10.15 DIRECTORS AND OFFICERS COVERAGE. TNCI shall have purchased
Directors and Officers liability insurance policies in favor of the existing
directors and officers and the officers and directors set forth in Paragraph 16
in amounts and on terms reasonably acceptable to IFT, but in any event with
limits not less than Fifteen Million Dollars ($15,000,000), to be effective
immediately following the Closing Date and with an insurer reasonably acceptable
to IFT.
10.16 MATERIAL CHANGES. There shall be no material adverse change in
the business, financial conditions, results of operations or prospects of TNCI
from the date of this Agreement to the Closing Date.
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11. INDEMNIFICATION.
11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS.
The representations and warranties made by the parties in this Agreement and in
the certificates delivered at the Closing, and all of the covenants of the
parties in this Agreement, shall survive the execution and delivery of this
Agreement and the Closing Date and shall expire on the first anniversary of the
Closing Date. Any claim for indemnification shall be effective only if notice of
such claim is given by the party claiming indemnification or other relief to the
party against whom such indemnification or other relief is claimed on or before
the first anniversary of the Closing Date (other than in Paragraphs 5.8, 5.9 and
6.12, and any of which results from fraud, the survival period for which shall
be sixty (60) days following the end of the applicable statute of limitations
period).
11.1.1 The representations and warranties of the parties shall
not be affected or diminished by any investigation at any time by or on behalf
of the party for whose benefit such representations and warranties were made.
11.1.2 The expiration of any representation or warranty shall
not affect any parties' right to pursue any claim made prior to such expiration.
11.2 INDEMNIFICATION BY TNCI.
11.2.1 TNCI agrees to indemnify and hold IFT harmless, from
and after the Closing Date, against and in respect of all matters in connection
with any losses, liabilities, costs or damages (including reasonable attorneys'
fees) incurred by IFT that result from any misrepresentation or breach of the
warranties by TNCI in Paragraph 6, "Representations and Warranties of TNCI," or
any breach or nonfulfillment of any agreement or covenant on the part of TNCI
contained in this Agreement, and all suits, actions, proceedings, demands,
judgments, costs and expenses incident to the foregoing matters, including
reasonable attorneys' fees.
11.2.2 No claim for indemnification may be made under this
Paragraph 11 after the first anniversary of the Closing Date, except in
accordance with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by an
indemnified party against an indemnifying party unless and until the cumulative
total of all losses suffered by such indemnified party and covered by such
Paragraphs (the "Losses") exceeds $100,000 (the "Threshold"). Once Losses exceed
the Threshold, the indemnified party suffering such Losses may recover all
Losses which exceed the Threshold, without being able to recover any Losses
which do not exceed the Threshold.
11.3 INDEMNIFICATION BY IFT.
11.3.1 IFT agrees to indemnify and hold TNCI, its officers,
directors and representatives, (the "TNCI Parties") harmless, from and after the
Closing Date, against and in respect of all matters in connection with any
losses, liabilities, costs or damages (including reasonable attorneys' fees)
incurred by TNCI that result from any misrepresentation or breach of the
warranties by IFT in Paragraph 5, "Representations and Warranties of IFT," or
any breach or nonfulfillment of any agreement or covenant on the part of IFT
contained in this Agreement, and all suits, actions, proceedings, demands,
judgments, costs and expenses incident to the foregoing matters, including
reasonable attorneys' fees.
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11.3.2 No claim for indemnification may be made under this
Paragraph 11 after the first anniversary of the Closing Date, except in
accordance with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by an
indemnified party against an indemnifying party unless and until the cumulative
total of all losses suffered by such indemnified party and covered by such
paragraphs (the "Losses") exceeds $100,000 (the "Threshold"). Once Losses exceed
the Threshold, the indemnified party suffering such Losses may recover all
Losses which exceed the Threshold, without being able to recover any Losses
which do not exceed the Threshold.
11.4 MEDIATION. If any TNCI Party believes that a matter has
occurred that entitles it to indemnification under Paragraph 11.3,
"Indemnification by IFT," or any IFT Party believes that a matter has occurred
that entitles it to indemnification under Paragraph 11.2, "Indemnification by
TNCI," the TNCI Party or IFT Party as the case may be (the "Indemnified Party"),
shall give written notice to the party or parties against whom indemnification
is sought (each of whom is referred to herein as an "Indemnifying Party")
describing such matter in reasonable detail (the "Dispute Notice"). The
Indemnified Party shall be entitled to give such notice prior to the
establishment of the amount of its losses, liabilities, costs or damages, and to
supplement its claim from time to time thereafter by further notices as they are
established. Each Indemnifying Party shall send a written response to such claim
for indemnification within thirty (30) days after receipt of the claim stating
its acceptance or objection to the indemnification claim, and explaining its
position in respect thereto in reasonable detail. If such Indemnifying Party
does not timely so respond, it will be deemed to have accepted the Indemnified
Party's indemnification claim as specified in the notice given by the
Indemnified Party. If the Indemnifying Party gives a timely objection notice,
then the parties shall resolve the dispute by binding mediation in Phoenix,
Arizona under the Commercial Mediation Rules of the American Arbitration
Association (AAA) in effect on the date of the Dispute Notice. If the parties
cannot agree on the selection of a mediator within twenty (20) days after
delivery of the Dispute Notice, the mediator will be selected by the AAA. The
prevailing party in any such mediation shall be entitled to recover from, and
have paid by, the other party hereto all fees and disbursements of such
mediation, including its reasonable attorneys.
