ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT ("Agreement"), is entered into
effective as of April 29, 1999, among INTERACTIVE FLIGHT TECHNOLOGIES, INC., a
Delaware corporation ("IFT") and THE NETWORK CONNECTION, INC., a Georgia
corporation ("TNCI").
R E C I T A L S :
WHEREAS, IFT is engaged primarily in the interactive entertainment
devices business (the "Business");
WHEREAS, TNCI desires to purchase, and IFT desires to sell all of its
right, title and interest in and to all or substantially all of the tangible and
intangible assets relating to the Business as now conducted (the "Assets") and
specific liabilities relating to the Business ("Liabilities," with the Assets
"Net Assets") in exchange for restricted stock of TNCI.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, IFT and TNCI hereby agree as follows:
C O V E N A N T S :
1. Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, on the Closing Date, as defined in Paragraph 4 (the "Closing
Date") IFT shall sell, convey, transfer and assign to TNCI, and TNCI shall
purchase from IFT, all of IFT's right, title and interest in and to the Assets
described in Schedule 1.1.1 (the "Assets"). TNCI shall pay the consideration set
forth in Paragraph 3, "Purchase Price," to purchase the Assets. All of the
Exhibits and Schedules referred to in this Agreement are made a part of the
Agreement by this reference.
2. Assumption of Liabilities. Subject to the terms and conditions of
this Agreement, TNCI shall assume the Liabilities of IFT as set forth in
Schedule 2.1 (the "Assumed Liabilities"), which shall specifically include any
and all liabilities relating to any potential claims arising out of IFT's
relationship with Swissair all as set forth in more detail on Schedule 2.1.
Except as set forth in Schedule 2.1, TNCI shall not assume any other liabilities
or obligations in connection with its purchase of the Assets.
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3. Purchase Price and Payment for Assets.
3.1 TNCI will acquire the Assets in consideration for:
3.1.1 its issuance to IFT of the greater of 1,055,745 restricted
shares of its voting common stock, $.001 par value ("Common Stock"), or the
maximum number of authorized but unissued shares of Common Stock of TNCI
not otherwise reserved for issuance as of the Closing Date provided TNCI
has received the approval of the Nasdaq Stock Market, Inc. to issue such
maximum number of shares as contemplated in Paragraph 9.2;
3.1.2 its issuance to IFT of that number of shares of its Series D
Preferred Stock (the terms and conditions of which are set forth on
Schedule 3.1.1-A) such that the total of the number of shares of Common
Stock into which the Series D Preferred Stock is convertible plus the
number of shares of Common Stock issued to IFT under Paragraph 3.1.1 is
equal to sixty percent (60%) of the outstanding shares of capital stock of
TNCI immediately following the Closing Date, taking into account the
issuance of such Common Stock to IFT under Paragraph 3.1.1 and the
conversion of Series D Preferred Stock into Common Stock, and treating all
convertible securities, options, warrants or other rights to acquire
securities of TNCI as if converted or exercised as of the close of business
on the date immediately preceding the Closing Date (whether or not actually
converted or exercised as of the Closing Date) into Common Stock. The
shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated by this Agreement are
collectively referred to in this Agreement as the "TNCI Shares." Schedule
3.1.1-B attached hereto sets forth the computation of the TNCI Shares to be
issued to IFT; and
3.1.3 The assumption by TNCI of the Liabilities.
3.2 The purchase price ("Purchase Price") shall be allocated among the
Assets according to Schedule 3.2.
3.3 TNCI and IFT will determine, as of the Closing Date, the number of
TNCI Shares to be issued to IFT pursuant to this Paragraph 3, and TNCI shall
deliver a certificate at closing, signed by the chief financial officer of TNCI,
certifying the accuracy of such number.
3.4 IFT will transfer title to the Assets and make the Corporate
Records of IFT available for copying to TNCI on the Closing Date. The term
"Corporate Records" shall mean any and all records kept by IFT regarding the
Assets and Assumed Liabilities identified on Schedule 3.4.
4. Closing Date.
4.1 The closing under this Agreement shall take place at the offices of
Streich Lang, P.A., Renaissance One, Two North Central, Phoenix, Arizona
85004-2391 on a date ("Closing Date") as soon as practicable after:
4.1.1 Execution of this Agreement;
4.1.2 Completion of the due diligence investigation contemplated under
Paragraph 8, "Due Diligence Inspection of Premises and Confidential
Information";
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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,
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mortgage, deed of trust or other material contract to which IFT is a party or by
which IFT or the Assets are bound.
5.5 Absence of Undisclosed Liabilities and Obligations. IFT has no
liability of any nature (whether accrued, absolute, contingent or otherwise)
related to the Business or the Assets, except to the extent set forth in
Schedule 5.5, and as reflected on IFT's financial statements, delivered to TNCI
pursuant to paragraph 5.6 hereof.
5.6 Financial Statements and Public Reports. The audited consolidated
financial statements of IFT for the fiscal year ended October 31, 1998, with
accompanying notes, as contained in IFT's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1998, and the unaudited financial statements of
IFT for the fiscal quarter ended January 31, 1999, with accompanying notes, as
contained in IFT's Quarterly Report on Form 10-QSB for the fiscal quarter ended
January 31, 1999 delivered to TNCI, fairly and accurately present, in all
material respects, the financial condition, the assets and liabilities of IFT at
such dates, and the results of its operation and changes in its financial
position for the periods and years ended on such dates, in conformity with
generally accepted accounting principles consistently applied. Such financial
statements (the "Financial Statements") have been prepared from the books and
records of IFT in accordance with GAAP, on a consistent basis, and contain and
reflect all necessary adjustments for a fair and accurate presentation of IFT's
financial condition as of the dates of such statements and for the year and
period, respectively, ended on such dates.
5.7 Absence of Certain Changes. During the period from January 31, 1999
through and including the Closing Date, IFT has not, with respect to the
Business and the Assets:
5.7.1 Suffered any material adverse change affecting the Assets,
Liabilities, or Business;
5.7.2 Sold or transferred any of the Assets or canceled any
indebtedness or claims owing to it which constitute part of the Business,
except in the ordinary course of business and consistent with its past
practices;
5.7.3 Sold, assigned or transferred any formulas, trade secrets,
inventions, patents, patent applications, trademarks, trade names,
copyrights, copyright applications, licenses, computer programs or
software, know-how or other intangible assets, which constitute part of the
Assets;
5.7.4 Amended or terminated any contract, agreement or license
constituting part of the Business to which it is a party otherwise than in
the ordinary course of business or as may be necessary for the consummation
of the transactions described herein;
5.7.5 Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any single instrument of indebtedness which
constitutes part of the Assumed Liabilities, in excess of $25,000, or
incurred aggregate additional indebtedness which constitutes part of the
Assumed Liabilities in excess of $50,000, except in the ordinary course of
business and consistent with its past practices;
5.7.6 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of the Assets, except in the ordinary course of business
and consistent with its past practices; or
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5.7.7 Entered into or committed to any other material transaction as
part of the Business other than in the ordinary course of business,
consistent with past practices.
5.8 Taxes. IFT (and any predecessor corporation or partnership as to
which IFT is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and except as set forth in Schedule 5.8, has paid, or accrued and
reserved for, all taxes, penalties and interest shown to be due or required to
be paid pursuant to the returns as filed, or as adjusted pursuant to amendment
or correction. IFT has also provided copies of all federal and state income and
sales tax returns filed, FICA and state income taxes withholding returns filed
and evidence of payment of such taxes as listed in Schedule 5.8 hereto. IFT has
(i) paid or will pay by the Closing Date any property taxes owed with respect to
the Assets that are due and payable through the Closing Date; and (ii) no
knowledge of any deficiency or assertion of any deficiency relating to property
taxes on the Assets. No examination, audit, or inquiry of any tax return,
federal, state or otherwise of IFT is currently in progress and IFT has not been
advised by any taxing authority of any intent to commence any inquiry, audit or
examination of any tax return from any taxing authority or of any issue or
questions relating to any return, report or declaration that would result in the
assertion of any deficiency for any federal state, local, or other tax or
interest or penalties in connection therewith. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable to
any tax return of IFT.
5.9 Title to the Assets. IFT has good and marketable title to all of
the Assets, free and clear of all security interests, liens, encumbrances,
mortgages or charges of any nature whatsoever other than those liabilities set
forth in the Financial Statements. Any security interests, liens, encumbrances,
mortgages or charges on the Assets not set forth in IFT's Financial Statements
shall be discharged in full on or before the Closing Date and evidenced by UCC
Releases delivered by IFT on the Closing Date. The tangible personal property
(other than inventory) of IFT is in good working order, normal wear and tear
excepted.
