Exhibit 10.1
STOCK EXCHANGE AGREEMENT
BETWEEN
ROCKY MOUNTAIN INTERNET, INC.
AND
ROGER L. PENNER
JUNE 24, 1999
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is entered into as of
this 24th day of June, 1999 by and between ROCKY MOUNTAIN INTERNET, INC., a
Delaware corporation (the "Buyer"), and Roger L. Penner (the "Seller"). The
Buyer and the Seller are referred to collectively herein as the "Parties."
RECITALS:
A. The Seller has all right, title and interest in and to
1,000,000 shares of the issued and outstanding common stock,
without par value, of CommerceGate Corporation, a Washington
corporation ("CGC"), representing all of the issued and
outstanding shares of stock of CGC (the "CGC Shares").
B. Buyer wishes to acquire the CGC Shares, and the Seller is willing
to sell the CGC Shares to Buyer pursuant to the terms and
conditions of this Agreement.
C. The Parties expect that the Buyer will receive as a result of this
Agreement good and marketable title in a Software Product, as
described below, which will be successfully developed and market
so as to result in Buyer and Buyer's affiliates receiving gross
revenue consistent with the revenue as described more fully in the
separate Earn-Out Agreement between Rocky Mountain Internet, Inc.
and Roger Penner and CommerceGate, dated June 24, 1999.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, Seller and Buyer agree as follows:
AGREEMENT:
1. DEFINITIONS.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorney's fees and
expenses.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision
of state, local, or foreign law.
"AGREEMENT" has the mean set forth in the preface above.
"BUYER" has the meaning set forth in the preface above.
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"BUYER SHARE" means any share of the voting common stock, $0.001 par
value per share, of the Buyer.
"CLOSING" has the meaning set forth in Section 2(b) below.
"CLOSING DATE" has the meaning set forth in Section 2(b) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Seller and CGC that is not already generally
available to the public.
"CONTINGENT SHARES" has the meaning set forth in Section 2(e)(iii)
below.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Reg.
Section 1.1502-13.
"DELIVERY TERM" has the meaning set forth in Section 2(e)(iv) below.
"DELIVERY TERM EXTENSION" has the meaning set forth in Section 2(e)(iv)
below.
"DELIVERY TERM LOCKUP AGREEMENT" has the meaning set forth in
Section 2(e)(ii) below.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"EARN-OUT PERIOD" has the meaning set forth in Section 2(e)(iii) below.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (c) qualified defined benefit retirement plan or arrangement
which is an Employee Pension Benefit Plan (including Multiemployer Plan), or
(d) Employee Welfare Benefit Plan or material fringe benefit or other
retirement, bonus, or incentive plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Section 3(1).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution
or protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or
cleanup of any hazardous materials,
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substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and
as now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"FCC AUTHORIZATIONS" means all approvals, consents, permits, licenses,
certificates, and authorizations given by the Federal Communications
Commission or similar federal governmental agency to provide the
telecommunications services currently provided by the Seller and to conduct
its business as it is currently conducted.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3(i) below.
"FIXED TERM LOCKUP AGREEMENT" has the meaning set forth in Section
2(e)(ii) below.
"FUNCTIONAL REQUIREMENTS DOCUMENT" has the meaning set forth in
Section 2(e)(iv) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(h) (i)
below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(h)(i)
below.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LOCKUP AGREEMENTS" has the meaning set forth in Section 2(e)(ii)
below.
"LOCKUP SHARES" has the meaning set forth in Section 2(e)(i) below.
"MARKETING REQUIREMENTS DOCUMENTS" has the meaning set forth in
Section 2(e)(iv) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Section
3(i) below.
"MULTIEMPLOYEE PLAN" has the meaning set forth in ERISA Section 3(37).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
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"PARTY" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"EXCHANGE PRICE" has the meaning set forth in Section 2(d)(i) below.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments
under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the preface above.
"SOFTWARE PRODUCT" has the meaning set forth in Section 2(d)(ii) below.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"STATE PUC AUTHORIZATIONS" means all approvals, consents, permits,
licenses, certificates, and authorizations given by any state or local
regulatory authority to provide the telecommunications services currently
provided by the Seller and to conduct its business as it is currently
conducted.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund
or information returns
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or statement relating to Taxes, including any schedule or attachment thereto,
and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(h)(i) below.
2. BASIC TRANSACTION.
(a) MERGER OF CGC WITH SUBSIDIARY OF BUYER. On and subject
to the terms and conditions of this Agreement, as modified pursuant to this
Section 2(a), at the Closing (as defined below) the Seller shall exchange the
CGC Shares for Buyer Shares pursuant to Sections 2(d) and 2(e) as part of a
merger between CGC and a subsidiary of the Buyer. The Parties intend the
transaction described in this Agreement to qualify as a reorganization under
Section 368(a)(1)(A) of the Code, but this Agreement is not contingent on a
determination by any outside agency or third party that such transaction
qualifies as a reorganization under Section 368(a)(1)(A) of the Code.
