<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
------------------------------
Date of Report (date of earliest event reported): April 30, 1998
------------------------------
DELTEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
VIRGINIA 0-22001 54-1252625
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
</TABLE>
8280 GREENSBORO DRIVE, MCLEAN, VIRGINIA 22102
(Address of principal executive offices)
Registrant's telephone number, including area code: (703)-734-8606
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the terms of the Asset Purchase Agreement dated February 25,
1998 (the "Agreement"), Deltek Systems, Inc. (the "Company") acquired certain
assets from SalesKit Software Corporation ("SalesKit") for total consideration
of approximately $6 million in cash and Warrants to purchase 130,000 shares of
common stock (the "Transaction"). The assets acquired included tangible and
intangible assets previously used in the business conducted by SalesKit, such as
inventories, software and related documentation and contracts, office equipment,
intellectual property and the like. The assets are expected to be utilized by
the Company to support its long-term strategy of providing customer
relationship, opportunity, management and project information capabilities to
customers. A portion of the net proceeds of the Company's initial public
offering completed in February 1997 was used for such cash payment. The Warrants
are exercisable at any time prior to April 30, 2001, at an exercise price of $22
per share, subject to adjustment. The purchase price was determined based on
arms-length negotiation. The acquisition will be accounted for as an asset
purchase.
There was no affiliation or relationship between the Company, its
affiliates, officers or directors or associates of such persons and the Company
or any of its officers, directors or stockholders prior to the execution of the
Agreement.
The above descriptions of the agreements entered into by the Company
relating to the acquisition are not complete. Reference is made to the
respective executed agreements, copies of which are filed as exhibits to this
report and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements of Deltek Systems, Inc. and notes to financial
statements and auditors report are incorporated herein by reference from the
Company's Annual Report on Form 10-K (File No. 0-22001) for the year ended
December 31, 1997 filed with the Securities and Exchange Commission on March 30,
1998.
The financial statements of SalesKit Software Corporation ("SalesKit") and
notes to financial statements and auditors report for the year ended December
31, 1997, are submitted herewith in connection with the Company's acquisition of
certain assets of SalesKit.
-2-
<PAGE> 3
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SalesKit Software Corporation:
We have audited the accompanying balance sheet of SalesKit Software Corporation
(a Missouri corporation) as of December 31, 1997, and the related statements of
operations, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SalesKit Software Corporation
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
April 30, 1998
<PAGE> 4
SALESKIT SOFTWARE CORPORATION
BALANCE SHEET AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
Current assets:
<S> <C>
Cash $ 13,333
Accounts receivable 177,131
Other 26,944
------------
Total current assets 217,408
Property and equipment, net 281,643
Other assets 24,081
Total assets $ 523,132
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to banks $ 2,710,000
Notes payable to investors 8,058,868
Current portion of capital lease obligations 154,906
Accounts payable and accrued liabilities 911,591
Accrued interest on notes payable 10,417
Deferred revenues 351,354
------------
Total current liabilities 12,197,136
Capital lease obligations, less current portion 1,758
Notes payable to investors 369,522
------------
Total liabilities 12,568,416
Stockholders' deficit:
Common stock, $.10 par value, 25,000,000 shares authorized,
5,711,915 shares issued and outstanding 571,192
Preferred stock, $.10 par value, 1,000,000 shares authorized,
0 shares issued and outstanding -
Additional paid-in capital 13,024,847
Accumulated deficit (25,641,323)
------------
Total stockholders' deficit (12,045,284)
Total liabilities and stockholders' deficit $ 523,132
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
SALESKIT SOFTWARE CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues $ 896,937
Cost of revenues 624,697
-----------
Gross profit 272,240
-----------
Operating expenses:
Product development 1,714,908
Sales and marketing 1,039,955
General and administrative 1,496,557
-----------
Total operating expenses 4,251,420
-----------
Loss from operations (3,979,180)
Interest expense, net (1,425,926)
-----------
Net loss $(5,405,106)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 6
SALESKIT SOFTWARE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------------ Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
----------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 3,644,475 $ 364,448 $ 11,548,084 $(20,236,217) $ (8,323,685)
Issuance of common stock 97,826 9,783 57,881 - 67,664
Conversion of stockholder notes
to common stock 64,040 6,404 121,676 - 128,080
Conversion of accrued interest
to common stock 1,905,574 190,557 1,297,206 - 1,487,763
Net loss - - - (5,405,106) (5,405,106)
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1997 5,711,915 $ 571,192 $ 13,024,847 $(25,641,323) $(12,045,284)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 7
SALESKIT SOFTWARE CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash used in operating activities:
Net loss $(5,405,106)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 239,618
Loss on disposition of assets 25,263
Interest on convertible notes 1,487,763
Changes in operating assets and liabilities-
Accounts receivable 45,220
Other assets (15,611)
Accounts payable and accrued liabilities (206,118)
Accrued interest on notes payable (444,023)
