UNITED STATES
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: September 16, 1996
(Date of the earliest event reported)
SYKES ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Florida 0-28274 56-1383460
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification Number)
100 North Tampa Street, Suite 3900
Tampa, Florida 33602-5089
(Address of principal executive offices) (Zip Code)
813/274-1000
Registrant's telephone number, including area code
<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 30, 1996, pursuant to a Stock Purchase Agreement dated as of
August 30, 1996 (the "Agreement"), Sykes Enterprises, Incorporated ("SEi"
or "Company") acquired all of the issued and outstanding stock of
DiagSoft, Inc. ("DiagSoft") from Gordon H. Kraft in exchange for 675,000
shares of SEi common stock (the "Acquisition"). The Acquisition will be
accounted for using the pooling-of-interests method of accounting.
DiagSoft, a corporation organized and existing under the laws of the State
of California, develops and markets proprietary diagnostic software for
use by manufacturers, professional service personnel and end users, which
serves as a tool for enhancing SEi's technical product support services.
Proprietary products developed and marketed by DiagSoft for use with a
variety of operating systems include software used by personal computer
manufacturers for their quality assurance purposes, and pre-installed or
bundled software used by professional service personnel and end users for
verifying component functionality, troubleshooting, resolving hardware and
software conflicts, and hardware repairs. For the six month period ended
June 30, 1996 and the year ended December 31, 1995, DiagSoft had revenues
and net income (loss) approximating $3.9 million and $479,000, and $6.2
million and ($112,000), respectively, based on the unaudited internally
prepared financial information. The Company expects to close leased
offices in Scotts Valley, California and Tampa, Florida acquired in the
Acquisition.
Pursuant to the Agreement, Mr. Kraft entered into a consulting agreement
with Sykes Enterprises, Incorporated, effective through August 30, 1997,
unless terminated earlier in accordance with the terms of the agreement.
Also pursuant to the Agreement, Mr. Kraft is precluded from competing
against DiagSoft or the Company for three years.
Gordon Kraft did not own any shares of SEi common stock as of the date of
the Agreement. None of the directors and executive officers of SEi owned
any DiagSoft stock as of the date of the Agreement. Gordon Kraft has been
granted certain registration rights for the SEi common stock he received
in the Acquisition.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of the Business Acquired.
It is impractical to provide the required financial statements for
DiagSoft at the date of the filing of this Form 8-K. The required
financial statements will be provided as soon as practicable but not later
than sixty days after the date on which this Form 8-K must be filed.
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the date of the filing of this Form 8-K. The required pro
forma financial information will be provided as soon as practicable but
not later than sixty days after the date on which this Form 8-K must be
filed.
(c) Exhibits
2.1 Stock Purchase Agreement between Gordon Kraft and
Sykes Enterprises, Incorporated, dated as of August
30, 1996 (without schedules or exhibits).1
99.1 News Release dated September 3, 1996.
99.2 Registration Rights Agreement between Gordon Kraft and
Sykes Enterprises, Incorporated, dated as of August
30, 1996.
__________________
1 Sykes Enterprises, Incorporated agrees to supplementally furnish a
copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.
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.
SYKES ENTERPRISES, INCORPORATED
By: /s/ Scott J. Bendert
Scott J. Bendert
Vice President Finance and
Treasurer
Dated: September 16, 1996
<PAGE>
EXHIBIT INDEX
2.1 Stock Purchase Agreement between Gordon H. Kraft and
Sykes Enterprises, Incorporated, dated as of August
30, 1996 (without schedules or exhibits).1
99.1 News Release dated September 3, 1996.
99.2 Registration Rights Agreement between Gordon H. Kraft
and Sykes Enterprises, Incorporated, dated as of
August 30, 1996.
____________
1 Sykes Enterprises, Incorporated agrees to supplementally furnish a
copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of August
30, 1996, by and between GORDON H. KRAFT, an individual residing in
Florida (the "Seller") and SYKES ENTERPRISES, INCORPORATED, a corporation
organized and existing under the laws of Florida ("SEi").
RECITALS
WHEREAS, Seller owns 650,000 shares, constituting all of the issued
and outstanding shares (the "Shares") of common stock of DIAGSOFT, INC., a
corporation organized and existing under the laws of California
("DiagSoft"); and
WHEREAS, Seller desires to transfer, exchange and assign the Shares
to SEi, and SEi desires to acquire the Shares from Seller, in a tax free
stock for stock transaction on the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter set
forth and for other good and valuable considerations, the receipt and
sufficiency of which are hereby expressly acknowledged by Seller and SEi,
the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
The terms defined in this Article shall have the following respective
meanings for all purposes of this Agreement:
1.1 "Affiliate" means, with respect to any Person, any family member
and any other Person controlling, controlled by or under common control
with such Person.
1.2 "Business" means the business conducted as of the date of this
Agreement or as of the Closing Date, as the context permits or implies, by
DiagSoft and Subsidiary including, without limitation, the development,
sale and licensing of diagnostic software for computers, the production of
videotapes and graphic designs under the name "Big Kahuna Productions,"
and the development, sale and licensing of neural network software.
1.3 "Business Day" means any day on which banks are open for
business in New York, New York.
1.4 "Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of
this Agreement, which shall be held on the 30th day of August, 1996, at
10:00 AM in the offices of Berliner Cohen in San Jose, California or on
such other date or at such other time or place as is mutually agreed by
the parties hereto.
1.5 "Closing Date" means the date on which the Closing actually
occurs.
1.6 "Copyrights" means United States and foreign copyrights, whether
registered or unregistered and pending applications to register the same.
1.7 "Customers" shall have the meaning set forth in Section 4.15.
1.8 "Disclosure Schedule" means the disclosure schedule executed by
the Seller and SEi as of the date hereof and previously delivered to such
parties, without amendment after the date hereof.
1.9 "Employee Benefit Plan" means any plan described in Section 3(3)
of ERISA and also shall mean any pension, retirement, profit sharing,
savings, thrift, stock bonus, stock option, stock purchase, restricted
stock purchase, stock ownership, stock appreciation right, phantom stock,
deferred compensation, supplemental retirement, deferred bonus, severance,
change of control, parachute, health, medical, dental, vision,
prescription drugs, fitness, dependent care, educational assistance, group
legal services, life insurance, accidental death, accidental
dismemberment, sick pay, short-term or long-term disability, Code
Section 125 or other cafeteria plan, supplemental unemployment income,
training, apprenticeship, scholarship, tuition reimbursement, employee
assistance, employee discount, subsidized cafeteria, fringe benefit,
vacation, holiday, employer-sponsored recreational facility, or other
employee or retiree pension benefit or welfare benefit plan, policy,
contract, or arrangement, or other similar fringe or employee benefit
plan, program, policy, contract, or arrangement, written or oral,
qualified or nonqualified, funded or unfunded, foreign or domestic
covering employees or former employees of DiagSoft or Subsidiary.
1.10 "Environmental Law" means any federal, state, county or local
statutes, laws, regulations, rules, ordinances, codes, licenses and
permits or any governmental authorities relating to environmental, health
or safety matters, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, and applicable regulations promulgated thereunder, the Clean Air
Act, as amended, and applicable regulations promulgated thereunder, the
Federal Water Pollution Control Act of 1972, as amended, and applicable
regulations promulgated thereunder, the Hazardous Materials Transportation
Act, as amended, and applicable regulations promulgated thereunder, and
the Hazardous Materials Transportation Uniform Safety Act of 1990, as
amended, and applicable regulations promulgated thereunder.
1.11 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.12 "Escrow Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, or such other person as SEi and Seller shall mutually agree
upon, in its capacity as escrow agent.
1.13 "Financial Statements" has the meaning set forth in Section 4.7.
1.14 "Form 10-Q Balance Sheet" means the unaudited balance sheet
dated June 30, 1996 (and any notes related thereto), found in Form 10-Q
filed with the SEC for the quarterly period ended June 30, 1996, a copy of
which is included as part of the SEi Filings.
1.15 "GAAP" means generally accepted accounting principles as in
effect in the United States on June 30, 1996.
1.16 "Intellectual Property" means all intellectual property and
property rights, including all Patent Rights, Copyrights, Trademarks,
Licenses, Trade Names, Trade Secrets and all other forms of proprietary
information.
1.17 "Interim Balance Sheet" means the consolidated unaudited balance
sheet of DiagSoft dated June 30, 1996 (and any related notes thereto), a
copy of which is included as part of the Financial Statements.
1.18 "Licenses" means all licenses and rights to use any Intellectual
Property of another. A "Licensed Product" means any product or
Intellectual Property which is the subject of a License.
1.19 "Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, results of operations
or business prospects of such Person.
1.20 "Patent Rights" means all United States and foreign patents,
patent applications, continuations, continuations in part, divisions,
reissues, and patent disclosures.
1.21 "Permitted Encumbrances" means each of the following: (i) liens
for property taxes and special assessments with respect to the personal
property owned by DiagSoft with respect to 1996 and subsequent years; and
(ii) mechanic's and materialmen's liens arising in the ordinary course of
business.
1.22 "Person" means an individual, partnership, corporation, trust,
unincorporated organization, association or joint venture or a government
agency, political subdivision or instrumentality thereof.
1.23 "Purchase Price Shares" means a number of shares of SEi Stock
equal to the greater of (a) 675,000 and (b) the result obtained by
dividing $18,000,000 by the SEi Closing Price, rounded downward to the
nearest whole share.
1.24 "Related Agreements" means the agreements described in Sections
6.8, 8.7 and 8.8.
1.25 "SEC" means the United States Securities and Exchange
Commission.
1.26 "SEi Closing Price" means the average closing price of SEi Stock
over the five Business Days preceding the Closing Date, as reported on
NASDAQ.
1.27 "SEi Filings" means SEi's Registration Statement on Form S-1, as
amended, filed with the SEC on April 24, 1996, SEi's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 1996, and June 30,
1996, and SEi's Report on Form 8-K dated July 16, 1996.
1.28 "SEi Stock" means SEi's common stock, $.01 par value.
1.29 "Software" means computer program code in whatever language or
format, including but not limited to object code and source code.
1.30 "Software Contracts" means all contracts, agreements, Licenses
and other commitments and arrangements, oral or written, with any person
or entity respecting the ownership, license, acquisition, design,
development, distribution, marketing, use, or maintenance of computer
program code, related technical or user documentation and databases.
1.31 "Subsidiary" means Maui Analysis and Synthesis Technologies,
Inc., a Hawaii corporation.
1.32 "Taxes" means all income, gross receipts, profits, franchise,
license, transfer, sales, use, ad valorem, customs, payroll, withholding,
Social Security, Federal Insurance Contributions Act (FICA), Old Age,
Survivors and Disability Insurance (OASDI), employment, unemployment,
occupation, property (real or personal), excise or other taxes,
withholdings, fees, duties, assessments, and charges imposed by any
federal, state, local, or foreign taxing authority, including without
limitation taxes required to be withheld from employees' and officers'
compensation and paid over to taxing authorities. The term "Taxes" shall
include any interest, additions or penalties (including without limitation
the penalties for fraud and for substantial understatement of tax
liability).
1.33 "Technical Documentation" means all technical and descriptive
materials relating to the acquisition, design, development, use or
maintenance of computer code and program documentation including, but not
limited to, all user manuals, flow charts, algorithms, programmer's
annotations, data dictionaries and databases relating to computer program
code whether or not development of such computer code and program
documentation is complete.
1.34 "Trademarks" means anything recognizable as a trademark, service
mark or trade dress at common law, under the Lanham Act or under the
corresponding laws of any foreign country, whether registered or not,
which is used to identify the source and quality of goods or services or
to distinguish them from those of others, and all registrations and
applications for registration, including intent-to-use registrations and
applications for registration.
1.35 "Trade Names" means all names used to identify a particular
company, business, subsidiary, Affiliate or division thereof.
1.36 "Trade Secrets" means confidential and proprietary ideas, trade
secrets, know how, concepts, methods, processes, formulae, reports, data,
customer lists, mailing lists, business plans, or other proprietary
information, including, without limitation, any formulae, pattern, device
or compilation of information which is used in the Business and which
derives independent commercial value from not being generally known or
readily ascertainable through independent development or reverse
engineering by persons who can obtain economic value from its disclosure
or use.
1.37 "Transfer Agent" means Firstar Trust Company of Milwaukee,
Wisconsin, in its capacity as transfer agent for SEi Stock.
ARTICLE 2
PURCHASE AND SALE OF SHARES
Upon the terms and subject to the conditions hereof, at the Closing,
Seller shall sell, assign, transfer and convey to SEi and SEi shall
purchase and accept from Seller, all of Seller's right, title and interest
in and to the Shares in consideration for the delivery of the Purchase
Price Shares as provided in Article 3 below.
ARTICLE 3
DELIVERY OF PURCHASE PRICE SHARES
3.1 Delivery to Seller. On the Closing Date, SEi shall deliver to
Seller irrevocable instruction to the Transfer Agent for the issue of
certificates in the name of the Seller evidencing the Purchase Price
Shares. Promptly following the Closing, SEi shall deliver or cause to be
delivered to Seller a certificate in the name of Seller evidencing 90% of
the Purchase Price Shares, rounded downward to the nearest whole share.
3.2 Delivery to Escrow Agent. Promptly following the Closing Date,
SEi shall deliver, or cause to be delivered, to the Escrow Agent under the
Escrow Agreement of even date herewith between Seller, Buyer and Escrow
Agent and in the form attached hereto as Exhibit A (the "Escrow
Agreement"), a certificate issued in the name of Seller evidencing the
balance of the Purchase Price Shares (the "Escrow Shares"). The Escrow
Shares shall be subject to a pledge in favor of SEi to secure performance
of Seller's obligations under Article 10 hereof and shall be held by the
Escrow Agent in accordance with the Escrow Agreement
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to SEi as follows:
4.1 Corporate Organization. DiagSoft and Subsidiary are
corporations duly organized, validly existing and in good standing under
the laws of California and Hawaii, respectively. Each of DiagSoft and
Subsidiary has the full corporate right, power and authority to own, lease
and operate all of its properties and assets and to carry out its business
as it is presently conducted, and, except as set forth in Section 4.1 of
the Disclosure Schedule, is duly licensed or qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
the ownership of property or the conduct of its business requires such
qualification or license. Subsidiary is a wholly owned subsidiary of
DiagSoft. Except for DiagSoft's interest in Subsidiary and as set forth
in Section 4.1 of the Disclosure Schedule, there are no corporations,
joint ventures, partnerships or other entities or arrangements in which
DiagSoft or Subsidiary, directly or indirectly, owns any capital stock or
any equity interest.
4.2 Capitalization.
(a) The authorized capital stock of DiagSoft consists solely of
common stock, of which only the 650,000 Shares owned by Seller are issued
and outstanding. No shares are held as treasury shares. All issued and
outstanding shares of capital stock of DiagSoft have been duly authorized
and validly issued, are fully paid and nonassessable, were issued without
violation of any preemptive rights and are free of any preemptive rights.
Except for this Agreement and as set forth in Section 4.2(a) of the
Disclosure Schedule, as of the Closing Date there are no options, warrants
or other rights, nor any agreements, commitments or arrangements of any
kind to which DiagSoft is a party or by which it is bound, relating to the
subscription for or the issuance, voting, acquisition, sale, repurchase,
transfer or disposition of (i) any capital stock of DiagSoft or securities
convertible into or exchangeable for capital stock of DiagSoft, or (ii)
any options, warrants or subscription rights relating to any such capital
stock or securities of DiagSoft.
(b) The authorized capital stock of Subsidiary consists solely
of common stock, of which only the shares owned of record by DiagSoft are
issued and outstanding. Except as set forth in Section 4.2(b) of the
Disclosure Schedule, all issued and outstanding shares of capital stock of
Subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable. There are no options, warrants or other rights, nor
any agreements, commitments or arrangements of any kind, to which
Subsidiary is a party or by which it is bound, relating to the
subscription for or the issuance, voting, acquisition, sale, repurchase,
transfer or disposition of (i) any capital stock of Subsidiary or (ii) any
options, warrants or subscription rights relating to any such capital
stock or securities of Subsidiary.