5.10 Leases. Schedule 5.10 sets forth a list of each lease or
occupancy, possessory or similar agreement, as the same may have been amended or
modified under which IFT is lessee of, or holds or operates, any real property
owned by a third party and which is used in the Business (the "Leased Real
Property"). IFT has delivered a true and correct copy of each such agreement to
TNCI. IFT does not own any real property.
5.11 Accounts Receivable. No amount included in the accounts receivable
of IFT as of January 31, 1999, has been released or settled for an amount less
than the value at which it was included in the financial statements as of that
date. Except as to the Swissair accounts receivable, there are no facts or
circumstances (other than general economic conditions) which would result in any
material increase in the uncollectibility of such accounts receivable over
historical collection rates.
5.12 Material Documents. Set forth in Schedule 5.12 is a complete list
of all material documents with respect to the Assets or the Business to which
IFT is a party (the "Scheduled
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Agreements"). All such documents listed on and attached to Schedule 5.12 are
legal, valid, enforceable and accurate and complete copies of such material
documents (or, with the consent of TNCI, forms thereof) as have been requested
by TNCI have been provided to TNCI. As used herein, material documents shall
mean agreements, covenants and any other instrument that relates to an assets
that is material to the Business, or which otherwise involves an expenditure or
liability of IFT in excess of $30,000 in the aggregate. Except as set forth in
Schedule 5.12, consummation of the transactions contemplated hereby will not
cause a breach of or constitute a default (with or without the giving of notice
or the lapse of time or both) under any of the Scheduled Agreements, result in
the forfeiture or impairment of any rights thereunder, require the consent,
approval or act of, or the making of any filing with, any other Person pursuant
to the terms thereof (to the extent the absence of such consent or approval
would constitute a breach or default, or require or result in the payment of any
assignment or related fees or costs). Except as set forth in Schedule 5.12, IFT
has fulfilled and performed its material obligations under each of the Scheduled
Agreements and is not in breach or default under, nor, to IFT's knowledge, is
there any basis for termination of any of the Scheduled Agreements, and no other
party to any of such Scheduled Agreements has, to IFT's knowledge, breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice, or both,
would constitute such a default or breach by IFT or, by any such other party.
Except as set forth on Schedule 5.12, IFT is not currently renegotiating any of
the Scheduled Agreements or paying liquidated damages in lieu of performance
thereunder. Complete and correct copies of each of the written Scheduled
Agreements (including without limitations all amendments, supplements or other
modifications thereto or waivers of right thereunder) have heretofore been
delivered to TNCI. A complete and correct description of each oral Scheduled
Agreement appears in Schedule 5.12 in which such Scheduled Agreement is listed.
5.13 Intellectual Property.
5.13.1 Schedule 5.13.1 contains a list and brief description of:
5.13.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and
trademark applications, service marks, trade names and copyrights and
copyright applications for which registrations have been issued or
applied for, and all other United States, state and foreign
trademarks, service marks, trade names and copyrights (other than for
software) owned or used by IFT;
5.13.1.2 all agreements, contracts, or licenses, relating or
pertaining to any asset, property or right of the character described
in the preceding clause (i) to which IFT is a party;
5.13.1.3 all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to
which IFT is a party; and
5.13.1.4 all registered, assumed or fictitious names under which
IFT is conducting activities related to the Business or has within the
previous five years conducted activities related to the Business.
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5.13.2 Except as otherwise disclosed in Schedule 5.13.1.2, to IFT's
knowledge, all patents, trademarks and registered copyrights owned,
controlled or used by IFT are valid and in force and all patent
applications, trademark registrations and copyright registrations of IFT
listed therein are in good standing all, to the knowledge of IFT, without
challenge of any kind and except as otherwise disclosed in Schedule
5.13.1.2, IFT owns the entire rights, title and interests in and to such
patents and patent applications free and clear of all Encumbrances. To
IFT's knowledge, all of the registrations for trade names, trademarks,
service marks and registered copyrights listed in Schedule 5.13.1, as being
owned, or used by IFT are valid and in force and all applications for such
registrations are in good standing, all without challenge of any kind, and
to IFT's knowledge, the entire right, title and interest in and to each
such trade name, trademark, service mark and copyright so listed as well as
the registrations and application for registration therefor is owned by
IFT, free and clear of all encumbrances. Correct and complete copies of all
the patents and patent applications and of all of the trademarks, trade
names, service marks and copyrights and registrations, applications or
deposits therefor and all the licenses listed in Schedule 5.13.1, have
heretofore been delivered by IFT to TNCI.
5.13.3 To IFT's knowledge, IFT has good and marketable title to that
computer software described as "Owned Software" on Schedule 5.13.1.4 hereto
(the "Owned Software"), free of all claims, including claims or rights of
employees, agents, consultants or other parties involved in the development
or creation of such computer software, except as set forth on Schedule
5.13.1.4. Except as set forth on Schedule 5.13.1.4 hereto, IFT has the
right and license to use that software described as "Licensed Software" on
Schedule 5.13.1.4 hereto (the "Licensed Software") free and clear of any
limitations or encumbrances except as may be set forth in any license
agreements listed in Schedule 5.13.1.4. Except as disclosed on Schedule
5.13.1.4, IFT is in full compliance with all provisions of any license,
lease or other similar agreement pursuant to which it has rights to use the
Licensed Software. Except as disclosed on Schedule 5.13.1.4, none of the
Licensed Software has been incorporated into or made a part of any Owned
Software or any other Licensed Software and none of the Owned Software is
dependent on any Licensed Software in order to freely operate in the manner
in which it is intended. The Owned Software and Licensed Software
constitute all software used in the Business ("IFT's Software"). IFT has
not received notice that it is infringing any intellectual property rights
or any other person or entity with respect to IFT's Software, and to the
knowledge of IFT no other person or entity is infringing any intellectual
property rights of IFT with respect to IFT's Software which IFT leases or
licenses to it.
5.14 Governmental Permits.
5.14.1 IFT owns, holds or possesses all governmental licenses,
franchises, permits, privileges, immunities, approvals, registrations,
easements, rights and other authorizations which are necessary to entitle it to
own, lease, operate and use its assets and properties and to carry on and
conduct the Business as currently conducted (herein collectively called "IFT
Permits"). Schedule 5.14.1 sets forth a list and brief description of each such
IFT Permit held by IFT as of the date of this Agreement. Complete and correct
copies of all of the IFT Permits listed in Schedule 5.14.1 have heretofore been
delivered to TNCI by IFT.
5.14.2 IFT is in compliance in all material respects with each of the
IFT Permits owned, held or possessed by it, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a breach or default under any such IFT Permit.
No notice of cancellation, of default or of any dispute, appeal or inquiry
concerning any IFT
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Permit, or of any event, condition or state of facts set forth in the preceding
sentence, has been received by IFT. Except as set forth in Schedule 5.14.3, each
of the IFT Permits is valid subsisting and in full force and effect without
challenge of any kind.
5.15 Litigation. Except as set forth in Schedule 5.15, there are no
actions, claims or proceedings pending or threatened before any court,
administrative agency or governmental body relating to the Assets or the
Business which may have an adverse effect on the Business, the Assets, or IFT's
financial condition. There is no action, suit, proceeding or investigation
pending or, to IFT's knowledge, threatened which questions the legality or
propriety of the transactions contemplated by this Agreement or which seeks to
prevent or materially delay the transactions contemplated by this Agreement.
5.16 Employees. Schedule 5.16 sets forth the name and current monthly
salary and any accrued benefit for each employee of IFT set forth on the
attached Schedule who the parties agree shall be offered employment by TNCI
immediately after the Closing. There will be no changes in Schedule 5.16 through
the Closing Date, unless TNCI is advised of such changes in advance; provided
that to the exact TNCI reasonably disapproves of such change, TNCI shall have
the right to not offer employment to such person after the Closing.
5.17 Compliance With Laws. Except as set forth in Schedule 5.17, IFT
has conducted and is continuing to conduct the Business in compliance in all
material respects with, and is in compliance in all material respects with, all
applicable 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.
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5.20 Charter and By-Laws. IFT has heretofore delivered to TNCI true,
accurate and complete copies of the Certificate of Incorporation and By-Laws of
IFT, together with all amendments to each of the same as of the date hereof.