11.5 INDEMNIFICATION SHARES. The parties agree that if it is
determined that IFT is entitled to indemnification pursuant to Paragraph 11.4,
then at the option of IFT's Board of Directors, TNCI shall compensate IFT by
issuing to IFT shares of TNCI Common Stock. The number of shares to be issued
pursuant to this paragraph (the "Indemnification Shares") shall be determined by
dividing the dollar amount of TNCI's obligation for indemnification by the
average of the closing prices of the TNCI Common Stock as reported on the
principal trading market for TNCI Common Stock for the twenty (20) trading days
immediately preceding the date that the notice of claim is given to TNCI. The
parties agree that this measure of damages is equitable in light of the method
of payment of the Purchase Price.
11.6 NO FINDERS. TNCI represents and warrants to IFT and IFT
represents and warrants to TNCI that there are no obligations to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement. TNCI agrees to indemnify and hold
harmless IFT from any breach of TNCI's representation in the previous sentence,
and IFT agrees to indemnify and hold TNCI harmless from any breach of its
representation in the previous sentence.
11.7 THIRD PERSON CLAIM PROCEDURES. If any third person asserts a
claim against an Indemnified Party in connection with the matter involved in
such claim, the Indemnified Party shall promptly (but in no event later than ten
(10) days prior to the time at which an answer or other responsive pleading or
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notice with respect to the claim is required) notify the Indemnifying Party of
such claim. The Indemnifying Party shall have the right, at its election, to
take over the defense or settlement of such claim by giving prompt notice to the
Indemnified Party that it will do so, such election to be made and notice given
in any event at least five (5) days prior to the time at which an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, the Indemnifying Party may conduct the
defense of such claim through counsel of its choosing (subject to the
Indemnified Party's approval, not to be unreasonably withheld), will be
responsible for the expenses of such defense, and shall be bound by the results
of its defense or settlement of the claim to the extent it produces damage or
loss to the Indemnified Party. The Indemnifying Party shall not settle such
claims without prior notice to and consultation with the Indemnified Party, and
no such settlement involving any injunction or material and adverse effect on
the Indemnified Party may be agreed to without its consent. Notwithstanding the
assumption of the defense of any claim by the indemnifying party, the
indemnified party(ies) shall have the right to employ a single, separate legal
counsel (together with appropriate local counsel) and to participate in the
defense of such claim, and the indemnifying party shall bear the reasonable
fees, out-of-pocket costs and expenses of such single, separate legal counsel to
the indemnified party(ies) if (and only if): (x) the indemnifying party shall
have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
indemnifying party, based upon an opinion of counsel in writing, reasonably
acceptable to the indemnifying party, shall have concluded that representation
of the indemnified party(ies) and the indemnifying party by the same legal
counsel would not be appropriate due to actual (i) conflicts of interest between
such parties in the conduct of the defense of such claim, or (ii) if there may
be legal defenses available to the indemnified party(ies) that are in addition
to or disparate from those available to the indemnifying party and which can not
be presented by counsel to the indemnifying party, or (z) the indemnifying party
shall have failed to employ legal counsel reasonably satisfactory to the
indemnified party(ies) within a reasonable period of time after notice of the
commencement of such claim [it being recognized and acknowledged that Nixon,
Hargrave, Devans & Xxxxx LLP and Xxxxxxx Lang, PA, shall be regarded as such
reasonably satisfactory counsel to the indemnified party(ies)]. IF the
indemnifying party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the indemnified party(ies). As long
as the Indemnifying Party is diligently contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. If the
Indemnifying Party does not make such election, or having made such election
does not proceed diligently to defend such claim prior to the time at which an
answer or other responsive pleading or notice with respect thereto is required,
or does not continue diligently to contest such claim, then the Indemnified
Party may take over defense and proceed to handle such claim in its exclusive
discretion, and the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make in good faith with respect to
such claim and shall pay the reasonable attorneys fees of such defense, subject
to paying for only one counsel. The parties agree to cooperate in defending such
third party claims, and the defending party shall have access to records,
information and personnel in control of the other part which are pertinent to
the defense thereof.
11.8 LIMITATION OF REMEDIES. No party to this Agreement shall be
liable to any other party or parties or have any remedies against any other
party or parties under this Agreement other than as provided in Paragraph 11,
"Indemnification," and Paragraph 12, "Termination." The parties understand that
this requires that all disputed claims shall be submitted to arbitration in
accordance with Paragraph 10.4, "Arbitration."
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12. TERMINATION.
12.1 TERMINATION EVENTS. This Agreement may be terminated and
abandoned prior to the closing thereof, by notice given in the manner
hereinafter provided:
12.1.1 By TNCI, (a) if without a material breach of the terms
or conditions of this Agreement by TNCI, all of the conditions set forth in
Paragraph 9, "Conditions Precedent to the Obligations of TNCI," shall not have
been satisfied on or before the Closing Date and have not been waived by TNCI on
or before such dates, as the case may be, or (b) a material breach of the terms
or conditions of this Agreement by IFT occurs which breach is not cured within
ten (10) days following the giving of written notice thereof to IFT.