4.3 Authority. Seller has all requisite right, power and authority
to execute, deliver and perform this Agreement and the Related Agreements
to which Seller is a party. All authorizations, approvals and consents
of, or any notices to, any person, and all filings and registrations with,
and consents, approvals and authorizations of, or any notices to, any
domestic or foreign governmental agency or body, necessary for the
execution and delivery by Seller of this Agreement, and/or the sale of the
Shares by Seller hereunder have been duly obtained, effected or given and
are in full force and effect. This Agreement and the Related Agreements to
which Seller or DiagSoft is a party have been duly and validly executed
and delivered by Seller and constitute the legal, valid and binding
obligations of Seller or DiagSoft, as the case may be, enforceable against
Seller in accordance with their respective terms.
4.4 Ownership of Shares; Title. Seller owns of record and
beneficially 650,000 Shares. Seller has, as of the Closing Date, good,
marketable and valid title to the Shares, free and clear of all liens,
pledges, encumbrances, claims, security interests, charges, voting trusts,
voting agreements, other agreements, rights, options, warrants or other
restrictions of any kind, nature or description. The delivery of the
certificates for the Shares by Seller to SEi, duly endorsed for transfer,
will convey to SEi good title to the Shares free and clear of all claims,
liens, encumbrances, security interests, charges or restrictions on
transfer of any nature whatsoever, except as created by SEi. Seller has
not been involved in any proceedings by or against Seller under any
bankruptcy laws or under any other insolvency or debtor's relief act since
1986.
4.5 Seller's Consents and Approvals; No Violations. Except as set
forth in Section 4.5 of the Disclosure Schedule, the execution, delivery
and performance by Seller of this Agreement and the Related Agreements to
which he is a party will not (with or without the giving of notice or the
passage of time, or both) (i) violate any applicable provision of law or
any rule or regulation of any federal, state or local administrative
agency or governmental authority applicable to Seller, or any order, writ,
injunction, judgment or decree of any court, administrative agency or
governmental authority applicable to Seller, (ii) require any consent
under or constitute a default under any material agreement, indenture,
mortgage, deed of trust, lease, license, or other instrument to which
Seller is party or by which he is bound, or any material license, permit
or certificate held by him, (iii) require any material consent or approval
by, notice to or registration with any governmental authority or (iv)
result in the creation of any lien, claim, encumbrance or charge upon any
of the Shares.
4.6 DiagSoft's Consents and Approvals; No Violations. Except as set
forth on Section 4.6 of the Disclosure Schedule, the execution, delivery
and performance by Seller of this Agreement and the Related Agreements to
which he is a party will not (with or without the giving of notice or the
passage of time, or both) (i) violate any applicable provision of law or
any rule or regulation of any federal, state or local administrative
agency or governmental authority applicable to DiagSoft or Subsidiary, or
any order, writ, injunction, judgment or decree of any court,
administrative agency or governmental authority applicable to DiagSoft or
Subsidiary, (ii) violate the Certificate or Articles of Incorporation or
Bylaws of DiagSoft or Subsidiary, (iii) require any consent, give rise to
a right of termination or constitute a default under any material
agreement, indenture, mortgage, deed of trust, lease, license, or other
instrument to which DiagSoft or Subsidiary is a party or by which either
of them is bound, or any material license, permit or certificate held by
DiagSoft or Subsidiary or (iv) result in the creation of any lien, claim,
encumbrance or charge upon any property or assets of DiagSoft or
Subsidiary.
4.7 Financial Statements. Section 4.7 of the Disclosure Schedule
contains (i) the unaudited consolidated balance sheets and the related
unaudited consolidated income statements and statements of cash flows
(including any related notes thereto) of DiagSoft as of and for the twelve
(12) month periods ending July 31, 1993 and July 31, 1994, the five month
period ending December 31, 1994, the twelve month period ending December
31, 1995, and (ii) the Interim Balance Sheet and the related unaudited
consolidated income statement for the six (6) month period ending June 30,
1996 (including any related notes thereto) (collectively, the "Financial
Statements"). Except as set forth on Section 4.7 of the Disclosure
Schedule, the Financial Statements (i) are true, correct and complete in
all material respects; (ii) are in accordance with the books and records
of DiagSoft; (iii) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved; and (iv) in the case of
the unaudited balance sheets and the Interim Balance Sheet, fairly present
the consolidated financial position of DiagSoft as of the respective dates
thereof and, in the case of the related unaudited interim income
statements, fairly present the consolidated results of operations and
earnings, respectively, of DiagSoft for the respective periods indicated.
4.8 Undisclosed Liabilities. Except as set forth in Section 4.8 of
the Disclosure Schedule, DiagSoft and Subsidiary have no liabilities
(absolute, accrued, contingent or otherwise) required by GAAP to be
reflected or reserved against in the consolidated statement of assets and
liabilities of DiagSoft except (i) liabilities reflected or reserved
against in the Interim Balance Sheet, and (ii) liabilities incurred since
June 30, 1996 in the ordinary course of business, and which, in the
aggregate, do not have a Material Adverse Effect.
4.9 Taxes. Except as set forth in Section 4.9 of the Disclosure
Schedule, each of DiagSoft and Subsidiary has timely filed all returns,
declarations, reports, estimates, information returns and statements
required to be filed by either of them, including without limitation
Internal Revenue Service forms 1120, W-2, W-3, 940 and 941 and equivalent
state forms (the "Returns") in respect of any Taxes and has timely paid
all Taxes required to be paid by either of them. Except as set forth in
Section 4.9 of the Disclosure Schedule: (i) the Returns accurately and
completely reflect the facts regarding the income, properties, operations
and status of any entity required to be shown thereon; (ii) no notice of
any proposed deficiency, assessment or levy in respect of Taxes has been
received by DiagSoft or Subsidiary, and Seller is not aware of any pending
investigations in respect of Taxes; (iii) neither DiagSoft nor Subsidiary
is currently the subject of an audit or in receipt of a notice that it is
being or will be audited by a relevant taxing authority; (iv) neither
DiagSoft nor Subsidiary has agreed to any extension of time of any
applicable statute of limitations period; (v) DiagSoft and Subsidiary, as
applicable, have duly withheld from each payment or expenditure the amount
of all Taxes required to be withheld therefrom and have timely paid the
same together with the employer's share of the same, if any, to the proper
tax receiving officers; (vi) there is no, and will not be any, agreement
or consent made under Section 341(f) of the Internal Revenue Code
affecting DiagSoft or Subsidiary; (vii) except for Permitted Encumbrances,
there are no liens for any Tax on the assets of DiagSoft or Subsidiary;
(viii) there are no tax sharing agreements or similar arrangements to
which DiagSoft or Subsidiary is now or ever has been a party; (ix) the
charges, accruals, and reserves for Taxes due, or accrued but not yet due,
relating to the income, properties or operations of DiagSoft or Subsidiary
for any period prior to and including the Closing Date as reflected on the
books of DiagSoft and Subsidiary are adequate to cover such Taxes; (x) all
Tax deficiencies which have been proposed or asserted against DiagSoft or
Subsidiary have been fully paid or finally settled, and no issue has been
raised in any examination which, by application of similar principles, can
be expected to result in the proposal or assertion of a Tax deficiency for
any other year not so examined; and (xi) all Returns with respect to
taxable years ending on or prior to June 30, 1991 have been examined and
closed, or are Returns with respect to which the applicable statute of
limitations, after giving effect to any extensions or waivers, has
expired. Seller is not a foreign person within the meaning of Section
1445(b)(2) of the Internal Revenue Code.
4.10 Title to Properties. Except for the leasehold interests listed
in Section 4.13 of the Disclosure Schedule, DiagSoft and Subsidiary do not
own any interest in real property. Section 4.10(a) of the Disclosure
Schedule contains a complete and accurate list as of June 30, 1996 of all
material fixed assets owned by DiagSoft or Subsidiary and used in the
Business. Except for Permitted Encumbrances and as set forth in Section
4.10(b) of the Disclosure Schedule, DiagSoft and Subsidiary have good and
marketable title to all the personal property and assets (tangible and
intangible) reflected as owned by them on the Interim Balance Sheet or
acquired since June 30, 1996 (except for properties and assets disposed of
since such date in the ordinary course of business and consistent with
past practice), free and clear of all liens, charges, security interests
or other encumbrances of any nature whatsoever. All such assets are now
in the possession of DiagSoft or Subsidiary, and no other person has a
right to possession or claims possession of all or any part of such
assets.
4.11 Absence of Changes. Except as set forth in Section 4.11 of the
Disclosure Schedule, since December 31, 1995 there has not been:
(i) any change or changes in the business, financial
condition, properties, results of operations or assets or liabilities of
DiagSoft, or any development or event involving a prospective change,
other than changes in the ordinary course of the Business and other
changes which singularly or in the aggregate, have not had and will not
have a Material Adverse Effect;
(ii) any property damage or destruction, loss or other
casualty, however arising and whether or not covered by insurance, which,
singularly or in the aggregate, have had or will have a Material Adverse
Effect;
(iii) any labor dispute or any other event or condition
of any character which, singularly or in the aggregate, have had or will
have a Material Adverse Effect;
(iv) any indebtedness incurred by DiagSoft or Subsidiary
for borrowed money (except by endorsement for collection or for deposit of
negotiable instruments received in the ordinary course of the Business),
or any agreement to incur any such indebtedness;
(v) any change in the accounting methods or material
change in the practices of DiagSoft or any change in depreciation or
amortization policies or rates theretofore adopted;
(vi) any amendment or termination of any material contract,
agreement, lease, franchise or license to which DiagSoft or Subsidiary is
or was a party;
(vii) any amendment of the Certificate or Articles of
Incorporation or Bylaws of DiagSoft or Subsidiary;
(viii) except for Permitted Encumbrances, any mortgage,
pledge or other encumbering of any material property or assets of DiagSoft
or Subsidiary;
(ix) any material liability or obligation incurred by
DiagSoft or Subsidiary, except current liabilities incurred in the
ordinary course of the Business, or any cancellation or compromise by
DiagSoft of any material debt or claim, or any waiver or release by
DiagSoft or Subsidiary of any right of substantial value to the Business;
(x) any sale, transfer, lease, abandonment or other
disposal of any machinery, equipment or real property with a fair market
value in excess of $10,000 or, except in the ordinary course of the
Business, any sale, transfer, lease, abandonment or other disposal of any
material portion of any other properties or assets of DiagSoft or
Subsidiary (real, personal or mixed, tangible or intangible).
(xi) any transfer, disposal or grant of any rights under
any patent, trademark, trade name, copyright, copyright registration,
service mark, invention or license owned by DiagSoft or Subsidiary, or any
disposal of or disclosure to any Person other than representatives of SEi
of any material trade secret, formula, process or know-how owned by
DiagSoft or Subsidiary not theretofore a matter of public knowledge;
except, in each case, in the ordinary course of the Business;
(xii) any bonuses or other increases in the
compensation of DiagSoft's or Subsidiary's officers, employees or
directors; or any agreement by DiagSoft or Subsidiary entered into with
any officer, employee or director; or any increase or change in benefits
under any DiagSoft Employee Benefit Plan (as defined herein); except, in
each case, in the ordinary course of the Business and consistent with past
practice;
(xiii) any single capital expenditure in excess of
$10,000, made or committed for by DiagSoft or Subsidiary for any tangible
or intangible capital assets, additions or improvements, except in the
ordinary course of the Business;
(xiv) any declaration, payment or reservation for
payment of any dividend or other distribution in respect of the capital
stock or other securities of DiagSoft, or any redemption, purchase or
other acquisition, directly or indirectly, of any shares of capital stock
or other securities of DiagSoft;
(xv) except in the ordinary course of the Business and
consistent with past practice, any grant or extension of any
power-of-attorney or guaranty in respect of the obligation of any Person;
or
(xvi) any payment by DiagSoft or Subsidiary of any
personal expenses of Seller or any Affiliate of Seller, other than
payments in consideration of which Seller has issued promissory notes in
favor of DiagSoft.
(xvii) any entry by DiagSoft or Subsidiary into any
binding agreement, whether in writing or otherwise, to take any action
described in this Section 4.11.
4.12 Intellectual Property.
(a) Section 4.12(a) of the Disclosure Schedule contains a list
and description of all Software Contracts relating to or arising from the
Business, subdivided under the following categories:
(i) Licenses from third parties (development and/or
marketing);
(ii) Licenses from third parties (internal use only);
(iii) development contracts, work-for-hire agreements,
and consulting and employment agreements;
(iv) distributorships, dealerships, franchises, and
commercial sales representation contracts;
(v) Licenses and sublicenses to others; and
(vi) maintenance, support or enhancement agreements.
Except as disclosed in Section 4.12(a) of the Disclosure Schedule, no
fees or royalties are payable or will be payable under the Software
Contracts described in subparagraphs (i) and (ii) as a result of
DiagSoft's or Subsidiary's use of the licensed Software in the ordinary
course of its business, other than fees or royalties due for upgrades.
(b) Section 4.12(b) of the Disclosure Schedule contains a list
and description of all Intellectual Property owned by DiagSoft or
Subsidiary or used by DiagSoft or Subsidiary in the conduct of the
Business, subdivided under the following categories:
(i) Copyrights owned by, licensed to or used by DiagSoft
or Subsidiary, showing in each case, the owner, licensor, if any, and,
where registered, the country of registration, registration number, title
and date of issuance.
(ii) Software used or possessed by DiagSoft or Subsidiary
which is the subject of a License in favor of DiagSoft or Subsidiary,
showing in each case, the name and release number of the Licensed Product,
the owner of the Copyright in the product, the serial number or
registration number of the Licensed Product, a brief description of the
Licensed Product's function whether the License is transferable, whether
the License will remain in effect upon the consummation of the
transactions contemplated by this Agreement and the Related Agreements,
and whether DiagSoft or Subsidiary may sublicense the Licensed Product to
third parties.
(iii) Software owned by DiagSoft or Subsidiary, showing
in each case, the name of the product, the current release number of the
product, the release numbers of all prior releases and the date of such
releases, and the registration number, if any, of all registered Copyright
in such product.
(iv) Trademarks and Trade Names adopted and used by
DiagSoft or Subsidiary, showing in each case, the Trademark or Trade Name,
its U.S. and foreign registration numbers, if any, the countries of such
registration, whether it is registered on the U.S. Principal or
Supplemental Register, its date of registration and the date of its most
recent renewal or affidavit of continued use, if any.
(v) Patent Rights owned or used by DiagSoft or Subsidiary
in the Business, showing in each case, the country of registration, the
registration number, the title and date of issue.
(c) Except for the rights and Licenses validly and effectively
established by the Software Contracts and as otherwise disclosed in
Section 4.12(c) of the Disclosure Schedule, DiagSoft or Subsidiary owns
all rights, title and interest in the Intellectual Property required to be
identified on Schedule 4.12(b), free and clear of any encumbrance.
(d) Except as disclosed in Section 4.12(d) of the Disclosure
Schedule, (i) all registrations for Copyrights, Patent Rights and
Trademarks required to be identified in Section 4.12(b) of the Disclosure
Schedule as being owned by DiagSoft or Subsidiary are valid and in force
and all applications to register any unregistered Copyrights, Patent
Rights and Trademarks so identified are pending and in good standing, all
without challenge of any kind and, to the best knowledge of Seller and the
management of DiagSoft, there is no basis for any such challenge; (ii) the
Intellectual Property owned by DiagSoft or Subsidiary is valid and
enforceable; and (iii) DiagSoft or Subsidiary has the exclusive right to
bring acts for infringement or unauthorized use of the Intellectual
Property and to the best knowledge of Seller and the management of
DiagSoft, there is no basis for any such action.
(e) Except as disclosed in Section 4.12(e) of the Disclosure
Schedule, all Software required to be disclosed on Schedule 4.12(b)(i) is
subject to valid and enforceable Copyright solely owned by DiagSoft or
Subsidiary. In no instance has the eligibility of the Software for
protection under applicable copyright law been forfeited to the public
domain.
