-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C2XpETDiy8JydvYB/tPaDBxeWuKvt8ByViu/Cfqe0nCxCS9uqd7UlW/cBBoWzzZq OauxZHsjF9M90t6OcYZcow== 0001047469-99-034086.txt : 19990831 0001047469-99-034086.hdr.sgml : 19990831 ACCESSION NUMBER: 0001047469-99-034086 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990730 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RMI NET INC CENTRAL INDEX KEY: 0001003282 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 841322326 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-28738 FILM NUMBER: 99702615 BUSINESS ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036720700 MAIL ADDRESS: STREET 1: 999 18TH STREET STREET 2: STE 2201 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: ROCKY MOUNTAIN INTERNET INC DATE OF NAME CHANGE: 19960508 8-K 1 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) July 30, 1999 ------------------------------ RMI.NET, Inc. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in charter) Delaware - -------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 001-12063 84-1322326 - ------------------------------------ -------------------------------------- (Commission File Number) (IRS Employee Identification No.) 999 Eighteenth Street, Suite 2201 80202 - ------------------------------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (303) 672-0700 -------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS. As previously announced in the Registrant's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999, which was filed with the Securities and Exchange Commission on August 9, 1999, the Registrant recently acquired ACES Research, Inc., an Arizona corporation headquartered in Tucson, Arizona. The Registrant agreed to pay approximately $1,938,000, payable in the form of 174,634 shares of common stock. The consideration that the Registrant agreed to pay was determined through arm's length negotiation. There was no material relationship between the Registrant and ACES Research, Inc. prior to the acquisition. ACES Research is an Internet service provider whose customer base is comprised of dedicated Internet access users. The Registrant intends to use the assets acquired in the same manner that ACES Research utilized the assets. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) ACES Research, Inc. - Audited Financial Statements: Independent Auditors' Report - Ernst & Young LLP Balance Sheets as of December 31, 1998 and 1997 Statements of Operations for the Years Ended December 31, 1998 and 1997 Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1997 Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 Notes to Financial Statements (b) Pro Forma Financial Information: Pro Forma Condensed Combined Balance Sheet as of June 30, 1999 Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1998 Pro Forma Condensed Combined Statement of Operations for the Six Months Ended June 30, 1999 (c) Exhibits:
Exhibit Number Description --------------------- --------------------------------------------- 10.1 Asset Purchase Agreement by and among RMI.NET, Inc. and ACES Research, Inc. and Ehud Gavron, Joe Fico and Matthew Ramsey dated as of July 30, 1999 20.1 News Release dated July 30, 1999 announcing the Acquisition of ACES Research, Inc.
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RMI.NET, Inc. -------------------------------------------- (Registrant) Date: August 30, 1999 By: /s/ CHRISTOPHER J. MELCHER ---------------------------------------- Christopher J. Melcher Vice President, General Counsel and Corporate Secretary REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders ACES Research, Inc. We have audited the accompanying balance sheets of ACES Research, Inc. (an S corporation) as of December 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ACES Research, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP June 30, 1999 1 ACES RESEARCH, INC. BALANCE SHEETS
December 31, 1998 1997 -------- -------- ASSETS Current assets: Cash..................................................................... $ --- $ 35,232 Accounts receivable...................................................... 46,306 16,263 -------- -------- Total current assets....................................................... 46,306 51,495 Property and equipment, net of accumulated depreciation of $71,061 and $39,054 at December 31, 1998 and 1997, respectively................ 106,493 106,274 -------- -------- Total assets................................................. $152,799 $157,769 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade.................................................. $ 77,900 $ 21,499 Deferred revenue......................................................... --- 22,455 Current maturities of obligations under capital leases................... 13,439 11,492 Line of credit payable................................................... 9,940 --- Notes payable to related parties......................................... 21,403 25,024 -------- -------- Total current liabilities.................................................. 122,682 80,470 Long-term liability: Obligations under capital leases, less current maturities 2,452 15,891 Stockholders' equity: Class A common stock, $1 par value; 1,500 shares authorized, issued and outstanding........................................................... 1,500 1,500 Retained earnings....................................................... 26,165 59,908 -------- -------- Total stockholders' equity................................................. 27,665 61,408 -------- -------- Total liabilities and stockholders' equity................... $152,799 $157,769 -------- -------- -------- --------
See accompanying notes. 2 ACES RESEARCH, INC. STATEMENTS OF OPERATIONS
Year Ended December 31, 1998 1997 -------- -------- Revenues .................................................................. $721,589 $601,608 Operating expenses: Internet connection expense.............................................. 384,233 247,694 General and administrative expense....................................... 109,464 101,456 Salaries and benefits expense............................................ 154,131 144,056 Travel and entertainment expense......................................... 36,775 51,585 Depreciation expense..................................................... 32,007 25,169 -------- -------- Total operating expenses.......................................... 716,610 569,940 -------- -------- Income from operations..................................................... 4,979 31,668 Other income, net.......................................................... 7,786 14,099 Interest expense........................................................... (3,508) (3,738) -------- -------- Net income................................................................. $ 9,257 $ 42,029 -------- -------- -------- --------
See accompanying notes. 3 ACES RESEARCH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
Total Common Stock Retained Stockholders' CLASS A EARNINGS EQUITY ------------ -------- ------------- Balance at December 31, 1996 $ 1,500 $ 59,354 $ 60,854 Net income 42,029 42,029 Stockholder distributions (41,475) (41,475) -------- --------- --------- Balance at December 31, 1997 1,500 59,908 61,408 Net income 9,257 9,257 Stockholder distributions (43,000) (43,000) -------- --------- --------- Balance at December 31, 1998 $ 1,500 $ 26,165 $ 27,665 -------- --------- --------- -------- --------- ---------
See accompanying notes. 4 ACES RESEARCH, INC. STATEMENTS OF CASH FLOWS
Year ended December 31, 1998 1997 -------------- ---------- OPERATING ACTIVITIES Net income................................................... $ 9,257 $ 42,029 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 32,007 25,169 Changes in operating assets and liabilities: Accounts receivable................................. (30,043) 16,531 Accounts payable.................................... 56,401 11,197 Deferred revenue.................................... (22,455) (21,645) -------------- ---------- Net cash provided by operating activities.................... 45,167 73,281 -------------- ---------- INVESTING ACTIVITIES Purchases of property and equipment.......................... (32,226) (36,467) -------------- ---------- Net cash used in investing activities........................ (32,226) (36,467) -------------- ---------- FINANCING ACTIVITIES Borrowings on line of credit................................. 11,640 --- Payments on line of credit................................... (1,700) --- Payments on notes payable, net of borrowings................. (3,621) 25,024 Stockholder distributions.................................... (43,000) (41,475) Payments on capital lease obligations........................ (11,492) (8,762) -------------- ---------- Net cash used in financing activities........................ (48,173) (25,213) -------------- ---------- Net increase (decrease) in cash.............................. (35,232) 11,601 Cash at beginning of year.................................... 35,232 23,631 -------------- ---------- Cash at end of year.......................................... $ -- $ 35,232 -------------- ---------- -------------- ---------- SUPPLEMENTAL SCHEDULE OF ADDITIONAL CASH FLOW INFORMATION AND NONCASH ACTIVITIES Interest paid................................................ $ 3,508 $ 3,738 Purchase of equipment through capital lease.................. --- 36,145
See accompanying notes. 5 ACES RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. ACCOUNTING POLICIES ORGANIZATION AND NATURE OF BUSINESS ACES Research, Inc. (the "Company"), an Arizona corporation, was founded in 1991 as a privately held S corporation. The Company is primarily involved in providing high speed Internet connectivity in southern Arizona and throughout other regions of the United States. The Company's three primary products are 56Kbps Internet Access, T-1 and Ethernet Internet access, and Professional WEB access. The Company also provides a variety of network consulting, custom software, and professional training to support its primary product offerings. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION AND DEFERRED REVENUE Revenue is recorded when earned. The Company signs connection agreements with its customers and those contracts are usually for a length of one year. Except on rare occasions, the Company bills those customers on a monthly basis and recognizes the associated revenues at that time. In circumstances where the customer has paid in advance for the Company's services, the Company records a deferred revenue balance and recognizes the revenue ratably over the life of the connection agreement. ACCOUNTS RECEIVABLE The Company extends credit to its customers based on evaluations of ability to pay and generally no collateral is required. Concentrations of credit risk with respect to trade receivables are limited. PROPERTY AND EQUIPMENT Property and equipment purchased new by the Company is recorded at cost. Depreciation for new equipment is computed on a straight-line basis over the following estimated useful lives: Furniture and fixtures................................7 years Computer equipment....................................5 years Vehicles..............................................5 years