12.1.2 By IFT, (a) if without a material breach of the terms
or conditions of this Agreement by IFT occurs which breach is not cured within
ten (10) days following the giving of written notice thereof to IFT, all of the
conditions set forth in Paragraph 10, "Conditions Precedent to the Obligations
of IFT," shall not have been satisfied on or before the Closing Date and have
not been waived by IFT on or before such date, as the case may be, or (b) a
material breach of the terms or conditions of this Agreement by TNCI occurs
which breach is not cured within ten (10) days following the giving of written
notice thereof to TNCI.
12.1.3 By the mutual agreement of TNCI and IFT.
12.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Paragraph 12.1, "Termination Events," this Agreement
shall forthwith become void, and, there shall be no liability or continuing
obligations on the part of the parties hereunder, except as provided below:
12.2.1 no party may terminate this Agreement pursuant to
Paragraph 12.1.1(b) or 12.1.2(b) if such party is in material breach of the
terms of this Agreement;
12.2.2 TNCI shall continue to be bound by Paragraph 7.4.5
through November 14, 1999 so long as IFT owns at least 20% of the outstanding
Common Stock of TNCI, computed by assuming that all Preferred Stock or
convertible notes held by IFT have been converted into Common Stock of TNCI; and
provided that if IFT does not give its consent to a proposed transaction during
the foregoing period, which consent shall not be unreasonably withheld, TNCI may
purchase the Common Stock and Common Stock equivalents based on conversion of
Preferred Stock and convertible debt held by IFT at a price equal to the greater
of $3.50 per share or the average of the bid and ask prices of the Common Stock
on the principal market on which the Common Stock is traded on the date of
purchase; and
12.2.3 after November 14, 1999 IFT shall have a right of first
refusal, for a period of fifteen (15) days after receipt of written notice from
TNCI, to purchase any debt or equity securities of TNCI on the same terms and
conditions as any bona fide third party. IFT shall have the foregoing right of
first refusal so long as IFT owns at least 20% of the outstanding Common Stock
of TNCI, computed by assuming that all Preferred Stock and convertible debt held
by IFT have been converted into Common Stock of TNCI. 12.2.4 TNCI shall grant
IFT a license to use TNCI's technology under terms of a license agreement
attached as Exhibit C hereto, which license shall (i) permit TNCI to continue to
utilize such technology directly in its business, but not license such
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technology to any third party; (ii) be for a fifteen (15) year term; (iii)
permit IFT to license the technology on a royalty-free basis; and (iv) give IFT
a first right of refusal to purchase the technology on the same terms and
conditions as TNCI proposes to sell the technology to a bona fide third party
purchaser.
13. EXPENSES AND TRANSFER TAXES.
13.1 TNCI shall be solely responsible for paying its own expenses
and costs incident to the preparation of this Agreement and to the consummation
of the transactions contemplated by this Agreement, and shall have no obligation
for paying such expenses or costs of IFT.
13.2 IFT shall be solely responsible for paying is own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation to
reimburse the expenses or costs of TNCI.
13.3 Notwithstanding any of the other provisions hereof, in the
event of arbitration with respect to the interpretation or enforcement of this
Agreement in accordance with Paragraph 11.4 hereof, the prevailing party in any
such matter shall be entitled to recover from the other party their or its
reasonable costs and expense, including reasonable attorneys' fees, incurred in
such arbitration and/or litigation. For purposes of this subparagraph 13.3, a
party shall be deemed to be the prevailing party only if such party (A)(i)
receives an award or judgment in such arbitration and/or litigation for more
than 50% of the disputed amount involved in such matter, or (ii) is ordered to
pay the other party less than 50% of the disputed amount involved in such matter
or (B)(i) succeeds in having imposed a material equitable remedy on the other
party (such as an injunction or order compelling specific performance), or (ii)
succeeds in defeating the other party's request for such an equitable remedy.
13.4 TNCI and IFT do not believe any sales or transfer taxes will be
due as a result of the sale and transfer of the Assets as contemplated in this
Agreement. TNCI shall, however, pay any sales or transfer taxes which may become
due on the sale or transfer of the Assets to TNCI and the other transactions
contemplated under this Agreement.
14. RISK OF LOSS. The risk of loss or destruction of all or any part of
the Assets prior to the Closing Date from any cause (including, without
limitation, fire, theft, acts of God or public enemy) shall be upon IFT. Such
risk shall be upon TNCI if such loss occurs after the Closing Date.
15. NOTIFICATION OF CLAIMS. Each party will promptly notify the other
of any third party claims against any party relating to TNCI or the Assets of
which it receives knowledge or notice so as to permit such party an opportunity
to prepare a timely defense to such claim or to attempt settlement.
16. TNCI BOARD OF DIRECTORS. On the Closing Date, the Board of
Directors and officers of TNCI shall consist of the following seven (7) persons;
Xxxxx X. Xxxxx (Chairman), Xxxxxx Xxxxx, Xx. (President and CEO), Xxxxxx X.