(f) Except as disclosed in Section 4.12(f) of the Disclosure
Schedule, each of DiagSoft and Subsidiary has promulgated and used its
best efforts to enforce a Trade Secret protection program. To the best
knowledge of Seller and the management of DiagSoft, there has been no
material violation of such program by any person or entity. To the best
knowledge of Seller and the management of DiagSoft, the source code and
other proprietary information relating to the Software and all other Trade
Secrets required to be disclosed on Schedule 4.12(b) (1) have at all times
been maintained in confidence and (2) have not been disclosed to
employees, consultants or other third parties except on a "need to know"
basis in connection with their respective performance of duties to
DiagSoft.
(g) Except as disclosed in Section 4.12(g) of the Disclosure
Schedule, all personnel, including employees, agents, consultants and
contractors, who have contributed to or participated in the conception and
development of the Software, Technical Documentation or Intellectual
Property on behalf of DiagSoft or Subsidiary either (1) have been party to
a "work-for-hire" arrangement or agreement in accordance with applicable
federal and state law, that has accorded DiagSoft or Subsidiary full,
effective, exclusive and original ownership of all tangible and intangible
property arising thereby, or (2) have executed appropriate instruments of
assignment in favor of DiagSoft or Subsidiary as assignee that have
conveyed to DiagSoft or Subsidiary full effective, and exclusive ownership
of all tangible and intangible property thereby arising.
(h) Except as disclosed in Section 4.12(h) of the Disclosure
Schedule, all personnel contributing to or participating in the conception
and development of the Software required to be disclosed on
Schedule 4.12(b) have been either: (1) employees of DiagSoft or Subsidiary
in the context of United States Copyright law thereby conferring in
DiagSoft or Subsidiary the status of sole statutory author and owner of
such Software, or (2) non-employees, consultants, contractors or agents
who have executed appropriate instruments of assignment in favor of
DiagSoft or Subsidiary as assignee that have conveyed to DiagSoft or
Subsidiary full, effective and exclusive ownership of all tangible and
intangible property thereby arising.
(i) No claims have been asserted by any person or entity to the
ownership of or right to use any of the Intellectual Property required to
be disclosed on Schedule 4.12(b) and Seller and the management of DiagSoft
are not aware of any valid basis for any such claim. The use of such
Intellectual Property by DiagSoft or Subsidiary has not infringed on the
rights of any person; and no claim of infringement or any misuse or
misappropriation of any such Intellectual Property of any other person has
been made or asserted in respect of the Business, nor is there any basis
for any such claim.
(j) Except as disclosed in Section 4.12(j) of the Disclosure
Schedule, the Technical Documentation of DiagSoft and Subsidiary includes
the system documentation, statements of principles of operation, flow
charts, algorithms and schematics for all Software required to be
disclosed on Schedule 4.12(b), as well as any pertinent commentary or
explanation that may be necessary to render such materials understandable
and usable by a computer programmer of ordinary skill. The Technical
Documentation also includes any program (including compilers), "work
benches," tools, and higher level (or "proprietary") languages used for
the development, maintenance and implementation of such Software.
(k) Except as disclosed in Section 4.12(k) of the Disclosure
Schedule, DiagSoft or Subsidiary, where applicable, has validly and
effectively obtained the right and license to use, copy, modify and
distribute the third party programming and materials contained in the
Software and Technical Documentation required to be disclosed on
Schedule 4.12(b) pursuant to the Software Contracts identified as
"Licenses from third parties (development and/or marketing)" or "Licenses
from third parties (internal use only)" in Sections 4.12(a)(i) and
4.12(a)(ii), respectively, of the Disclosure Schedule. Such Software and
Technical Documentation contain no other programming or materials in which
any third party may claim superior, joint or common ownership, including
any right or License. Such Software and Technical Documentation do not
contain derivative works of any programming or materials not owned in
their entirety by DiagSoft or Subsidiary, where applicable, and included
in the Intellectual Property.
(l) Neither DiagSoft nor Subsidiary has granted, transferred,
or assigned any right or interest in its Software, Technical Documentation
or Intellectual Property to any person or entity, except pursuant to the
Software Contracts identified as "distributorships, dealerships,
franchises, and commercial sales representation agreements" or "Licenses
and sublicenses to others" in Sections 4.12(a)(iv) and (v), respectively,
of the Disclosure Schedule. Except as set forth in Section 4.12(l) of the
Disclosure Schedule, all Software identified as "Licenses and sublicenses
to others" in Section 4.12(a)(v) of the Disclosure Schedule constitute
only end-user agreements, each of which grants the end-user thereunder
only the nonexclusive right and License to use an identified software
product and related user documentation, for internal purposes only, on a
single central processing unit. There are no contracts, agreements,
Licenses or other commitments and arrangements in effect with respect to
the marketing, distribution, licensing or promotion of the Software or any
Intellectual Property by any independent sales person, distributor,
sublicensor or other remarketer or sales organization, except for the
Software Contracts identified as "distributorships, dealerships,
franchises, and commercial sales representation agreements" in Section
4.12(a)(iv) of the Disclosure Schedule.
4.13 Leases. Section 4.13 of the Disclosure Schedule contains an
accurate and complete list of all leases pursuant to which DiagSoft or
Subsidiary leases real or personal property. Except as set forth in
Section 4.13 of the Disclosure Schedule, all such leases are in full force
and effect and are valid, binding and enforceable in accordance with their
terms; there are no existing defaults or events which, with the giving of
notice or the lapse of time or both, would constitute a default thereunder
by DiagSoft or Subsidiary or, to the best knowledge of Seller, any other
party or parties thereto.
4.14 Bank Accounts; Investments.
(a) Section 4.14(a) of the Disclosure Schedule sets forth the
names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which DiagSoft or
Subsidiary maintains safe deposit boxes or accounts of any nature and the
names (and limits, if any) of all persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
(b) Section 4.14(b) of the Disclosure Schedule set forth a
description (including applicable interest rates) of all funds, securities
and other instruments in which DiagSoft's excess cash was invested as of
June 30, 1996 (the "Investments"). All such Investments are investment
grade and can be liquidated within one Business Day without being
discounted. Neither DiagSoft nor its Affiliates beneficially own any
shares of SEi Stock.
4.15 Material Contracts and Customers.
(a) Section 4.15 of the Disclosure Schedule contains a true and
correct list of all material contracts, agreements or other understandings
or arrangements, written or oral, or commitments therefor, relating to
DiagSoft, Subsidiary, the Business or the assets or liabilities of
DiagSoft or Subsidiary (collectively, the "Contracts"). Except as set
forth in Section 4.15 of the Disclosure Schedule, neither DiagSoft nor
Subsidiary is party to, or otherwise bound by, any material written or
oral, formal or informal:
(i) purchase orders and other contracts for the sale of
goods or services in excess of $25,000;
(ii) contracts, agreements or commitments for the purchase
of materials or services which are not required in the current operation
of the Business in the ordinary course, or any agreements or commitments
for the sale of goods or services which are inadequate to recover current
costs;
(iii) contracts involving the expenditure of more than
$25,000 in any instance for the purchase of material, supplies, equipment
or services;
(iv) contracts involving the expenditure of more than
$25,000 which are not cancelable within thirty (30) days;
(v) contracts relating to the leasing (as lessor or
lessee) or the conditional purchase or sale by DiagSoft or Subsidiary of
any property, whether real, personal or mixed;
(vi) contracts to which DiagSoft or Subsidiary is a party
or by which any of its assets are bound that require consent by any other
Person in connection with the transaction contemplated hereby, either to
prevent a breach or continue the effectiveness thereof;
(vii) contracts or arrangements with any governmental
body, agency or authority;
(viii) indentures, mortgages, promissory notes, loan
agreements, capital leases, security agreements or other agreements or
commitments for the borrowing of money, or the deferred purchase price of
assets, or which create a lien or encumbrance on any assets of DiagSoft or
Subsidiary;
(ix) guarantees of the obligations of third parties or
agreements to indemnify third parties (other than indemnification
provisions provided in the ordinary course to or for the benefit of
customers);
(x) agreements which restrict DiagSoft or Subsidiary from
doing business in any geographic location;
(xi) policies of insurance in force and effect with respect
to the Business or assets of DiagSoft or Subsidiary;
(xii) contracts or agreements with Seller or its
Affiliates;
(xiii) license agreements (as licensee or licensor) with
third parties, other than Software Contracts;
(xiv) employment or consulting agreements;
(xv) distributor, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar contracts or any
contract relating to the payment of a commission;
(xvi) collective bargaining or other agreements with
labor unions; or
(xvii) any other contract outside the ordinary course of
the Business not otherwise described in this Subsection.
(b) True and complete copies of each of the Contracts have been
made available to SEi by Seller. Except as set forth on Section 4.15 of
the Disclosure Schedule, each of the Contracts is in full force and effect
and there exists no default or event which, with the giving of notice or
lapse of time or both, would constitute a default thereunder by DiagSoft
or Subsidiary or, to the best knowledge of the Seller, by any other party
thereto. Except as set forth in Section 4.15 of the Disclosure Schedule,
no written notice of termination or nonrenewal has been given under any
Contract. The dollar amounts set forth in this Section 4.15 with respect
to the Contracts shall not be deemed to represent any standard of
"materiality" with respect to the Contracts or otherwise for any other
purpose and shall have no application to any other Section of this
Agreement.
(c) Section 4.15 of the Disclosure Schedule identifies the name
and location of the ten largest customers (the "Customers") and the five
largest suppliers, in each case measured by volume of dollars generated or
paid, of the Business for the twelve months ended June 30, 1996. The
relationship of DiagSoft with the Customers is good, and Seller is not
aware of any intention of any such Customers or suppliers to terminate or
modify any of such relationships. DiagSoft is not generally required to
provide bonding or any other security arrangements in connection with any
transactions with its customers or suppliers.
4.16 Related Transactions.
(a) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither DiagSoft nor Subsidiary has any contractual relationship
with, or any obligation or liability owed to or by, Seller. All such
contractual relationships are on terms that are no less favorable to
DiagSoft or Subsidiary than would be the case with a non-affiliated party.
(b) Except as set forth in Section 4.16 of the Disclosure
Schedule, neither Seller nor any director or officer of DiagSoft or
Subsidiary has any material interest, direct or indirect, in any Person
which (i) is a material competitor, customer, subcontractor or supplier of
DiagSoft or Subsidiary or (ii) has an existing material relationship with,
or a material interest in DiagSoft or Subsidiary, including but not
limited to lessors of real or personal property and Persons against which
rights or options are exercisable by DiagSoft or Subsidiary.
4.17 Insurance. Section 4.17 of the Disclosure Schedule contains an
accurate and complete list of all policies of insurance presently
maintained with respect to DiagSoft or Subsidiary including, without
limitation, "key man" insurance with respect to any employee. Such list
includes a description of coverage, the amount of coverage and the name of
the insurer or an indication that DiagSoft has self-insured any particular
aspect of the Business. All such policies are in full force and effect
and no notice of cancellation or termination has been received with
respect to any such policy and there is, and has been, no material default
by DiagSoft or Subsidiary with respect to its obligations under any such
policy. Except as set forth in Section 4.17 of the Disclosure Schedule,
Seller and DiagSoft have not received during the past two (2) years any
written notice or other written communication from any insurance company
declining to write insurance with respect to the Business, or canceling or
materially amending any of DiagSoft's or Subsidiary's insurance policies
or proposing to do so.
4.18 Labor Matters.
(a) Except to the extent set forth in Section 4.18(a) of the
Disclosure Schedule, (i) there is no unfair labor practice charge or
complaint against DiagSoft pending before the National Labor Relations
Board or any other labor grievance board, authority or tribunal, nor, to
the best knowledge of Seller and management of DiagSoft, has any such
charge or complaint been threatened against DiagSoft; (ii) there is no
labor strike, dispute, slowdown, or stoppage pending against or affecting
DiagSoft; (iii) DiagSoft is not a party to any collective bargaining
agreement or contract with any labor union and, to the knowledge of
Seller, no union representation question exists respecting the employees
of DiagSoft; (iv) no material grievance nor any arbitration proceeding
arising out of or under collective bargaining agreements is pending; (v)
no event has occurred, and DiagSoft will not take any action prior to the
Closing, which would require notification to employees under the Worker
Adjustment and Retraining Notification Act of 1988 and the regulations
promulgated thereunder; and (vi) there are no other controversies pending
between DiagSoft and any of its employees, including, without limitation,
claims arising under any labor laws, which controversies have had or may
have a Material Adverse Effect.
(b) Section 4.18(b) of the Disclosure Schedule sets forth the
names of all employees, consultants, officers and directors of DiagSoft
and Subsidiary, their length of employment, compensation level and other
terms of employment. Seller has delivered to SEi copies of all currently
effective written employment agreements, and written summaries of all
verbal employment arrangements, to which DiagSoft or Subsidiary is a party
with any of its employees.
4.19 Employee Benefit Plans.
(a) Set forth in Section 4.19 of the Disclosure Schedule is an
accurate and complete list of all Employee Benefit Plans maintained or
contributed to by DiagSoft or Subsidiary (each a "DiagSoft Employee
Benefit Plan").
(b) Except as required by Chapter 6 of Title 1 of ERISA and any
applicable state continuation or conversion laws and except as set forth
in Section 4.19 of the Disclosure Schedule, no such DiagSoft Employee
Benefit Plan that is a welfare plan provides any health or life insurance
coverage to any individual for events occurring, or expenses incurred,
after termination of employment and no promise has been made nor any
liability incurred by DiagSoft or Subsidiary for post-retirement and/or
post-termination health or life insurance or other benefits.
(c) Except as set forth in Section 4.19 of the Disclosure
Schedule, each such DiagSoft Employee Benefit Plan is with respect to
form, operation, and administration in material compliance with its terms,
ERISA, the Code and any other applicable laws and regulations, and neither
DiagSoft nor Subsidiary nor any such DiagSoft Employee Benefit Plan is
liable for any material fine, excise tax, or loss of income tax deduction
with respect to the operation of any such DiagSoft Employee Benefit Plan.
Except as set forth in Section 4.19 of the Disclosure Schedule, each such
DiagSoft Employee Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified and each trust maintained in connection with
such DiagSoft Employee Benefit Plan has been determined by the Internal
Revenue Service to be tax-exempt under Section 501(a) of the Code, and
Seller, DiagSoft and Subsidiary have no knowledge of any circumstances
which would cause any DiagSoft Employee Benefit Plan to be subject to
disqualification or a related trust to lose its tax-exempt status.
(d) Except as set forth in Section 4.19 of the Disclosure
Schedule, there has occurred:
(i) no prohibited transaction, as defined in Sections 406
and 407 of ERISA or Section 4975 of the Code, and
(ii) no breach of any duty imposed by Title I of ERISA, by
DiagSoft, any entity related to DiagSoft (within the meaning of Sections
414(b), (c), (m), or (o) of the Code) (the "Controlled Group"), or any
director, officer, or employee of DiagSoft or any entity in the Controlled
Group, that could have a Material Adverse Effect.
(e) Except as set forth in Section 4.19 of the Disclosure
Schedule, to the extent material, all amounts that DiagSoft and/or
Subsidiary are required to have contributed to any DiagSoft Employee
Benefit Plan have been contributed within the time prescribed by
applicable law and all benefits, expenses, and other amounts due and
payable and all transfers or payments required to be made with respect to
any DiagSoft Employee Benefit Plan have been paid within the time
prescribed by the applicable documents and governing law. No increase in
benefits under or other modifications or amendments to any DiagSoft
Employee Benefit Plan have been made subsequent to the date as of when
documents or disclosures have been provided or made available to SEi.
(f) Except as set forth in Section 4.19 of the Disclosure
Schedule, to the extent material, all required reports and descriptions
(including, but not limited to, Form 5500 annual reports, summary annual
reports, and summary plan descriptions) with respect to each DiagSoft
Employee Benefit Plan have been properly filed with the appropriate
governmental authority and distributed to participants substantially as
required by law, and DiagSoft and Subsidiary have substantially performed
their obligations under Section 4980B of the Code and Part 6 of Title I of
ERISA ("COBRA"). As soon as practicable after the execution of this
Agreement, Seller shall provide to SEi, to the best of its knowledge, a
list of qualified beneficiaries receiving (or eligible to elect to receive
to the extent the plan administrator has been informed) COBRA continuation
coverage and the date and type of their qualifying events; provided,
however, that such list shall be compiled on a blind basis, eliminating
names and other clearly identifying criteria. As soon as practicable
after Closing, Seller shall provide to SEi an updated list of all
qualified beneficiaries receiving (or eligible to elect to receive) COBRA
continuation coverage and the date and type of their qualifying events
effective as of the Closing Date.