Notwithstanding the form and title of this Agreement as an agreement for the
exchange of stock, the Parties intend and agree that the form and substance
of the transaction described in this Agreement shall be that of a statutory
merger under said Section 368(a)(1)(A). At the election of the Buyer, to be
made in writing at or before the Closing, the merger shall be either (i) a
merger of CGC into a subsidiary of the Buyer (forward triangular merger) or
(ii) a merger of a subsidiary of the Buyer into CGC (reverse triangular
merger). In either event the articles of incorporation and bylaws of the
surviving corporation shall be as identical as possible (consistent with
state law) to the articles of incorporation and bylaws of the subsidiary of
the Buyer. The Parties agree that all terms of this Agreement other than
this Section 2(a), and the terms of all documents referenced as exhibits to
this Agreement, shall be deemed automatically amended in all respects as
necessary or advisable to correspond with the provisions of this Section
2(a). Without limiting the preceding sentence, (i) this Agreement shall be
deemed a Merger Agreement instead of a Stock Exchange Agreement, and (ii)
this Agreement shall be deemed amended to require the Parties to prepare and
cause to be executed at or as of Closing a Plan of Merger, a Plan of
Reorganization, Articles of Merger, and appropriate board and shareholder
resolution approving the merger.
(b) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Rocky
Mountain Internet, Inc., 1099 18th Street, 30th Floor, Denver, Colorado
80202, commencing at 10:00 a.m. local time on the earlier of (i) the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will
take at the Closing itself) or (ii) July 1, 1999 (the "Closing Date"). The
Closing Date may be extended only upon mutual agreement of the Parties.
(c) ACTIONS AT THE CLOSING. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 6(a) below, (ii) the Buyer will deliver to the Seller
the various certificates, instruments, and documents referred to in Section
6(b) below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of his CGC Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) the
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Buyer will deliver to the Seller in the manner provided below in this Section
2 the certificates evidencing the Buyer Shares issued pursuant to this
Agreement.
(d) EXCHANGE PRICE.
(i) At the Closing, in exchange for the CGC Shares, the Buyer
will issue to the Seller that number of Buyer Shares equal to $1,250,000
divided by the average closing price per share of the Buyer Shares for
the five (5) day period ending on the day prior to the Closing Date (the
"Exchange Price"). The number of Buyer Shares is subject to adjustment
pursuant to Sections 2(e)(i) and 2(e)(ii).
(ii) The Exchange Price set forth above is based the following
expectations of the Buyer: (i) CGC owns concept and initial software
that may be developed into a software product that will offer the "buy
side" of electronic commerce over the Internet for customers (the
"Software Product"); and (ii) Roger Penner will use his best efforts and
provide his full energy and ideas to the Buyer as an employee in the
capacity of a Vice President towards the successful development and
marketing of the Software Product.
(e) BUYER SHARES.
(i) Each Buyer Share issued and outstanding at and as of the
Closing Date will remain issued and outstanding and Seller shall have
voting rights and rights to dividends with respect to the Buyer Shares.
The parties acknowledge that the Buyer Shares to be issued at Closing
pursuant to this Agreement may not be registered at that time. Forty
percent (40%) of the Buyer Shares shall be issued and delivered to the
Seller at Closing free of the Lockup Agreements described below. The
remaining sixty percent (60%) of the Buyer Shares shall be issued and
delivered to the Seller at Closing subject to the Lockup Agreements as
described below (the "Lockup Shares).
(ii) At the Closing, thirty percent (30%) of the Buyer Shares
issued to the Seller at that time shall be subject to a lockup agreement
attached hereto as Exhibit A (the "Delivery Term Lockup Agreement"),
which will bar any transfer or sale of those shares during the period of
the Delivery Term, as that term is defined below in Section 2(e)(iv).
Further, at the Closing an additional thirty percent (30%) of the Buyer
Shares issued to the Seller at that time shall be subject to a separate
lockup agreement attached hereto as Exhibit B (the "Fixed Term Lockup
Agreement"), which will bar any transfer or sale of those shares for a
period of fifteen (15) months from the Closing Date. The Delivery Term
Lockup Agreement and the Fixed Term Lockup Agreement are sometimes
referred to collectively herein as the "Lockup Agreements." Each group of
Lockup Shares shall be registered by the time of expiration of the
restrictions in the corresponding Lockup Agreement. If any Lockup Shares
are not registered at the time of expiration of the restrictions in the
corresponding Lockup Agreement, and if the price per share of the Lockup
Shares on the effective date of said registration is more than fifty
cents ($.50) less than the price per share on the date of expiration of
the restrictions in the Lockup
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Agreement, the Buyer shall issue and deliver to the Seller additional
Buyer Shares in combined value (measured as of the effective date of
the registration) equal to the difference between the aggregate value
of the Lockup Shares as of the date of the said expiration and the
aggregate value of the Lockup Shares as of the effective date of the
registration.
(iii) In addition to the Buyer Shares to be issued to the Seller
at Closing, the Seller will be entitled to receive an additional number
of Buyer Shares (the "Contingent Shares") to be earned, if at all, based
upon the Buyer obtaining certain financial performance criteria over the
four (4) year period following Closing (the "Earn- Out Period") as set
forth in an Earn-Out Agreement in the form attached hereto as EXHIBIT C
(The "Earn-Out Agreement") to be executed at Closing.