INCOME TAXES The Company has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Accordingly, the financial statements do not include a provision for income taxes because the Company does not incur federal or state income taxes. Instead, its earnings and losses are included in the stockholders' personal income tax returns and are taxed based on their personal tax strategies. 6 ACES RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) ADVERTISING EXPENSE Advertising costs are expensed as incurred. Advertising expense was $26,738 for the year ended December 31, 1998 and $24,725 for the year ended December 31, 1997. SIGNIFICANT CUSTOMERS The Company has substantial business relationships with a few large customers. The Company's top two customers accounted for 27.2% and 32.9% of the Company's revenues as of December 31, 1998 and 1997, respectively. No other single customer accounted for more than 10% of the Company's total revenues. 2. PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following:
1998 1997 ---- ---- Vehicles.................................................. $ 15,000 $ 15,000 Furniture and fixtures.................................... 16,190 3,478 Computer equipment........................................ 146,364 126,850 --------- --------- Total............................................ 177,554 145,328 Less accumulated depreciation............................. (71,061) (39,054) --------- --------- $ 106,493 $ 106,274 --------- --------- --------- ---------
3. LINE OF CREDIT The Company, during 1998, secured a $50,000 revolving line of credit with interest accruing monthly at the rate equal to the bank's prime lending rate plus 4.75% (12.75% at December 31, 1998); a minimum payment equal to 2% of the balance of principal and accrued interest is due each month. The line of credit is secured by depository accounts held with the bank. There are no debt covenant obligations necessary to maintain the line of credit. The line of credit may be canceled by either party at any time and is payable on demand, upon the financial institution's request. As of December 31, 1998, the balance of the line of credit was $9,940. 4. COMMITMENTS AND CONTINGENCIES CAPITAL LEASES The Company leases various computer equipment under the provision of a long-term capital lease. The economic substance of the leases is that the Company is financing the acquisition of the assets through the leases, and accordingly, they are recorded in the Company's assets and liabilities. The following is an analysis of the leased assets included in property and equipment: Computer equipment $ 36,145 Less accumulated depreciation (11,642) -------- Total $ 24,503 -------- --------
7 ACES RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) CAPITAL LEASES (CONTINUED) The following is a schedule by year of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1998: Year Ending December 31: 1999 $15,000 2000 2,500 -------- Total minimum lease payments 17,500 Less amount representing interest (1,609) -------- Present value of net minimum lease payments 15,891 Less current maturities 13,439 -------- Long-term maturities $ 2,452 -------- --------
OPERATING LEASES Future minimum rental commitments as of December 31, 1998 under noncancelable operating leases are: 1999.......................................... $39,299 2000.......................................... 16,706 -------- $56,005 -------- --------
The Company leases certain facilities under operating leases which contain renewal options and provide for periodic cost-of-living adjustments and for other taxes and fees. Rental expense was $37,237 and $20,614 for the periods ended December 31, 1998 and 1997, respectively. 5. RELATED PARTY TRANSACTIONS The Company is obligated for $21,403 as of December 31, 1998 and for $25,024 as of December 31, 1997 to its two primary stockholders for loans that were made to the Company on behalf of the aforementioned stockholders. The non-interest bearing loans are payable on demand. Assuming that the Company was unable to secure the non-interest bearing loans from its stockholders and assuming that the Company would have to draw on its line of credit at a rate of 12.75% as of December 31, 1998 to satisfy its obligations, the amount of interest expense incurred by the Company would have amounted to approximately $2,960 for the year ended December 31, 1998 and approximately $1,595 for the year ended December 31, 1997. 6. STOCK TRANSFER Effective January 1, 1998, the President of the Company agreed to grant 23% of his outstanding stock in the Company to two of the Company's key employees. In exchange for the stock, the two key employees agreed to pay the President an agreed upon sum of money upon termination of employment or by January 1, 2003, whichever occurs first. The Company accounted for the stock transfer as a variable compensation plan pursuant to the provisions of Emerging Issues Task Force 95-16. No compensation expense for the year ended December 31, 1998 has been recorded to reflect the transfer of the stock ownership rights due to immateriality. 8 ACES RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. SUBSEQUENT EVENTS Subsequent to December 31, 1998, the Company entered into negotiations with RMI.net to sell 100% of the outstanding stock of the Company. The transaction is expected to be consummated in July 1999. 8. YEAR 2000 READINESS (UNAUDITED) The Company is preparing its systems and applications for the Year 2000. Various problems may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date. If the computer systems cannot distinguish between the years 1900 and 2000, system failures or other computer errors could result. Since the Company is a relatively new company (founded in 1996), most hardware and software systems, as well as software programs used by the Company, will not be impacted by the Year 2000 issues. All future software that will be purchased will be year 2000 compliant. All internally written software has been checked to ensure year 2000 compliance. Users have been briefed on the necessity for them to check any special, non-mission critical software that they have purchased for their departments to ensure that it is year 2000 compliant. The Company has inventoried the externally purchased network elements, including routers, router software, router redundancy options, processor cards, and switches. The Company has verified 100% completion of testing, in cooperation with the external vendors, that the products associated with the network elements are year 2000 compliant. The Company has evaluated the financial impact for year 2000 compliance and total costs have not exceeded a material amount nor are future costs expected to be material. The estimates for the costs of the year 2000 program are based upon management's best estimates and may be updated or revised as additional information becomes available. 9 SELECTIVE UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following selected unaudited pro forma combined financial information presented below has been derived from the unaudited or audited historical financial statements of the Company, ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World) and reflects management's present estimate of pro forma adjustments, including a preliminary estimate of the purchase price allocations, which ultimately may be different. The acquisition is being accounted for using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values, which are subject to further adjustment based upon appraisals and other analysis, with appropriate recognition given to the effect of the Company's borrowing rates and income tax rates. The unaudited pro forma combined statements of operations for the six months ended June 30, 1999 and the year ended December 31, 1998 give effect to the acquisitions as if they had been consummated at the beginning of such period. These pro forma statements of operations combines the historical consolidated statements of operations for the periods reported for the Company, ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World). The unaudited pro forma condensed combined balance sheet as of June 30, 1999 gives effect to the acquisitions as if they had been consummated on that date. This pro forma balance sheet combines the historical consolidated balance sheet at that date for the Company, ACES Research, Inc., and for Triad Resources L.L.C. (d/b/a WebZone). The unaudited pro forma condensed combined financial statements may not be indicative of the results that actually would have occurred if the transaction described above had been completed and in effect for the periods indicated or the results that may be obtained in the future. The unaudited pro forma condensed combined financial data presented below should be read in conjunction with the audited and unaudited historical financial statements and related notes thereto of the Company. 10 Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 1998 (Unaudited)
Historical ------------------------------------------------------------------------------------- Previously Reported ACES Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined ---------------------------------------------------------------------------------------- (Amount in Thousands, Except Per Share Data) Revenue Communication Services 7,974 13,580 722 22,276 0 22,276 Web Solutions 2,113 0 0 2,113 0 2,113 ------------------------------------------------------------------------------------- 10,087 13,580 722 24,389 0 24,389 ------------------------------------------------------------------------------------- Cost of revenue earned Communication Services 3,471 9,911 384 13,766 0 13,766 Web Solutions 50 0 0 50 0 50 ------------------------------------------------------------------------------------- 3,521 9,911 384 13,816 0 13,816 ------------------------------------------------------------------------------------- Gross profit 6,566 3,669 338 10,573 0 10,573 ------------------------------------------------------------------------------------- General, selling and administrative expenses 9,184 3,784 301 13,269 0 13,269 Cost related to unsuccessful merger attempt 6,071 0 0 6,071 0 6,071 Depreciation and amortization 1,789 470 32 2,291 2,228 (5) 4,519 ------------------------------------------------------------------------------------- Operating income (loss) (10,478) (585) 5 (11,058) (2,228) (13,286) ------------------------------------------------------------------------------------- Other income (expense) Interest expense (320) (140) (4) (464) 0 (464) Interest Income 51 0 0 51 0 51 Other income (expense), net 78 98 8 184 0 184 ------------------------------------------------------------------------------------- (191) (42) 4 (229) 0 (229) ------------------------------------------------------------------------------------- Net loss (10,669) (627) 9 (11,287) (2,228) (13,515) ===================================================================================== Preferred stock dividends 33 33 Net loss applicable to common Stockholders (10,702) (13,548) Basic and Diluted loss per share from continuing operations (1.39) (1.56) ========= ============= Average number of common shares outstanding (5) 7,690 8,675 ========= =============
11 Pro Forma Condensed Combined Balance Sheet As of June 30, 1999 (Unaudited)