5.21 Corporate Minutes. The minute books of IFT previously made
available to TNCI are the correct and only such minute books and do and will
contain complete and accurate records of any and all proceedings and actions at
all meetings, including written consents executed in lieu of meetings of its
stockholders, Board of Directors and committees thereof through the Closing
Date. The stock records of IFT previously delivered to TNCI at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of IFT.
5.22 Default on Indebtedness. IFT is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money, which is secured by a lien on the Assets.
5.23 Governmental Approvals. No consent, approval or authorization of,
or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by IFT, except for any filings required to be
made after the Closing Date, which are identified on Schedule 5.23.
5.24 Investment Intent.
5.24.1 Investigation; Investment Representation. IFT (i) possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment hereunder; (ii) has been
afforded the opportunity to ask questions of, and receive answers from, TNCI
concerning the terms and conditions of its investment, the transactions
contemplated hereby and the business and affairs of TNCI; (iii) has examined, to
the extent it deems appropriate, all of the agreements and documents referred to
herein or in the schedules hereto and such other documents that it has
requested, and has been provided copies of and has reviewed (x) all of TNCI's
public filings made pursuant to the Securities Exchange Act of 1934, as amended,
which have been filed by TNCI since December 31, 1998, and (y) the Risk Factors
set forth on Schedule 5.24.1; and (iv) understands that the TNCI Shares are not
being registered under the 1933 Act, on the grounds that the issuance thereof is
exempt from registration under Paragraph 4(2) of the 1933 Act, as a transaction
by an issuer not involving a public offering, and TNCI's reliance on this
exemption is predicated in part on IFT's representations and warranties
contained in this Paragraph 5.24.1. IFT is acquiring the TNCI's Shares for its
own account, for investment purposes only and not with a view to the
distribution or resale thereof. IFT acknowledges that the certificates
evidencing the TNCI Shares shall bear restrictive securities legends and shall
not be transferable in the absence of the distribution thereof being registered
under the 1933 Act or any applicable state securities laws, or the applicability
of exemptions therefrom based upon an opinion of counsel acceptable to TNCI. IFT
is an "accredited investor," as that term is defined in Regulation D, as
promulgated under the 1933 Act.
5.24.2 Stop Transfer Instructions and Legend. IFT acknowledges that
TNCI may cause its transfer agent to establish appropriate stop transfer
instructions with respect to the TNCI Shares, and shall cause to be set forth on
the certificates representing any TNCI Shares, a legend substantially in the
following form:
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"The securities represented by this certificate have not been
registered under the United States Securities Act of 1933, as amended,
or under any applicable state securities laws. No transfer of such
securities shall be valid or effective except in accordance with the
applicable requirements of the Securities Act of 1933, as amended, or
applicable state securities laws. In the absence of registration under
the Securities Act of 1933 and applicable state securities laws, no
transfer of such securities shall be made in the absence of an
exemption therefrom."
5.25 Product Liability Claims; Product Warranties. Schedule 5.25 sets
forth all product liability claims pending or, to the knowledge of IFT,
threatened against IFT and all product liability claims paid by or on behalf of
IFT for the three (3) year period prior to the date of this Agreement. Except as
set forth on Schedule 5.25, IFT has not given or offered any warranty covering
any products sold or distributed by it, and IFT has not extended to its
customers any indemnification or guarantees.
5.26 Environmental Protection.
5.26.1 Except as set forth on Schedule 5.26.1;
5.26.1.1 The operations of IFT comply in all material respects with
all applicable Environmental Laws and there are no substances or conditions
existing at any facility that may support a claim or cause of action
against IFT or TNCI under any Environmental Laws.
5.26.1.2 IFT has obtained, or has taken appropriate steps as required
by Environmental Laws to obtain, all environmental, health and safety
permits necessary for its operations, and all such permits are in good
standing and IFT is currently incompliance with all terms and conditions of
such permits; and
5.26.1.3 IFT's facilities and operations at the facilities are not
subject to any judicial or administrative proceeding, order, judgment,
decree or settlement, or to the knowledge of IFT, any investigation,
alleging or addressing (i) violation of any Environmental Laws, or (ii) any
remedial action; and IFT has not received any notice of any claims or
liabilities and costs arising from the release or threatened release of a
contaminant into the environment, or claims, complaints, notices or
requests for information with respect to any alleged violation of any
Environmental Laws or complaints or notices regarding potential liability
under any Environmental Laws.
5.27 Employment Relations. IFT is in compliance with all Federal, state
or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on IFT; no unfair labor practice complaint against
IFT is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to IFT's knowledge,
threatened against or involving IFT; no labor representation question exists
respecting the employees of IFT; no grievance which might have an adverse effect
upon IFT or the conduct of its business has been filed against IFT; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by IFT; and IFT has not experienced any
material labor difficulty during the last three (3) years.
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5.28 Completeness of Representations and Schedules. The Schedules
hereto, where applicable to IFT, completely and correctly present in all
material respects the information required by this Agreement. This Agreement,
the certificates to be delivered by IFT at the Closing, the Schedules and the
representations and warranties contained in this Paragraph 5, and the documents
and written information pertaining to IFT furnished to TNCI or its agents by or
on behalf of IFT, do not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make this Agreement, or such
certificates, schedules, documents or written information not misleading.
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
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outstanding and 2,500,000 shares of Preferred Stock, of which 1,500 shares of
Series B Preferred Stock are issued and outstanding ("TNCI Shares"). TNCI also
has outstanding indebtedness, options, warrants or other securities convertible
into capital stock as set forth on Schedule 6.5.1 outstanding (the "Convertible
Securities"). TNCI Shares are validly issued, are fully paid and non-assessable
and are subject to no restrictions on transfer (other than those provided under
state and federal securities laws). TNCI Shares shown as outstanding constitute
the only outstanding shares of the capital stock of TNCI of any nature
whatsoever, voting and non-voting. All TNCI Shares are required to be
certificated, and TNCI has executed and delivered no certificates for shares in
excess of the number of TNCI Shares set forth above. There are, and except as
set forth on Schedule 6.5.2 as of the Closing Date there will be, no outstanding
options, warrants, rights, calls, commitments, conversion rights, plans or other
agreements of any character providing for the purchase, issuance or sale of, or
any securities convertible into, capital stock of TNCI, whether issued, unissued
or held in its treasury.
6.6 No Additional Outstanding Options and Warrants. TNCI has not, and
as of the Closing Date will not, issue any additional shares of its capital
stock or any Convertible Securities or grant any rights to acquire or agree to
issue any additional shares of its capital stock or any Convertible Securities.
6.7 No Subsidiaries. TNCI has no subsidiaries and does not own five
percent (5%) or more of the securities having voting power of any corporation
(or would own such securities in such amount upon the closing of any existing
purchase obligations for securities).
6.8 Government Approvals. No consent, approval or authorization of, or
notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by TNCI.
6.9 Financial Statements and Public Reports. The audited 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:
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6.11.1 Suffered any material adverse change affecting its assets,
liabilities, financial condition or business;
6.11.2 Made any change in the compensation payable or to become
payable to any of its employees or agents, or made any bonus payments,
except for the bonuses which have historically been made in the ordinary
course of business or compensation arrangements to or with any of its
employees or agents, whether direct or indirect;
6.11.3 Paid or declared any dividends, distributions or other payments
due or owing to its stockholders;
6.11.4 Issued any stock, or granted any stock options or warrants to
purchase stock or issued any securities convertible into common stock of
TNCI;
6.11.5 Sold or transferred any of its assets or canceled any
indebtedness or claims owing to it, except in the ordinary course of
business and consistent with its past practices;
6.11.6 Sold, assigned, encumbered or transferred any formulas, trade
secrets, inventions, patents, patent applications, trademarks, trade names,
copyrights, copyright application, licenses, computer programs or software,
know-how or other intangible assets;
6.11.7 Amended or terminated any contract, agreement or license to
which it is a party otherwise than in the ordinary course of business or as
may be necessary or appropriate for the consummation of the transactions
described herein;
6.11.8 Borrowed any money or incurred, directly or indirectly (as a
guarantor or otherwise), any single instrument of indebtedness in excess of
$25,000, or incurred additional aggregate indebtedness in excess of
$50,000, except in the ordinary course of business and consistent with its
past practices;
6.11.9 Discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities shown in the Financial Statements or current liabilities
incurred since such date in the ordinary course of business, consistent
with its past practices;
6.11.10 Mortgaged, pledged or subjected to lien, charge or other
encumbrance any of its assets, except in the ordinary course of business
and consistent with its past practices; or
6.11.11 Entered into or committed to any other material transaction
other than in the ordinary course of business, consistent with past
practices.