(iv) The Lockup Agreements governing the Lockup Shares, and
provisions therein governing the release of the Lockup Shares as set
forth above, are conditioned on the delivery for commercial release by
the Buyer or its Subsidiaries of the Software Product no later than nine
(9) months from Closing (the "Delivery Term"), such Software Product to
be developed (i) in accordance with an acceptable Marketing Requirements
Document ("MRD") delivered by CGC to the Buyer as a Closing requirement,
and attached hereto as EXHIBIT D, and a subsequent Functional
Requirements Document ("FRD") mutually developed by CommerceGate or its
successor and the Buyer after Closing consistent with Buyer's current
business practices for such customer FRD's, and (ii) under the managerial
supervision of the Seller, as a Vice President for the development of the
Software Product. If the Software Product is not delivered within the
Delivery Term, then the Delivery Term shall be extended for a period that
is commercially reasonable under the circumstances ("Delivery Term
Extension"), but under no circumstances may such a Delivery Term
Extension exceed a total of three (3) months, and the restriction periods
under the Lockup Agreements shall be similarly extended by one (1) month
for each month or fraction thereof of the Delivery Term Extension. The
Delivery Term is also subject to extension pursuant to Section 2(f).
Notwithstanding the above, if the Software Product is delivered for
commercial release before the expiration of the Delivery Term or the
Delivery Term Extension, as the case may be, the Delivery Term shall end
on the date of said delivery. If the Delivery Term, as extended, expires
and, despite the good faith efforts of the Parties pursuant to the terms
of this Agreement, there is no delivery for the commercial release by the
Buyer or its Subsidiaries of the Software Product, then (A) the Seller
shall no longer be entitled to receive the Lockup Shares, (B)
unconditional ownership of the Software Product will remain with the
Buyer, and (C) the Seller will not be entitled to earn or receive any
Contingent Shares during the Earn-Out Period or any other shares, money
or other thing of value not already delivered or paid to the Seller. In
addition, in the event that, despite the good faith efforts of the
parties pursuant to the terms of this Agreement, including timely
performance by the Buyer of its funding obligations under Section 2(f),
there is no delivery for commercial release by the Buyer or its
Subsidiaries of the Software Product
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during the Delivery Term and the Delivery Term Extension, then the
Buyer shall have the option of extending the Delivery Term for up to
two (2) additional six (6) month periods or granting Seller the option
of purchasing from the Buyer the unconditional title to and ownership
of the Software Product for a price equal to the full investment of the
Buyer in the Software Product, which price shall include but not be
limited to the $500,000 in value provided by the Buyer to the Seller
at Closing in this transaction and any subsequent sums expended by the
Buyer on the purchase, development and/or marketing of the Software
Product, but excluding salary and benefits provided to the Seller
during his employment with the Buyer.
(v) At the Closing, the Buyer and the Seller shall execute an
Employment Agreement in the form attached hereto as EXHIBIT E (the
"Employment Agreement"). The Seller agrees that if the Seller fails to
provide during the Delivery Term his best efforts and/or contribute his
full energy and ideas to the Buyer as an employee in the capacity of a
Vice President towards the development of the Software Product, or if the
Seller voluntarily leaves his employment with the Buyer during the
DeliveryTerm except due to the breach of the Employment Agreement by the
Buyer, at any time prior to expiration of the Delivery Term, then (1) the
Buyer will be entitled to the return of all Buyer Shares (or, at the
Seller's election, $500,000) and all monies or anything else of value
received by the Seller under this Agreement (excluding salary and
benefits), (2) the Seller will no longer be entitled to receive or retain
any interest in the Lockup Shares or the Contingent Shares, and (3) all
title and interest in the Lockup Shares and the Contingent Shares will
revert to and remain with the Buyer. In such event, unconditional title
to and ownership of the Software Product shall remain with the Buyer. If
the Seller terminates his employment during the Delivery Term due to the
Buyer's breach of the Employment Agreement , (i) he shall be deemed to
have satisfied obligations pursuant to this Agreement and the Employment
Agreement to provide "good faith efforts," "best efforts," "full energy
and ideas," and duties of a similar nature, and (ii) he shall receive the
Lockup Shares.
(f) FUNDING BY BUYER. The Buyer will expend funds toward the
development and marketing of the Software Product in an amount not less than
$816,000 over the course of the fifteen (15) month period following the
Closing Date, including not less than $500,000 of said amount over the nine
(9) month period following the Closing Date, unless the Delivery Term shall
have been extended under this Agreement by a mutual agreement of the Parties,
which mutual agreement shall also provide that such expenditures will be
delayed, in which case the Buyer will expend not less than $500,000 of said
amount over the extended period of time provided for under the agreement.
Such funding shall be in amounts reasonably agreed to by the Buyer and the
Seller, and Buyer shall use its best efforts to ensure that such funds are no
less than $30,000 for any month beginning with the third month of the
fifteen-month period. In the event the Buyer does not meet the funding
commitment by the end of the nine (9) and fifteen (15) month periods
respectively, or such additional period of time in addition thereto as
described above which results from the extension of the Delivery Term, the
Seller shall receive the Lock Up Shares and the Buyer shall retain
unconditional title and ownership to the Software Product.
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(g) ACQUISITION OF BUYER. If the Buyer is acquired after the
Closing Date by a third party (the "Acquiror") in a merger, share exchange or
similar transaction, the following shall apply:
(i) any Lock Up Shares on which restrictions on transfer have
not lapsed shall be replaced by Acquiror shares or escrowed cash of
comparable value;
(ii) if the Seller is reasonably satisfied that the Acquiror
intends to pursue commercialization of the Software Product, the
Contingent Shares shall be replaced by Acquiror shares or escrowed cash
of comparable value;
(iii) if the Seller is not reasonably satisfied as provided in
(ii) above, as a condition precedent to any acquisition of Buyer,
Acquiror shall pay to the Seller in cash or Acquiror Shares the net
present value at a 10% discount rate of the Contingent Shares; and
(iv) the Seller's rights as to the Software Product shall be
unchanged under this Agreement, and shall not be in any way materially
diminished or improved as a result of any acquisition of Buyer.