Xxxxx (Executive Vice President), Xxxxx X. Xxxxx (Executive Vice President), two
(2) outside directors to be determined by IFT, and one (1) outside director to
be determined by TNCI.
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17. MISCELLANEOUS.
17.1 BINDING AGREEMENT. The parties covenant and agree that this
Agreement, when executed and delivered by the parties, will constitute a legal,
valid and binding agreement between the parties and will be enforceable in
accordance with its terms.
17.2 NEGOTIATIONS WITH THIRD PARTIES. In consideration of the
undertakings by the parties of the substantial legal, accounting and other
expenses incident to the parties proceeding toward the closing of the
transaction contemplated hereby the parties agree that, through the earlier of
May 15, 1999 or the Closing Date, neither party will enter into or pursue any
arrangements or negotiations with any other party relative to (i) the merger of
TNCI into any other party or any purchase or sale of substantially all of the
assets or control relative to any extraordinary transaction, in the case of
TNCI, without the consent of IFT, and (ii) the acquisition by IFT of all or
substantially all of the assets, or the voting control, of a company whose
business is related to or in competition with the business conducted by TNCI,
without the consent of TNCI.
17.3 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, their
legal representatives, successors and assigns.
17.4 ENTIRE AGREEMENT. This Agreement and its exhibits and schedules
constitute the entire contract among the parties hereto with respect to the
subject matter thereof, superseding all prior communications and discussions and
no party hereto shall be bound by any communication on the subject matter hereof
unless such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
17.5 MODIFICATION. This Agreement may be waived, changed, amended,
discharged or terminated only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, amendment, discharge or
termination is sought.
17.6 NOTICES. All notices, requests, demands and other
communications shall be deemed to have been duly given three (3) days after
postmark of deposit in the United States mail, if mailed, certified or
registered mail, postage prepaid, one day after delivery to a nationally
recognized overnight courier, upon receipt by facsimile (with confirmation
back), or upon hand delivery:
If to IFT:
Interactive Flight Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx X-000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxx X. Xxxxx, Chief Executive Officer
With copy to:
Xxxxxxxxx X. Xxxxxxxx, III
Xxxxxxx Xxxx, P.A.
Renaissance Xxx
Xxx Xxxxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
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If to TNCI:
The Network Connection, Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx Xxxxx, Xx., President
With a copy to:
Xxxxx X. Xxxxxxxx, Esq.
Nixon, Hargrave, Devans & Xxxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
or to such other address as any party shall designate to the other in writing.
The parties shall promptly advise each other of changes in addresses for such
notices.
17.7 CHOICE OF LAW. This Agreement shall be governed by,
construed, interpreted and enforced according to the laws of the State of
Delaware.
17.8 SEVERABILITY. If any portion of this Agreement shall be
finally determined by any court or governmental agency of competent jurisdiction
to violate applicable law or otherwise not to conform to requirements of law
and, therefore, to be invalid, the parties will cooperate to remedy or avoid the
invalidity, but, in any event, will not upset the general balance of
relationships created or intended to be created between them as manifested by
this Agreement and the instruments referred to herein. Except insofar as it
would be an abuse of the foregoing principle, the remaining provisions hereof
shall remain in full force and effect.
17.9 OTHER DOCUMENTS. The parties shall upon reasonable
request of the other, execute such documents as may be reasonably necessary to
carry out the intent of this Agreement.
17.10 HEADINGS AND THE USE OF PRONOUNS. The paragraph headings
hereof are intended solely for convenience of reference and shall not be
construed to explain any of the provisions of this Agreement. All pronouns and
any variations thereof and other words, as applicable, shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as the identity of the
person or matter may require.
17.11 TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
17.12 NO WAIVER AND REMEDIES. No failure or delay on a parties
part to exercise any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by a party of a right or
remedy hereunder preclude any other or further exercise. No remedy or election
hereunder shall be deemed exclusive but it shall, where ever possible, be
cumulative with all other remedies in law or equity.
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17.13 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, and by the different parties hereto on separate counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17.14 FURTHER ASSURANCES. Each of the parties hereto shall use
commercially practicable efforts to fulfill all of the conditions set forth in
this Agreement over which it has control or influence (including obtaining any
consents necessary for the performance of such party's obligations hereunder)
and to consummate the transactions contemplated hereby, and shall execute and
deliver such further instruments and provide such documents as are reasonably
necessary to effect this Agreement.
17.15 RULES OF CONSTRUCTION. The normal rules of construction
which require the terms of an agreement to be construed most strictly against
the drafter of such agreement are hereby waived since each party has been
represented by counsel in the drafting and negotiation of this Agreement.
17.16 THIRD PARTY BENEFICIARIES. Each party hereto intends
that this Agreement shall not benefit or create any right or cause of action in
or on behalf of any person other than the parties hereto.
17.17 BULK SALES; SALES TAX. The parties hereby waive
compliance with the requirements of any applicable bulk sales or bulk transfer
statutes of any states having jurisdiction, and IFT hereby agrees to be
responsible for and shall indemnify and hold harmless TNCI against any liability
that may arise as a result of any obligations imposed by such statutes.