Unearned revenues 351,354
-----------
Net cash used in operating activities (3,921,640)
-----------
Cash used in investing activities-purchases of property and equipment (104,728)
-----------
Cash flows from financing activities:
Proceeds from line of credit 60,000
Proceeds from issuance of notes payable to investors 4,181,124
Proceeds from issuance of common stock 67,664
Repayments of notes payable to investors (10,000)
Repayments of capital lease obligations (264,339)
-----------
Net cash provided by financing activities 4,034,449
-----------
Net increase in cash 8,081
Cash, beginning of year 5,252
-----------
Cash, end of year $ 13,333
===========
Supplemental cash flow information:
Cash paid:
Cash paid during the year for interest $ 361,461
Noncash investing and financing activities:
Exchange of notes payable to investors into common stock $ 128,080
Exchange of interest payable to investors into common stock $ 1,487,763
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 8
SALESKIT SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
SalesKit Software Corporation ("the Company") is a provider of enterprise-wide
sales and marketing information software. The Company designs, develops,
markets, implements and supports the SalesKit OPEN software suite of
applications which automates distributed computing environments, especially
field sales and field service. The Company's products are based on a foundation
of Microsoft-centric tools and technology and are constructed within an
object-oriented, data-driven architecture. The Company targets medium-to-large
sized organizations through both a direct sales force and vertically focused
value-added resellers. In addition to software licensing, the Company provides
services for its customers in the areas of business consulting, requirements
mapping, implementation, consulting, training, data center operations and
customer help desk. The company is headquartered in St. Louis, Missouri.
REVENUE RECOGNITION
Revenues, consisting of software license fees and service revenues, are
recognized in accordance with Statement of Position No. 97-2, Software Revenue
Recognition. Software license fees are recognized upon the execution of a
license agreement, the delivery of the software to the customer, probable
collection of the receivable, and satisfaction of all significant vendor
obligations. Service revenues result from consulting rendered during the
customization and implementation of software for the customer, as well as from
maintenance and data center support services. These revenues are recognized as
services are performed. Maintenance revenues are recognized ratably over the
term of the maintenance contract, which is typically one year.
COST OF REVENUES
Cost of revenues represents expenses to customize and install the Company's
software and are expensed as incurred.
PRODUCT DEVELOPMENT COSTS
Product development costs incurred in the research and development of new
software products and enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a working model has been
established. To date, the Company's software development has been completed
concurrent with the establishment of technological feasibility, and accordingly,
no costs have been capitalized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is recorded using a straight-line basis over the estimated useful
lives of the assets which is generally three to five years. Amortization of
equipment under capital leases is computed using the straight-line method over
the shorter of the remaining lease term or the estimated useful life of the
related asset.
<PAGE> 9
- 2 -
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The Company is required to
adjust its deferred tax liabilities in the period when tax rates or the
provisions of the income tax laws change. Valuation allowances are established
and adjusted by management when necessary to reduce deferred tax assets to the
amounts expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments including
cash, accounts receivable, employee receivables, accounts payable and accrued
liabilities approximates fair value due to their short maturities. Based on
market rates for loans with similar terms, the carrying value of its notes
payable and capital lease obligations approximates fair value.
BUSINESS RISKS AND CREDIT CONCENTRATION
All of the Company's revenues have been attributed to SalesKit OPEN, which is
the first of the Company's software products to deploy and which could serve as
a foundation for other applications. Any factor adversely affecting the pricing
of or demand for the SalesKit OPEN product could have a material adverse affect
on the Company's business, financial condition or results of operations.
The Company markets and sells its products to a broad geographic and demographic
base of customers and does not require collateral as the majority of the
Company's customers are large, well established companies. At December 31, 1997,
one customer accounted for 58% of accounts receivable.
2. OPERATING LOSSES AND LIQUIDITY
During 1997, the Company continued to suffer operating losses and negative cash
flows due to the expected demand for the Company's product not materializing. To
fund operations during 1997, the Company collected $240,000 from the remainder
of a debt offering initiated in 1996, initiated two debt offerings for $1.5
million and $2.5 million of subordinated convertible notes, obtained a bank line
of credit for $385,000, and obtained a subordinated, convertible note from a
current investor for $400,000. The $1.5 million debt offering raised $839,500
before the offering was terminated in May, 1997. The $2.5 million debt offering,
which began in May, 1997, was closed in November, 1997, when it had raised
$2,375,102. In October, 1997, management realized that the company would need to
be acquired by a complementary technology company as market forces were
dictating that a stand-alone sales force automation product would not be
successful. Development costs to expand the product line would be prohibitive.