(h) SALE OF SOFTWARE PRODUCT. If after the Closing Date the Buyer
shall sell or otherwise transfer to a third party (the "Purchaser") the
Software Product or the division or Subsidiary of the Buyer responsible for
the Software Product, the following shall apply:
(i) if the Seller is then employed by the Buyer, the Buyer
shall agree to assign the Seller's Employment Agreement to the Purchaser
and the Purchaser shall assume the duties under the Employment Agreement
as a condition precedent to any such sale or transfer, including salary
and benefits through two years from the Closing Date, unless the Seller
signs an employment contract with the Purchaser;
(ii) any restrictions on transfer of the Lock Up Shares shall
lapse unless the Seller agrees to a replacement lock-up arrangement with
the Purchaser, which agreement shall not be unreasonably withheld if the
Purchaser agrees to fulfill the terms and conditions of this Agreement
and the intent of the parties as of the date of this Agreement;
(iii) the Seller shall receive in cash from Purchaser as a
condition precedent to any such sale or transfer, or an equivalent amount
of Purchaser's Shares, at the Seller's election, the net present value at
a 10% discount rate of the Contingent Shares unless the Seller agrees to
a replacement earn-out arrangement with the Purchaser, which agreement
shall not be unreasonably withheld if the Purchaser agrees to fulfill the
terms and conditions of this Agreement and the intent of the parties as
of the date of this Agreement; and
(iv) as a condition precedent to any such sale or transfer, the
Purchaser must assume the Buyer's obligations to the Seller with respect
to the Software Product as set forth in this Agreement, unless such
obligations shall have already been satisfied as set forth
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above in subsections (ii) and (iii), such that Seller's rights under this
Agreement shall not be in any way be materially diminished or improved as
a result of such sale or transfer..
3. REPRESENTATIONS AND WARRANTIES OF CGC AND THE SELLER. Each of
CGC and the Seller jointly and severally represents and warrants to the Buyer
that the statements contained in this Section 3, relating to both CGC and the
Seller, are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
accompanying this Agreement and initialed by the Parties (the "Disclosure
Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 3.
(a) STATUS OF SELLER. The Seller is a natural person.
(b) AUTHORIZATION OF TRANSACTION. Each of CGC and the Seller has
full right, power and authority to execute and deliver this Agreement, to
perform its, his or her obligations hereunder and to transfer and convey his
or her CGC Shares to the Buyer. This Agreement constitutes the valid and
legally binding obligation of each of CGC and the Seller, enforceable in
accordance with its terms and conditions. Neither CGC nor the Seller need to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any third person or party, including, without
limitation, any government or governmental agency, in order to consummate the
transactions contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which CGC or any of the Seller
is subject, or any provision of the charter or bylaws of CGC or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument or other arrangement to which CGC or any of the
Seller is a party or by which it, he or she is bound or to which any of its,
his or her assets is subject (or result in the imposition of any Security
Interest upon any of such assets). Neither CGC, nor any of the Seller, need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. Except as set forth in Section 3(d) of the
Disclosure Schedule, neither CGC nor the Seller has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(e) CGC SHARES. The Seller holds of record, is the sole beneficial
owner of, and has good and marketable title to the CGC Shares delivered by
the Seller to the Buyer pursuant to this Agreement, free and clear of any
restrictions on transfer, Taxes, Security Interests, options, warrants,
purchase rights, preemptive rights, contracts, commitments, equities, claims
and
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demands. The Seller is not a party to any option, warrant, purchase right or
other contract or commitment that could require the Seller to sell, transfer
or otherwise dispose of any capital stock of CGC (other than this Agreement).
The Seller is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of CGC.
(f) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER OF CGC. CGC
is a corporation duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation. CGC is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required except where the lack of such
qualification would not have a material adverse effect on the financial
condition of CGC taken as a whole or on the ability of the Parties to
consummate the transactions contemplated by this Agreement. CGC has full
corporate power and authority to carry on the businesses in which it is
engaged and to own and use the properties owned and used by it.
(g) CAPITALIZATION. The entire authorized capital stock of CGC
consists of 10,000 000 CGC Shares, of which 1,000,000 CGC Shares are issued
and outstanding. All of the issued and outstanding CGC Shares have been duly
authorized and are validly issued, fully paid, and nonassessable, and are
held of record by the Seller.
(h) SUBSIDIARIES. CGC does not now have, nor has it ever had, any
Subsidiaries.
(i) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the
following financial statements (collectively the "Financial Statements"):
unaudited balance sheet and statement of income as of and for the year to
date period ended June 18, 1999 (the "Most Recent Closing Date") for CGC
(collectively, the "Financial Statements"). The Financial Statements present
fairly in all material respects the financial condition of CGC as of such
date and the results of operations of CGC for such period, are correct and
complete, and are consistent with the books and records of CGC (which books
and records are correct and complete).;
(j) EVENTS SUBSEQUENT TO DATE OF INCORPORATION. Since January 14,
1999, the date of incorporation of CGC, there has not been any material
adverse change in the business, financial condition, operations, results of
operations, or future prospects of CGC taken as a whole.