(g) Except as set forth in Section 4.19 of the Disclosure
Schedule, neither DiagSoft nor Subsidiary has incurred nor expects to
incur any material liability to the PBGC (as defined under Title IV of
ERISA), the Internal Revenue Service, the Department of Labor of the
United States, or otherwise with respect to any DiagSoft Employee Benefit
Plan currently or previously maintained or contributed to by DiagSoft or
by members of the Controlled Group (as defined in paragraph (d) above)
that has not been satisfied in full, and no condition exists that presents
a material risk to DiagSoft or the Controlled Group of incurring such a
material liability, other than liability for premiums due to the PBGC.
(h) Except as set forth in Section 4.19 of the Disclosure
Schedule, to the knowledge of Seller and DiagSoft, none of DiagSoft and
the Controlled Group has withdrawn from or caused a partial withdrawal to
occur with respect to an DiagSoft Employee Benefit Plan that is a
multiemployer plan (as defined in Section 3(37) or 4001(a)(3) of ERISA)
that presents a material risk to DiagSoft of incurring any unpaid
withdrawal liability under Title IV of ERISA.
(i) Except as set forth in Section 4.19 of the Disclosure
Schedule, there are no material claims (other than routine claims for
benefits) or lawsuits pending with respect to any DiagSoft Employee
Benefit Plan.
(j) Except as set forth in Section 4.19 of the Disclosure
Schedule, there are no leased employees within the meaning of Sections
414(n) or (o) of the Code, or the regulations thereunder, who perform
services for DiagSoft or Subsidiary.
(k) Except as set forth in Section 4.19 of the Disclosure
Schedule, Seller has previously delivered or made available to SEi true
and complete copies of: (i) the plan documents for each DiagSoft Employee
Benefit Plan identified in Section 4.19 of the Disclosure Schedule
together with all amendments thereto, including all amendments to be
effective at a later date, and (ii) to the extent applicable for each such
DiagSoft Employee Benefit Plan, the most recent Internal Revenue Service
determination letters, summary plan descriptions, annual reports (Form
5500 series) and accompanying schedules (or such alternate reports in lieu
thereof).
4.20 Litigation. Except as set forth in Section 4.20 of the
Disclosure Schedule, there are no material claims, actions, suits, or
proceedings pending or, to the best knowledge of Seller, threatened,
against DiagSoft or Subsidiary relating to this Agreement or the
transactions contemplated hereby or to the business or property of
DiagSoft or Subsidiary, at law or in equity or before or by any federal,
state, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, nor any
arbitration proceeding, in each case including, without limitation, any
claims relating to environmental matters. DiagSoft is not subject to any
adverse judgment, order, writ, injunction or decree of any court or
governmental body.
4.21 Compliance with Laws. Except as set forth in Section 4.21 of
the Disclosure Schedule, each of DiagSoft and Subsidiary has conducted the
Business so as to comply with, and is not in violation of, nor has it
received any written notice claiming it is in violation of, any order,
law, ordinance, statute, rule or regulation applicable to it, or to the
Business or any of the property or assets of DiagSoft, except to the
extent that such non-compliance would not have a Material Adverse Effect.
Each of DiagSoft and Subsidiary has all material licenses, permits,
certificates of occupancy and authorizations necessary to conduct the
Business.
4.22 Environmental Matters. Except as set forth in Section 4.22 of
the Disclosure Schedule:
(a) the conduct of the Business complies with, and DiagSoft is
not in violation of, in connection with the conduct of the Business, any
applicable Environmental Laws (as defined in paragraph (e) below), except
where the failure to be in compliance would not have an effect that is
materially adverse to the conduct of the Business at the location where
the failure occurs;
(b) Seller and DiagSoft have not received written notification
from any governmental authority of any current, existing violations of any
Environmental Laws relating to the Business, nor, to the best of Seller's
knowledge, are there any judicial or administrative writs, injunctions,
decrees, orders or judgments outstanding or any lawsuits, claims,
proceedings or investigations pending or threatened relating to the
ownership, use, maintenance or operation of the conduct of the Business;
(c) without limiting the generality of the foregoing, DiagSoft
has not (i) received written notification from the United States
Environmental Protection Agency, or any state or local agency which serves
a similar function, that it is a Potentially Responsible Party under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or any analogous state or local law for "removal" or "remedial"
action at a waste site listed on the National Priorities List or any
database established pursuant to any state or local law to which it sent
or arranged for the transportation or disposal of any hazardous substance,
or (ii) received written notification that it is liable for contribution
for costs incurred by another person in taking "removal" or "remedial"
action under CERCLA or any analogous state or local law.
(d) Section 4.22 of the Disclosure Schedule sets forth all of
the licenses, permits and approvals held by DiagSoft and required by
Environmental Laws for the conduct of the Business as now conducted
("Permits"), which constitute all material permits required of DiagSoft by
the Environmental Laws for the conduct of the Business. DiagSoft is not
presently in material violation of any Permit, and, to the best of the
Sellers' and the management of DiagSoft's knowledge, there is no
proceeding pending or threatened with respect to the revocation or
limitation of any Permit.
4.23 Books and Records. The books, accounts and records of DiagSoft
and Subsidiary (i) are located at DiagSoft's headquarters at 5615 Scotts
Valley Drive, Suite 140, Scotts Valley, California 95066, (ii) are correct
and complete in all material respects, (iii) have been maintained in
accordance with good business practice and (iv) constitute all the books,
accounts and records necessary to carry on the Business in the manner in
which it is currently being conducted and has over the preceding twelve
(12) months been carried on. Copies of the Certificate or Articles of
Incorporation, including all amendments thereto, the Bylaws and the
minutes of all shareholder and director meetings of DiagSoft and
Subsidiary, hereto delivered by Seller to SEi, are complete and correct.
4.24 Disclosures. None of the representations or warranties by
Seller herein and no statement contained in any certificate, Schedule or
other writing furnished by Seller to SEi in connection herewith contains
or will contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
4.25 Adequacy of Assets. Except as set forth in Section 4.25 of the
Disclosure Schedule, the assets of DiagSoft and the facilities, assets and
services to which DiagSoft has a contractual right of use include all
rights, properties, assets, facilities and services necessary for the
carrying on of the Business in the manner in which it is currently being,
and has over the immediately preceding twelve (12) months been, carried
on, and DiagSoft does not depend in any material respect upon the use of
assets owned by, or facilities or services provided by, Seller or any
Affiliate of Seller. Seller is not and has not within the past four
years, directly or indirectly, whether individually or through employment
by or ownership of any partnership, corporation or other entity, other
than DiagSoft and Subsidiary, engaged in the Business or any other
business reasonably related thereto.
4.26 Pooling of Interests; Tax Free Reorganization.
(a) Seller acknowledges and agrees that SEi intends to treat
the acquisition of the Shares as a "pooling of interests" for financial
accounting purposes as permitted under Accounting Principles Board (APB)
Opinion No. 16. Seller and DiagSoft have not taken, and agree not to
take, any action that (without giving effect to this Agreement, the
transactions contemplated hereby, or actions relating thereto, or any
action taken or agreed to be taken by SEi) would prevent SEi from
accounting for the acquisition of the Shares as a "pooling of interests"
including, without limitation, (i) acquiring or transferring shares of
DiagSoft's capital stock during the thirty (30) days prior to the Closing
Date, (ii) DiagSoft selling or disposing of within the two years preceding
the Closing assets representing more than 10% of the greater of operating
profits, assets or revenues, or other "significant" assets, as that term
is used in FASB Statement No. 14, or (iii) selling, assigning or
transferring, or agreeing or allowing to be created any rights or
obligations for the sale, assignment or transfer of, any of the Purchase
Price Shares before at least thirty days of combined operations of SEi and
DiagSoft have elapsed and the financial statements reflecting such
operations have been prepared and published within the meaning of Section
201.01 of the Codification of Financial Reporting Policies of the SEC.
Except as disclosed in Section 4.26 of the Disclosure Schedule, DiagSoft
has not engaged in any transactions with respect to its treasury shares
during the two year period ending as of the Closing Date.
(b) Seller acknowledges and agrees that the transactions
contemplated by this Agreement are to constitute a tax-free reorganization
under Section 368(a) of the Internal Revenue Code. Seller has a present
intention of retaining at least 50% of the Purchase Price Shares.
4.27 Accounts Receivable. Section 4.27 of the Disclosure Schedule
sets forth a true and correct in all material respects list and aging of
all unpaid accounts receivable owing to DiagSoft or Subsidiary as of June
30, 1996. The accounts receivable of DiagSoft and Subsidiary, including,
without limitation, those reflected in Section 4.27 of the Disclosure
Schedule, constitute or will constitute as of the respective dates
thereof, legal, valid, binding and enforceable claims arising from bona
fide transactions in the ordinary course of the Business and, except to
the extent reserved against on the Interim Balance Sheet, are or will be
as of the respective dates thereof collectible in the ordinary course of
the Business and are not subject to any known counterclaims or set-offs.
The reserves for doubtful accounts and allowances with respect to the
accounts receivables generated after June 30, 1996 and prior to the
Closing will be established on the basis of evaluation of specific
accounts and age classifications in accordance with GAAP.
4.28 Brokers and Finders. No agent, broker, investment banker,
person or firm acting on behalf of DiagSoft, Seller or any firm or entity
affiliated with any of them is or will be entitled to any brokers' or
finders' fee or any other commission or similar fee directly or indirectly
from any of the parties hereto in connection with the transactions
contemplated hereby.
4.29 Investment Intent; Information Disclosures.
(a) Seller hereby acknowledges that the SEi Stock to be
received by Seller will be acquired for Seller's own account and without
any view to the distribution of any part thereof without registration
under applicable federal and state securities laws. Seller represents
that Seller does not have any agreements or arrangements to sell, transfer
or grant participations with respect to the Purchase Price Shares.
(b) Seller understands that the SEi Stock constituting the
Purchase Price Shares are not registered under the United States federal
or state securities laws on the ground that the transactions contemplated
hereby are exempt from registration under the Securities Act of 1933 (the
"1933 Act") pursuant to Section 4(2) thereof, and that SEi's reliance on
such exemption is predicated on Seller's representations set forth herein.
(c) Seller represents that Seller has such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Purchase Price
Shares, and has the ability to bear the economic risks of such investment.
Seller further represents that Seller has had (i) access, prior to the
Closing Date, to the SEi Filings, (ii) the opportunity to ask questions
of, and receive answers from, SEi concerning SEi and the Purchase Price
Shares and (iii) the opportunity to obtain additional information (to the
extent SEi possessed such information or could acquire it without
unreasonable expense) necessary to verify the accuracy of any information
received or to which Seller had access.
(d) Seller understands and agrees that the Purchase Price
Shares may not be sold, transferred or otherwise disposed of without
registration under the 1933 Act and applicable state laws, unless
exemptions from registration requirements are available, and that in the
absence of an effective registration statement covering the Purchase Price
Shares or an available exemption from applicable registration
requirements, the Purchase Price Shares must be held indefinitely. In
particular, the Purchase Price Shares may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of such rule
are met.
(e) Seller agrees that Seller will not offer, sell, mortgage,
pledge or otherwise dispose of any of the Purchase Price Shares (other
than pursuant to an effective registration statement under the 1933 Act)
unless and until Seller delivers an opinion of counsel satisfactory to SEi
that registration under applicable United States federal or state
securities laws is not required.
(f) Seller agrees that all certificates for Purchase Price
Shares shall bear the following legend:
These securities have not been registered, qualified,
recommended, approved or disapproved under United
States federal securities law or state securities
laws. The shares represented by this certificate may
not be sold, transferred or otherwise disposed of by
an investor without (i) registration under United
States federal and state securities laws, or (ii)
delivery of an opinion of counsel satisfactory to the
corporation that neither the sale nor the proposed
transfer constitutes a violation of any United States
federal or state securities law.
4.30 Net Income. DiagSoft's net income for the period beginning
January 1, 1996 and ending on the Closing Date is not less than $250,000.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SEi
SEi hereby represents and warrants to Seller as follows:
5.1 Corporate Organization. SEi is a corporation duly organized,
validly existing and in good standing under the laws of the Florida and
has the full corporate right, power and authority to own, lease and
operate all of its properties and assets and to carry out its business as
it is presently conducted.
5.2 Capitalization of SEi. All issued and outstanding shares of SEi
Stock have been, and upon issuance the Purchase Price Shares will be, duly
authorized and validly issued, fully paid and nonassessable. The issuance
of the Purchase Price Shares is not subject to any preemptive right or
right of first refusal that has not been satisfied or waived.
5.3 Authority. SEi has all requisite corporate right, power and
authority to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement and the Related Agreements by
SEi has been duly and validly authorized and approved by all necessary
corporate action. All authorizations, approvals and consents of, or any
notices to, any Person, and all filings and registrations with, and
consents, approvals and authorizations of, and any notices to, any
governmental agency or body, necessary for the execution and delivery by
SEi hereunder have been duly obtained, effected or given and are in full
force and effect. This Agreement and the Related Agreements to which SEi
is a party have been duly and validly executed and delivered by SEi and
constitute the legal, valid and binding obligations of SEi, enforceable
against SEi in accordance with their respective terms. This Agreement has
been duly and validly executed and delivered by SEi and, assuming this
Agreement has been duly authorized, executed and delivered by Seller,
constitutes the legal, valid and binding obligation of SEi enforceable
against it in accordance with its terms.
5.4 SEi's Consents and Approvals; No Violations. Except as set
forth in Section 5.4 of the Disclosure Schedule, the execution, delivery
and performance of this Agreement by SEi will not (with or without the
giving of notice or the passage of time, or both), (i) violate any
applicable provision of law or any rule or regulation of any
administrative agency or governmental authority applicable to SEi, or any
order, writ, injunction, judgment or decree of any court, administrative
agency or governmental authority applicable to SEi, (ii) violate the
Articles of Incorporation or Bylaws of SEi, (iii) require any consent
under or constitute a default under any material agreement, indenture,
mortgage, deed of trust, lease, license, or other instrument to which SEi
is a party or by which SEi is bound, or any material license, permit or
certificate held by SEi (other than any consents which will have been
obtained on or prior to the Closing Date), or (iv) require any material
consent or approval by, notice to or registration with any governmental
authority.
5.5 Litigation. Except as set forth in Section 5.5 of the
Disclosure Schedule, there are no claims, actions, suits, or proceedings
pending or, to the best knowledge of SEi, threatened, against SEi relating
to this Agreement or the transactions contemplated hereby or to the
business or property of SEi, at law or in equity or before or by any
federal, state, local, or foreign court or other governmental department,
commission, board, agency, instrumentality or authority, or any
arbitration proceeding, in each case which are likely to have a Material
Adverse Effect. SEi is not subject to any judgment, order, writ,
injunction or decree of any court or governmental body.
5.6 Brokers and Finders. No agent, broker, investment banker,
Person or firm acting on behalf of SEi or any entity affiliated with SEi
is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee directly or indirectly from any of the parties
hereto in connection with the transactions contemplated hereby.
5.7 SEi Information. SEi has delivered to Seller true and complete
copies of the SEi Filings. SEi will deliver to Sellers true and complete
copies of any and all other documents filed by SEi with the SEC on or
prior to the Closing Date (other than exhibits which SEi will make
available upon request). At the date hereof, the SEi Filings, taken as a
whole, do not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein, in light
of the circumstances in which they were made, not misleading. At the date
of filing with the SEC of any such other filed document and at the Closing
Date, such document, taken as a whole and considered in the context of
other SEi Filings, will not contain any untrue statement of a material
fact or omit any material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
5.8 No Material Adverse Change. Since June 30, 1996, there has been
no material adverse change, nor any development or event involving a
prospective material adverse change in the business, financial conditions
or results of operations and SEi and its subsidiaries, taken as a whole.