Additionally, IFT shall be responsible for and shall indemnify and hold harmless
TNCI for any sales tax due upon the transfer of the Assets pursuant to this
Agreement or any sales tax which should have been collected by IFT in connection
with operation of the Business being transferred on or prior to the Closing
Date.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IFT: TNCI:
INTERACTIVE FLIGHT TECHNOLOGIES, THE NETWORK CONNECTION, INC., a
INC., a Delaware Corporation Georgia corporation
/s/ Xxxxx X. Xxxxx /s/ Xxxxxx Xxxxx
--------------------------------------- --------------------------------------
Xxxxx X. Xxxxx, Chief Executive Officer Xxxxxx Xxxxx, Xx., President
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Interactive Flight Technologies, Inc.
Asset Purchase and Sale Agreement
SCHEDULE 1.1.1 - ASSETS
1. Assets
NOTE: Amounts set forth are as of March 31, 1999 and are for identification
purposes and do not constitute a representation or warranty as to valuation.
Cash 4,250,000.00
Credit Card Deposits in Bank One Account Number 4492-4972
for credit cards issued to IFT employee to be hired by TNCI 113,391.34*
Gaming Receipts - Account 2142-3926 4,902.52
Non-Gaming Receipts 71.26*
Prepaid Insurance 12,607.63*
Prepaid Other 2,049.05*
Inventory Used in the Business (The net book value of
inventory, $1,505,481.38, is included as part of
accounts receivable - Swissair LTU)
Property, Plant and Equipment, Net(1) 651,626.77*
All Intellectual Property rights and other intangibles
used in Business(2)
Long term deposit - UPS 150.00*
* Approximate
----------
1 Includes immaterial of FF&E for Philadelphia and New York offices and
furniture at 0000 Xxxxx Xxxxxxx Xxxxxx, which will not be part of merger.
To be reconciled.
2 No value assigned for purposes of these schedules. Does not include
corporate name.
2. In addition, IFT has agreed to pay to TNCI certain net proceeds relating to
the following, as set forth in Sections 7.7.1 and 7.7.2 of the Agreement.
Accounts Receivable - Swissair Content (net of $28,647.38
allowance for doubtful accounts) 19,017.55
Accounts Receivable - SRT 22,650.33
Interest Receivable Swissair Extended Warranty 67,000.00
Contingent Recovery - Avnet/:Xxxxxxxx Hallmark(3) 3,500,000.00*
Contingent Recovery - FortuNet, and former executives(4)
All rights to IFEN 2.0 deposits and other deposits with
Swissair (subject to terms of relevant contracts) 555,000.00*
3. IFT shall also pay to TNCI the net proceeds from any sale (within the next 12
month period) for the personal property leased by IFT pursuant to the Master
Lease Agreement and Schedules 01 and 02 thereto, described on Schedule 5.12
hereto.
----------
3 Amount based on settlement proposal made by IFT. Claim filed in State
Court of Arizona. Not reflected in the Company's GAAP financial
statements.
4 Company has filed actions against FortuNet, Xxxxxxx Xxxxx, Xxxxxx Xxxxxxx
and Xxxx Xxxxxxxx seeking recoveries of approximately $4,000,000, $1.5
Million, $30,000 and $30,000 respectively.
Interactive Flight Technologies, Inc.
Asset Purchase and Sale Agreement
SCHEDULE 2.1 - LIABILITIES
1. All obligations and liabilities of IFT arising out of
the following without limitation
All Accounts Payable 588,661.92*
All Accounts Payable, Accrual 110,501.60*
Purchase order Accrual (11,742.06)*
Severance Accrual - Xxxxx Xxxxxxxx 54,999.79*
All Accrued Payroll(1) 102,244.00
All Accrued Vacation(2) 76,259.24
All Accrued Warranty Obligations 3,870,390.16
All Accrued Property Taxes 16,968.74
All Leases Payable - Short Term 40,746.40
All FortuNet Accrual and Obligations under 391,667.00
the FortuNet Agreement or to Xxxx Xxxxx(3)
All IFEN 2.0 development costs 254,198.00
Accrued Bonuses, including without limitation 103,695.56
those set forth on the attached Schedules
All Accrued Support Costs 1,246,189.56
Total Liabilities 6,845,049.91
Note: Amounts are approximate and do not limit obligations assumed. Such
amounts are also as of March 31, 1999.
2. All obligations under the Operations Center Lease identified on Schedule
5.10, and the Contracts identified as being assumed on Schedule 5.12 and any
other operational business expenses and arising out of the Business and incurred
in the ordinary course of business.
3. See also ss.7.7 hereof.
----------
1 Includes all IFT employees and will be adjusted to actual based on
specific employees to transition with merger.
2 Includes all IFT employees and will be adjusted to actual based on
specific employees to transition with merger.
3 The Company is disputing amounts due under this contract.
Interactive Flight Technologies, Inc.
Asset Purchase and Sale Agreement
SCHEDULE 3.1.1
ARTICLES OF AMENDMENT TO THE ARTICLES
OF INCORPORATION OF
THE NETWORK CONNECTION, INC.
---------------
These Articles of Amendment (the "Amendment") are being executed as of
May 5, 1999, for the purpose of amending the Articles of Incorporation of The
Network Connection, Inc. (the "Company"), pursuant to Section 14-2-602 of the
Georgia Business Corporation Code.