6.12 Taxes. TNCI (and any predecessor corporation or partnership as to
which TNCI is the transferee or successor) has timely filed, or has timely
secured an extension and will (within the permitted extension) file, all tax
returns, including federal, state, local and foreign tax returns, tax reports
and forms, as to which the due date for filing is prior to the Closing Date; has
reported all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with
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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 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.
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6.15.1 Schedule 6.15.1 contains a list and brief description of:
6.15.1.1 all United States and foreign patents and patent
applications, all United States, state and foreign trademarks and trademark
applications, service marks, trade names and copyrights and copyright
applications for which registrations have been issued or applied for, and
all other United States, state and foreign trademarks, service marks, trade
names and copyrights (other than the software) owned or used by TNCI;
6.15.1.2 all agreements, contracts or licenses, relating or pertaining
to any asset, property or right of the character described in the preceding
clause (i) to which TNCI is a party;
6.15.1.3 all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to which
TNCI is a party; and
6.15.1.4 all registered, assumed or fictitious names under which TNCI
is conducting activities or has within the previous five years conducted
activities.
6.15.2 Except as otherwise disclosed in Schedule 6.15.2, to TNCI's
knowledge, all patents, trademarks and registered copyrights owned, controlled
or used by TNCI are valid and in force and all patent applications, trademark
registrations and copyright registrations of TNCI listed therein are in good
standing all, to the knowledge of TNCI, without challenge of any kind and except
as otherwise disclosed in Schedule 6.15.2, TNCI owns the entire rights, title
and interests in and to such patents and patent applications free and clear of
all Encumbrances. To TNCI's knowledge, all of the registrations for trade names,
trademarks, service marks and copyrights listed in Schedule 6.15.1, as being
owned, controlled, or used by TNCI are valid and in force and all applications
for such registrations are in good standing, all without challenge of any kind,
and to TNCI's knowledge, the entire right, title and interest in and to each
such trade name, trademark, service mark and copyright so listed as well as the
registrations and application for registration therefor is owned by TNCI, free
and clear of all encumbrances. Correct and complete copies of all the patents
and patent applications and of all of the trademarks, trade names, service marks
and copyrights and registrations, applications or deposits therefor and all the
licenses listed in Schedule 6.15.1, have heretofore been delivered by TNCI to
IFT.
6.15.3 To TNCI's knowledge, TNCI has good and marketable title to that
computer software described as "TNCI Owned Software" on Schedule 6.15.3 hereto
(the "TNCI Owned Software"), free of all claims, including claims or rights of
employees, agents, consultants or other parties involved in the development or
creation of such computer software, except as set forth on Schedule 6.15.3.
Except as set forth on Schedule 6.15.3 hereto, TNCI has the right and license to
use that software described as "TNCI Licensed Software" on Schedule 6.15.3
hereto (the "TNCI Licensed Software") free and clear of any limitations or
encumbrances except as may be set forth in any license agreements listed in
Schedule 6.15.3. Except as disclosed on Schedule 6.15.3, TNCI is in full
compliance with all provisions of any license, lease or other similar agreement
pursuant to which it has rights to use the TNCI Licensed Software. Except as
disclosed on Schedule 6.15.3, none of the TNCI
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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.
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
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statutes, orders, rules and regulations promulgated by governmental authorities
or cause a lien on any material property used, owned or leased by TNCI to be
created thereunder. To the knowledge of TNCI there are no proposed changes in
any applicable statutes, orders, rules and regulations promulgated by
governmental authorities that would cause any representation or warranty
contained in this Paragraph 6.19 to be untrue or have an adverse effect on its
operations, conduct of business or use of properties. TNCI has not taken any
action that requires notification of the employees of TNCI pursuant to the
provisions of the WARN Act or that would cause TNCI to have any liability
thereunder. There are no injunctions, orders, awards, decrees of any
governmental body or political subdivision currently in effect against IFT.
6.20 Filings. TNCI has made all filings and reports required under all
local, state and federal laws and regulations with respect to its business and
assets and of any predecessor entity or partnership, except where the failure to
make such filings and reports would not have a material adverse affect on the
business, assets, financial condition, or results of operations or prospects of
TNCI.
6.21 Certain Activities. TNCI has not, directly or indirectly, engaged
in or been a party to any of the following activities:
6.21.1 Bribes, kickbacks or gratuities to any person or entity,
including domestic or foreign government officials or any other payments to any
such persons or entity, whether legal or not legal, to obtain or retain business
or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
6.21.2 Contributions (including gifts), whether legal or not legal,
made to any domestic or foreign political party, political candidate or holder
of political office (except where such is in compliance with applicable law);
6.21.3 Holding of or participation in bank accounts, funds or pools of
funds created or maintained in the United States or any foreign country, without
being reflected on the corporate books of account, or as to which receipts or
disbursements therefrom have not been reflected on such books, the purpose of
which is to obtain or retain business or to receive favorable treatment with
regard to business;
6.21.4 Receiving or disbursing monies, the actual nature of which has
been improperly disguised or intentionally misrecorded on or improperly omitted
from the corporate books of account;
6.21.5 Paying fees to domestic or foreign consultants or commercial
agents which exceed the reasonable value of the ordinary and customary
consulting and agency services purported to have been rendered;
6.21.6 Paying or reimbursing (including gifts) personnel of TNCI for
the purpose of enabling them to expend time or to make contributions or payments
of the kind or for the purposes referred to in Paragraphs 6.21.1 through 6.21.5
above;
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6.21.7 Participating in any manner in any activity which is illegal
under the international boycott provisions of the Export Administration Act, as
amended, or the international boycott provisions of the Internal Revenue Code,
or guidelines or regulations thereunder; and
6.21.8 Making or permitting unlawful charges, mischarges or defective
or fraudulent pricing under any contract or subcontract under a contract with
any department, agency or subdivision thereof, of the United States government,
state or municipal government or foreign government.
6.22 Employment Relations. TNCI is in compliance with all Federal,
state or other applicable laws, domestic or foreign, respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice which would result
in a material adverse effect on TNCI; no unfair labor practice complaint against
TNCI is pending before the National Labor Relations Board; there is no labor
strike, dispute, slow down or stoppage actually pending or, to TNCI's knowledge,
threatened against or involving TNCI; no labor representation question exists
respecting the employees of TNCI; no grievance which might have an adverse
effect upon TNCI or the conduct of its business has been filed against TNCI; no
arbitration proceeding arising out of or under any collective bargaining
agreement is currently being negotiated by TNCI; and TNCI has not experienced
any material labor difficulty during the last three (3) years.
6.23 Insurance Coverage. The policies of fire, liability or other forms
of insurance of TNCI are described in Schedule 6.23.
6.24 Charter and By-Laws. TNCI has heretofore delivered to TNCI true,
accurate and complete copies of the Articles of Incorporation and By-Laws of
TNCI, together with all amendments to each of the same as of the date hereof.
6.25 Corporate Minutes. The minute books of TNCI made available to IFT
previously and at the Closing are the correct and only such minute books and do
and will contain complete and accurate records of any and all proceedings and
actions at all meetings, including written consents executed in lieu of meetings
of its stockholders, Board of Directors and committees thereof through the
Closing Date. The stock records of TNCI delivered to IFT at the Closing are
copies of the correct and only such stock records and accurately reflect all
issues and transfers of record of the capital stock of TNCI.
6.26 Default on Indebtedness. TNCI is not in monetary default or in
material default in any other respect under any evidence of indebtedness for
borrowed money.
6.27 Indebtedness. Except as described in Schedule 6.27, TNCI's
shareholders, and any corporation or entity with which they are affiliated, are
not indebted to TNCI, and TNCI has no indebtedness or liability to its
shareholders and any corporation or entity with which they are affiliated.
6.28 Product Liability Claims; Product Warranties. Schedule 6.28 sets
forth all product liability claims pending or, to the knowledge of TNCI,
threatened against TNCI and all product liability claims paid by or on behalf of
TNCI for the three (3) year period prior to the date of this Agreement. Except
as set forth on Schedule 6.29, TNCI has not given or offered any warranty
covering
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any products sold or distributed by it, and TNCI has not extended to its
customers and indemnification or guarantees.