---------------------------------------------------------------------------------------- Previously Reported ACES Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined ---------------------------------------------------------------------------------------- (Dollars in Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents 4,423 18 (7) 4,434 - 4,434 Trade receivables less allowance for for doubtful accounts 4,687 74 88 4,849 - 4,849 Inventories 237 - - 237 - 237 Other 840 16 2 858 - 858 ------------------------------------------------------------------------------------ Total Current Assets 10,187 108 83 10,378 - 10,378 ------------------------------------------------------------------------------------ PROPERTY AND EQUIPMENT, net 8,270 742 103 9,115 - 9,115 Goodwill, net 21,637 - - 21,637 6,773 (1) 28,410 Other 117 61 - 178 - 178 ==================================================================================== Total Assets 40,211 911 186 41,308 6,773 48,081 ==================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 4,361 86 71 4,518 - 4,518 Current maturities of long term debt and capital lease obligations 1,919 140 - 2,059 - 2,059 Deferred revenue 1,076 - - 1,076 - 1,076 Accrued payroll & related taxes 408 - - 408 - 408 Accrued expenses & other 2,070 142 - 2,212 - 2,212 ------------------------------------------------------------------------------------ Total Current Liabilites 9,834 368 71 10,273 - 10,273 ------------------------------------------------------------------------------------ LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 3,227 178 60 3,465 - 3,465 ------------------------------------------------------------------------------------ Total liabilites 13,061 546 131 13,738 - 13,738 REDEEMABLE CONVERTIBLE PREFERRED STOCK 4,594 - - 4,594 - 4,594 Stockholders' Equity Common Stock 12 - 1 13 (1) 12 Additional paid in capital 47,422 50 (45) 47,427 (5)(3) 47,422 7,193 7,193 Accumulated deficit (24,878) 315 99 (24,464) (414)(2) (24,878) Unearned compesation - - - - - - ------------------------------------------------------------------------------------ 22,556 365 55 22,976 6,773 29,749 ------------------------------------------------------------------------------------ 40,211 911 186 41,308 6,773 48,081 ====================================================================================
12 Pro Forma Condensed Combined Statement of Operations For the Six Months Ended June 30, 1999 (Unaudited)
Historical ------------------------------------------------------------------------------------- Previously Reported ACES Pro Forma Pro Forma Pro Forma RMI.NET, Inc. Acquisitions (B) Research, Inc. Subtotal Adjustments (C) Combined ---------------------------------------------------------------------------------------- (Amount in Thousands, Except Per Share Data) Revenue Communication Services 9,801 4,704 418 14,923 0 14,923 Web Solutions 1,851 0 0 1,851 0 1,851 ------------------------------------------------------------------------------------ 11,652 4,704 418 16,774 0 16,774 ------------------------------------------------------------------------------------ Cost of revenue earned Communication Services 5,406 3,241 211 8,858 0 8,858 Web Solutions 511 0 0 511 0 511 ------------------------------------------------------------------------------------ 5,917 3,241 211 9,369 0 9,369 ------------------------------------------------------------------------------------ Gross profit 5,735 1,463 207 7,405 0 7,405 ------------------------------------------------------------------------------------ General, selling and administrative expenses 10,222 1,080 171 11,473 0 11,473 Cost related to unsuccessful merger attempt 0 0 0 0 0 0 Depreciation and amortization 2,605 158 23 2,786 797 (4) 3,583 ------------------------------------------------------------------------------------ Operating income (loss) (7,092) 225 13 (6,854) (797) (7,651) ------------------------------------------------------------------------------------ Other income (expense) Interest expense (228) (41) 0 (269) 0 (269) Interest Income 68 2 0 70 0 70 Other income (expense), net 0 0 23 23 0 23 ------------------------------------------------------------------------------------ (160) (39) 23 (176) 0 (176) ------------------------------------------------------------------------------------ Net loss (7,252) 186 36 (7,030) (797) (7,827) ==================================================================================== Preferred stock dividends 178 178 Net loss applicable to common Stockholders (7,430) (8,005) Basic and Diluted loss per share from continuing operations (0.73) (0.72) ========= ======== Average number of common shares outstanding (5) 10,141 10,902 ========= ========
13 NOTES TO THE PRO FORMA CONSENSED COMBINED FINANCIAL DATA (UNAUDITED) (A) BASIS OF PRESENTATION The accompanying unaudited pro forma condensed combined balance sheet is presented as of June 30, 1999. The accompanying unaudited pro forma condensed combined statements of operations are presented for the six months ended June 30, 1999 and the year ended December 31, 1998. (B) PREVIOUSLY REPORTED ACQUISITIONS: The accompanying unaudited pro forma condensed combined balance sheet presented as of June 30, 1999 includes the balance sheet as of June 30, 1999 of Triad Resources L.L.C. (d/b/a WebZone) which was previously disclosed on Form 8K/A filed with the Securities and Exchange Commission on August 19, 1999. The accompanying unaudited pro forma condensed combined statements of operations presented for the six months ended June 30, 1999 and the year ended December 31, 1998 included the condensed statements of operations for the respective periods ended for Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World). These acquisitions were previously disclosed on Form 8K/A and filed with the Securities and Exchange Commission on August 19, 1999, August 5, 1999 and April 19, 1999, respectively. (C) PRO FORMA ADJUSTMENTS: The following pro forma adjustments have been made to the unaudited condensed combined balance sheet as of June 30, 1999 and the unaudited condensed combined statements of operations for the six months ended June 30, 1999 and the year ended December 31, 1998: (1) To reflect the 174,634 shares of RMI stock valued at $1.9 million which is the number of shares issued in connection with the acquisition of ACES Research, Inc. and the 439,493 shares of RMI stock valued at $5.3 million which is the number of shares issued in connection with the acquisition of Triad Resources L.L.C. (d/b/a WebZone). The excess purchase price over the fair value of the assets acquired has been allocated to goodwill. The pro forma adjustment reflects the incremental goodwill in the amount of $6.8 million. Shares of Common Stock issued for the acquisition were recorded at fair market value as based on the current market price of RMI's publicly traded stock. The final allocation of the purchase price will be made after the appropriate appraisals or analyses are performed. Upon completion of the appraisals and in accordance with the terms thereof, the excess purchase price currently allocated to goodwill will be allocated to the appropriate asset classifications, including customer list and goodwill. While goodwill will be amortized over a period of five years, customer list or other identified intangibles may be amortized over shorter periods, which would therefore increase amortization expense. (2) To eliminate the equity accounts of the acquisition. (3) To adjust amortization expense due to increase in the carrying value of goodwill, using a life of five years, as if such acquisitions had been completed as of January 1, 1998. (4) To adjust for revenues and expenses for the acquisition of ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone) and IdealDial Corporation as if such acquisitions had been completed as of January 1, 1999. (5) To adjust for revenues and expenses for the acquisition of ACES Research, Inc., Triad Resources L.L.C. (d/b/a WebZone), IdealDial Corporation and August 5th Corporation (d/b/a Dave's World) as if such acquisitions had been completed as of January 1, 1998. 14 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 ASSET PURCHASE AGREEMENT BY AND AMONG RMI.NET, INC. AND ACES RESEARCH, INC. AND EHUD GAVRON, JOE FICO AND MATTHEW RAMSEY JULY 30, 1999 TABLE OF CONTENTS 1. Definitions 2. Basic Transaction (a) Purchase and Sale of Assets (b) No Assumption of Liabilities (c) Purchase Price (d) Adjustment of Purchase Price (e) Issuance of Shares (f) The Closing (g) Deliveries at the Closing (h) Allocation 3. Representations and Warranties of the Seller and the Seller Shareholders (a) Organization of the Seller (b) Authorization of Transaction (c) Noncontravention (d) Brokers' Fees (e) Title to Assets (f) Subsidiaries (g) Financial Statements (h) Events Subsequent to Most Recent Fiscal Year End (i) Undisclosed Liabilities (j) Legal Compliance (k) Tax Matters (l) Real Property (m) Intellectual Property (n) Tangible Assets (o) Inventory (p) Contracts (q) Notes and Accounts Receivable (r) Powers of Attorney (s) Insurance (t) Litigation (u) Product Warranty (v) Product Liability (w) Employees (x) Employee Benefits (y) Guaranties (z) Environment, Health, and Safety Matters (aa) State PUC Authorizations and FCC Authorizations (bb) Certain Business Relationships with the Seller (cc) Disclosure (dd) Investment (ee) Bulk Transfer Laws 4. Representations and Warranties of the Buyer (a) Organization of the Buyer
2 (b) Authorization of Transaction (c) Noncontravention (d) Brokers' Fees 5. Pre-Closing Covenants (a) General (b) Notices and Consents (c) Operation of Business (d) Preservation of Business (e) Full Access (f) Notice of Developments (g) Exclusivity (h) Legend 6. Conditions to Obligation to Close (a) Conditions to Obligation of the Buyer (b) Conditions to Obligation of the Seller 7. Termination (a) Termination of Agreement (b) Effect of Termination 8. Post-Closing Covenants (a) General (b) Litigation Support (c) Transition (d) Confidentiality (e) Covenant Not to Compete (f) Non-Solicitation (g) Survival of Representations and Warranties (h) Indemnification Provisions for Benefit of the Buyer (i) Indemnification Provisions for Benefit of the Seller (j) Matters Involving Third Parties (k) Other Indemnification Provisions 9. Additional Agreements (a) Employment Agreements (b) Non-Competition Agreements 10. Miscellaneous (a) Press Releases and Public Announcements (b) No Third-Party Beneficiaries (c) Entire Agreement (d) Succession and Assignment (e) Counterparts (f) Headings (g) Notices (h) Governing Law (i) Arbitration (j) Amendments and Waivers (k) Severability
3 (l) Expenses (m) Construction (n) Incorporation of Exhibits and Schedules (o) Specific Performance Exhibit A--Escrow Agreement Exhibit B--Lock-Up Agreement Exhibit C--Form of Assignment Exhibit D--Form of Bill of Sale Exhibit E--Allocation Schedule Exhibit F--Financial Statements Exhibit G--Form of Opinion of Counsel to the Seller Exhibit H--Form of Opinion of Counsel to the Buyer Disclosure Schedule--Exceptions to Representations and Warranties