NOW, THEREFORE, the undersigned hereby certifies as follows:
FIRST: The name of the corporation is The Network Connection, Inc.
SECOND: Pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation, the Board of Directors, adopted the following
resolution providing for the creation of Two Million Four Hundred Ninety-Five
Thousand Four Hundred (2,495,400) shares of Series D Convertible Preferred
Stock:
RESOLVED, that pursuant to Article V of the Articles of Incorporation
of the Company, there be and hereby is authorized and created a series of
Preferred Stock, hereby designated as Series D Convertible Preferred Stock to
consist of Two Million Four Hundred Ninety-Five Thousand Four Hundred
(2,495,400) shares with a par value of $.01 per share and a Stated Value of
$10.00 per share (the "Stated Value"), and that the designations, preferences
and relative, participating, optional or other rights of the Series D
Convertible Preferred Stock (the "Series D Preferred Stock") and qualifications,
limitations or restrictions thereof, shall be as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. The terms defined in this Article whenever
used in this Amendment have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in
Section 6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "AGREEMENT" means that certain Asset Purchase and Sale
Agreement dated April 29, 1999 between the Corporation and IFT.
(d) "BUSINESS DAY" means a day other than Saturday, Sunday or any
day on which banks located in the State of New York are authorized or obligated
to close.
(e) "CAPITAL SHARES" means the Common Shares and any other shares
of any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(f) "CLOSING DATE" means the date of closing under the Agreement.
(g) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.001 par value, of the Corporation.
(h) "COMMON STOCK ISSUED AT CONVERSION" when used with reference
to the securities issuable upon conversion of the Series D Preferred Stock,
means all Common Shares now or hereafter Outstanding and securities of any other
class or series into which the Series D Preferred Stock hereafter shall have
been changed or substituted, whether now or hereafter created and however
designated.
(i) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series D Preferred Stock is converted in accordance with the
provisions hereof.
(j) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(k) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series D Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means The Network Connection, Inc., a Georgia
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(m) "CURRENT MARKET PRICE" on any date of determination means the
closing bid price of a Common Share on such day as reported on the NASDAQ or
such other exchange or quotation system where such Common Stock is traded.
(n) "HOLDER" means IFT, any successor thereto, or any Person to
whom the Series D Preferred Stock is subsequently transferred in accordance with
the provisions hereof.
(o) "IFT" means Interactive Flight Technologies, Inc., a Delaware
corporation.
2
(p) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; PROVIDED, HOWEVER, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(q) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(r) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(s) "VALUATION EVENT" has the meaning set forth in Section 6.1.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
RESERVED
ARTICLE 3
RANK
The Series D Preferred Stock shall rank (i) prior to the Common Stock;
(ii) prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities"); (iii) pari passu with Corporation's Series B 8%
Convertible Preferred Stock and with Corporation's Series C 8% Convertible
Preferred Stock, and (iv) pari passu with any class or series of capital stock
of the Corporation hereafter created specifically ranking on parity with the
Series D Preferred Stock ("Pari Passu Securities").
3
ARTICLE 4
DIVIDENDS
The Holder shall be entitled to receive dividends and distributions on
or with respect to the Series D Preferred Stock if, as, when, and in the amounts
declared by Corporation's Board of Directors.
ARTICLE 5
LIQUIDATION PREFERENCE
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series D Preferred Stock shall
have received the Liquidation Preference (as defined below) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series D Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series D
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preferences payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance of disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series of related transactions in which
4
more than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to, such transaction an
amount equal to 120% of the Liquidation Preference with respect to each
outstanding share of Series D Preferred Stock in accordance with and subject to
the terms of this Article 5; PROVIDED, that all holders of Series D Preferred
Stock shall be deemed to elect the option set forth above if at least a majority
in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series D Preferred Stock shall mean an amount equal to the Stated
Value thereof.
ARTICLE 6
CONVERSION OF SERIES D PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. Each share of Series D
Preferred Stock shall be convertible into the number of shares of Common Stock
(rounded to the nearest 1/100 of a share) equal to a fraction, the numerator of
which is (a) the product of One Hundred Fifty Percent (150%) multiplied by the
number of outstanding shares of Common Stock on the Closing Date (excluding the
shares of Common Stock and Preferred Stock issued to IFT on the Closing Date
pursuant to the Agreement), treating all convertible securities (other than the
Series D Preferred Stock), options, warrants, and other rights to acquire
securities of Corporation outstanding on the Closing Date as if they had been
converted or exercised (whether or not actually converted or exercised), as the
case may be, minus (b) the number of shares of Common Stock issued to IFT on the
Closing Date pursuant to the Agreement, and the denominator of which is
2,495,400.
Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs after the date hereof as a result of which the number of
Common Shares Outstanding (assuming for purposes of such determination, the
issuance of all such shares pursuant to an exercise or conversion (as the case
may be) of options, warrants, and other securities issued as part of such
Valuation Event) shall be increased or decreased, then the Conversion Price
shall automatically be proportionately decreased or increased, respectively, and
the number of Common Shares reserved for issuance pursuant to the conversion of
the then Outstanding Series D Preferred Stock shall be automatically
proportionately increased or decreased respectively, so as appropriately to
reflect the effects of such Valuation Event, effective immediately upon the
5
effectiveness of such Valuation Event. The adjustment required by the foregoing
sentence shall be effectuated each time a separate Valuation Event shall occur,
and such adjustments shall therefore be cumulative.