(k) UNDISCLOSED LIABILITIES. CGC has no Liability except for (i)
Liabilities set forth on the face of the balance sheet dated as of the
Financial Statements, and (ii) Liabilities which have arisen after the date
of the incorporation in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused
by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(l) LEGAL COMPLIANCE. CGC has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against CGC alleging any failure so to
comply.
12
(m) TITLE TO ASSETS. Except as reflected otherwise on the
Financial Statements, CGC has good and marketable title to, or a valid
leasehold interest in, the properties and assets used by it, located on its
premises, or shown on the Financial Statements or acquired after the date
thereof, free and clear of all Security Interests, except for properties and
assets disposed of in the Ordinary Course of Business since the date of the
Financial Statements.
(n) REAL PROPERTY. CGC does not own or lease any real property.
(o) INTELLECTUAL PROPERTY.
(i) CGC owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary
or desirable for the operation of the business of CGC as presently
conducted, and necessary and desirable for delivery and development of
the Software Product. The Buyer acknowledges that CGC has not registered
or applied to register any copyright or trademark, nor has it applied for
patents on any Intellectual Property.
(ii) To Seller's knowledge CGC has not interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and CGC has never received
any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that CGC must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of the Sellers, no
third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of
CGC.
(iii) Section 3(o)(iii) of the Disclosure Schedule identifies
each patent, trademark, tradename, service mark, or other registration
which has been issued to CGC with respect to any of its Intellectual
Property, identifies each pending application or application for
registration which CGC has made with respect to any of its Intellectual
Property, and identifies each license, agreement, or other permission
which CGC has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). The Sellers has
delivered to the Buyer correct and complete copies of all such patents,
trademarks, tradenames, services marks, and other registrations,
applications, licenses, agreements, and permissions (as amended to date)
and has made available to the Buyer correct and complete copies of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. Seller represents and warrants that for
each item described in the attached Disclosure Schedule:
(A) CGC possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding
injunction, judgment,
13
order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) CGC has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Section 3(o)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that CGC uses
pursuant to license, sublicense, agreement, or permission. The Seller
has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in Section 3(o)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D) above are
true and correct with respect to the underlying license;
(F) to Seller's Knowledge the underlying item of
Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(G) to Seller's Knowledge no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand is
pending or is threatened which challenges the legality, validity,
or enforceability of the underlying item of Intellectual Property;
and
14
(H) CGC has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) CGC will not interfere with, infringe upon, misappropriate,
or otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its business as
presently conducted.
(p) TANGIBLE ASSETS. CGC owns or leases all equipment and other
tangible assets necessary for the conduct of its business as presently
conducted. Each such tangible asset is free from obvious defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for
the purposes for which it presently is used.
(q) CONTRACTS. Section 3(q) of the Disclosure Schedule lists the
following contracts and other agreements to which CGC is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments;
(ii) any agreement (or group of related agreements) for the
purchase or sale of equipment, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year, result in a
material loss to CGC, or involve consideration in excess of $10,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $10,000
or under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement involving the Seller;
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing severance
benefits;
15
(x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of CGC; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in Section 3(q) of the Disclosure Schedule and
a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 3(q) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to
be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
(r) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of CGC are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Financial Statements (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of CGC.
(s) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of CGC.
(t) INSURANCE. Section 3(t) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which CGC has been a party, a
named insured, or otherwise the beneficiary of coverage at any time since
CGC's incorporation:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims
16
made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage;
and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither CGC nor any other party to the policy is in
breach or default (including with respect to the payment of premiums or the
giving of notices), and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no party to the
policy has repudiated any provision thereof. CGC has been covered during the
past five (5) years by insurance in scope and amount customary and reasonable
for the business in which it has engaged during the aforementioned period.
Section 3(t) of the Disclosure Schedule describes any self-insurance
arrangements affecting any of CGC.
(u) LITIGATION. CGC is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge, nor is it a party or, to the
Knowledge of the Seller, is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator. The Seller do not have any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against CGC.
(v) EMPLOYEES. The Seller is the sole employee of CGC.
(w) EMPLOYEE BENEFITS. Except as described in Section 3(w) of the
Disclosure Schedule, CGC has no Employee Benefit Plan that it maintains or to
which it contributes or has any obligation to contribute.
(x) TAX MATTERS.
(i) CGC has filed all Tax Returns that it was required to file.
All such Tax Returns were correct and complete in all respects. All
Taxes owed by CGC (whether or not shown on any Tax Return) have been paid
except as disclosed as liabilities on it financial statements. CGC
currently is not the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where CGC does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of CGC that arose in connection with any
failure (or alleged failure) to pay any Tax.
(ii) CGC has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any
employee, independent contractor,
17
creditor, member, or other third party.
(iii) CGC does not expect any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of CGC either (A) claimed
or raised by any authority in writing or (B) as to which CGC or any of
the Seller have Knowledge based upon personal contact with any agent of
such authority.
(iii) CGC has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(iv) CGC has not filed a consent under Code Section 341(f). CGC
has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal
income Tax within the meaning of Code Section 6662. CGC is not a party
to any Tax allocation or sharing agreement. CGC (A) has not been a
member of an Affiliated Group filing a consolidated federal income Tax
Return at any time during its existence, and (B) does not have Liability
for the Taxes of any Person (other than any of the Seller) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(v) Section 3(x) of the Disclosure Schedule sets forth the
following information with respect to CGC as of the most recent
practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of CGC in its assets; and (B) the
amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution
allocable to CGC.