6.29 Environmental Protection. Except as set forth on Schedule 6.29,
6.29.1 The operations of TNCI comply in all material respects with all
applicable Environmental Laws and there are no substances or conditions existing
at any facility that may support a claim or cause of action under any
Environmental Laws.
6.29.2 TNCI has obtained, or has taken appropriate steps as required by
Environmental Laws to obtain, all environmental, health and safety permits
necessary for its operations, and all such permits are in food standing and TNCI
is currently in compliance with all terms and conditions of such permits;
6.29.3 TNCI's facilities and operations at the facilities are not
subject to any judicial or administrative proceeding, order, judgment, decree or
settlement, or to the knowledge of TNCI, any investigation, alleging or
addressing (i) violation of any Environmental Laws, or (ii) any remedial action;
and TNCI has not received any notice of any claims or liabilities and costs
arising from the release or threatened release of a contaminant into the
environment, or claims, complaints, notices or requests for information with
respect to any alleged violation of any Environmental Laws or complaints or
notices regarding potential liability under any Environmental Laws.
6.30 Completeness of Representations and Schedules. The Schedules and
Exhibits hereto completely and correctly present in all material respects the
information required by this Agreement. This Agreement, the certificates to be
delivered by the officers of TNCI at the Closing, any Schedules and Exhibits to
be delivered under this Agreement and the representations and warranties of this
Paragraph 6, and the documents and written information pertaining to TNCI
furnished to IFT or its agents by or on behalf of TNCI, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make this Agreement, or such certificates, schedules, documents or
written information, not misleading.
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
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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:
7.2.1 Conduct its operations according to the ordinary and usual
course of business, and use best efforts to preserve intact its business
organization and material rights and franchises, proprietary rights,
permits, licenses, and maintain satisfactory relationship with licensors,
suppliers, distributors, customers and others having relationships with
TNCI;
7.2.2 Provide IFT with all information regarding TNCI which is
reasonably required in connection with IFT's preparation of its proxy
materials relating to the transaction contemplated by this Agreement. Such
information will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements, in light of
the circumstances in which they were made, not misleading. TNCI will
promptly furnish amended and supplemental information as may be necessary,
in light of developments occurring subsequent to the mailing of a proxy
statement by IFT to its stockholders, ensure that information regarding
TNCI does not, as of the date of the IFT stockholders' meeting, contain any
untrue statement of a material fact or omit a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading;
7.2.3 Promptly inform IFT in writing of any variances from the
representations and warranties contained in paragraph 6 hereof;
7.2.4 Take all such actions as necessary to obtain shareholder
approval, if necessary, to effectuate this transaction and to approve the
transactions contemplated hereby and to amend TNCI's Articles of
Incorporation to increase the number of authorized shares to 30,000,000;
7.2.5 Use its best efforts to obtain all third party consents
necessary or desirable to consummate the transactions contemplated hereby,
and to cause all conditions to the closing to be satisfied.
7.2.6 Use its best efforts to obtain the approval of the Nasdaq Stock
Market, Inc. to the proposed transaction as contemplated by Paragraph 9.2;
and
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7.2.7 Use its best efforts to obtain the irrevocable proxies in favor
of IFT as contemplated by Paragraphs 10.13.1, 10.13.2 and 10.13.3.
7.3 Negative Covenants of IFT. Prior to the Closing Date, without the
prior written consent of TNCI or as otherwise contemplated by this Agreement,
IFT will not:
7.3.1 Voluntarily take any action that would result in a breach of
IFT's representations and warranties under Paragraph 5 of this Agreement;
7.3.2 Incur any liabilities or obligations relating to the Business,
or increases in salaries of the employees set forth in Schedule 5.16, other
than those incurred in the ordinary and necessary course of business, or
undertake any extraordinary capital expenditures relating to the Business;
or
7.3.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon the Assets or the
Business.
7.4 Negative Covenants of TNCI. Prior to the Closing Date, without the
prior written consent of IFT, TNCI will not:
7.4.1 Voluntarily take any action that would result in a breach of
TNCI's representations and warranties under Paragraph 6 of this Agreement;
7.4.2 Incur any liabilities or obligations, or increases in salaries
or other direct or indirect corporation expenses, other than those incurred
in the ordinary and necessary course of business and not exceeding $1,000
in aggregate, or undertake any extraordinary capital expenditures in excess
of $5,000 in the aggregate;
7.4.3 Take or omit to take any action which could be reasonably
anticipated to have a material adverse effect upon its business,
operations, financial condition, operating results, or assets;
7.4.4 Issue any additional shares of its capital stock or any
Convertible Securities or grant any rights to acquire or agree to issue any
additional shares of its capital stock or any Convertible Security; or
7.4.5 Undertake any debt or equity financing.
7.5 Noncompetition.
7.5.1 IFT acknowledges and recognizes the highly competitive nature of
the business in which it is engaged and accordingly agrees that, in the
event that the transaction contemplated hereby closes, to induce TNCI to
consummate the transaction contemplated by this Agreement, IFT shall not,
for a period of three (3) years after the Closing Date: (i) engage directly
or indirectly in any Competitive Business (as defined below) anywhere in
the Restricted Territory (as defined below), whether such engagement be as
an employer, officer, director, owner, investor, employee, partner,
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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
regulations; provided, however, that TNCI and IFT may each issue a press release
and file such other reports and make such other disclosure as may be required by
applicable securities law or the rules or regulations of NASDAQ or the Boston
Stock Exchange upon execution of this Agreement. Each party shall provide the
other with any such press release or other disclosure document prior to its
release for review and comment. After Closing, without the prior written consent
of each of TNCI and IFT, neither party shall make any press release or other
public disclosure, or make any statement to any customer, supplier or other
person with regard to the transactions contemplated by this Agreement, except as
required by applicable securities laws or regulations or the rules of
regulations of NASDAQ or the Boston Stock Exchange.
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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.
9.7 Possession. IFT shall deliver to TNCI possession of the Assets.
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9.8 Opinion of Counsel. TNCI shall have received an opinion of counsel
for IFT substantially in the form set forth in Exhibit A.
9.9 Fairness Opinion. TNCI shall have received a "fairness opinion"
with respect to the fairness, from a financial point of view, of the
transactions contemplated by this Agreement to the shareholders of TNCI, which
fairness opinion is satisfactory in form and scope to TNCI's board of directors.
9.10 Financial and Other Conditions. IFT shall have no contingent or
other material liabilities connected with the Business, except as disclosed in
the financial statements or as described in Schedule 2.1.
9.11 Legal Prohibition. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation threatening to restrain
prohibiting or invalidating the consummation of the transactions contemplated by
this Agreement, or which might affect TNCI's right to own, operate, and have
assigned to it the Assets.
9.12 [INTENTIONALLY OMITTED].
9.13 Material Changes. There shall be no material adverse change in the
Business, financial condition, results of operates or prospects of the Business
from the date of this Agreement to the Closing Date.
10. Conditions Precedent to the Obligations of IFT. The obligations of
IFT under this Agreement are, at the option of IFT, subject to the fulfillment
to IFT's reasonable satisfaction on or before the Closing Date of each of the
following conditions:
10.1 Execution of this Agreement. TNCI shall have duly executed and
delivered this Agreement to IFT.
10.2 Approval. IFT shall have obtained the approval of its stockholders
if required under Delaware law and the requirements of the Nasdaq Stock Market,
Inc.
10.3 [INTENTIONALLY OMITTED].
10.4 Payment. Subject to the terms and conditions hereof, TNCI shall
have transferred the TNCI Shares free and clear of any liens, encumbrances or
other obligations and assumed the Assumed Liabilities of IFT in exchange for the
Assets as described in Paragraph 3, "Purchase Price."
10.5 Representations and Warranties Accurate.
10.5.1 TNCI shall deliver the Disclosure Schedule to this Agreement no
later than seven (7) days after the date of this Agreement. IFT shall have
seven (7) days after its receipt of the Disclosure Schedule to determine,
in its sole discretion, whether or not IFT shall accept the representations
and warranties as modified or amplified by the Disclosure Schedule. If IFT
determines that any party of the Disclosure Schedule is unacceptable, IFT
may provide TNCI additional time to remedy the matter or may terminate this
Agreement in accordance with its provisions.
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10.5.2 All representations and warranties of TNCI contained in this
Agreement shall have been true in all respects when made on the date of
execution of this Agreement, and also at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing
Date. TNCI shall furnish IFT with a certificate, dated the Closing Date and
signed on behalf of TNCI and by a duly authorized officer thereof stating
the above in such form as IFT may reasonably request. The acceptance of the
Assets by TNCI shall constitute an affirmation by TNCI of the truth, as of
the Closing Date, of the representations and warranties made by in this
Agreement.