5.9 Undisclosed Liabilities. Except as set forth in Section 5.9 of
the Disclosure Schedule, SEi has no liabilities (absolute, accrued,
contingent or otherwise) required by GAAP to be reflected or reserved
against in the consolidated statement of assets and liabilities of SEi
except (i) liabilities reflected or reserved against in the Form 10-Q
Balance Sheet, and (ii) liabilities incurred since June 30, 1996 in the
ordinary course of business and which, in the aggregate, do not have a
Material Adverse Effect.
5.10 Compliance with Laws. Except as set forth in Section 5.10 of
the Disclosure Schedule, SEi has conducted its business so as to comply
with, and is not in violation of, nor has it received any written notice
claiming it is in violation of, any order, law, ordinance, statute, rule
or regulation applicable to it, or to its business or any of its property
or assets, except to the extent that such non-compliance would not have a
Material Adverse Effect. SEi has all material licenses, permits,
certificates of occupancy and authorizations necessary to conduct it
business.
ARTICLE 6
FURTHER COVENANTS AND AGREEMENTS
6.1 Covenants of Seller Pending the Closing. Seller covenants and
agrees that, pending the Closing and prior to the termination of this
Agreement, and except as otherwise agreed to herein or in writing by SEi,
Seller shall or, as appropriate shall cause DiagSoft and Subsidiary to:
(a) conduct the Business solely in the ordinary course and
consistent with past practices, which shall include incurrence of
reasonable fees and expenses to the extent necessary to effect the
consummation of the transaction contemplated hereby;
(b) not take or intentionally omit to take any action which
would result in a breach of any of Seller's representations and warranties
hereunder in any material respect;
(c) continue to maintain and service the physical assets used
by DiagSoft and Subsidiary in the conduct of the Business consistent with
past practices;
(d) use its and their reasonable efforts to preserve the
businesses and organization of DiagSoft and Subsidiary, to keep available
the services of DiagSoft's and Subsidiary's present employees and agents
and to maintain the relations and goodwill with the suppliers, customers
(including the Customers), distributors and any others having business
relations in connection with the Business;
(e) use its and their reasonable efforts to cause all of the
conditions to the obligations of SEi under this Agreement to be satisfied
on or prior to the Closing Date and to obtain, prior to the Closing, all
consents of all third parties and governmental authorities necessary for
the consummation by Seller and DiagSoft of the transactions contemplated
hereby. All such consents will be in writing and executed counterparts
will be delivered to SEi at or prior to the Closing.
(f) cooperate with SEi in SEi's making arrangements to obtain
licenses, permits and certificates required to conduct the Business or own
the Shares at Closing;
(g) provide SEi's officers, employees, counsel, accountants and
other representatives with full access to, during normal business hours,
all of the books and records of DiagSoft, make available to
representatives of SEi, knowledgeable employees of DiagSoft for
reasonable periods of time to answer inquiries of such representatives
with respect to SEi's investigation of DiagSoft and permit such
representatives of SEi to consult with the officers, employees,
accountants and counsel of Seller; provided that no such activities
unreasonably interfere with the operation of the Business;
(h) not grant to any Person a power of attorney or similar
authority to act for DiagSoft;
(i) not enter into any guarantee of the obligations of any
Person to the extent such guarantee shall survive the Closing;
(j) not amend the Articles or Certificate of Incorporation or
Bylaws of DiagSoft or Subsidiary;
(k) make no change in the amount of issued capital stock of
DiagSoft or Subsidiary or issue or create any option, warrant or any other
security of DiagSoft or Subsidiary;
(l) not increase the compensation payable or to become payable
to any officer, employee or agent of DiagSoft or Subsidiary other than in
the ordinary course of the Business, nor make any bonus payment or
arrangement to or with any officer, employee or agent of DiagSoft or
Subsidiary other than in the ordinary course of the Business nor increase
the benefits under nor make any amendment or modification to any DiagSoft
Employee Benefit Plan;
(m) not sell, transfer, lease, abandon or otherwise dispose of
(or commit to do so) or initiate or solicit any discussions concerning the
sale, lease or other disposal of, any assets of DiagSoft or Subsidiary;
and
(n) not, without the consent of SEi, which consent shall not
unreasonably be withheld by SEi, enter into any contract or commitment
calling for payment to or by DiagSoft or Subsidiary of an aggregate amount
of more than $25,000 (excluding non-exclusive license agreements entered
into consistently with past practice), which is not terminable by DiagSoft
or Subsidiary on less than thirty (30) days' notice without penalty.
6.2 Covenants of SEi Pending the Closing. SEi covenants and agrees
that, pending the Closing and prior to the termination of this Agreement,
and except as otherwise agreed to in writing by Seller:
(a) SEi shall not take or intentionally omit to take any action
which would result in a breach of any of SEi's representations and
warranties hereunder in any material respect;
(b) SEi shall use its reasonable efforts to cause all of the
conditions to the obligations of Seller under this Agreement to be
satisfied on or prior to the Closing Date and to obtain prior to the
Closing, all consents of all third parties and governmental authorities
necessary for the consummation by SEi of the transactions contemplated
hereby. All such consents will be in writing and executed counterparts
thereof will be delivered to Seller at or prior to the Closing; and
(c) SEi shall promptly disclose to Seller any information
relating to SEi's representations and warranties hereunder which, because
of an event occurring after the date hereof, is incomplete or is no longer
correct in any material respect.
6.3 Filings. Promptly after the execution of this Agreement, each
of the parties hereto shall prepare and make or cause to be made any
required filings, submissions and notifications under the laws of any
domestic or foreign jurisdictions to the extent that such filings are
necessary to consummate the transactions contemplated hereby and will use
its reasonable efforts to take all other actions necessary to consummate
the transactions contemplated hereby in a manner consistent with
applicable law. Each of the parties hereto will furnish to the other
party such necessary information and reasonable assistance as such other
party may reasonably request in connection with the foregoing. In
addition, the parties will cooperate in the preparation and filing of
other documents subsequent to Closing, including (to the extent it is not
filed prior to Closing) DiagSoft's income tax return for the year ended
June 30, 1996. Each party's filings with the relevant taxing authorities
will be consistent with the treatment of the transaction contemplated
hereunder as a tax free reorganization under Section 368(a) of the
Internal Revenue Code.
6.4 Effective Time of Closing and Transfer. The Closing shall be
effective for all purposes as of the close of business on the Closing
Date.
6.5 Announcement. Except as expressly contemplated by this
Agreement, the parties will mutually agree as to the time, form and
content before issuing any press releases or otherwise making any public
statements or statements to third parties with respect to transactions
contemplated hereby and shall not issue any press release or, except as
necessary to perform their respective obligations hereunder, discuss the
transactions contemplated hereby with any third party prior to reaching
mutual agreement with respect thereto, except as may be required by law.
Notwithstanding the foregoing, in the event prior to the Closing any party
hereto is required by law or the rules of any stock exchange on which such
party's securities are traded to make a statement with respect to the
transactions contemplated herein, such party shall notify in writing the
other party hereto as to the time, form and content of such statement.
6.6 Costs and Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, each party hereto shall
pay its own costs and expenses (including legal fees and expenses)
incurred in connection with due diligence reviews, the preparation,
negotiation and execution of this Agreement and all other agreements,
certificates, instruments and documents delivered hereunder, and all other
matters relating to the transactions contemplated hereby; provided, that
the reasonable fees and expenses of Berliner Cohen and Lynn Wubbels & Co.,
DiagSoft's legal counsel and accountants, will be paid by DiagSoft. All
transfer and intangible taxes, if any, in connection with the sale and
delivery of the Shares hereunder shall be paid by Seller. All transfer
and intangibles taxes, if any, in connection with the sale and delivery of
the Purchase Price Shares hereunder shall be paid by SEi.
6.7 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
by this Agreement. If at any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall take or cause to be taken all
necessary action, including, without limitation, the execution and
delivery of such further instruments and documents as may be reasonably
requested by the other party for such purposes or otherwise to consummate
and give effect to the transactions contemplated hereby. If any consent
or approval required for the consummation of the transactions contemplated
hereby is not obtained prior to Closing, Seller shall cooperate with SEi,
and attempt in good faith, to obtain such consent or approval during the
one year period immediately following the Closing.
6.8 Certain Agreements. On or before the Closing Date the
undersigned will execute, or use their reasonable best efforts to cause to
be executed, the following agreements to be effective upon the Closing:
(a) An Escrow Agreement between SEi and Seller in the form of
Exhibit A attached hereto.
(b) A Registration Rights Agreement between SEi and Seller in
the form of Exhibit B attached hereto.
(c) A Consulting and Non-Competition Agreement between SEi and
Seller, or a corporation wholly owned by Seller and by which Seller is
employed, in the form of Exhibit C attached hereto.
6.9 Covenant Not to Compete or Disclose Confidential Information.
(a) Seller agrees that, unless acting with the prior written
consent of SEi, he will not, either alone or in conjunction with any other
Person, or directly or indirectly through any entity that he now or in the
future controls, for a period of five (5) years from the Closing Date:
(i) employ or solicit the employment of any Person who within the month
preceding the Closing Date had been an employee of DiagSoft or Subsidiary,
other than members of Seller's family who have not entered into employment
agreements with DiagSoft or SEi; (ii) directly or indirectly engage or
participate, whether as an officer, employee, director, agent, consultant,
shareholder, partner or otherwise, in the ownership, management, marketing
or operation of any aspect of the Business anywhere in the world (other
than solely through the passive ownership of five percent (5%) or less of
the equity securities or equivalent interests of any entity whose shares
are traded on any nationally recognized securities exchange); or (iii)
conduct any business that is similar to any part of the Business with any
Person that is or was a customer of DiagSoft or Subsidiary during the year
preceding the Closing Date.
(b) The parties hereto acknowledge that (i) the covenants
contained in this Section 6.9 are a material inducement to the
consummation by SEi of the transactions contemplated by this Agreement and
(ii) SEi would not have entered into or performed this Agreement but for
the covenants herein contained.
(c) It is stipulated and agreed that Seller is acquainted with
confidential and privileged information of SEi and/or DiagSoft relating to
customer files, customer lists, special customer matters, sales methods
and techniques, merchandising concepts and plans, business plans, sources
of supply and vendors, special business relationships with vendors, agents
and brokers, promotional materials and information, financial matters,
mergers, acquisitions, selective personnel matters and confidential
processes, designs, formulas, ideas, plans, devices or materials, and
other similar matters which are confidential (any and all such information
being referred to herein as the "Confidential Information"); and that the
use of the Confidential Information against SEi and/or DiagSoft would
seriously damage SEi and/or the Business. As a consequence of the above,
Seller agrees that, unless acting with the prior written consent of SEi,
he shall, whether acting alone, in conjunction with any other Person, or
directly or indirectly through any entity that he now or in the future
controls: not use, divulge, publish or otherwise reveal or allow to be
revealed any aspect of the Confidential Information to any Person; refrain
from any action or conduct which might reasonably or foreseeably be
expected to compromise the confidentiality or proprietary nature of the
Confidential Information; and have no right to apply for or to obtain any
patent, copyright, or other form of intellectual property protection with
regard to the Confidential Information. Seller hereby assigns and
releases to DiagSoft any and all claims to or rights in any of the
Confidential Information and agrees to execute and deliver such
assignments, releases and other instruments as SEi shall reasonably
request to evidence or confirm such assignments and releases.
(d) The parties hereto acknowledge and agree that any remedy at
law for any breach of the provisions of this Section 6.9 would be
inadequate and Seller hereby consents to the granting by any court of
competent jurisdiction of an injunction or other suitable relief and
without the posting of any bond or the necessity of actual monetary loss
being proved, in order that such breach may be effectively restrained. In
the event that this Section 6.9 shall be determined by any court of
competent jurisdiction to be unenforceable by reason of it being extended
for too great a period of time, or as encompassing too large a geographic
area, or over to great a range of activities, or any or a combination of
these elements, the parties agree that these covenants shall be
interpreted to extend only over the maximum period of time, geographic
area, and range of activities as to which said court of competent
jurisdiction deem reasonable and enforceable.
(e) Seller acknowledges and agrees that he has or will become
acquainted with material inside information concerning SEi in connection
with the transactions contemplated by this Agreement. Accordingly, Seller
hereby agrees that Seller and its affiliates shall not, for a period of
six months following the Closing Date, directly or indirectly acquire,
agree to acquire or make any proposal to acquire any securities of SEi
without the prior written consent of SEi.
(f) Notwithstanding any other provisions of this Section 6.9,
SEi acknowledges that Seller intends to perform services and pursue
business opportunities with respect to certain scientific applications
software unrelated to the business of providing help desk or technical
support services or the development, sale or licensing of diagnostic
software for computers, including neural network, fuzzy logic, case based
reasoning and other artificial intelligence concepts and functionalities,
and to acquire and develop research, computer assisted designs, codes,
ideas, plans, products and materials pertaining to such software ("AI
Technology"). Accordingly, for purposes of this Section 6.9 only, the
terms "Business" and "Confidential Information" shall not include AI
Technology.
6.10 DiagSoft Employees. SEi will not, during the ninety day period
following the Closing, terminate, or cause or permit DiagSoft to
terminate, the employment of any person employed by DiagSoft immediately
prior to the Closing, other than for cause; provided, that neither SEi nor
DiagSoft will have any liability or responsibility with respect to any
person who voluntarily resigns prior to, upon or after the Closing and
provided further that this provision is not intended to: (i) grant or
create any rights or entitlements to or in any person not a party hereto;
(ii) prohibit SEi or DiagSoft from altering any employee's
responsibilities or functions, or modifying such employee's benefits to
the extent consistent with SEi's internal policies and procedures.
6.11 Release of Seller Guaranty. Within ten (10) days after the
Closing Date, SEi will cause Seller to be released from his guaranty of
DiagSoft's obligations under its Two Hundred Fifty Thousand Dollar
($250,000) line of credit facility with Coast Commercial Bank.
6.12 Release by Seller. Seller hereby waives, releases and forever
discharges DiagSoft and its parent, subsidiaries, officers and directors
from any and all claims, causes of action, damages and liabilities of
whatever nature or description, known or unknown, actual or contingent,
which Seller or any party claiming through Seller might have or could
claim against any of them, and which relates to or arises out of any
action or set of facts occurring prior to the Closing.
6.13 Payment of Seller Notes. Seller will, within one (1) day
following demand therefor, pay to DiagSoft the full amount of the
promissory notes issued by Seller in favor of DiagSoft (including all
accrued and unpaid interest thereon). Seller acknowledges and agrees that
time is of the essence regarding its compliance with this section, and
that SEi will suffer irreparable damage if such notes are not paid in full
promptly following demand therefor.
ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written agreement executed by Seller and SEi;
(b) by Seller or SEi at any time after August 30, 1996 if,
through no fault of the party seeking termination, the Closing shall not
have occurred;
(c) by Seller or SEi, if any governmental or regulatory
authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree,
ruling or other action shall have become final and nonappealable;
(d) by SEi, if there has been a material violation or breach by
Seller of any agreement or any representation or warranty contained in
this Agreement which (i) is not curable, (ii) has rendered the
satisfaction of any condition to the obligations of SEi impossible, and
(iii) has not been waived by SEi; or
(e) by Seller, if there has been a material violation or breach
by SEi of any agreement, representation or warranty contained in this
Agreement which (i) is not curable, (ii) has rendered the satisfaction of
any condition to the obligations of Seller impossible, and (iii) has not
been waived by Seller.