4 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement"), entered into as of this 30th day of July, 1999, is by and between RMI.NET, INC., Delaware corporation (the "Buyer"), ACES RESEARCH, INC., an Arizona corporation (the "Seller"), and EHUD GAVRON, JOE FICO and MATTHEW RAMSEY (collectively, the "Seller Shareholders"). The Buyer, the Seller and the Seller Shareholders are sometimes referred to collectively herein as the "Parties." 1. DEFINITIONS. "ACCREDITED INVESTOR" has the meaning set forth in Regulation D promulgated under the Securities Act. "ACQUIRED ASSETS" means all right, title, and interest in and to the following assets of the Seller: (a) all customer contract rights and customer lists; (b) all licenses, licensing agreements, permits, domains, IP Addresses and governmental rights; (c) all Intellectual Property, goodwill associated therewith, licenses and sublicenses granted or obtained with respect thereto, and rights thereunder, remedies against infringement thereof, and rights to protection of interests therein under the laws of all jurisdictions; (d) all fixed assets and inventory pertaining to the Seller; (e) all real property leases and equipment leases pertaining to the assets of the Seller; and (f) all other assets pertaining to the Seller; PROVIDED, HOWEVER, that the Acquired Assets shall not include accounts receivable or accounts payable either accrued or incurred prior to the Closing Date, or personal property (including paintings) belonging to the employees of the Seller. "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). "APPLICABLE RATE" means the corporate base rate of interest publicly announced from time to time by Norwest Bank, NA. "BASIS" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence. "BUYER" has the meaning set forth in the preface above. "BUYER SHARES" has the meaning set forth in Section 2(c)(i) below. 5 "CLOSING" has the meaning set forth in Section 2(f) below. "CLOSING DATE" has the meaning set forth in Section 2(f) below. "COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B. "CODE" means the Internal Revenue Code of 1986, as amended. "DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Reg. Section 1.1502-13. "DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below. "DISTRIBUTEES" has the meaning set forth in Section 2(c) 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 any 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, 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. "ESCROW AGENT" has the meaning set forth in Section 2(e)(i) below. "ESCROW AGREEMENT" has the meaning set forth in Section 2(e)(i) below. "ESCROW SHARES" has the meaning set forth in Section 2(e)(i) below. 6 "ESCROW TERM" has the meaning set forth in Section 2(e)(i) below. "FCC AUTHORIZATIONS" means all approvals, consents, permits, licenses, certificates, and authorizations given by the Federal Communications Commission or similar federal governmental agency to provide the telecommunications services currently provided by the Seller and to conduct its business as it is currently conducted. "FINANCIAL STATEMENT" has the meaning set forth in Section 3(g) below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names (including the name "Aces Research"), together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "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. "MOST RECENT BALANCE SHEET" means the balance sheet contained within the Most Recent Financial Statements. "MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section 3(g) below. "MOST RECENT FISCAL MONTH END" has the meaning set forth in Section 3(g) below. "MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 3(g) below. "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37). 7 "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "PARTY" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "PERSON" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "PURCHASE PRICE" has the meaning set forth in Section 2(c) below. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, OTHER THAN (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SELLER" has the meaning set forth in the preface above. "SELLER SHARE" means any share of the Common Stock, par value $___ per share, of the Seller. "SELLER SHAREHOLDERS" has the meaning set forth in the preface above. "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 "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. "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 8 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 return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 2. BASIC TRANSACTION. (a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of the Acquired Assets at the Closing for the consideration specified below in this Section 2. (b) NO ASSUMPTION OF LIABILITIES. Other than as specified herein as related to the Acquired Assets, the Buyer will not assume or have any responsibility with respect to any obligation or Liability of the Seller. (c) PURCHASE PRICE. In exchange for the Acquired Assets, the Buyer will issue to the Seller that number of shares of the Common Stock of the Buyer, par value $0.001 per share (the "Buyer Shares"), equal to $1,464,000 (the "Purchase Price") divided by the average closing price per share of the Buyer Shares for the five (5) day period ending on the day prior to Closing. The Buyer Shares shall be registered when issued under the Securities Act, or, if unregistered, shall be registered by the Buyer pursuant to Section 2(e) below. Further, subject to the provisions set forth in Section 2(e) below, it is contemplated that the Buyer Shares shall be allocated and distributed by the Seller to the Seller Shareholders, its officers or directors (the "Distributees") in the sole discretion of the Seller. (d) ADJUSTMENT OF PURCHASE PRICE. The Purchase Price set forth in Section 2(c) above is based upon a recurring revenue rate of the Seller of $61,000 per month. In the event that the actual recurring revenue rate for the Seller for the month of May, 1999 is (i) in excess of than $61,000, the Purchase Price shall be increased by $24 for each dollar such actual recurring revenue rate is above $61,000; or (ii) less than $61,000, the Purchase Price shall be decreased by $24 for each dollar such actual recurring revenue rate is below $61,000. (e) ISSUANCE OF SHARES. (i) At the Closing, to secure its obligations under Section 8 hereof and all of the Seller's representations and warranties hereunder, the Seller will deposit with an escrow agent (the "Escrow Agent") ten percent (10%) of the Buyer Shares payable at the Closing (the "Escrow Shares"), which Escrow Shares shall be held by the Escrow Agent for eighteen (18) months following the Closing Date (the "Escrow Term") pursuant to the terms and conditions of the escrow agreement attached hereto as Exhibit A (the "Escrow Agreement"). In the event of any conflict between the terms of this Agreement and the Escrow Agreement, the terms of the Escrow Agreement shall govern. All costs and fees of the Escrow Agent for establishing and administering the escrow fund herein described shall be borne by the Buyer. Upon compliance 9 with the terms hereof, the Buyer shall be entitled to obtain indemnity first from the Escrow Fund for all Adverse Consequences covered by the indemnity provided for in Section 8 hereof. If the Escrow Fund is not sufficient to cover the indemnity for the Adverse Consequences covered by Section 8, then the Buyer shall be entitled to seek payment directly from the Seller. The Escrow Shares shall be registered under the Securities Act prior to the expiration of the Escrow Term. (ii) Following the Closing, the Distributees may sell, trade and otherwise transfer up to twenty percent (20%) of the Buyer Shares issued to the Seller pursuant to Sections 2(c) and 2(d) above; PROVIDED, HOWEVER, that the Seller and Selling Shareholders shall not sell, trade or otherwise transfer more than 4,000 of such shares in any one trading day. (iii) Seventy percent (70%) of the Buyer Shares payable at the Closing (the "Lock-Up Shares") will be subject to a lock-up agreement, a form of which is attached hereto as Exhibit B (the "Lock-Up Agreement"), prohibiting the sale, transfer or other disposition of the Lock-Up Shares in the following amounts and for the following periods of time following the Closing (the "Lock-Up Periods"): (i) fifty percent (50%) of the Lock-Up Shares (which is equal to thirty five percent (35%) of the total Buyer Shares) for six (6) months; and (ii) the remaining fifty percent (50%) of the Lock-Up Shares (which is equal to an additional thirty five percent (35%) of the total Buyer Shares) for twelve (12) months. The Lock-Up Shares shall be registered under the Securities Act prior to the expiration of the relevant Lock-Up Periods. (f) THE CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of RMI.NET, Inc. in Denver, Colorado 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 30, 1999 (the "CLOSING DATE"); PROVIDED, HOWEVER, that the Closing Date may be extended upon mutual agreement of the Parties. (g) DELIVERIES 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(a) below; (iii) the Seller will execute, acknowledge (if appropriate), and deliver to the Buyer (A) an Assignment in the form attached hereto as Exhibit C, (B) a Bill of Sale in the form attached hereto as Exhibit D, (C) the Escrow Agreement, (D) the Lock-Up Agreement, and (E) such other instruments of sale, transfer, conveyance, and assignment as the Buyer and its counsel reasonably may request; (iv) the Buyer will deliver to the Seller the consideration specified in Section 2 above. (h) ALLOCATION. The Parties agree to allocate the Purchase Price (and all other capitalizable costs) among the Acquired Assets for all purposes (including financial accounting and tax purposes) in accordance with the allocation schedule attached hereto as Exhibit E. 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE SELLER SHAREHOLDERS. Each of the Seller and the Seller Shareholders represent and warrant to the Buyer that the statements contained in this Section 3 are correct and complete as of the date of this Agreement and will be correct and 10 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) ORGANIZATION OF THE SELLER. The Seller is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) AUTHORIZATION OF TRANSACTION. The Seller has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. Without limiting the generality of the foregoing, the board of directors of the Seller and the Seller Shareholders have duly authorized the execution, delivery, and performance of this Agreement by the Seller. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions. (c) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments referred to in Section 2 above), 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 any of the Seller and its Subsidiaries is subject or any provision of the charter or bylaws of any of the Seller and its Subsidiaries, 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 any of the Seller, its Subsidiaries, or the Seller Shareholders is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). None of the Seller, its Subsidiaries, and the Seller Shareholders needs 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 (including the assignments referred to in Section 2 above). (d) BROKERS' FEES. Neither the Seller nor the Seller Shareholders 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 for which the Buyer could become liable or obligated. None of the Subsidiaries of 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) TITLE TO ASSETS. The Seller and its Subsidiaries have good and marketable title to, or a valid leasehold interest in, the properties and assets used by them, located on their premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. Without limiting the generality of the foregoing, the Seller has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer. 11 (f) SUBSIDIARIES. Section 3(f) of the Disclosure Schedule sets forth for each Subsidiary of the Seller (i) its name and jurisdiction of incorporation, and (ii) its directors and officers. Each Subsidiary of the Seller is an entity duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization. Each Subsidiary of the Seller is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Each Subsidiary of the Seller has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. If applicable, all of the issued and outstanding shares of capital stock of each Subsidiary of the Seller have been duly authorized and are validly issued, fully paid, and nonassessable. The minute books (containing the records of meetings of the stockholders, members, board of directors, any committees of the board of directors, or managers, as applicable), the stock certificate books, and the stock record books of each Subsidiary of the Seller are correct and complete. None of the Subsidiaries of the Seller is in default under or in violation of any provision of its charter or bylaws. (g) FINANCIAL STATEMENTS. Attached hereto as Exhibit F are the following financial statements (collectively the "Financial Statements"): (i) audited consolidated and unaudited consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended December 31, 1997 and December 31, 1998 (the "Most Recent Fiscal Year End") for the Seller; and (ii) unaudited consolidated and consolidating balance sheets and statements of income, changes in stockholders' equity, and cash flow (the "Most Recent Financial Statements") as of and for the fiscal period ended May 31, 1999 (the "Most Recent Fiscal Month End") for the Seller. The Financial Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Seller as of such dates and the results of operations of the Seller for such periods, are correct and complete, and are consistent with the books and records of the Seller (which books and records are correct and complete); PROVIDED, HOWEVER, that the Most Recent Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items. (h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most Recent Fiscal Year End, there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of the Seller. Without limiting the generality of the foregoing, and except as set forth in Section 3(h) of the Disclosure Schedule, since that date: (i) the Seller has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) the Seller has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) outside the Ordinary Course of Business; (iii) no party (including any of the Seller and its Subsidiaries) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related 12 agreements, contracts, leases, and licenses) involving more than $5,000 to which the Seller is a party or by which it is bound; (iv) the Seller has not imposed any Security Interest upon any of its assets, tangible or intangible; (v) the Seller has not made any capital expenditure (or series of related capital expenditures) outside the Ordinary Course of Business; (vi) the Seller has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) outside the Ordinary Course of Business; (vii) the Seller has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation; (viii) the Seller has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (ix) the Seller has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims); (x) the Seller has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) there has been no change made or authorized in the charter or bylaws of any of the Seller; (xii) the Seller has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xiii) the Seller has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (xiv) the Seller has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property; (xv) the Seller has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvi) the Seller has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or 13 agreement; (xvii) the Seller has not granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (xviii) the Seller has not adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xix) the Seller has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; (xx) the Seller has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; (xxi) the Seller has not paid any amount to any third party with respect to any Liability or obligation (including any costs and expenses the Seller has incurred or may incur in connection with this Agreement and the transactions contemplated hereby) which would not constitute an Assumed Liability if in existence as of the Closing; (xxii) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving any of the Seller and its Subsidiaries; and (xxiii) the Seller has not committed to any of the foregoing. (i) UNDISCLOSED LIABILITIES. The Seller has no Liability (and there is no reasonable Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability), except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law). (j) LEGAL COMPLIANCE. Each of the Seller and its predecessors and Affiliates has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (k) TAX MATTERS. (i) The Seller has filed all Tax Returns that it was required to file. All such Tax 14 Returns were correct and complete in all respects. All Taxes owed by any of the Seller (whether or not shown on any Tax Return) have been paid. The Seller is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Seller that arose in connection with any failure (or alleged failure) to pay any Tax. (ii) The Seller has withheld and paid all Taxes required to have been withheld and paid in connection with (A) amounts paid or owing to any employee, independent contractor, creditor, stockholder, customer or other third party, or (B) as a result of the sale of any goods or services. (iii) No Seller Shareholder or director or officer (or employee responsible for Tax matters) of the Seller expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Seller either (A) claimed or raised by any authority in writing or (B) as to which any of the Seller Shareholders and the directors and officers (and employees responsible for Tax matters) of the Seller has Knowledge based upon personal contact with any agent of such authority. The Seller has delivered to the Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any of the Seller and its Subsidiaries since December 31, 1996. (iv) The Seller has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (v) The Seller 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. The Seller is not a party to any Tax allocation or sharing agreement. The Seller (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Seller) or (B) has any Liability for the 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. (vi) Section 3(k) of the Disclosure Schedule sets forth the following information with respect to the Seller as of the most recent practicable date (as well as on an estimated pro forma basis as of the Closing giving effect to the consummation of the transactions contemplated hereby): (A) the basis of the Seller in its assets; (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to the Seller; and (C) the amount of any deferred gain or loss allocable to the Seller arising out of any Deferred Intercompany Transaction. (l) REAL PROPERTY. (i) The Seller owns no real property. 15 (ii) Section 3(l)(ii) of the Disclosure Schedule lists and describes briefly all real property leased or subleased to the Seller. The Seller has delivered to the Buyer correct and complete copies of the leases and subleases listed in Section 3(l)(ii) of the Disclosure Schedule (as amended to date). With respect to each lease and sublease listed in Section 3(l)(ii) of the Disclosure Schedule: (A) the lease or sublease is legal, valid, binding, enforceable, and in full force and effect; (B) the lease or sublease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby (including the assignments referred to in Section 2 above); (C) no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (D) no party to the lease or sublease has repudiated any provision thereof; (E) there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (F) with respect to each sublease, the representations and warranties set forth in subsections (A) through (E) above are true and correct with respect to the underlying lease; (G) the Seller has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; (H) all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; (I) all facilities leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said facilities; and (J) the owner of the facility leased or subleased has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for installments of special easements not yet delinquent and recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. (m) INTELLECTUAL PROPERTY. 16 (i) The Seller owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the businesses of the Seller as presently conducted. Each item of Intellectual Property owned or used by the Seller immediately prior to the Closing hereunder will be owned or available for use by the Buyer on identical terms and conditions immediately subsequent to the Closing hereunder. The Seller has taken all necessary action to maintain and protect each item of Intellectual Property that it owns or uses. (ii) The Seller has not interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and none of the Seller Shareholders and the directors and officers (and employees with responsibility for Intellectual Property matters) of the Seller and its Subsidiaries has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that the Seller must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of any of the Seller Shareholders and the directors and officers (and employees with responsibility for Intellectual Property matters) of the Seller, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Seller. (iii) Section 3(m)(iii) of the Disclosure Schedule identifies each patent or registration which has been issued to the Seller with respect to any of its Intellectual Property, identifies each pending patent application or application for registration which the Seller has made with respect to any of its Intellectual Property, and identifies each license, agreement, or other permission which the Seller has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). The Seller has delivered to the Buyer correct and complete copies of all such patents, 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. Section 3(m)(iii) of the Disclosure Schedule also identifies each trade name or unregistered trademark used by the Seller in connection with any of its businesses. With respect to each item of Intellectual Property required to be identified in Section 3(m)(iii) of the Disclosure Schedule: (A) the Seller possesses all right, title, and interest in and to the item, free and clear of any Security Interest, license, or other restriction; (B) the item is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and (D) the Seller has never agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item. 17 (iv) Section 3(m)(iv) of the Disclosure Schedule identifies each item of Intellectual Property that any third party owns and that the Seller 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(m)(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 (including the assignments referred to in Section 2 above); (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) the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or is threatened which challenges the legality, validity, or enforceability of the underlying item of Intellectual Property; and (H) the Seller has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. (v) To the Knowledge of any of the Seller Shareholders and the directors and officers (and employees with responsibility for Intellectual Property matters) of the Seller, the Seller 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 businesses as presently conducted. (vi) To the Knowledge of the Seller and the Seller Shareholders, the Seller owns and has the right to use the name "Aces Research." 