10.6 Performance of TNCI. TNCI shall have performed and complied with
all agreements, terms and conditions required by this Agreement to be performed
or complied with and TNCI shall deliver a certificate, in form and substance
satisfactory to IFT, to that effect, dated the Closing Date, and signed in the
manner set forth in Paragraph 10.5.2, on or before the Closing Date.
10.7 Consents. Prior to Closing, TNCI shall have obtained all consents
and approvals in conjunction with the transfer of the TNCI Shares to IFT as may
be required to effect such transfer and such consents and approvals shall be
issued in written form and substance reasonably satisfactory to IFT and its
counsel, or IFT shall have waived such requirements.
10.8 Opinion of Counsel. IFT shall have received an opinion of counsel
for TNCI substantially in the form set forth in Exhibit B.
10.9 [INTENTIONALLY OMITTED].
10.10 [INTENTIONALLY OMITTED].
10.11 Financial Statements. TNCI's financial statements, shall be
acceptable to IFT, in its sole discretion, and IFT shall have the opportunity in
the due diligence process to review such Financial Statements with TNCI's
independent auditors, PriceWaterhouseCoopers;
10.12 Board of Directors. The directors of TNCI shall have appointed to
the Board of Directors of TNCI those persons set forth in Paragraph 16 hereof,
and the directors shall have appointed as the officers of TNCI those persons set
forth in Paragraph 16, to take effect upon consummation of the transaction.
10.13 Convertible Securities. On or before the execution of this
Agreement, the holders of the outstanding shares of Preferred Stock, convertible
notes, and related warrants of TNCI shall have reached agreements with IFT or
TNCI, as the case may be, on terms satisfactory to IFT, regarding the
disposition or conversion into shares of TNCI Common Stock of their holdings.
Without limiting the foregoing, the following shall have occurred prior to the
Closing:
10.13.1 The Holders of all of the outstanding Series A Notes, Series D
Notes and Series E Notes shall have converted such Preferred Stock and
notes into that number of shares of Common Stock of TNCI on terms approved
by IFT and shall have granted IFT irrevocable proxies to vote such shares
and executed lock-up agreements respecting the shares for the duration of
the proxies on terms acceptable to IFT, in its discretion;
10.13.2 Wil Riner and his wife, James Riner and his wife, Wil Riner,
Jr. and his wife and Bryan Carr and his wife shall have granted IFT
irrevocable proxies to vote their shares of
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Common Stock of TNCI on terms acceptable to IFT, in its discretion. The
foregoing proxies shall be limited to voting to approve the terms of this
Agreement, increase the number of authorized shares of Common Stock to at
least 30,000,000 and effect any other action or matter required to complete
the transactions contemplated by this Agreement. These proxies will
terminate upon the earlier of IFT obtaining the approval of TNCI's
shareholders on the foregoing matters or September 30, 1999, provided that
such date may be extended up to December 31, 1999 if any legal or
regulatory action prevents consideration of such matters by the
shareholders on or before September 30, 1999. The parties granting these
proxies shall not be permitted to sell, transfer, assign or pledge their
shares unless their proposed transferees or pledgees agree to be bound by
the terms of these proxies; and
10.13.3 TNCI shareholders in addition to those set forth in Paragraphs
10.13.1 and 10.13.2 shall have provided irrevocable proxies to IFT to vote
their shares of Common Stock of TNCI on terms acceptable to IFT in its
discretion, which shares when added to the shares subject to the proxies
granted to IFT in Paragraphs 10.13.1 and 10.13.2 and such other shares of
voting capital stock of TNCI held by IFT shall equal at least 50.1% of the
outstanding voting capital stock of TNCI. The foregoing proxies shall be
limited to voting to approve the terms of this Agreement, increase the
number of authorized shares of Common Stock to at least 30,000,000 and
effect any other action or matter required to complete the transactions
contemplated by this Agreement. These proxies will terminate upon the
earlier of IFT obtaining the approval of TNCI's shareholders on the
foregoing matters or September 30, 1999, provided that such date may be
extended up to December 31, 1999 if any legal or regulatory action prevents
consideration of such matters by the shareholders on or before September
30, 1999. The parties granting these proxies shall not be permitted to
sell, transfer, assign or pledge their shares unless their transferees or
pledgees agree to be bound by the terms of these proxies.
10.14 Other Issues. IFT shall have acquired the Series B Preferred
Stock and the IFT secured note shall have been amended on terms acceptable to
IFT. IFT shall have received proxies from certain shareholders of TNCI as
determined by IFT.
10.15 Directors and Officers Coverage. TNCI shall have purchased
Directors and Officers liability insurance policies in favor of the existing
directors and officers and the officers and directors set forth in Paragraph 16
in amounts and on terms reasonably acceptable to IFT, but in any event with
limits not less than Fifteen Million Dollars ($15,000,000), to be effective
immediately following the Closing Date and with an insurer reasonably acceptable
to IFT.
10.16 Material Changes. There shall be no material adverse change in
the business, financial conditions, results of operations or prospects of TNCI
from the date of this Agreement to the Closing Date.
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11. Indemnification.
11.1 Survival of Representations, Warranties and Certain Covenants. The
representations and warranties made by the parties in this Agreement and in the
certificates delivered at the Closing, and all of the covenants of the parties
in this Agreement, shall survive the execution and delivery of this Agreement
and the Closing Date and shall expire on the first anniversary of the Closing
Date. Any claim for indemnification shall be effective only if notice of such
claim is given by the party claiming indemnification or other relief to the
party against whom such indemnification or other relief is claimed on or before
the first anniversary of the Closing Date (other than in Paragraphs 5.8, 5.9 and
6.12, and any of which results from fraud, the survival period for which shall
be sixty (60) days following the end of the applicable statute of limitations
period).
11.1.1 The representations and warranties of the parties shall not be
affected or diminished by any investigation at any time by or on behalf of
the party for whose benefit such representations and warranties were made.
11.1.2 The expiration of any representation or warranty shall not
affect any parties' right to pursue any claim made prior to such
expiration.
11.2 Indemnification by TNCI.
11.2.1 TNCI agrees to indemnify and hold IFT harmless, from and after
the Closing Date, against and in respect of all matters in connection with
any losses, liabilities, costs or damages (including reasonable attorneys'
fees) incurred by IFT that result from any misrepresentation or breach of
the warranties by TNCI in Paragraph 6, "Representations and Warranties of
TNCI," or any breach or nonfulfillment of any agreement or covenant on the
part of TNCI contained in this Agreement, and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the
foregoing matters, including reasonable attorneys' fees.
11.2.2 No claim for indemnification may be made under this Paragraph
11 after the first anniversary of the Closing Date, except in accordance
with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by
an indemnified party against an indemnifying party unless and until the
cumulative total of all losses suffered by such indemnified party and
covered by such Paragraphs (the "Losses") exceeds $100,000 (the
"Threshold"). Once Losses exceed the Threshold, the indemnified party
suffering such Losses may recover all Losses which exceed the Threshold,
without being able to recover any Losses which do not exceed the Threshold.
11.3 Indemnification by IFT.
11.3.1 IFT agrees to indemnify and hold TNCI, its officers, directors
and representatives, (the "TNCI Parties") harmless, from and after the
Closing Date, against and in respect of all matters in connection with any
losses, liabilities, costs or damages (including reasonable attorneys'
fees) incurred by TNCI that result from any misrepresentation or breach of
the warranties by IFT in Paragraph 5, "Representations and Warranties of
IFT," or any breach or nonfulfillment of any agreement or covenant on the
part of IFT contained in this Agreement, and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the
foregoing matters, including reasonable attorneys' fees.
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11.3.2 No claim for indemnification may be made under this Paragraph
11 after the first anniversary of the Closing Date, except in accordance
with Paragraph 11.1. Notwithstanding the foregoing, no claim for
indemnification under Paragraphs 11.2.1 or Paragraph 11.3.1 may be made by
an indemnified party against an indemnifying party unless and until the
cumulative total of all losses suffered by such indemnified party and
covered by such paragraphs (the "Losses") exceeds $100,000 (the
"Threshold"). Once Losses exceed the Threshold, the indemnified party
suffering such Losses may recover all Losses which exceed the Threshold,
without being able to recover any Losses which do not exceed the Threshold.