7.2 Procedure and Effect of Termination. In the event of
termination of this Agreement pursuant to Section 7.1 hereof, written
notice thereof shall forthwith be given to the other parties hereto and
this Agreement (other than Sections 6.6 and 6.9(e) hereof and this Section
7.2, which shall survive termination) shall terminate and the transactions
contemplated hereby shall be abandoned without further action by the
parties hereto. If this Agreement is terminated as provided herein:
(a) all information with respect to the Business or DiagSoft
received by and in the possession of SEi or any Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with SEi shall be, at Seller's option, returned
to Seller or destroyed by SEi;
(b) all material, non-public information with respect to SEi
received by and in the possession of Seller or any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with Seller shall be, at SEi's option,
returned to SEi or destroyed by Seller;
(c) any termination pursuant to subparagraph (b), (c), (d), or
(e) of Section 7.1 shall not be deemed a waiver of any rights or remedies
otherwise available under this Agreement, by operation of law or
otherwise; and
(d) all filings, applications and other submissions made
pursuant to Section 6.3 hereof or prior to the execution of this Agreement
in contemplation thereof shall, to the extent practicable, be withdrawn
from the agency or other Person to which made.
ARTICLE 8
CONDITIONS TO SEi'S OBLIGATIONS
Each and every obligation of SEi to consummate the transactions
described in this Agreement shall be subject to the fulfillment, on or
before the Closing Date, of the following conditions precedent:
8.1 Seller's Closing Deliveries. Seller shall have delivered, or
caused to be delivered, to SEi at or prior to the Closing each of the
following:
(i) certificate(s) representing the Shares, duly endorsed
in blank by Seller, or accompanied by a duly endorsed stock transfer
power;
(ii) the Escrow Agreement referenced in Section 6.8(a)
executed by Seller;
(iii) the Registration Rights Agreement referenced in
Section 6.8(b) executed by Seller;
(iv) the Consulting and Non-Competition Agreement
referenced in Section 6.8(c) executed by Seller;
(v) with respect to DiagSoft and Subsidiary, a certificate
of good standing issued by the secretary of state of California and
Hawaii, respectively, and a certificate of qualification or good standing
in each of the jurisdictions in which DiagSoft or Subsidiary is required
to be qualified to transact business issued by the secretary of state or
other appropriate authority of each such jurisdiction, and in each case,
dated no more than thirty (30) days prior to the Closing Date;
(vi) a copy of the Articles of Incorporation and bylaws of
each of DiagSoft and Subsidiary which shall be certified to be accurate,
complete and as in effect as of the Closing Date by the Secretary of such
entity;
(vii) a certificate representing all issued and
outstanding shares of Subsidiary;
(viii) the minute and stock books and corporate seal (if
any) of DiagSoft and Subsidiary;
(ix) the resignations of those officers and directors of
DiagSoft and Subsidiary who are identified in Section 8.1 of the
Disclosure Schedule;
(x) valid and binding consents of all Persons whose
consent or approval is required to be set forth in Sections 4.5 and 4.6 of
the Disclosure Schedule; and
(xi) the certificates referenced in Sections 8.2 and 8.3.
8.2 Representations and Warranties. The representations and
warranties of Seller contained in this Agreement, as modified by the
Disclosure Schedule, shall have been true on the date hereof, and shall be
true on the Closing Date with the same effect as though such
representations were made as of such date and Seller shall have delivered
to SEi on the Closing Date a certificate, dated the Closing Date, to such
effect which certificate shall be executed by Seller and by each of the
President and Chief Financial Officer of DiagSoft who shall make such
certification to the best of his knowledge, solely in his capacity as an
officer of DiagSoft and not as an individual.
8.3 Performance. Seller shall have, in all material respects,
performed and complied with all covenants required by this Agreement to be
performed or complied with by them prior to or at the Closing and Seller
shall have delivered to SEi on the Closing Date a certificate, dated the
Closing Date, to such effect.
8.4 Legal Opinion. Counsel for Seller shall have delivered to SEi
its opinion dated the Closing Date, in form and substance reasonably
satisfactory to SEi and addressing the matters covered in Sections 4.1,
4.2, 4.3, 4.4, 4.5, 4.6 and 4.20 of this Agreement.
8.5 Governmental Consents and Approvals. All necessary and
appropriate governmental consents, approvals and filings shall have been
obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise
terminated.
8.6 No Injunction or Proceeding. No governmental or regulatory
authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
8.7 Employment Agreements. SEi shall have obtained executed
agreements for the continued employment by DiagSoft of each of the
following persons, which agreements shall contain releases of any claims
such employees may have against or with respect to DiagSoft or SEi, and
such other terms as shall be satisfactory to SEi: Rick Farrington, Tom
Colamonico, Larry Bettencourt, Turin Leung, and Roger Ivey.
8.8 Other Agreements. SEi shall have obtained executed work
product, assignment and/or employment agreements from each of the
following persons, which agreements shall contain such terms as shall be
satisfactory to SEi: Evan Lau, Jonathan Gordon, Edward Merrifield and
Jeffrey O. Kraft.
8.9 Escrow Agreement. SEi shall have obtained from the Escrow Agent
an executed escrow agreement in the form attached hereto as Exhibit A.
ARTICLE 9
CONDITIONS TO SELLER'S OBLIGATIONS
Each and every obligation of Seller to consummate the transactions
described in this Agreement shall be subject to the fulfillment, on or
before the Closing Date, of the following conditions precedent:
9.1 Delivery of Purchase Price Shares. SEi shall have delivered or
caused to be delivered to Seller an irrevocable letter of instructions to
the Transfer Agent for the issuance of certificates representing the
Purchase Price Shares in accordance with Article 3 hereof.
9.2 SEi's Closing Deliveries. SEi shall deliver, or cause to be
delivered, to Seller at the Closing each of the following:
(i) valid and binding consents of all Persons, if any,
whose consent or approval is required to be set forth in Section 5.4 of
the Disclosure Schedule;
(ii) the Escrow Agreement referenced in Section 6.8(a)
executed by SEi;
(iii) the Registration Rights Agreement referenced in
Section 6.8(b) executed by SEi;
(iv) the Consulting and Non-Competition Agreement
referenced in Section 6.8(c) executed by SEi;
(v) a certified copy of the resolutions of the Board of
Directors of SEi authorizing the execution, delivery and performance of
this Agreement and the Related Agreements and the issuance of the Purchase
Price Shares; and
(vi) the certificates referenced in Sections 9.3 and 9.4
hereof.
9.3 Representations and Warranties True. The representations and
warranties of SEi contained in this Agreement, as modified by the
Disclosure Schedule, shall have been true on the date hereof and shall be
true on the Closing Date with the same effect as though such
representations were made as of such date, and SEi shall have delivered to
Seller on the Closing Date a certificate, dated as of the Closing Date, to
such effect.
9.4 Performance. SEi shall have, in all material respects,
performed and complied with all covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing and SEi shall
have delivered to Seller on the Closing Date a certificate, dated as of
the Closing Date, to such effect.
9.5 Legal Opinion. Counsel for SEi shall have delivered to Seller
its opinion dated the Closing Date in form and substance reasonably
satisfactory to Seller and addressing the matters covered in Sections 5.1,
5.2, 5.3, 5.4 and 5.5 of this Agreement.
9.6 Governmental Consents and Approvals. All necessary and
appropriate governmental consents, approvals and filings shall have been
obtained or made and all applicable waiting periods (including any
extensions thereof) relating thereto shall have expired or otherwise
terminated.
9.7 No Injunction or Proceeding. No governmental or regulatory
authority, agency or commission, including courts of competent
jurisdiction, domestic or foreign, shall have issued an order, decree, or
ruling or taken other action, restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby, which order, decree,
ruling or other action remains in effect.
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification by Seller.
(a) Seller shall reimburse, indemnify and hold SEi, DiagSoft,
Subsidiary and their respective officers, directors, shareholders,
employees and agents harmless from and against any and all demands,
claims, actions, suits, liabilities, damages, losses, judgments, costs and
expenses (including, without limitation, reasonable attorneys' fees)
relating to, resulting from or arising out of:
(i) any breach or inaccuracy of the representations or
warranties made hereunder or in any of the Related Agreements by Seller,
other than the representations and warranties contained in Section 4.9;
(ii) any breach or violation of any covenant or agreement
made hereunder or in any of the Related Agreements by Seller;
(iii) (A) any breach or inaccuracy of the
representations and warranties contained in Section 4.9, (B) any of the
matters described or referred to in Section 4.9 of the Disclosure
Schedule, or (C) any failure by DiagSoft or Subsidiary to file on a timely
basis complete and accurate reports or Returns in respect of, or to pay on
a timely basis, any Taxes arising from the operations, income or
properties of DiagSoft or Subsidiary, to the extent such filing or payment
was due prior to the Closing Date; provided, that there shall be no
indemnity with respect to the matter described in item 5 of Section 4.9 of
the Disclosure Schedule..
(iv) any of the matters described or referred to in
Sections 4.8 or 4.20 of the Disclosure Schedule; or
(v) any of the matters described or referred to in
Section 4.19 of the Disclosure Schedule.
10.2 Indemnification by SEi.
(a) SEi shall reimburse, indemnify and hold Seller harmless
from and against any and all demands, claims, actions, suits, liabilities,
damages, losses, judgments, costs and expenses (including, without
limitation, reasonable attorneys' fees relating to, resulting from or
arising out of:
(i) any breach or inaccuracy of the representations or
warranties made hereunder or in any of the Related Agreements by SEi; or
(ii) any breach or violation of any covenant or agreement
made hereunder or in any of the Related Agreements by SEi.
10.3 Survival of Representations. The representations and warranties
set forth in Sections 4.7, 4.8, 4.11, 4.14, 4.23 and 4.27 shall survive
until and through the first anniversary of the Closing Date, at which time
such representations and warranties shall expire. The representations and
warranties set forth in Sections 4.4, 4.9, 4.10 and 4.12 shall survive
until and through the sixth anniversary of the Closing Date at which time
such representations and warranties shall expire. All other
representations and warranties made pursuant to this Agreement including,
without limitation, all representations and warranties made in any exhibit
or schedule or certificate delivered thereunder shall survive until and
through the third anniversary of the Closing Date, at which time such
representations and warranties shall expire.
10.4 Indemnification Claims Procedures. All claims for
indemnification by any party seeking indemnification (the "Indemnified
Party") from the other party (the "Indemnifying Party") under Sections
10.1 or 10.2 shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which the
Indemnifying Party would be liable to any Indemnified Party hereunder is
asserted against or sought to be collected from any Indemnified Party by a
third party, the Indemnified Party shall promptly notify the Indemnifying
Party (and any pertinent insurance carrier) in reasonable detail of such
claim or demand and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final
amount of such claim and demand) (the "Claim Notice"). The Indemnifying
Party shall have thirty (30) days from the personal delivery or mailing of
the Claim Notice (the "Notice Period") to notify the Indemnified Party
whether or not the Indemnifying Party desires to defend the Indemnified
Party against such claim or demand. All costs and expenses incurred by
the Indemnifying Party in defending such claim or demand shall be a
liability of, and shall be paid by, the Indemnifying Party. In the event
that the Indemnifying Party notifies Indemnified Party within the Notice
Period that it desires to defend the Indemnified Party against such claim
or demand and except as hereinafter provided, the Indemnifying Party shall
have the right to defend the Indemnified Party by counsel of the
Indemnifying Party's own choosing, either in the Indemnifying Party's
name, or in the Indemnified Party's name by appropriate proceedings. If
any Indemnified Party desires to participate in, but not control, any such
defense or settlement it may do so at its sole cost and expense and, in
any event, the Indemnified Party shall cooperate with the Indemnifying
Party and such counsel. To the extent the Indemnifying Party shall
control or participate in the defense or settlement of any third party
claim or demand, the Indemnified Party shall give to the Indemnifying
Party and its counsel access to, during normal business hours, the
relevant business records and other documents, and shall permit them to
consult with the employees and counsel of the Indemnified Party, to the
extent consistent with the application of relevant evidentiary privileges.
The Indemnifying Party shall keep the Indemnified Party reasonably
apprised of the course of any negotiations or proceedings and the
Indemnifying Party shall not settle any claim or demand without the
consent of the Indemnified Party, which consent shall not be unreasonably
withheld or unduly delayed. As soon as reasonably practicable after the
Indemnifying Party has reached a final decision as to whether or not all
or any portion of the obligations related to such claim or demand are the
obligations for which the Indemnifying Party is required to indemnify such
Indemnified Party hereunder and, in any event, prior to entering into any
such settlement or other final resolution of any claim or demand, the
Indemnifying Party shall notify the Indemnified Party in writing of its
position as to whether or not all or any portion of the obligations
related to such claim or demand are the obligations for which the
Indemnifying Party is required to indemnify such Indemnified Party in
accordance with this Article 10.
(b) If the Indemnifying Party elects or is deemed to have
elected not to take over the defense of any such claim or demand, the
Indemnified Party shall have the right to defend, compromise and settle
such claim or demand on such terms as the Indemnified Party in their
discretion may determine, subject to the prior consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or unduly delayed,
and the Indemnifying Party shall continue to be bound to indemnify the
Indemnified Party in accordance with and to the extent provided under the
terms of this Article 10. The Indemnified Party shall or shall direct in
writing its counsel to deliver to the Indemnifying Party copies of all
correspondence and other matters relating to such claim or demand.
Notwithstanding the foregoing, to the extent that the claim or demand
involves or could result in claims against, or potential liability of, the
Indemnifying Party the extent or nature of which were not known by the
Indemnifying Party as of the date the Indemnifying Party elects or is
deemed to have elected not to take over the defense of such claim or
demand, the Indemnifying Party shall, by written notice to the Indemnified
Party, be entitled to take over the defense of such claim or demand.
(c) In the event an Indemnified Party should have a claim
against the Indemnifying Party hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it by a third
party, the Indemnified Party shall promptly send a Claim Notice with
respect to such claim to the Indemnifying Party.
(d) No claim for indemnification hereunder arising from a
breach of a representation or warranty shall be valid unless notice of
such claim as provided herein is made prior to the expiration of such
representation or warranty under Section 10.3. Except as provided in the
preceding sentence, the Indemnified Party's failure to give reasonably
prompt notice to the Indemnifying Party of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Party of any liability which
it may have to an Indemnified Party except to the extent the failure to
give such notice prejudiced the Indemnifying Party.
10.5 Right of Set-Off. In addition to any other remedy available in
equity or at law, the Indemnified Party shall be entitled to set off the
amount of any obligation for which it is entitled to be indemnified under
this Article 10 against any Purchase Price Shares held in escrow in
accordance with Section 3.2 above, and any amounts payable to the
Indemnifying Party hereunder or under any other agreement contemplated
hereby.
10.6 Limitations on Liability. The maximum aggregate liability of
SEi on one hand, and Seller on the other hand, under this Article 10 shall
not exceed the aggregate value of the Purchase Price Shares determined by
reference to the SEi Closing Price.
ARTICLE 11
MISCELLANEOUS
11.1 Dispute Resolution.
(a) Arbitration. Any dispute, controversy or claim arising out
of or relating to this Agreement or any Related Agreement to which Seller
and SEi are parties or any contract or agreement entered into pursuant
hereto, or arising out of or relating to the performance by the parties of
its or their terms, shall be settled by binding arbitration held in Tampa,
Florida in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, except as specifically
otherwise provided in this Article 11. Notwithstanding the foregoing, SEi
may, in its discretion, apply to a court of competent jurisdiction for
equitable relief from any violation or threatened violation of the
covenants under Article 6 of this Agreement.
(b) Arbitration. The panel to be appointed shall consist of
three neutral arbitrators.
(c) Procedures; No Appeal. The arbitrators shall allow such
discovery as the arbitrators determine appropriate under the circumstances
and shall resolve the dispute as expeditiously as practicable, and if
reasonably practicable, within 120 days after the selection of the
arbitrators. The arbitrators shall give the parties written notice of the
decision, with the reasons therefor set out, and shall have 30 days
thereafter to reconsider and modify such decision if any party so requests
within 10 days after the decision. Thereafter, the decision of the
arbitrators shall be final, binding, and nonappealable with respect to all
persons, including (without limitation) persons who have failed or refused
to participate in the arbitration process.
(d) Authority. The arbitrators shall have authority to award
relief under legal or equitable principles, including interim or
preliminary relief. Unless the arbitrators find that exceptional
circumstances require otherwise, the arbitrators will include in the award
the prevailing party's costs of arbitration and reasonable attorneys'
fees.