(y) GUARANTIES. CGC is not a guarantor or otherwise is liable for
any Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS. CGC, and its
predecessors and Affiliates, have complied and are in compliance with all
Environmental, Health, and Safety Requirements.
(aa) STATE PUC AUTHORIZATIONS AND FCC AUTHORIZATIONS. There are no
State PUC Authorizations or FCC Authorizations relating to CGC.
(bb) CERTAIN BUSINESS RELATIONSHIPS WITH THE SELLER. Neither the
Seller nor his Affiliates has been involved in any business arrangement or
relationship with CGC within the past 12 months (with the exception of an
employment relationship and a Subscription Agreement), and neither the Seller
nor his Affiliates owns any asset, tangible or intangible, which is used in
the business of CGC.
(cc) INVESTMENT. The Seller (i) is a sophisticated investor with
knowledge and
18
experience in business and financial matters, (ii) has received and reviewed
all publicly available documents relating to the Buyer, and (iii) has had the
opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Buyer Shares.
(dd) LICENSES AND PERMITS. The Seller has delivered to the Buyer
true and accurate copies of, and Section 3(dd) of the Disclosure Schedule
correctly and completely lists, every license, permit, registration and
governmental approval, agreement and consent applied for, pending by, issued
or given to CGC, and every agreement with governmental authorities (federal,
state, local or foreign) entered into by CGC, which is in effect or has been
applied for or is pending (the "Permits"). Such Permits constitute all
licenses, permits, registrations, approvals, agreements and consents which
are required in order for CGC to conduct its businesses as presently
conducted, are valid and enforceable, and remain in full force and effect.
(ee) ACCOUNTS PAYABLE. Section 3(ee) of the Disclosure Schedule
lists each account payable of CGC as of the date hereof, and will list each
account payable of CGC as of the Closing. With respect to each account
payable: (A) the account payable arose from a bona fide transaction
completed in accordance with the terms of any documents or agreements
pertaining to such transaction; (B) the account payable is not evidenced by a
judgment and there is no material dispute respecting it; (C) the account
payable arose in the Ordinary Course of Business of CGC; and (D) each account
payable is correct in amount and relates solely to the business of CGC.
(ff) DISCLOSURE. This Agreement and the Exhibits and Schedules
hereto do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the Disclosure Schedule.
The Disclosure Schedule will be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Section 4.
(a) ORGANIZATION. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.
(b) CAPITALIZATION. The entire authorized capital stock of the
Buyer consists of 25,000,000 Buyer Shares, of which approximately 9,909,835
Buyer Shares are issued and outstanding and approximately 45,000 Buyer
Shares are held in treasury. All of the Buyer Shares to be issued pursuant
to this Agreement have been duly authorized and, upon consummation of the
transactions contemplated herein, will be validly issued, fully paid, and
nonassessable.
(c) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its
19
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms and
conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of the charter or bylaws of the Buyer or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Buyer is a party or by which it
is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination,
modification, cancellation, or failure to give notice would not have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Other than in connection with
the provisions of the Delaware General Corporation Law, the Securities
Exchange Act, the Securities Act, and the state securities laws, the Buyer
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement.
(e) BROKERS' FEES. The Buyer does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(f) DISCLOSURE. This Agreement and the Exhibits and Schedules
hereto do no contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading.
To the Buyer's knowledge, there are no publicly reportable events or
circumstances relating to the Buyer that have occurred that have not been so
reported at least five days prior to the date of this Agreement, nor will
there be any such events or circumstances that are not so reported at least
five days prior to the Closing Date, PROVIDED HOWEVER that the parties agree
that any and all events relating to the proposed acquisition by RMI of the
UStel Corporation, in Seattle Washington, are not publicly reportable events
or circumstances for purposes of this Agreement.
5. COVENANTS. The Parties agree as follows with respect to the
period from and after the execution of this Agreement.
a. GENERAL. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in Section 6 below).
b. NOTICES AND CONSENTS. The Seller will give any notices to
third parties, and will use
20
reasonable best efforts to obtain any third party consents, that the Buyer
reasonably may request in connection with the matters referred to in Section
3 above.
c. REGULATORY MATTERS AND APPROVALS. Each of the Parties will
give any notices to, make any filings with, and use its reasonable best
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in
Section 3 and Section 4 above.
d. OPERATION OF BUSINESS. The Seller will use his best efforts to
not allow CGC to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business.
e. FULL ACCESS. The Seller will permit representatives of the
Buyer to have full access at all reasonable times, and in a manner so as not
to interfere with the normal business operations of CGC, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to CGC.
f. NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the other of any material adverse development causing a breach of
any of its own representations and warranties in Section 3 and Section 4
above. No disclosure by any Party pursuant to this Section 5(f), however,
shall be deemed to amend or supplement the Disclosure Schedule or to prevent
or cure any misrepresentation, breach of warranty, or breach of covenant.
g. EXCLUSIVITY. Prior to July 1, 1999 the Seller will not
solicit, initiate, or encourage the submission of any proposal or offer from
any Person relating to the purchase of all or substantially all of the
capital stock of CGC (including any transaction structured as a merger,
consolidation, or share exchange); PROVIDED, HOWEVER, that the Seller will
remain free to participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing to the extent their fiduciary duties may require.