11.4 Mediation. If any TNCI Party believes that a matter has occurred
that entitles it to indemnification under Paragraph 11.3, "Indemnification by
IFT," or any IFT Party believes that a matter has occurred that entitles it to
indemnification under Paragraph 11.2, "Indemnification by TNCI," the TNCI Party
or IFT Party as the case may be (the "Indemnified Party"), shall give written
notice to the party or parties against whom indemnification is sought (each of
whom is referred to herein as an "Indemnifying Party") describing such matter in
reasonable detail (the "Dispute Notice"). The Indemnified Party shall be
entitled to give such notice prior to the establishment of the amount of its
losses, liabilities, costs or damages, and to supplement its claim from time to
time thereafter by further notices as they are established. Each Indemnifying
Party shall send a written response to such claim for indemnification within
thirty (30) days after receipt of the claim stating its acceptance or objection
to the indemnification claim, and explaining its position in respect thereto in
reasonable detail. If such Indemnifying Party does not timely so respond, it
will be deemed to have accepted the Indemnified Party's indemnification claim as
specified in the notice given by the Indemnified Party. If the Indemnifying
Party gives a timely objection notice, then the parties shall resolve the
dispute by binding mediation in Phoenix, Arizona under the Commercial Mediation
Rules of the American Arbitration Association (AAA) in effect on the date of the
Dispute Notice. If the parties cannot agree on the selection of a mediator
within twenty (20) days after delivery of the Dispute Notice, the mediator will
be selected by the AAA. The prevailing party in any such mediation shall be
entitled to recover from, and have paid by, the other party hereto all fees and
disbursements of such mediation, including its reasonable attorneys.
11.5 Indemnification Shares. The parties agree that if it is determined
that IFT is entitled to indemnification pursuant to Paragraph 11.4, then at the
option of IFT's Board of Directors, TNCI shall compensate IFT by issuing to IFT
shares of TNCI Common Stock. The number of shares to be issued pursuant to this
paragraph (the "Indemnification Shares") shall be determined by dividing the
dollar amount of TNCI's obligation for indemnification by the average of the
closing prices of the TNCI Common Stock as reported on the principal trading
market for TNCI Common Stock for the twenty (20) trading days immediately
preceding the date that the notice of claim is given to TNCI. The parties agree
that this measure of damages is equitable in light of the method of payment of
the Purchase Price.
11.6 No Finders. TNCI represents and warrants to IFT and IFT represents
and warrants to TNCI that there are no obligations to pay any fee or commission
to any broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement. TNCI agrees to indemnify and hold harmless IFT
from any breach of TNCI's representation in the previous sentence, and IFT
agrees to indemnify and hold TNCI harmless from any breach of its representation
in the previous sentence.
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11.7 Third Person Claim Procedures. If any third person asserts a claim
against an Indemnified Party in connection with the matter involved in such
claim, the Indemnified Party shall promptly (but in no event later than ten (10)
days prior to the time at which an answer or other responsive pleading or notice
with respect to the claim is required) notify the Indemnifying Party of such
claim. The Indemnifying Party shall have the right, at its election, to take
over the defense or settlement of such claim by giving prompt notice to the
Indemnified Party that it will do so, such election to be made and notice given
in any event at least five (5) days prior to the time at which an answer or
other responsive pleading or notice with respect thereto is required. If the
Indemnifying Party makes such election, the Indemnifying Party may conduct the
defense of such claim through counsel of its choosing (subject to the
Indemnified Party's approval, not to be unreasonably withheld), will be
responsible for the expenses of such defense, and shall be bound by the results
of its defense or settlement of the claim to the extent it produces damage or
loss to the Indemnified Party. The Indemnifying Party shall not settle such
claims without prior notice to and consultation with the Indemnified Party, and
no such settlement involving any injunction or material and adverse effect on
the Indemnified Party may be agreed to without its consent. Notwithstanding the
assumption of the defense of any claim by the indemnifying party, the
indemnified party(ies) shall have the right to employ a single, separate legal
counsel (together with appropriate local counsel) and to participate in the
defense of such claim, and the indemnifying party shall bear the reasonable
fees, out-of-pocket costs and expenses of such single, separate legal counsel to
the indemnified party(ies) if (and only if): (x) the indemnifying party shall
have agreed to pay such fees, out-of-pocket costs and expenses, (y) the
indemnifying party, based upon an opinion of counsel in writing, reasonably
acceptable to the indemnifying party, shall have concluded that representation
of the indemnified party(ies) and the indemnifying party by the same legal
counsel would not be appropriate due to actual (i) conflicts of interest between
such parties in the conduct of the defense of such claim, or (ii) if there may
be legal defenses available to the indemnified party(ies) that are in addition
to or disparate from those available to the indemnifying party and which can not
be presented by counsel to the indemnifying party, or (z) the indemnifying party
shall have failed to employ legal counsel reasonably satisfactory to the
indemnified party(ies) within a reasonable period of time after notice of the
commencement of such claim [it being recognized and acknowledged that Nixon,
Hargrave, Devans & Doyle LLP and Streich Lang, PA, shall be regarded as such
reasonably satisfactory counsel to the indemnified party(ies)]. IF the
indemnifying party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the indemnified party(ies). As long
as the Indemnifying Party is diligently contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. If the
Indemnifying Party does not make such election, or having made such election
does not proceed diligently to defend such claim prior to the time at which an
answer or other responsive pleading or notice with respect thereto is required,
or does not continue diligently to contest such claim, then the Indemnified
Party may take over defense and proceed to handle such claim in its exclusive
discretion, and the Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party may make in good faith with respect to
such claim and shall pay the reasonable attorneys fees of such defense, subject
to paying for only one counsel. The parties agree to cooperate in defending such
third party claims, and the defending party shall have access to records,
information and personnel in control of the other part which are pertinent to
the defense thereof.
11.8 Limitation of Remedies. No party to this Agreement shall be liable
to any other party or parties or have any remedies against any other party or
parties under this Agreement other than as provided in Paragraph 11,
"Indemnification," and Paragraph 12, "Termination." The parties
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understand that this requires that all disputed claims shall be submitted to
arbitration in accordance with Paragraph 10.4, "Arbitration."
12. Termination.
12.1 Termination Events. This Agreement may be terminated and abandoned
prior to the closing thereof, by notice given in the manner hereinafter
provided:
12.1.1 By TNCI, (a) if without a material breach of the terms or
conditions of this Agreement by TNCI, all of the conditions set forth in
Paragraph 9, "Conditions Precedent to the Obligations of TNCI," shall not
have been satisfied on or before the Closing Date and have not been waived
by TNCI on or before such dates, as the case may be, or (b) a material
breach of the terms or conditions of this Agreement by IFT occurs which
breach is not cured within ten (10) days following the giving of written
notice thereof to IFT.
12.1.2 By IFT, (a) if without a material breach of the terms or
conditions of this Agreement by IFT occurs which breach is not cured within
ten (10) days following the giving of written notice thereof to IFT, all of
the conditions set forth in Paragraph 10, "Conditions Precedent to the
Obligations of IFT," shall not have been satisfied on or before the Closing
Date and have not been waived by IFT on or before such date, as the case
may be, or (b) a material breach of the terms or conditions of this
Agreement by TNCI occurs which breach is not cured within ten (10) days
following the giving of written notice thereof to TNCI.
12.1.3 By the mutual agreement of TNCI and IFT.
12.2 Effect of Termination. In the event this Agreement is terminated
pursuant to Paragraph 12.1, "Termination Events," this Agreement shall forthwith
become void, and, there shall be no liability or continuing obligations on the
part of the parties hereunder, except as provided below:
12.2.1 no party may terminate this Agreement pursuant to Paragraph
12.1.1(b) or 12.1.2(b) if such party is in material breach of the terms of
this Agreement;
12.2.2 TNCI shall continue to be bound by Paragraph 7.4.5 through
November 14, 1999 so long as IFT owns at least 20% of the outstanding
Common Stock of TNCI, computed by assuming that all Preferred Stock or
convertible notes held by IFT have been converted into Common Stock of
TNCI; and provided that if IFT does not give its consent to a proposed
transaction during the foregoing period, which consent shall not be
unreasonably withheld, TNCI may purchase the Common Stock and Common Stock
equivalents based on conversion of Preferred Stock and convertible debt
held by IFT at a price equal to the greater of $3.50 per share or the
average of the bid and ask prices of the Common Stock on the principal
market on which the Common Stock is traded on the date of purchase; and
12.2.3 after November 14, 1999 IFT shall have a right of first
refusal, for a period of fifteen (15) days after receipt of written notice
from TNCI, to purchase any debt or equity securities of TNCI on the same
terms and conditions as any bona fide third party. IFT shall have the
foregoing right of first refusal so long as IFT owns at least 20% of the
outstanding Common Stock of
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TNCI, computed by assuming that all Preferred Stock and convertible debt
held by IFT have been converted into Common Stock of TNCI.