For purposes of this Section 6.1, a "VALUATION EVENT" shall mean an event in
which the Corporation at any time takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution or dividend of its Capital Shares in respect
of Outstanding Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities, to officers, directors or employees of the
Corporation, or otherwise under the Corporation's 1994 Employee Stock Option
Plan or non-employee Director Stock Option Plan;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f), inclusive, which in the opinion of the Corporation's Board of
Directors, determined in good faith, would have a material adverse effect upon
the rights of the Holder at the time of a conversion of the Series D Preferred
Stock.
6
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series D Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Annex I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Series D Preferred Stock and issue the
Common Stock Issued at Conversion effective as of the Conversion Date. The
Conversion Notice also shall state the name or names (with addresses) of the
persons who are to become the holders of the Common Stock Issued at Conversion
in connection with such conversion. The Holder shall deliver the shares of
Series D Preferred Stock to the Corporation by express courier within 30 days
following the date on which the telecopied Conversion Notice has been
transmitted to the Corporation. Upon surrender for conversion, the Series D
Preferred Stock shall be accompanied by a proper assignment hereof to the
Corporation or be endorsed in blank. As promptly as practicable after the
receipt of the Conversion Notice as aforesaid, but in any event not more than
five Business Days after the Corporation's receipt of such Conversion Notice, or
such Series D Preferred Stock, whichever is later, the Corporation shall (i)
issue the Common Stock issued at Conversion in accordance with the provisions of
this Article 6, and (ii) cause to be mailed for delivery by overnight courier to
the Holder (X) a certificate or certificate(s) representing the number of Common
Shares to which the Holder is entitled by virtue of such conversion and (Y)
cash, as provided in Section 6.3, in respect of any fraction of a Share issuable
upon such conversion. Holder shall indemnify the Corporation for any damages to
third parties as a result of a claim by such third party to ownership of the
Series D Preferred Stock converted prior to the receipt of the Series D
Preferred Stock by the Corporation. Such conversion shall be deemed to have been
effected at the time at which the Conversion Notice indicates as long as the
Series D Preferred Stock shall have been surrendered as aforesaid at such time,
and at such time the rights of the Holder of the Series D Preferred Stock, as
such, shall cease and the Person and Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby. The
Conversion Notice shall constitute a contract between the Holder and the
Corporation, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription (and for any cash adjustment to
which it is entitled pursuant to Section 6.4), to surrender the Series D
Preferred Stock and to release the Corporation from all liability thereon. No
cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
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(b) If, at any time (i) the Corporation challenges, disputes or denies
the right of the Holder hereof to effect the conversion of the Series D
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Series D Preferred Stock into Common Shares, then the Holder shall have
the right but not the obligation, by written notice to the Corporation, to
require the Corporation promptly to redeem the Series D Preferred Stock for cash
at a redemption price equal to, in the case of (i), one hundred and twenty-five
percent (125%) of the Stated Value thereof and, in the case of (ii), one hundred
and fifteen percent (115%) of the Stated Value thereof (each, the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Corporation shall be responsible for the payment of all costs and expenses of
the Holder, including reasonable legal fees and expenses, as and when incurred
in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of the Holder).
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series D Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series D Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE. At any time while the Series D Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series D
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series D Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series D Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series D Preferred Stock
8
providing that the Holder shall have the right to convert such new Series D
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series D Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series D Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series D Preferred Stock had
the Series D Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 6.5 COMPLIANCE WITH SECTION 13(D). Notwithstanding anything
herein to the contrary, until the Holder shall have filed a Schedule 13D or
Schedule 13G under the Securities Exchange Act of 1934 (the "Exchange Act") and
otherwise complied with the requirements of Section 13 of the Exchange Act with
respect to its beneficial ownership of the Common Stock, the Holder shall not
have the right, and the Corporation shall not have the obligation, to convert
all or any portion of the Series D Preferred Stock if and to the extent that the
issuance to the Holder of shares of Common Stock upon such conversion would
result in the Holder's being deemed the "beneficial owner" of more than 5% of
the then outstanding shares of Common Stock within the meaning of Section 13(d)
of the Exchange Act, and the rules promulgated thereunder. If any court of
competent jurisdiction shall determine that the foregoing limitation is
ineffective to prevent a Holder from being deemed the beneficial owner of more
than 5% of the then outstanding shares of Common Stock, then the Corporation
shall redeem so many of such Holder's shares (the "Redemption Shares") of Series
D Preferred Stock as are necessary to cause such Holder to be deemed the
beneficial owner of not more than 5% of the then outstanding shares of Common
Stock. Upon such determination by a court of competent jurisdiction, the
Redemption Shares shall immediately and without further action be deemed
returned to the status of authorized but unissued shares of Series D Preferred
Stock and the Holder shall have no interest in or rights under such Redemption
Shares. Any and all dividends paid on or prior to the date of such determination
shall be deemed dividends paid on the remaining shares of Series D Preferred
Stock held by the Holder. Such redemption shall be for cash at a redemption
price equal to the sum of (i) the Stated Value of the Redemption Shares and (ii)
any accrued and unpaid dividends to the date of such redemption.