Incorporation into a larger suite of applications was necessary and given the
closing window of opportunity and lack of funding, the Company began searching
for an acquiror. During February 1998, a purchase agreement was signed with
Deltek Systems, Inc. (See Note 11).
<PAGE> 10
- 3 -
After closing the $2.5 million offering, further funding was needed to offset
operating losses. An intercreditor agreement, which subordinated all existing
investor owned debt to new investments, was signed by all investors holding debt
in the company. All new investments would be protected dollar-for-dollar out of
any acquisition proceeds. Also, a matching dollar of previous debt held by that
investor would also be protected first out of any acquisition proceeds. The new
offering was limited to $1 million and began on November 10,
1997. As of December 31, 1997, it had raised $369,522. Through April 30, 1998,
an additional $590,000 has been raised.
3. PROPERTY AND EQUIPMENT
Property and equipment are as follows at December 31, 1997:
<TABLE>
<S> <C>
Computers and other equipment $ 888,843
Furniture and fixtures 144,026
-----------
1,032,869
Less accumulated depreciation and amortization (751,226)
$ 281,643
===========
</TABLE>
At December 31, 1997, computer equipment and furniture in the amount of $628,467
and $100,841, respectively, with accumulated depreciation of $524,585 and
$57,569, respectively, were capitalized under equipment lease arrangements.
4. NOTES PAYABLE TO STOCKHOLDERS, BANKS AND LINES OF CREDIT
Notes payable consist of the following at December 31, 1997:
<TABLE>
<S> <C>
Promissory notes issued to investors between June and December, 1995 $ 767,048
Promissory note issued to an investor 100,000
Subordinated convertible notes 7,364,274
Note payable issued to a corporation controlled by a Director 52,523
Two demand notes issued to a Director and officer 144,545
Lines of credit obtained from two banks 2,710,000
-----------
Total notes payable to stockholders, banks and lines of credit $11,138,390
===========
</TABLE>
The Company issued promissory notes between June and December, 1995, for
$2,885,501 to various investors which bear interest at 9% and matured between
June 5, 1997, and December 26, 1997. These notes remain unpaid and are currently
due. In addition to the notes, investors received Series 95-B stock warrants for
721,381 shares of common stock exercisable at $4 per share that expire 5 years
from the issue date. During January, 1996, the Company offered investors the
opportunity to convert the notes to common shares at $2 per share. The related
warrants were to be cancelled as part of the conversion. In 1997, notes for
approximately $.128 million were converted to common stock and approximately
32,000 related warrants were cancelled. The notes and related warrants are
convertible into shares of common stock at $4 per share effective January 25,
1996. At December 31, 1997, 191,739 related warrants were outstanding. Interest
on the exchanged notes was paid in common shares at $2 per share at December 31,
1997.
<PAGE> 11
- 4 -
The Company issued a promissory note to an investor on December 29, 1994, for
$100,000 which bears interest at 1/2% over prime and matured December 31, 1996.
This note remains unpaid and is currently due. In addition to the note, the
investor received a Series 95-A stock warrant for 25,000 shares of common stock
that expires one year after the debt is repaid. The warrant was initially
exercisable at $4, but the exercise price reduces by 5 cents for each full month
the debt is outstanding. The minimum exercise price is fixed at the common stock
par value. Interest on the note was paid in common shares at December 31, 1997.
The Company issued subordinated convertible notes to various investors for
$6,994,752 bear interest at 20% and matured on December 31, 1997. These notes
remain unpaid and are currently due. Investors may convert the notes into common
shares and any conversion must be accompanied by conversion of the outstanding
interest. The notes were initially convertible at $2 per share, but the exercise
price is reduced monthly by 20 cents at the beginning of each month starting
January 1, 1997. The minimum conversion price is fixed at 80 cents per share. In
addition to the notes, investors received Series 96-A stock warrants for 477,475
shares of common stock exercisable at $2 per share that expire on December 31,
2001. Interest was paid in common shares at the company's discretion at December
31, 1997.
The Company issued subordinated convertible promissory notes to various
investors for $369,522 bear interest at 20% and mature on December 31, 1999.
Investors may convert the notes into common shares and any conversion must be
accompanied by conversion of the outstanding interest. The notes are convertible
to common shares at $.50 per share. Interest was paid in common shares at the
company's discretion at December 31, 1997.
The Company issued a note payable on February 1, 1994, for $76,160 to a
corporation controlled by a Director bearing interest at 7% matured on January
31, 1997. The Company made 12 of the 36 payments required under the loan
provisions, and the note has not yet been renewed. The principal balance at
December 31, 1997, is $52,523. This note remains unpaid and is currently due.