18 (n) TANGIBLE ASSETS. The Seller owns or leases all buildings, machinery, equipment, and other tangible assets necessary for the conduct of its businesses as presently conducted. Each such tangible asset is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. (o) INVENTORY. The inventory of the Seller consists of raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete, damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Seller. (p) CONTRACTS. Section 3(p) of the Disclosure Schedule lists the following contracts and other agreements to which the Seller 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 raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, result in a material loss to the Seller, or involve consideration in excess of $5,000; (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 $5,000 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (v) any agreement concerning confidentiality or noncompetition (other than in connection with this Agreement); (vi) any agreement involving any of the Seller Shareholders and their Affiliates (other than 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; 19 (ix) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation or providing severance benefits; (x) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (xi) any agreement under which the consequences of a default or termination could have a material adverse effect on the business, financial condition, operations, results of operations, or future prospects of the Seller; or (xii) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $5,000. The Seller has delivered to the Buyer a correct and complete copy of each written agreement listed in Section 3(p) of the Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 3(p) 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 (including the assignments referred to in Section 2 above); (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. (q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of the Seller are reflected properly on their books and records, are valid receivables subject to no setoffs or counterclaims, and are current and collectible. (r) POWERS OF ATTORNEY. There are no outstanding powers of attorney executed on behalf of the Seller or the Seller Shareholders. (s) INSURANCE. Section 3(s) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Seller has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past 5 years. (t) LITIGATION. Section 3(t) of the Disclosure Schedule sets forth each instance in which the Seller (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or 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. None of the actions, suits, proceedings, hearings, and investigations set forth in Section 3(t) of the Disclosure Schedule could result in any material adverse change in the business, financial condition, operations, results of operations, or future prospects of the Seller. None of the Seller Shareholders and the directors and officers (and 20 employees with responsibility for litigation matters) of the Seller has any reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Seller. (u) PRODUCT WARRANTY. Each product or service manufactured, sold, leased, or delivered by the Seller has been in conformity with all applicable contractual commitments and all express and implied warranties, and the Seller has no Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability) for replacement or repair thereof or other damages in connection therewith, subject only to the reserve for product warranty claims set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Seller. No product or service manufactured, sold, leased, or delivered by the Seller is subject to any guaranty, warranty, or other indemnity beyond the applicable standard terms and conditions of sale or lease. Section 3(u) of the Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for the Seller (containing applicable guaranty, warranty, and indemnity provisions). (v) PRODUCT LIABILITY. The Seller has no Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered by the Seller. (w) EMPLOYEES. To the Knowledge of any of the Seller Shareholders and the directors and officers (and employees with responsibility for employment matters) of the Seller, no executive, key employee, or group of employees has any plans to terminate employment with the Seller. The Seller is not a party to or bound by any collective bargaining agreement, nor has the Seller experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Seller has not committed any unfair labor practice. None of the Seller Shareholders and the directors and officers (and employees with responsibility for employment matters) of the Seller has any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Seller. (x) EMPLOYEE BENEFITS. (i) Section 3(x) of the Disclosure Schedule lists each Employee Benefit Plan that the Seller maintains or to which the Seller contributes or has any obligation to contribute. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. (B) All required reports and descriptions (including Form 5500 Annual Reports, summary annual reports, PBGC-1's, and summary plan descriptions) have been timely filed and distributed appropriately with respect to each such Employee Benefit Plan. The 21 requirements of COBRA have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Seller. All premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (D) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Section 401(a), has received, within the last two years, a favorable determination letter from the Internal Revenue Service that it is a "qualified plan," and Seller is not aware of any facts or circumstances that could result in the revocation of such determination letter. (E) The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or exceeds the present value of all vested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (F) The Seller has delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (ii) With respect to each Employee Benefit Plan that any of the Seller and any ERISA Affiliate maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute: (A) No such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any such Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or threatened. (B) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened. None of the Seller Shareholders and the 22 directors and officers (and employees with responsibility for employee benefits matters) of the Seller has any Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation. (C) The Seller has not incurred, and none of the Seller Shareholders and the directors and officers (and employees with responsibility for employee benefits matters) of the Seller has any reason to expect that the Seller will incur any Liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal liability as defined in ERISA Section 4201) or under the Code with respect to any such Employee Benefit Plan which is an Employee Pension Benefit Plan. (iii) None of the Seller and the other members of the Controlled Group that includes the Seller contributes to, ever has contributed to, or ever has been required to contribute to any Multiemployer Plan or has any Liability (including withdrawal liability as defined in ERISA Section 4201) under any Multiemployer Plan. (iv) The Seller does not maintain or ever has maintained or contributes, ever has contributed, or ever has been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Section 4980B). (y) GUARANTIES. The Seller 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. (i) To the Knowledge of the Seller and the Seller Shareholders, each of the Seller and its predecessors and Affiliates has complied and is in compliance with all Environmental, Health, and Safety Requirements. (ii) Without limiting the generality of the foregoing, each of the Seller and its Affiliates has obtained and complied with, and is in compliance with, all permits, licenses and other authorizations that are required pursuant to Environmental, Health, and Safety Requirements for the occupation of its facilities and the operation of its business; a list of all such permits, licenses and other authorizations is set forth on the attached "Environmental and Safety Permits Schedule." (iii) Neither the Seller nor its predecessors or Affiliates has received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any liabilities or potential liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations, relating to any of them or its facilities arising under Environmental, Health, and Safety Requirements. (iv) To the Knowledge of the Seller and the Seller Shareholders, none of the 23 following exists at any property or facility owned or operated by the Seller: (1) underground storage tanks, (2) asbestos-containing material in any form or condition, (3) materials or equipment containing polychlorinated biphenyls, or (4) landfills, surface impoundments, or disposal areas. (v) None of the Seller or its predecessors or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given or would give rise to liabilities, including any liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA") or any other Environmental, Health, and Safety Requirements. (vi) Neither this Agreement nor the consummation of the transaction that is the subject of this Agreement will result in any obligations for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any of the so-called "transaction-triggered" or "responsible property transfer" Environmental, Health, and Safety Requirements. (vii) Neither the Seller nor its predecessors or Affiliates has, either expressly or by operation of law, assumed or undertaken any liability, including without limitation any obligation for corrective or remedial action, of any other Person relating to Environmental, Health, and Safety Requirements. (viii) To the Knowledge of the Seller and the Seller Shareholders, no facts, events or conditions relating to the past or present facilities, properties or operations of the Seller or any of its predecessors or Affiliates will prevent, hinder or limit continued compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or give rise to any other liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to Environmental, Health, and Safety Requirements, including without limitation any relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage. (aa) STATE PUC AUTHORIZATIONS AND FCC AUTHORIZATIONS. The Seller represents and warrants that there are no State PUC Authorizations or FCC Authorizations relating to Seller. (bb) CERTAIN BUSINESS RELATIONSHIPS WITH THE SELLER. None of the Seller Shareholders and their Affiliates has been involved in any business arrangement or relationship with the Seller within the past twelve (12) months, and none of the Seller Shareholders and their Affiliates owns any asset, tangible or intangible, which is used in the business of the Seller. (cc) DISCLOSURE. The representations and warranties contained in this Section 3 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the 24 statements and information contained in this Section 3 not misleading. (dd) INVESTMENT. Each of the Seller and the Seller Shareholders (i) understands that some, if not all, of the Buyer Shares have not been registered under the Securities Act, or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring the Buyer Shares solely for its own account for investment purposes, and not with a view to the distribution thereof (except to the Distributees), (iii) has received certain information concerning the Buyer and 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, and (iv) is able to bear the economic risk and lack of liquidity inherent in holding the Buyer Shares. The Seller and the Seller Shareholders acknowledge and agree that Ehud Gavron is an Accredited Investor as a result of this Agreement and transaction. (ee) BULK TRANSFER LAWS. The Seller represents and warrants that the transactions contemplated by this Agreement are not affected by the provisions of any bulk transfer laws of any applicable jurisdiction. 