12.2.4 TNCI shall grant IFT a license to use TNCI's technology under
terms of a license agreement attached as Exhibit C hereto, which license
shall (i) permit TNCI to continue to utilize such technology directly in
its business, but not license such technology to any third party; (ii) be
for a fifteen (15) year term; (iii) permit IFT to license the technology on
a royalty-free basis; and (iv) give IFT a first right of refusal to
purchase the technology on the same terms and conditions as TNCI proposes
to sell the technology to a bona fide third party purchaser.
13. Expenses and Transfer Taxes.
13.1 TNCI shall be solely responsible for paying its own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation
for paying such expenses or costs of IFT.
13.2 IFT shall be solely responsible for paying is own expenses and
costs incident to the preparation of this Agreement and to the consummation of
the transactions contemplated by this Agreement, and shall have no obligation to
reimburse the expenses or costs of TNCI.
13.3 Notwithstanding any of the other provisions hereof, in the event
of arbitration with respect to the interpretation or enforcement of this
Agreement in accordance with Paragraph 11.4 hereof, the prevailing party in any
such matter shall be entitled to recover from the other party their or its
reasonable costs and expense, including reasonable attorneys' fees, incurred in
such arbitration and/or litigation. For purposes of this subparagraph 13.3, a
party shall be deemed to be the prevailing party only if such party (A)(i)
receives an award or judgment in such arbitration and/or litigation for more
than 50% of the disputed amount involved in such matter, or (ii) is ordered to
pay the other party less than 50% of the disputed amount involved in such matter
or (B)(i) succeeds in having imposed a material equitable remedy on the other
party (such as an injunction or order compelling specific performance), or (ii)
succeeds in defeating the other party's request for such an equitable remedy.
13.4 TNCI and IFT do not believe any sales or transfer taxes will be
due as a result of the sale and transfer of the Assets as contemplated in this
Agreement. TNCI shall, however, pay any sales or transfer taxes which may become
due on the sale or transfer of the Assets to TNCI and the other transactions
contemplated under this Agreement.
14. Risk of Loss. The risk of loss or destruction of all or any part of
the Assets prior to the Closing Date from any cause (including, without
limitation, fire, theft, acts of God or public enemy) shall be upon IFT. Such
risk shall be upon TNCI if such loss occurs after the Closing Date.
15. Notification of Claims. Each party will promptly notify the other
of any third party claims against any party relating to TNCI or the Assets of
which it receives knowledge or notice so as to permit such party an opportunity
to prepare a timely defense to such claim or to attempt settlement.
16. TNCI Board of Directors. On the Closing Date, the Board of
Directors and officers of TNCI shall consist of the following seven (7) persons;
Irwin L. Gross (Chairman), Wilbur Riner, Sr. (President and CEO), Morris C.
Aaron (Executive Vice President), Frank E. Gomer (Executive Vice
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President), two (2) outside directors to be determined by IFT, and one (1)
outside director to be determined by TNCI.
17. Miscellaneous.
17.1 Binding Agreement. The parties covenant and agree that this
Agreement, when executed and delivered by the parties, will constitute a legal,
valid and binding agreement between the parties and will be enforceable in
accordance with its terms.
17.2 Negotiations with Third Parties. In consideration of the
undertakings by the parties of the substantial legal, accounting and other
expenses incident to the parties proceeding toward the closing of the
transaction contemplated hereby the parties agree that, through the earlier of
May 15, 1999 or the Closing Date, neither party will enter into or pursue any
arrangements or negotiations with any other party relative to (i) the merger of
TNCI into any other party or any purchase or sale of substantially all of the
assets or control relative to any extraordinary transaction, in the case of
TNCI, without the consent of IFT, and (ii) the acquisition by IFT of all or
substantially all of the assets, or the voting control, of a company whose
business is related to or in competition with the business conducted by TNCI,
without the consent of TNCI.
17.3 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto, their legal
representatives, successors and assigns.
17.4 Entire Agreement. This Agreement and its exhibits and schedules
constitute the entire contract among the parties hereto with respect to the
subject matter thereof, superseding all prior communications and discussions and
no party hereto shall be bound by any communication on the subject matter hereof
unless such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
17.5 Modification. This Agreement may be waived, changed, amended,
discharged or terminated only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, amendment, discharge or
termination is sought.
17.6 Notices. All notices, requests, demands and other communications
shall be deemed to have been duly given three (3) days after postmark of deposit
in the United States mail, if mailed, certified or registered mail, postage
prepaid, one day after delivery to a nationally recognized overnight courier,
upon receipt by facsimile (with confirmation back), or upon hand delivery:
If to IFT:
Interactive Flight Technologies, Inc.
4041 North Central Avenue, Suite B-200
Phoenix, Arizona 85012
Attn: Irwin L. Gross, Chief Executive Officer
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With copy to:
Christian J. Hoffmann, III
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004-2391
If to TNCI:
The Network Connection, Inc.
1324 Union Hill Road
Alpharetta, Georgia 30201
Attn: Wilbur Riner, Sr., President
With a copy to:
Peter W. Rothberg, Esq.
Nixon, Hargrave, Devans & Doyle LLP
437 Madison Avenue
New York, New York 10022-7001
or to such other address as any party shall designate to the other in writing.
The parties shall promptly advise each other of changes in addresses for such
notices.
17.7 Choice of Law. This Agreement shall be governed by, construed,
interpreted and enforced according to the laws of the State of Delaware.
17.8 Severability. If any portion of this Agreement shall be finally
determined by any court or governmental agency of competent jurisdiction to
violate applicable law or otherwise not to conform to requirements of law and,
therefore, to be invalid, the parties will cooperate to remedy or avoid the
invalidity, but, in any event, will not upset the general balance of
relationships created or intended to be created between them as manifested by
this Agreement and the instruments referred to herein. Except insofar as it
would be an abuse of the foregoing principle, the remaining provisions hereof
shall remain in full force and effect.
17.9 Other Documents. The parties shall upon reasonable request of the
other, execute such documents as may be reasonably necessary to carry out the
intent of this Agreement.
17.10 Headings and the Use of Pronouns. The paragraph headings hereof
are intended solely for convenience of reference and shall not be construed to
explain any of the provisions of this Agreement. All pronouns and any variations
thereof and other words, as applicable, shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the identity of the person or
matter may require.
17.11 Time is of the Essence. Time is of the essence of this Agreement.
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17.12 No Waiver and Remedies. No failure or delay on a parties part to
exercise any right or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise by a party of a right or remedy hereunder
preclude any other or further exercise. No remedy or election hereunder shall be
deemed exclusive but it shall, where ever possible, be cumulative with all other
remedies in law or equity.
17.13 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17.14 Further Assurances. Each of the parties hereto shall use
commercially practicable efforts to fulfill all of the conditions set forth in
this Agreement over which it has control or influence (including obtaining any
consents necessary for the performance of such party's obligations hereunder)
and to consummate the transactions contemplated hereby, and shall execute and
deliver such further instruments and provide such documents as are reasonably
necessary to effect this Agreement.
17.15 Rules of Construction. The normal rules of construction which
require the terms of an agreement to be construed most strictly against the
drafter of such agreement are hereby waived since each party has been
represented by counsel in the drafting and negotiation of this Agreement.
17.16 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
17.17 Bulk Sales; Sales Tax. The parties hereby waive compliance with
the requirements of any applicable bulk sales or bulk transfer statutes of any
states having jurisdiction, and IFT hereby agrees to be responsible for and
shall indemnify and hold harmless TNCI against any liability that may arise as a
result of any obligations imposed by such statutes. Additionally, IFT shall be
responsible for and shall indemnify and hold harmless TNCI for any sales tax due
upon the transfer of the Assets pursuant to this Agreement or any sales tax
which should have been collected by IFT in connection with operation of the
Business being transferred on or prior to the Closing Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IFT: TNCI:
INTERACTIVE FLIGHT TECHNOLOGIES, THE NETWORK CONNECTION, INC., a
INC., a Delaware Corporation Georgia corporation
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Irwin L. Gross, Chief Executive Wilbur Riner, Sr., President
Officer
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