The Seller shall notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) CGC and the Seller shall have procured all of the third
party consents specified in Section 5(b) above;
(ii) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
21
(iii) CGC and the Seller shall have performed and complied with
all of their covenants hereunder in all material respects through the
Closing;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(v) CGC and the Seller shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Section 6(a)(i)-(iv) is satisfied in all respects;
(vi) this Agreement shall have received the requisite Buyer
approval;
(vi) the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 5(c);
(vii) the Buyer and CGC shall have executed a mutually
satisfactory Plan of Reorganization pursuant to Section 368(a)(1)(A) of
the Code;
(viii) the Seller and the Buyer shall have executed a mutually
satisfactory Employment Agreement respecting employment of the Seller by
the Buyer beginning the Closing Date; and
(ix)
(x) the Buyer shall have received the resignations, effective
as of the Closing, of each director and officer of CGC, other than those
whom the Buyer shall have specified in writing at least five (5) business
days prior to the Closing; and
(xi) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of the
Seller to consummate the transactions to be performed by the Seller in
connection with the Closing is subject to satisfaction of the following
conditions:
22
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate
to the effect that each of the conditions specified above in Section
6(b)(i)-(iii) is satisfied in all respects;
(v) the Parties shall have received all authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 5(c) above;
(vi) the Buyer and CGC shall have executed a mutually
satisfactory Plan of Reorganization pursuant to Section 368(a)(1)(A) of
the Code;
(vii) the Seller and the Buyer shall have executed a mutually
satisfactory Employment Agreement respecting employment of the Seller by
the Buyer beginning the Closing Date; and
(viii)
(ix) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to CGC and the Seller.
The Seller may waive any condition specified in this Section 6(b) if
the Seller executes a writing so stating at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. The Parties may terminate this
Agreement as provided below:
(i) the Buyer may terminate this Agreement by giving written
notice to the
23
Seller at any time prior to the Closing Date (A) in the event CGC or
the Seller has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, or (B)
if the Closing shall not have occurred on or before July 1, 1999 by
reason of the failure of any condition precedent under Section 6(a)
hereof (unless the failure results primarily from the Buyer breaching
any representation, warranty, or covenant contained in this Agreement);
(ii) CGC and the Seller may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing Date (A) in
the event the Buyer has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, or (B)
if the Closing shall not have occurred on or before July 1, 1999 by
reason of the failure of any condition precedent under Section 6(b)
hereof (unless the failure results primarily from CGC and the Seller
breaching any representation, warranty, or covenant contained in this
Agreement);
(iii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing Date in the event
this Agreement fails to receive the requisite Buyer board of director
approval.
(b) EFFECT OF TERMINATION. If either Party terminates this
Agreement pursuant to Section 7(a) (i) or (ii) above, there shall be no
liability of any Party. PROVIDED, HOWEVER, that the confidentiality
provisions contained in Section 8(d) below shall survive any such termination.
8. POST-CLOSING COVENANTS. The Parties agree as follows with
respect to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution
and delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under Section 8(f) or Section (8)(g) below).
(b) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Seller, each of the other Parties
will cooperate with the contesting or defending Party and his or its counsel
in the contest or defense, make available his or its personnel, and provide
such testimony and access to his or its books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8(f) or
Section 8(g) below).
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(c) TRANSITION. None of CGC or the Seller will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Seller or
CGC from maintaining the same business relationships with CGC after the
Closing as it maintained with CGC prior to the Closing.
(d) CONFIDENTIALITY. The Buyer will treat and hold as such all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Seller or destroy, at the request and option of the Seller, all tangible
embodiments (and all copies) of the Confidential Information which are in
his/her or its possession. In the event that the Buyer is requested or
required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Buyer will
notify the Seller promptly of the request or requirement so that the Seller
may seek an appropriate protective order or waive compliance with the
provisions of this Section 8(d). If, in the absence of a protective order or
the receipt of a waiver hereunder, the Buyer is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else
stand liable for contempt, that the Buyer may disclose the Confidential
Information to the tribunal; PROVIDED, HOWEVER, that the Buyer shall use its
reasonable best efforts to obtain, at the reasonable request of the Seller,
an order or other assurance that confidential treatment will be accorded to
such portion of the Confidential Information required to be disclosed as the
Seller shall designate.
(e) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement
shall survive the Closing (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing)
and continue in full force and effect for a period of one (1) year thereafter
(subject to any applicable statutes of limitations).
(f) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean the Seller has breached)
any of his representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to
Section 8(e) above, provided that the Buyer makes a written claim for
indemnification against CGC or the Seller within such survival period,
then the Seller agree to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
(ii) The Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any
Liability of CGC which is not reflected on the Financial Statements
(including any Liability of CGC that becomes a Liability of the Buyer
under any Environmental, Health, and Safety Requirements, for unpaid
Taxes, or otherwise by operation of law).
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(iii) The Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any
Liability of CGC for Taxes of CGC with respect to any Tax year or portion
thereof ending on or before the Closing Date, to the extent such Taxes
are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Financial
Statements (rather than in any notes thereto), as such reserve is
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of CGC in filing its Tax Returns and
(b) for the unpaid Taxes of any Person (other than the Seller) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
(iv) The Seller agrees that if, at any time during the effective
term of this Agreement, to include the full effective term of the
Earn-Out Agreement, Buyer discovers that CGC did not possess good and
marketable title in the Software Product described above, free and clear
of any claims, liens, or other encumbrances of any kind, at the time of
Closing, and if the defect in title can still be successfully asserted by
a third party and cannot be cured by reasonable efforts, then Seller
agrees to immediately return to Buyer any and all monies received by
Seller under this Agreement, any Buyer Shares provided to Seller at
Closing (or $500,000 in lieu of such shares), the Lock-Up Shares, the
Earn-Out Shares, and any and all other items of value received by Seller
under this Agreement (with the exception of salary and benefits).