(e) Entry of Judgment. Judgment upon the award rendered by the
arbitrators may be entered in any court having in personam and subject
matter jurisdiction. SEi and Seller hereby submit to the in personam
jurisdiction of the Federal and State courts in California and Florida,
for the purpose of confirming any such award and entering judgment
thereon.
(f) Confidentiality. All proceedings under this Article 11,
and all evidence given or discovered pursuant hereto, shall be maintained
in confidence by all parties.
(g) Continued Performance. The fact that the dispute
resolution procedures specified in this Article 11 shall have been or may
be invoked shall not excuse any party from performing its obligations
under this Agreement and during the pendency of any such procedure all
parties shall continue to perform their respective obligations in good
faith.
(h) Tolling. All applicable statutes of limitation shall be
tolled while the procedures specified in this Article 11 are pending. The
parties will take such action, if any, required to effectuate such
tolling.
11.2 Entire Understanding, Waiver, Etc. This Agreement sets forth
the entire understanding of the parties and supersedes any and all prior
or contemporaneous agreements, arrangements and understandings relating to
the subject matter hereof, and the provisions hereof may not be changed,
modified, waived or altered except by an agreement in writing signed by
the party entitled to the benefit of the provision(s) to be waived hereto.
A waiver by any party of any of the terms or conditions of this Agreement,
or of any breach thereof, shall not be deemed a waiver of such term or
condition for the future, or of any other term or condition hereof, or of
any subsequent breach thereof.
11.3 Severability. If any provision of this Agreement or the
application of such provision shall be held by a court of competent
jurisdiction to be unenforceable, the remaining provisions of this
Agreement shall remain in full force and effect.
11.4 Captions. The captions herein are for convenience only and
shall not be considered a part of this Agreement for any purpose,
including, without limitation, the constructions or interpretation of any
provision hereof.
11.5 Notices. All notices, requests, demands and other
communications (collectively, "Notices") that are required or may be given
under this Agreement shall be in writing. All Notices shall be deemed to
have been duly given or made: if by hand, immediately upon delivery; if by
telecopier or similar device, immediately upon sending, provided notice is
sent on a Business Day during the hours of 9:00 a.m. and 6:00 p.m. at the
location of the party receiving the Notice and confirmed by first class
mail, but if not, then immediately upon the beginning of the first
Business Day after being sent; if by FedEx, Express Mail or any other
reputable overnight delivery service, one Business Day after being placed
in the exclusive custody and control of said courier; and if mailed by
certified mail, return receipt requested, five Business Days after
mailing. Notwithstanding the foregoing, with respect to any Notice given
or made by telecopier or similar device, such Notice shall not be
effective unless and until (i) the telecopier or similar advice being used
prints a written confirmation of the successful completion of such
communication by the party sending the Notice, and (ii) a copy of such
Notice is deposited in first class mail to the appropriate address for the
party to whom the Notice is sent. In addition, notwithstanding the
foregoing, a notice of a change of address by a party hereto shall not be
effective until received by the party to whom such notice of a change of
address is sent. All notices are to be given or made to the parties at
the following addresses (or to such other address as either party may
designate by notice in accordance with the provisions of this Section):
(a) If to Seller: Gordon Kraft
1215 Silver Lakes Blvd.
Naples, FL 33961
Fax Number: _________________
(b) If to SEi: Sykes Enterprises, Incorporated
100 North Tampa Street
Suite 3900
Tampa, Florida 33602
Attention: Chief Financial Officer
Fax Number: (813) 273-0148
11.6 Successors and Assigns. Neither this Agreement nor any of the
rights or obligations arising hereunder shall be assignable without the
prior written consent of the parties hereto; provided, however, that
notwithstanding the foregoing, SEi may assign its rights and obligations
under this Agreement to any wholly owned subsidiary of SEi which agrees in
writing to be bound by and to perform fully all of SEi's obligations
hereunder and, provided that in the event of any such assignment by SEi,
SEi shall remain liable hereunder for the performance of SEi's obligations
hereunder notwithstanding such assignment.
11.7 Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or
implied, shall confer upon any Person, other than the parties hereto, and
their successors and permitted assigns, any rights or remedies under or by
reason of this Agreement.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
11.9 Definition of "ordinary course". For purposes of this
Agreement, an activity is deemed to be in "the ordinary course" of a
Person's business if such activity is in accordance with:
(a) customary business practices and usages of trade prevailing
in the industry in which such Person operates; and
(b) such Person's historical and customary practice with
respect to such activity.
11.10 Construction of Terms. Any reference herein to the
masculine or neuter shall include the masculine, the feminine and the
neuter, and any reference herein to the singular or plural shall include
the opposite thereof. The parties to this Agreement acknowledge that each
party and counsel to each party has participated in the drafting of this
Agreement and agree that this Agreement shall not be interpreted against
one party or the other based upon who drafted it.
11.11 Governing Law. This Agreement shall be controlled,
construed and enforced in accordance with the laws of Florida applicable
to agreements made and to be performed in that jurisdiction.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the day and year first above written.
SELLER:
_______________________________
Gordon H. Kraft
SEi:
SYKES ENTERPRISES, INCORPORATED
By:__________________________
Its:__________________________
<PAGE>
SPOUSAL JOINDER AND CONSENT
I am the spouse of Gordon H. Kraft. To the extent that I have any
community property interest in my spouse's shares (the "Shares") of
DIAGSOFT, INC. (the "Company"), I hereby join in the Stock Purchase
Agreement of even date herewith entered into between SYKES ENTERPRISES,
INCORPORATED ("SEi") and GORDON H. KRAFT (the "Agreement"), and agree to
be bound by its terms and conditions to the same extent as my spouse. I
have read the Agreement, understand its terms and conditions, and to the
extent that I have felt it to be necessary, I have retained independent
legal counsel to advise me concerning the legal effect of the Agreement
and this Spousal Joinder and Consent.
I understand and acknowledge that SEi is significantly relying on the
validity and accuracy of this Spousal Joinder and Consent in entering into
the Agreement.
Executed this ____ day of ____________, 1996.
Signature: _____________________________
Printed or Typed Name: _________________
<PAGE>
DISCLOSURE SCHEDULE
Section 4.1. Corporate Organization
Section 4.2. Capitalization
Section 4.5. Seller's Consents and Approvals; No Violations
Section 4.6. DiagSoft's Consents and Approvals; No Violations
Section 4.7. Financial Statements
Section 4.8. Undisclosed Liabilities
Section 4.9. Taxes
Section 4.10(a). List of Material Fixed Assets
Section 4.10(b). Permitted Encumbrances
Section 4.11. Absence of Changes
Section 4.12. Intellectual Property
Section 4.13. Leases
Section 4.14(a). Bank Accounts
Section 4.14(b). Investments
Section 4.15. Material Contracts and Customers
Section 4.16. Related Transactions
Section 4.17. Insurance
Section 4.18(a). Labor Disputes
Section 4.18(b). List of Employees
Section 4.19. Employee Benefit Plans
Section 4.20. Litigation
Section 4.21. Compliance with Laws
Section 4.22. Environmental Matters
Section 4.25. Adequacy of Assets
Section 4.26. Pooling of Interests
Section 4.27. Accounts Receivable
Section 5.4. SEi's Consents and Approvals; No Violations
Section 5.5. Litigation
Section 5.9. Undisclosed Liabilities
Section 5.10. Compliance with Laws
Section 8.1. Resignations of Officers and Directors
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
PURCHASE AND SALE OF SHARES . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3
DELIVERY OF PURCHASE PRICE SHARES . . . . . . . . . . . . . . . . . . . 5
3.1 Delivery to Seller . . . . . . . . . . . . . . . . . . . . . 5
3.2 Delivery to Escrow Agent . . . . . . . . . . . . . . . . . . 5
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . 5
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 5
4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Ownership of Shares; Title . . . . . . . . . . . . . . . . . 7
4.5 Seller's Consents and Approvals; No Violations . . . . . . . 7
4.6 DiagSoft's Consents and Approvals; No Violations . . . . . . 7
4.7 Financial Statements . . . . . . . . . . . . . . . . . . . . 7
4.8 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 8
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Title to Properties . . . . . . . . . . . . . . . . . . . . . 9
4.11 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 9
4.12 Intellectual Property . . . . . . . . . . . . . . . . . . . . 11
4.13 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14 Bank Accounts; Investments . . . . . . . . . . . . . . . . . 14
4.15 Material Contracts and Customers . . . . . . . . . . . . . . 15
4.16 Related Transactions . . . . . . . . . . . . . . . . . . . . 16
4.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 18
4.20 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.21 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 20
4.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . 20
4.23 Books and Records . . . . . . . . . . . . . . . . . . . . . . 21
4.24 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.25 Adequacy of Assets . . . . . . . . . . . . . . . . . . . . . 21
4.26 Pooling of Interests; Tax Free Reorganization . . . . . . . . 22
4.27 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 22
4.28 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 22
4.29 Investment Intent; Information Disclosures . . . . . . . . . 23
4.30 Net Income . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SEi . . . . . . . . . . . . . . . . . 24
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 24
5.2 Capitalization of SEi . . . . . . . . . . . . . . . . . . . . 24
5.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 SEi's Consents and Approvals; No Violations . . . . . . . . . 24
5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.6 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . 25
5.7 SEi Information . . . . . . . . . . . . . . . . . . . . . . . 25
5.8 No Material Adverse Change . . . . . . . . . . . . . . . . . 25
5.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 25
5.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 6
FURTHER COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . 26
6.1 Covenants of Seller Pending the Closing . . . . . . . . . . . 26
6.2 Covenants of SEi Pending the Closing . . . . . . . . . . . . 27
6.3 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Effective Time of Closing and Transfer . . . . . . . . . . . 28
6.5 Announcement . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . 28
6.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . 28
6.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . 29
6.9 Covenant Not to Compete or Disclose Confidential
Information . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 DiagSoft Employees . . . . . . . . . . . . . . . . . . . . . 31
6.11 Release of Seller Guaranty . . . . . . . . . . . . . . . . . 31
6.12 Release by Seller . . . . . . . . . . . . . . . . . . . . . . 31
6.13 Payment of Seller Notes . . . . . . . . . . . . . . . . . . . 31
ARTICLE 7
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Procedure and Effect of Termination . . . . . . . . . . . . . 32
ARTICLE 8
CONDITIONS TO SEi'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . 32
8.1 Seller's Closing Deliveries . . . . . . . . . . . . . . . . . 32
8.2 Representations and Warranties . . . . . . . . . . . . . . . 33
8.3 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 34
8.5 Governmental Consents and Approvals . . . . . . . . . . . . . 34
8.6 No Injunction or Proceeding . . . . . . . . . . . . . . . . . 34
8.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . 34
8.8 Other Agreements . . . . . . . . . . . . . . . . . . . . . . 34
8.9 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 9
CONDITIONS TO SELLER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . 34
9.1 Delivery of Purchase Price Shares . . . . . . . . . . . . . . 34
9.2 SEi's Closing Deliveries . . . . . . . . . . . . . . . . . . 35
9.3 Representations and Warranties True . . . . . . . . . . . . . 35
9.4 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . 35
9.6 Governmental Consents and Approvals . . . . . . . . . . . . . 35
9.7 No Injunction or Proceeding . . . . . . . . . . . . . . . . . 35
ARTICLE 10
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . 36
10.2 Indemnification by SEi . . . . . . . . . . . . . . . . . . . 36
10.3 Survival of Representations . . . . . . . . . . . . . . . . . 37
10.4 Indemnification Claims Procedures . . . . . . . . . . . . . . 37
10.5 Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . 38
10.6 Limitations on Liability . . . . . . . . . . . . . . . . . . 38
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.1 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . 39
(a) Arbitration . . . . . . . . . . . . . . . . . . . . . . 39
(b) Arbitration . . . . . . . . . . . . . . . . . . . . . . 39
(c) Procedures; No Appeal . . . . . . . . . . . . . . . . . 39
(d) Authority . . . . . . . . . . . . . . . . . . . . . . . 39
(e) Entry of Judgment . . . . . . . . . . . . . . . . . . . 39
(f) Confidentiality . . . . . . . . . . . . . . . . . . . . 39
(g) Continued Performance . . . . . . . . . . . . . . . . . 39
(h) Tolling . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Entire Understanding, Waiver, Etc. . . . . . . . . . . . . . 40
11.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . 40
11.4 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . 41
11.7 Parties in Interest . . . . . . . . . . . . . . . . . . . . . 41
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 41
11.9 Definition of . . . . . . . . . . . . . . . . . . . . . . . . 41
11.10 Construction of Terms . . . . . . . . . . . . . . . . . . . 41
11.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 42
<PAGE>
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Consulting and Non-Competition Agreement
EXHIBIT 99.1
NEWS RELEASE
SYKES ENTERPRISES, INCORPORATED
AGREES TO PURCHASE DIAGSOFT, INC.
Advanced Technology Acquisition Will Boost Sykes' Ability to
Provide Computer Support Over Phone or Through Internet
TAMPA, FL -- September 3, 1996 (NASDAQ:SYKE) -- Sykes Enterprises,
Incorporated (SEi), a diverse information technology company providing a
variety of computer-related outsourcing services, announced today that it
has purchased DiagSoft, Inc., of Scotts Valley, California, in exchange
for 675,000 shares of SEi common stock. SEi intends to account for the
acquisition as a pooling of interest, which will accrete to SEi
shareholders in 1996.
DiagSoft was founded in 1987 and currently distributes products throughout
much of Europe, Australia, Canada, Africa, the Far East and the United
States. These products are marketed worldwide through multiple channels,
including distributors, dealers, VAR's systems integrators and OEMs.
Today, DiagSoft products address the needs of users in every major
operating system, including PC-DOS, MS-DOS, Windows 3.1, Windows 95, IBM
OS/2 Warp and Apple Macintosh MAC/OS.
"Combining DiagSoft's state-of-the-art technology with SEi's advanced
systems, custom-built high-tech facilities and expert customer support
technicians, we believe will result in a support capability unparalleled
in the computer industry today," said John H. Sykes, SEi's president and
CEO.
"It will enable us to provide support more effectively and on a lower cost
basis to current markets, and to enter many markets where we currently do
not provide service," Sykes said. "The result will almost certainly be a
significant cost savings to SEi's customers -- computer manufacturers and
software publishers -- through our ability to reduce the number of
returned products, as well as provide a quantum leap in the level of
support we can provide to the computer end-user."
According to Jon Gordon, president of DiagSoft, "DiagSoft is a provider of
diagnostic tools used by on-site computer support personnel and end users.
DiagSoft has also always been a major player in quality control and
testing at the manufacturing level."
"Now, working within the SEi support system, our products can bring a
whole new level of on-line and Internet support to the business computer
user. Most exciting, we can now for the first time be in a position to
provide computer support in a multi-vendor environment directly to
millions of home computer users -- the largest marketplace in the world
for our combined services."
SEi, a diverse information technology company, with more than 2,500
employees, provides a variety of computer-related outsourcing services to
Fortune 500 firms. SEi's business includes third party hardware and
software technical support, help desk services, systems consulting,
documentation development and foreign language localization. More
information about SEi can be accessed on the company's home page on the
World Wide Web at www.sykes.com.
Contact: Marcia Quinn
813/274-1000
EXHIBIT 99.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of
August __, 1996, is entered into by and between SYKES ENTERPRISES,
INCORPORATED, a Florida corporation (the "Company"), and GORDON H. KRAFT,
an individual residing in Florida (the "Stockholder").
WHEREAS, this Agreement is made in connection with the sale by the
Stockholder to the Company of all the outstanding shares (the "Shares") of
the common stock of DiagSoft, Inc., a California corporation ("DiagSoft"),
pursuant to the Stock Purchase Agreement dated August 30, 1996 between the
Company and the Stockholder (the "Purchase Agreement").
WHEREAS, in order to induce the Stockholder to enter into the
Purchase Agreement, the Company has agreed to provide to the Stockholder
the registration rights set forth in this Agreement.
WHEREAS, the execution and delivery of this Agreement is a condition
to the sale of the Shares to the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:
1. Definitions.
Common Stock: The common stock, par value $.01 per share, of the
Company.