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 lettered and numbered paragraphs contained in this Section 4. (a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. (b) AUTHORIZATION OF TRANSACTION. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. (c) NONCONTRAVENTION. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (including the assignments referred to in Section 2 above), 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 its charter or bylaws 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. 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 (including the assignments referred to in Section 2 above). 25 (d) BROKERS' FEES. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) GENERAL. Each of the Parties will use its best efforts to take all action and to do all things necessary 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 the Seller will use its best efforts to obtain any third party consents, that the Buyer may request in connection with the matters referred to in Section 3(c) above. Each of the Parties will give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in Section 3(c) and Section 4(c) above. Without limiting the generality of the foregoing, each of the Parties will make any further filings that may be necessary, proper, or advisable in connection therewith. (c) OPERATION OF BUSINESS. The Seller will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Seller will not (i) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock, (ii) pay any amount to any third party with respect to any Liability or obligation (including any costs and expenses the Seller has incurred or may incur in connection with this Agreement and the transactions contemplated hereby) which would not constitute an Assumed Liability if in existence as of the Closing, or (iii) otherwise engage in any practice, take any action, or enter into any transaction of the sort described in Section 3(h) above. (d) PRESERVATION OF BUSINESS. The Seller will keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. (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 the Seller, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to the Seller. (f) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to the other Party 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. 26 (g) EXCLUSIVITY. The Seller will not (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of the Seller (including any acquisition structured as a merger, consolidation, or share exchange) or (ii) 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. The Seller will notify the Buyer immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. (h) LEGEND. The Buyer and the Seller covenant and agree that eighty percent (80%) of the Buyer Shares will bear the following legend until the Buyer Shares are registered pursuant to Sections 2(e)(i) and 2(e)(iii) hereof: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY ACCEPTING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, (C) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) IN ACCORDANCE WITH ANY OTHER EXEMPTION UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS UPON THE DELIVERY OF A LEGAL OPINION, REASONABLY SATISFACTORY TO THE ISSUER, TO THE FOREGOING EFFECT. THE TRANSFER OF THE SECURITIES IS ALSO RESTRICTED UNDER THE TERMS OF A REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF RMI.NET, INC. 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) 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; (ii) the Seller shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) the Seller shall have procured all of the third party consents specified in Section 5(b) above; 27 (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, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own the Acquired Assets (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (v) 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) the Buyer shall have received from counsel to the Seller an opinion in form and substance as set forth in Exhibit G attached hereto, addressed to the Buyer, and dated as of the Closing Date; (vii) the Buyer shall have received from the Seller the executed Lock-Up Agreement; (viii) the Buyer shall have entered into the employment agreements described in Section 9(a) below; (ix) the Seller Shareholders shall have executed and delivered to the Buyer the Non-Competition Agreements described in Section 9(b) below; and (x) 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 it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or 28 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; (vii) the Seller shall have received from counsel to the Buyer an opinion in form and substance as set forth in Exhibit H attached hereto, addressed to the Seller, and dated as of the Closing Date; and (viii) 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 the Seller. The Seller may waive any condition specified in this Section 6(b) if it executes a writing so stating at or prior to the Closing. 7. TERMINATION. (a) TERMINATION OF AGREEMENT. Certain of the Parties may terminate this Agreement as provided below: (i) the Buyer may terminate this Agreement by giving written notice to the Seller at any time prior to the Closing (A) in the event the Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Buyer has notified the Seller of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach, or (B) if the Closing shall not have occurred on or before July 31, 1999, by reason of the failure of any condition precedent under Section 6(a) hereof (unless the failure results primarily from the Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); and (ii) the Seller may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing (A) in the event the Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Seller has notified the Buyer of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach, or (B) if the Closing shall not have occurred on or before July 31, 1999, by reason of the failure of any condition precedent under Section 6(b) hereof (unless the failure results primarily from the Seller itself breaching any representation, warranty, or covenant contained in this Agreement). (b) EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to Section 29 7(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach). 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 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 the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 8(g) or Section 8(i) 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(g), Section (h), Section (i) or Section (j) below). (c) TRANSITION. Neither the Seller nor any of the Seller Shareholders, directors or officers of Seller will take any action that is designed or intended to have the effect of discouraging any lessor, licenser, customer, supplier, or other business associate of the Seller from maintaining the same business relationships with the Buyer after the Closing as it maintained with the Seller prior to the Closing. (d) CONFIDENTIALITY. The Seller and each of the Seller Shareholders, directors and officers of Seller, as applicable, will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to the Buyer or destroy, at the request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his/her or its possession. In the event that the Seller or any of the Seller Shareholders, directors or officers of Seller 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, that Person will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 8(d). If, in the absence of a protective order or the receipt of a waiver hereunder, the Seller or any of the Seller Shareholders, directors or officers of Seller is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, that Person may disclose the Confidential Information to the tribunal; PROVIDED, HOWEVER, that the disclosing Person shall use his or its reasonable best efforts 30 to obtain, at the reasonable request of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall designate. (e) COVENANT NOT TO COMPETE. For a period of one (1) year from and after the Closing Date, or from a period of six (6) months from or after the last date of post-Closing employment of Selling Shareholder(s) by Buyer, the Selling Shareholders will not engage directly or indirectly in the business of an internet networking provider that the Seller conducts as of the Closing Date in any geographic area in which the Seller conducts that business as of the Closing Date; PROVIDED, HOWEVER, that no owner of less than 1% of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. In the event Buyer wishes to enforce the terms of this Section as against one or more of the Selling Shareholders for the period of six (6) months from or after the last date of post-Closing employment of Selling Shareholders by Buyer, Buyer hereby agrees to compensate the Selling Shareholder(s) during that six(6) month period at the same rate of compensation as was provided during the prior employment with Buyer. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 8(e) is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (f) NON-SOLICITATION. Selling Shareholders covenant that for a period of 18 months from and after the Closing Date, or for a period of six (6) months from or after the last date of employment by Buyer of Selling Shareholder(s), whichever period is longer, they shall not directly or indirectly induce or solicit, or directly or indirectly aid or assist any other person to induce or solicit, any person who is (or within the prior twelve months had been) an employee, salesman, agent, consultant, distributor, representative, advisor, customer or supplier of Buyer to terminate that person's employment or business relations with the other. (g) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Parties contained in this Agreement shall survive the Closing (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of three (3) years thereafter. (h) 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 its representations, warranties, and covenants contained in this Agreement, and, if there is an applicable survival period pursuant to Section 8(g) above, provided that the Buyer makes a written claim for indemnification against the Seller within such survival period, then the Seller agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date 31 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 (A) resulting from, arising out of, relating to, in the nature of, or caused by any Liability of the Seller (including any Liability of the Seller that becomes a Liability of the Buyer under any bulk transfer law of any jurisdiction, under Environmental, Health, and Safety Requirements, for unpaid Taxes, or otherwise by operation of law); and (B) suffer resulting from, arising out of, relating to, in the nature of, or caused by the ownership or operation of the Acquired Assets by the Seller prior to the Closing. . (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 the Company (a) for Taxes of the Company with respect to any Tax year or portion thereof ending on or before the Closing Date; 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. (i) 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(g) above, provided that the Seller makes 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 Members 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 Buyer agrees to indemnify the Seller from and against the entirety of any Adverse Consequences the Seller may suffer resulting from, arising out of, relating to, in the nature of, or caused by the ownership or operation of the Acquired Assets by the Buyer from and after the Closing. (j) MATTERS INVOLVING THIRD PARTIES. (i) If any third party shall notify any Party (the "Indemnified Party") with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Section 8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced. 32 (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) days 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(j)(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(j)(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 Parties 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 Parties 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. (k) OTHER INDEMNIFICATION PROVISIONS. The indemnification provisions set forth in Section 8(g), Section 8(h), and Section 8(i) are in addition to, and not in derogation of, any statutory, equitable, or common law remedy (including without limitation any such remedy arising under Environmental, Health, and Safety Requirements) any Party may have with respect to the Seller, or the transactions contemplated by this Agreement. 9. ADDITIONAL AGREEMENTS. 33 (a) EMPLOYMENT AGREEMENTS. Prior to the Closing Date, the Buyer will take the following actions with respect to the employment of certain Seller Shareholders and other key employees of the Seller (collectively, the "Employment Agreements"): (i) the Buyer shall enter into employment agreements for a term of one (1) year with Ehud Gavron, Joe Fico and Matthew Ramsey, providing for compensation similar to the compensation such individuals were earning as of March 1, 1999, terminable only "for cause," and upon such other terms and conditions as shall be reasonably acceptable to the parties thereto; and (ii) the Buyer shall, in its discretion, provide letters of employment to certain other key employees of the Seller previously identified by the Buyer, the terms of which shall be reasonably acceptable to the parties thereto. 10. MISCELLANEOUS. (a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing 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. (c) ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules hereto (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; PROVIDED, HOWEVER, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). (e) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. This Agreement may be executed by facsimile provided that the original counterpart is delivered within five (5) days of such execution. (f) HEADINGS. The section headings contained in this Agreement are inserted for 34 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: Aces Research, Inc. c/o Ehud Gavron 4003 East Speedway Blvd., Suite 123 Tucson, AZ 85712 COPY TO: Mr. Peter Beren 1331 North Swan Road, Suite 151 Tucson, AZ 85712 IF TO THE BUYER: RMI.NET, Inc. 999 18th Street North Tower, 22nd Floor Denver, CO 80202 Attention: Mr. Douglas H. Hanson, Chairman and CEO COPIES TO: RMI.NET, Inc. 999 18th Street North Tower, 22nd Floor Denver, CO 80202 Attention: Mr. Chris J. Melcher Holland & Hart, LLP 215 South State Street, Suite 500 Salt Lake City, UT 84111-2317 Attention: Mr. David R. Rudd Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), 35 but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. (h) 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. (i) ARBITRATION. 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 Rules of Arbitration and Conciliation of the American Arbitration Association then in effect. If the Parties to the Dispute are unable to agree on a single arbitrator, then such binding arbitration shall be conducted before a panel of three (3) arbitrators that shall be comprised of one (1) arbitrator designated by each Party to the Dispute and a third arbitrator designated by the two (2) arbitrators selected by the Parties to the Dispute. Unless the Parties to the Dispute agree otherwise, the arbitration proceedings shall take place in Denver, Colorado and the arbitrator(s) shall apply the law of the State of Colorado, USA, to all issues in dispute, in accordance with Section 10(h). 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. (j) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Seller. The Seller may consent to any such amendment at any time prior to the Closing with the prior authorization of its board of directors; PROVIDED, HOWEVER, that any amendment effected after the Seller Shareholders have approved this Agreement will be subject to the restrictions contained in the Delaware General Corporation Law or other applicable corporation statute. 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. (k) 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 36 provision in any other situation or in any other jurisdiction. (l) EXPENSES. Each of the Buyer, the Seller, and the Seller Shareholders will bear his or its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The Seller agrees that none of its Subsidiaries has borne or will bear any of the costs and expenses of the Seller and the Seller Shareholders (including any of their legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. The Seller also agrees that it has not paid any amount to any third party, and will not pay any amount to any third party until after the Closing, with respect to any of the costs and expenses of the Seller and the Seller Shareholders (including any of their legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. (m) 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 requires otherwise. 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. (n) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. (o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 10(i) above), in addition to any other remedy to which it may be entitled, at law or in equity. 37 ***** IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. RMI.NET, INC. By:______________________________________________ Douglas H. Hanson, Chairman and CEO ACES RESEARCH, INC. By:______________________________________________ Print Name:______________________________________ Title:___________________________________________ SELLER SHAREHOLDERS _________________________________________________ Ehud Gavron _________________________________________________ Joe Fico _________________________________________________ Matthew Ramsey 38 EX-20.1 3 EXHIBIT 20.1 Exhibit 20.1 RMI.NET ACQUIRES TUCSON, ARIZ.-BASED ACES RESEARCH A DEDICATED ACCESS INTERNET SERVICE PROVIDER DENVER, July 30 /PRNewswire/ -- RMI.NET, Inc. (Nasdaq: RMII), formerly Rocky Mountain Internet, a national e-business and convergent communications company, announced today it has acquired ACES Research, Inc., a Tucson, Ariz.-based dedicated access Internet service provider (ISP), for approximately $2 million in RMI.NET stock. ACES Research has an annualized revenue run rate of approximately $1 million. (Photo: http://www.newscom.com/cgi-bin/prnh/19990628/RMILOGO ) In acquiring ACES Research, RMI.NET gains one of southern Arizona's premier ISPs for high-quality, high-speed Internet service. ACES Research is the highest bandwidth provider in southern Arizona, with three Digital Service Level 3s (DS-3s) on separate Optical Carrier Level 12s (OC-12s), and a focus on high-end services for small and medium-sized business customers. ACES Research was founded in 1991 to provide quality network consulting and Internet connectivity to southern Arizona. "This acquisition will allow us to strategically expand our e-commerce efforts in the Arizona communications marketplace," said Douglas H. Hanson, chairman and chief executive officer for RMI.NET. "This acquisition is another step forward in our national expansion plans to deploy e-SELL(R), our premier e-commerce storefront, and Internet communications services." "RMI.NET offers ACES Research the opportunity for continued growth. It allows us the ability to continue providing high-quality, dedicated Internet service in the southern Arizona marketplace," said Ehud Gavron, president for ACES Research. "Our customers have long enjoyed the services we provide, and our partnership with RMI.NET will allow us to expand our offering, especially for e-commerce and communications applications." RMI.NET acquired Internet Now!, one of Arizona's leading ISPs, in November 1998. Internet Now! was voted as Arizona's leading ISP by Arizona Business Magazine. In a separate transaction, RMI.NET also announced it had acquired the web hosting assets of Net One Communications Corp., a Denver-based company. Terms of the second acquisition were not disclosed. Denver-based RMI.NET, Inc., formerly Rocky Mountain Internet, is a national commerce solutions provider focusing on turnkey e-business applications and convergent communications. RMI.NET has developed and provides small and medium-sized companies with scalable e-business capabilities; customized web page development and hosting; nationwide Internet dial up and dedicated access; digital subscriber line service (DSL); and local, long distance and enhanced telephony. RMI.NET also provides Internet, and data and voice communications services to consumer households. The company wholly owns a proprietary port site and search engine, Infohiway, at www.infohiway.com; and develops and markets Simplified Domains, a new and emerging Internet domain registration, at www.simplifieddomains.com. For more information on RMI.NET, call (800) 864-4327, or visit the company's web site at www.rmi.net. This press release might contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from such forward-looking statements as a result of risks and uncertainties which are described in the cautionary statements section of the company's 10K dated December 31, 1998, and may include other risks described in all Securities and Exchange Commission filings submitted as of this date. /CONTACT: Mark Stutz of RMI.NET, Inc., 303-313-0672, mark.stutz@corp.rmi.net/ -----END PRIVACY-ENHANCED MESSAGE-----