(g) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(i) In the event the Buyer breaches (or in the event any third
party alleges facts that, if true, would mean the Buyer has breached) any
of its representations, warranties, and covenants contained in this
Agreement, and, if there is an applicable survival period pursuant to
Section 8(e) above, provided that the Seller make a written claim for
indemnification against the Buyer within such survival period, then the
Buyer agrees to indemnify the Seller from and against the entirety of any
Adverse Consequences the Seller may suffer through and after the date of
the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(h) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any obligation hereunder
26
unless (and then solely to the extent) the Indemnifying Party thereby
is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing within
fifteen (15) after the Indemnified Party has given notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (B) the
Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party
Claim and fulfill its indemnification obligations hereunder, (C) the
Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice materially adverse to the continuing business
interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8(h)(ii) above, (A)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(h)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8(h).
(i) OTHER INDEMNIFICATION PROVISIONS. The indemnification
provisions set forth in Section 8(f), Section 8(g) and Section 8(h) above are
in addition to, and not in derogation of, any statutory, equitable, or common
law remedy (including without limitation any such remedy arising
27
under Environmental, Health, and Safety Requirements) any Party may have with
respect to the Seller, or the transactions contemplated by this Agreement.
Each of the Seller hereby agrees that he/she or it will not make any claim
for indemnification against any of the Buyer and its Subsidiaries by reason
of the fact that he/she or it was a director, officer, employee, or agent of
CGC or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim
is for judgments, damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether such claim is pursuant
to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought
by the Buyer against such Seller (whether such action, suit, proceeding,
complaint, claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
(j) Limitation on Indemnification by the Seller. In no event
shall the Seller's aggregate obligation to indemnify the Buyer under this
Agreement exceed a duty to indemnify or reimburse the Buyer for amounts in
excess of the amounts received by the Seller under this Agreement, exclusive
of salary and benefits.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue
any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other
Party; PROVIDED, HOWEVER, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case
the disclosing Party will use its reasonable best efforts to advise the other
Party prior to making the disclosure).
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; PROVIDED, HOWEVER, that the
provisions in Section 8 above concerning insurance and indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other Party.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same
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instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO THE SELLER:
______________________
______________________
______________________
______________________
COPY TO:
______________________
______________________
______________________
______________________
IF TO THE BUYER:
Rocky Mountain Internet, Inc.
999 18th Street,Suite 2201
Denver, Colorado 80202
Attention: Mr. Douglas H. Hanson
COPIES TO:
Rocky Mountain Internet, Inc.
999 18th Street, Suite 2201
Denver, Colorado 80202
Attention: Mr. Chris J. Melcher
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, registered or certified mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed
to have been duly
29
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
(k) DISPUTE RESOLUTION. The Parties hereby covenant and agree
that, except as otherwise set forth in this Agreement, any suit, dispute,
claim, demand, controversy or cause of action of every kind and nature
whatsoever, known or unknown, fixed or contingent, that the Parties may now
have or at any time in the future claim to have based in whole or in part, or
arising from or that in any way is related to the negotiations, execution,
interpretation or enforcement of this Agreement (collectively, the
"Disputes") shall be completely and finally settled by submission of any such
Disputes to arbitration under the Commercial Rules of Arbitration of the
American Arbitration Association ("AAA") then in effect. If the parties to
the Dispute are unable to agree on a single arbitrator, then such binding
arbitration shall be conducted before a panel of three (3) arbitrators that
shall be comprised of one (1) arbitrator designated by each party to the
Dispute and a third arbitrator designated by the two (2) arbitrators selected
by the parties to the Dispute. Unless the parties to the Dispute agree
otherwise, the arbitration proceedings shall take place in Denver, Colorado
and the arbitrator(s) shall apply the law of the State of Colorado, USA, to
all issues in dispute, in accordance with Section 9(i) above. If requested
by Buyer, the arbitrator(s) must retain a recognized expert in the area of
Internet electronic commerce software, as selected by the Buyer and
reasonably agreed to by the Seller, in order to assist in the arbitration
proceeding and to provide expert opinion assistance to the arbitrator(s).
The findings of the arbitrator(s) shall be final and binding on the parties
to the Dispute. Judgment on such award may be entered in any court of
appropriate jurisdiction, or application may be made to that court for a
judicial acceptance of the award and an order of enforcement, as the Party
seeking to enforce that award may elect. Notwithstanding any applicable
rules of arbitration, all arbitral awards shall be in writing and shall set
forth in particularity the findings of fact and conclusions of law of the
arbitrator or arbitrators.
(l) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Closing Date. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(m) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
30
provision in any other situation or in any other jurisdiction.
(n) EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(o) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
otherwise requires. The word "including" shall mean including without
limitation. Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity
and describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception
to a representation or warranty made herein (unless the representation or
warranty has to do with the existence of the document or other item itself).
The Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating
to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or
covenant.
(p) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
*****
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
ROCKY MOUNTAIN INTERNET, INC.
By: /s/ Douglas H. Hanson
-------------------------------
Douglas H. Hanson
Chairman & Chief Executive Officer
ROGER L. PENNER AND COMMERCEGATE
/s/ Roger L. Penner
-------------------------------
Roger L. Penner
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