Holder: The Stockholder, so long as such Stockholder owns any
Registrable Securities, and any of such Stockholder's permitted successors
and assigns who acquire rights in accordance with this Agreement with
respect to Registrable Securities directly or indirectly from such
Stockholder, or from such other successor and assign, and who agree in
writing, in form and substance satisfactory to the Company, to be bound
hereby.
Registration Expenses: Any and all reasonable expenses actually
incurred incident to performance of or compliance with this Agreement
other than underwriting discounts and commissions and transfer taxes, if
any, but including up to $5,000 in the aggregate of the legal expenses of
the Holder, incurred with respect to the Registrable Securities.
Registrable Securities: All or part of the Common Stock issued to the
Stockholder pursuant to the Purchase Agreement, and any additional shares
issued in respect of such Common Stock, by way of stock splits, stock
dividends or otherwise; provided, however, that specific shares of Common
Stock shall not be Registrable Securities if and to the extent that (i) a
Registration Statement with respect to such Common Stock shall have been
declared effective under the Securities Act and such shares of Common
Stock shall have been disposed of in accordance with such Registration
Statement, (ii) such shares of Common Stock shall have been distributed to
the public in accordance with Rule 144 (or any successor provision)
promulgated under the Securities Act, or (iii) such shares of Common Stock
shall have been otherwise transferred in accordance with the provisions of
this Agreement and the Purchase Agreement, and new certificates for them
not bearing a legend restricting further transfer shall have been
delivered by the Company.
Registration Statement: Any registration statement of the Company
filed with the SEC which provides for the registration for sale or other
transfer of the Registrable Securities (in whole or in part), including
the prospectus included therein, all amendments and any supplements to
such Registration Statement, including post-effective amendments, all
exhibits and all material incorporated by reference in such Registration
Statement.
SEC: The United States Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the SEC
thereunder, all as in effect at the time.
2. Registration under the Securities Act.
(a) Registration on Demand.
(i) Request for Registration. At any time during the
period beginning on the business day following the date of issuance of
Registrable Securities pursuant to the Purchase Agreement (such date of
issuance, the "Closing Date") and ending on April 1, 1998, and subject to
Sections 2(c) and 2(d), the Holder or Holders of a majority of the
Registrable Securities then outstanding may request by written notice to
the Company that the Company effect the registration under the Securities
Act of up to fifty percent (50%) of the Registrable Securities (a "Demand
Registration"); provided, however that the Company shall not be required
to effect a Demand Registration under this Section 2(a):
(A) after the Company has delivered a Piggyback
Notice pursuant to Section 2(b) and for so long as such Piggyback
Registration is pending; provided, that such Piggyback Notice is delivered
prior to receipt by the Company of the notice requesting a Demand
Registration;
(B) for Registrable Securities owned by any Holder
that did not, by delivery of the requisite notice, exercise its right to
register any Registrable Securities in a Piggyback Registration when so
offered by the Company under Section 2(b);
(C) if the Demand Registration covers Registrable
Securities with an aggregate market value of less than $ 250,000 or which
represent less than twenty-five percent (25%) of the Registrable
Securities; provided, that the twenty-five percent (25%) limitation shall
not apply in the event that the Demand Registration is subsequent to a
Piggyback Registration in which the number of Registrable Securities
requested to be registered by the Holder or Holders was adjusted pursuant
to Section 2(c) of this Agreement.
(D) if the Demand Registration would result in more
than fifty percent (50%) of the Common Stock issued to Stockholder
pursuant to the Purchase Agreement being registered hereunder.
The notice requesting a Demand Registration shall specify the method of
distribution of the Registrable Securities to be covered. Upon receipt of
such notice, the Company will promptly give written notice of such
requested registration ( a "Section 2(a) Notice") to any and all other
Holders who hold of record any Registrable Securities and thereupon will
file a Registration Statement in form and scope sufficient to permit under
the Securities Act, and any other applicable law and regulations, the
Registrable Securities to be registered in accordance with the methods of
distribution specified in such requests (the "Demand Registration
Statement"). The Company shall use its best efforts to have the Demand
Registration Statement declared effective as promptly as practicable (but
in no event later than 90 days after such request) and to keep the Demand
Registration Statement continuously effective for a period of at least one
(1) year following the date on which the Demand Registration Statement is
declared effective or, if shorter, until such time as all the Registrable
Securities covered by the Demand Registration Statement have been sold
pursuant thereto. Notwithstanding the provisions of the preceding
sentence, if a request for Demand Registration pursuant to this Section
2(a) is received by the Company on or before the second (2nd) business day
following the Closing Date, the Company will file a Demand Registration
Statement with the SEC, and will use its reasonable best efforts to have
such Demand Registration Statement declared effective on or before the
sixty-second (62nd) day following the Closing Date, or, if the filing date
is postponed pursuant to this Section, within 45 days after filing.
Subject to Section 2(d), the Demand Registration Statement shall provide
for the registration under the Securities Act of:
(E) the Registrable Securities which the Company has
been so requested to register by such Holder or Holders, and
(F) all other Registrable Securities which the
Company has been requested to register by any other Holders of Registrable
Securities by written request (specifying the intended method of
distribution thereof) given to the Company within 15 days after the giving
of the Section 2(a) Notice.
The Company may postpone filing a Demand Registration Statement under this
Section 2(a) for a reasonable period (not in excess of 60 days) if in its
reasonable judgment such filing would require the disclosure of material
information that the Company has a bona fide business purpose for
preserving as confidential. The Company shall be obligated to effect a
Demand Registration pursuant to this Section 2(a) only once.
(ii) Registration Statement Form. Registrations under this
Section 2(a) shall be on such appropriate registration forms of the SEC as
shall be selected by the Company, be reasonably acceptable to the Holder
or Holders who are the registered holders of at least a majority of the
Registrable Securities to be registered pursuant to this Section 2(a) and
permit the disposition of Registrable Securities in accordance with the
intended method or methods of disposition specified in the requests for
registration relating thereto.
(iii) Expenses. The Company shall pay all Registration
Expenses in connection with the registration pursuant to this Section 2(a)
and the Holder or Holders requesting registration pursuant to this Section
2(a) shall pay all underwriting discounts and commissions, any transfer
taxes and any expenses of counsel for any Holder or Holders not expressly
included in Registration Expenses relating to the sale or disposition of
such Holder's Registrable Securities pursuant to such Registration
Statement.
(iv) Effective Registration Statement. A registration
requested pursuant to Section 2(a) hereof will not be deemed to have been
effected unless it has been declared effective by the SEC and not less
than eighty-five percent (85%) of the Registrable Securities covered
thereby are sold in accordance with the terms and conditions set forth
therein; provided, however, that if, after it has been declared effective,
the offering of Registrable Securities pursuant to such registration is
interfered with by a stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such registration
will be deemed not to have become effective or to have been effected.
(v) Selection of Underwriter. If any of the Registrable
Securities covered by the Demand Registration are to be sold in an
underwritten offering, the Company shall select the underwriter or
underwriters. The Company and the Holders will take all reasonable steps
to cooperate with the underwriter or underwriters so selected to conduct
the offering in a manner customary for such underwritten offering,
including without limitation entering into an underwriting agreement with
such underwriters.
(b) Piggyback Registrations.
(i) Right to Piggyback. Subject to Sections 2(c) and 2(d)
hereof, if at any time prior to August 1, 1999 the Company proposes to
file a Registration Statement under the Securities Act with respect to any
offering of the Common Stock by the Company for its own account and/or on
behalf of any of its security holders (other than (i) a registration on
Form S-8 or S-4 or any successor form, (ii) a registration relating to a
transaction subject to Rule 145 under the Securities Act, or (iii) any
registration of securities as it relates to an offering and sale to
management of the Company pursuant to any employee stock plan or other
employee benefit plan arrangement) then, as soon as practicable (but in no
event less than twenty (20) days prior to the proposed date of filing such
Registration Statement), the Company shall give written notice of such
proposed filing to the Holders (the "Piggyback Notice"), which Piggyback
Notice shall offer the Holders the opportunity to register such number of
Registrable Securities as the Holders may request (a "Piggyback
Registration"). Subject to subsection 2(d), the Company shall include in
such Registration Statement all Registrable Securities requested within
fifteen (15) days after the receipt of the Piggyback Notice (which request
shall specify the Registrable Securities intended to be disposed of by the
Holders to be included in the registration for such offering pursuant to a
Piggyback Registration), provided, however, that prior to September 1,
1997, the Company shall not be required to include in the Registration
Statement any shares subject to such request to the extent that inclusion
would result in more than fifty percent (50%) of the Common Stock issued
to Stockholder pursuant to the Purchase Agreement being registered
hereunder; and provided further, that if, at any time after giving the
Piggyback Notice and prior to the effective date of the Registration
Statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
Common Stock, the Company may, at its election, give written notice of
such determination to the Holder of Registrable Securities and, thereupon,
(i) in the case of a determination not to register, shall be relieved of
its obligation to register any Registrable Securities in connection with
such registration (but not from its obligation to pay the Registration
Expenses in connection therewith), and (ii) in the case of a determination
to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering
such Common Stock; provided, that if such delay results in the
Registration Statement not being filed within 120 days following the
Piggyback Notice, then such Piggyback Registration shall not be deemed
"pending" for purposes of Section 2(a)(i)(A) until such Registration
Statement is filed.
(ii) Piggyback Expenses. The Registration Expenses of the
Holders of Registrable Securities will be paid by the Company in a
Piggyback Registration. Underwriting discounts and commissions and
transfer taxes, if any, incurred with respect to the Registrable
Securities shall be borne by the Holders.
(c) Underwriter's Cutback. Notwithstanding Sections 2(a) and
2(b), if a Demand Registration or a Piggyback Registration is an
underwritten offering being made on behalf of the Company, and the
managing underwriter or underwriters advise the Company in writing that in
their opinion the number of shares of Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering or would be reasonably likely to adversely affect the price or
distribution of the Common Stock offered in such offering or the timing
thereof, then the shares of Common Stock to be included in such
registration shall be the number of shares of Common Stock, adjusted on a
pro rata basis, that, in the opinion of such underwriter or underwriters,
can be sold without an adverse effect on the price, timing or distribution
of the Common Stock to be included.
(d) Registration Not Required. Notwithstanding Sections 2(a)
and 2(b), in the event the Holder or Holders request that any of the
Registrable Securities covered by this Agreement be sold in an
underwritten offering or otherwise request registration pursuant to this
Agreement, the Company shall not be required to take the action required
or contemplated herein to accommodate or permit such underwritten offering
or other registration of the shares subject to the request if either the
Company or other Holders have received, and provided to the other parties
hereto, an opinion of counsel knowledgeable in Securities Act matters to
the effect that all of such Registrable Securities may immediately be sold
by such Holders under Rule 144 during any ninety (90) day period without
registration under the Securities Act and applicable state securities
laws.
3. Hold-Back Agreements.
(a) Restrictions on Public Sale by the Holders. In the event
Registrable Securities are covered by a Registration Statement filed
pursuant to Section 2 of this Agreement, the Holders agree not to effect
any public sale or distribution of Common Stock, including a sale pursuant
to Rule 144 under the Securities Act, during the 15-day period prior to,
and during the 90-day period beginning on, the effective date of such
Registration Statement (except pursuant to such Registration Statement),
if, and then only to the extent, so requested in writing by the Company,
in the case of a non-underwritten public offering, or by the managing
underwriter or underwriters, in the case of an underwritten offering.
(b) Restrictions on Public Sale by the Company. The Company
agrees not to effect any public sale or distribution of or purchase any
Common Stock (other than any such sale or distribution of such Common
Stock in connection with any transaction subject to Rule 145 under the
Securities Act or in connection with offers and sales to employees under
employee benefit plans) during the 15-day period prior to, and during the
90-day period beginning on, the effective date of any Registration
Statement filed pursuant to Section 2 hereof.
4. Registration Procedures. In connection with the Company's
obligations under Section 2 hereof, the Company shall use it best efforts
to effect or cause to be effected the registration of the Registrable
Securities under the Securities Act to permit offers and sales in
accordance with the intended method or methods of distribution thereof.
The Company may require the Holders to use their best efforts to furnish
to the Company such information regarding the distribution of the
Registrable Securities as the Company may from time to time reasonably
request in writing.
5. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by
law, each Holder of Registrable Securities, its officers and directors and
each person or entity who controls such Holder (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, (in the case of a
prospectus, always in light of the circumstances under which the
statements are made) except insofar as the same are caused by or contained
in any information furnished in writing to the Company by such Holder or
its affiliate expressly for use therein or by such Holder's failure to
deliver a copy of the registration statement or prospectus or any
amendments or supplements thereto after the Company has furnished such
holder with a sufficient number of copies of the same. In connection with
an underwritten offering, the Company will indemnify such underwriters,
their officers and directors and each person or entity who controls such
underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the Holders of
Registrable Securities.
(b) In connection with any registration statement in which a
Holder of Registrable Securities is participating, each such Holder will
furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law,
will indemnify the Company, its directors and officers and each person or
entity and entity who controls the Company (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, (in the case of a
prospectus, always in light of the circumstances under which the
statements are made) but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in
writing by such Holder or its affiliate; provided that the obligation to
indemnify will be several, not joint and several, among such Holders of
Registrable Securities and the liability of each such Holder of
Registrable Securities will be in proportion to and limited to the net
amount received by such Holder from the sale of Registrable Securities
pursuant to such registration statement.
(c) Any person or entity entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification; provided, however, that
failure to give such notice will not prejudice such person's or entity's
right to indemnification from the indemnifying party, except as to any
losses suffered by such person or entity which are attributable to such
person's or entity's failure to promptly give such notice to such
indemnifying party and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying
party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. The indemnifying party will not be
subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld).
An indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect
to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person or entity of such indemnified party and will survive the transfer
of securities and the termination of this Agreement. The Company also
agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to such party in the event the
Company's indemnification is unavailable or unenforceable for any reason.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered
into and will not on or after the date of this Agreement enter into any
agreement with respect to the Common Stock which is inconsistent with the
rights granted in this Agreement to the Stockholder or otherwise conflicts
with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written
consent to such amendment, modification, or supplement or waiver or
consents to the departure of the Holders.
(c) Notices. All notices and other communications provided for
or permitted under this Agreement shall be in writing and given by
personal delivery, or, if mailed, by certified first-class mail, postage
prepaid, or by telex or telecopier with transmission confirmed by
telephone:
(i) if to the Holders, at the address set forth in the
Purchase Agreement, or at the most current address given by the Holders to
the Company by means of a notice given in accordance with the provisions
of this Section 6(c).
(ii) if to the Company, at the address set forth in the
Purchase Agreement, or at the most current address given by the Company to
the Stockholder by means of a notice given in accordance with the
provisions of this Section 6(c).
(d) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(f) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Florida.
(g) Dispute Resolution. Any dispute arising under this
Agreement shall be resolved by arbitration in Tampa, Florida, consistent
with the provisions of Section 11 of the Purchase Agreement.
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity,
legality and enforceability of any such provision in every other respect
and of the remaining provisions contained herein shall not be affected or
impaired thereby.
(i) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and
inure to the benefit of the respective permitted successors and assigns of
the parties hereto whether so expressed or not. In addition, whether or
not any express assignment has been made, the provisions of this Agreement
which are for the benefit of purchasers or other permitted holders of
Registrable Securities are also for the benefit of, and enforceable by,
any subsequent permitted Holder of Registrable Securities. The
registration rights of the Holders under this Agreement may be transferred
to any transferee who lawfully acquires at least fifteen thousand (15,000)
shares of the Registrable Securities; provided, however, that the Company
is given written notice by the Holder at the time of such transfer stating
the name and address of the transferee and identifying the securities with
respect to which the rights under this Agreement are being assigned; and
provided further, that such transferee is a person who is reasonably
satisfactory to the Company and executes an agreement in writing agreeing
to be bound by the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SYKES ENTERPRISES, INCORPORATED
By: _____________________________________
Title: __________________________________
STOCKHOLDER
___________________________________________
Gordon H. Kraft