SECTION 6.6 SHAREHOLDER APPROVAL. Unless the Corporation shall have
obtained approval by its voting stockholders in accordance with the rules of the
NASDAQ or such other stock market or quotation system as the Corporation shall
be required to comply with, of the issuance of Common Shares to the Holder
pursuant to a conversion of Series D Preferred Stock, then the Corporation shall
not issue shares of Common Stock upon any such conversion if such issuance of
9
Common Stock, when added to the number of shares of Common Stock previously
issued by the Corporation upon conversion of shares of the Series D Preferred
Stock, would equal or exceed twenty percent (20%) of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Closing
Date. The limitation on the Holder's right of conversion contained in the
preceding sentence shall terminate on July 15, 1999.
ARTICLE 7
VOTING RIGHTS
Except as otherwise provided by the Georgia Business Corporation Code
("GCL"), in this Article 7, or in Article 8 below, the Holders of the Series D
Preferred Stock shall have no voting power.
In the event that on or before July 15, 1999, the Corporation's
Articles of Incorporation have not been amended to increase the number of
authorized shares of Common Stock sufficiently to permit the Corporation to
issue to IFT, upon the exercise of all options and warrants and the conversion
of all convertible securities held by IFT, that number of shares of Common Stock
necessary to satisfy the Corporation's obligations under all such securities,
then each share of Series D Preferred Stock shall be entitled to cast six (6)
votes at any duly called meeting of the stockholders of the Corporation on any
matter presented for consideration of such stockholders.
During the period in which the Series D Preferred Stock shall be
non-voting, the Corporation shall nonetheless provide each Holder of Series D
Preferred Stock with prior notification of any meeting of the stockholders (and
copies of proxy materials and other information sent to stockholders). In the
event of any taking by the Corporation of a record of its stockholders for the
purpose of determining stockholders who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the GCL the vote of the holders of the Series
D Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series D
Preferred Stock represented at a duly held meeting at which a quorum is present
10
or by written consent of a majority of the shares of Series D Preferred Stock
(except as otherwise may be required under the GCL) shall constitute the
approval of such action by the class. To the extent that under the GCL holders
of the Series D Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series D Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series D Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the GCL.
ARTICLE 8
PROTECTIVE PROVISIONS
As long as shares of Series D Preferred Stock are Outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the GCL) of the holders of at least a majority of the
then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series
D Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series D Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series D Preferred Stock;
(c) increase the authorized number of shares of Series D Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Amendment which would result in taxation of the holders of shares of the Series
D Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as
amended (or any comparable provision of the Internal Revenue Code as hereafter
from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series D Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series D Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series D Preferred
11
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series D Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Amendment as they exist prior to such alteration or change or continue to hold
their shares of Series D Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF SERIES D PREFERRED STOCK. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of shares of Series D Preferred Stock and, in the case
of any such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series D Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series D Preferred Stock, new shares of Series
D Preferred Stock of like tenor. The Series D Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 10.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series D Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series D Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series D Preferred Stock for the purpose of receiving payment of
dividends on the Series D Preferred Stock, for the conversion of the Series D
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series D Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of
any event described in Section 6.1 of this Amendment, the Corporation shall
cause to be mailed to the Holder of the Series D Preferred Stock at its last
address as it appears in the Corporation's security registry, at least twenty
(20) days prior to the applicable record, effective or expiration date
hereinafter specified (or, if such twenty (20) days notice is not practicable,
at the earliest practicable date prior to any such record, effective or
expiration date), a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, issuance or granting of rights,
options or warrants, or if a record is not to be taken, the date as of which the
12
holders of record of Series D Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series D Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series D Preferred Stock. Upon any transfer of the Series D Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series D Preferred Stock register.
The Corporation may deem the person in whose name the Series D
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series D Preferred Stock
for the purpose of receiving payment of dividends on the Series D Preferred
Stock, for the conversion of the Series D Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series D Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
D Preferred Stock.
SECTION 9.6 HEADINGS. The headings of the Articles and Sections of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
13
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its duly authorized officers as of
the day first above written.
THE NETWORK CONNECTION, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
INITIAL HOLDER
INTERACTIVE FLIGHT TECHNOLOGIES, INC.
By:
------------------------------------
Name:
Title:
14
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
The undersigned owner of this Series D Preferred Stock (the "Series C
Preferred Stock") issued by The Network Connection, Inc. (the "Corporation")
hereby irrevocably exercises its option to convert __________ shares of the
Series D Preferred Stock into shares of the common stock, $.001 par value, of
the Corporation ("Common Stock"), in accordance with the terms of the Amendment.
The undersigned hereby instructs the Corporation to convert the number of shares
of the Series D Preferred Stock specified above into Shares of Common Stock
Issued at Conversion in accordance with the provisions of Article 6 of the
Amendment. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series D Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Amendment.
Dated:
---------------------------
---------------------------------
Signature
Fill in for registration of Series D Preferred Stock:
Please print name and address
(including zip code number) :
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