Accrued interest at December 31, 1997, is $10,417.
The Company issued two demand notes to a Director and officer on January 1, 1995
and April 1, 1996 for $157,500 and $57,045, respectively, bearing interest at
1/2% over prime matured in October, 1997. Principal payments of $10,000 and
accrued interest are paid quarterly. Aggregate principal balances at December
31, 1997, are $145,545. These notes remain unpaid and are currently due. There
is no accrued interest at December 31, 1997.
The Company entered into lines of credit from January, 1994 to 1995 for
$2,350,000 with two banks which bear interest between 1/2% and 1 1/2% over prime
and mature between January 30, 1998 and March 13, 1998. During September, 1996,
a line of credit was entered into for $300,000 with the same bank which bears
interest between 1/2% and 1 1/2% over prime and matures on March 1, 1998. The
notes are secured by guarantees from ten investors. As consideration for
$2,350,000 of the guarantees provided, these investors received Series 95-A
stock warrants to purchase 587,500 common shares. The warrants were initially
exercisable at $4, but the exercise price reduces by 5 cents for each full month
the debt is outstanding. The minimum exercise price is fixed at the common stock
par value. The warrants expire at the earlier of one year after loan repayment
or release by the bank of the guarantees. Interest is paid monthly and accrued
interest at December 31, 1997 is $24,055. At December 31, 1997, the interest
rate is 9%.
<PAGE> 12
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A line of credit agreement was entered into with a bank on April 1, 1997, which
provided the Company the ability to borrow up to 75% of eligible accounts
receivable. The line of credit agreement provides the bank with a security
interest in the Company's accounts receivable, inventions, intangible assets and
trademarks. The line of credit bears interest at 1/2% over prime and matures
January 1, 1998. A Director of the Company provided a guaranty for the line of
credit. As payment for the guarantee, the Director receives a fee payable in
common shares at $.50 per share equal to 2% of each receivable approved by the
creditor. During 1997, 35,226 common shares were issued in payment of the
guaranty fee. The principal balance at December 31, 1997, is $60,000 and the
interest rate is 9%.
5. DEFERRED REVENUE
The Company had deferred revenue of $351,354 as of December 31, 1997,
attributable to the sales of licenses and consulting services related the sales
of SalesKit OPEN software. The revenue related to SalesKit OPEN will be
recognized upon the expiration of the refund period, which occurs from
September, 1998 through December, 1998.
6. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
<TABLE>
<S> <C>
Net operating loss carryforward $ 5,734,081
Valuation allowance (5,734,081)
Net deferred tax assets $ -
===========
</TABLE>
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets. At
such time as it is determined that it is more likely than not that deferred tax
assets are realizable, the valuation allowance will be reduced.
The Company's effective tax rate at December 31, 1997, differs from the
statutory federal income tax rate as shown in the following schedule:
<TABLE>
<S> <C>
Income tax (benefit) provision at statutory rate (34)%
Net operating loss not benefited 34 %
--
Effective tax rate - %
==
</TABLE>
As of December 31, 1997, the Company had approximately $16.8 million of net
operating loss carryforwards for federal and state purposes to offset future
taxable income. These federal and state carryforwards expire in the years 2010
through 2012. The Company's ability to recognize these carryforwards may be
limited as a result of future changes in ownership, as defined by tax law.
<PAGE> 13
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7. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which covers substantially all employees.
Each eligible employee may elect to contribute up to 15% of their annual
compensation, subject to current statutory limits. The Company, at the
discretion of the Board of Directors, may make matching contributions to the
Plan. No matching contributions have been made through December 31, 1997.
The Company maintains a benefit plan covering substantially all employees. Under
the Plan, the Company allows employees to pay health and dental insurance costs
on a pre-tax basis. The coverage is elective, and the Company bears one-half of
the health and dental premium options chosen by employees. The Company also
provides long-term disability coverage and pays all premiums.
8. STOCKHOLDERS' DEFICIT
AUTHORIZED COMMON STOCK
In November, 1997, the Board of Directors approved an amendment to the Company's
Articles of Incorporation to increase the authorized number of shares of common
stock to 25 million shares.
STOCK ISSUED
During 1997, the Company issued 2,067,440 shares of common stock which includes
the conversion of stockholders notes and accrued interest.
CONVERSION OF INVESTOR LOANS INTO COMMON STOCK
During January, 1996, the Company offered investors the opportunity to convert
promissory notes issued between June and December, 1995, to common shares at $2
per share. The related Series 95-B warrants were to be cancelled as part of the
conversion. In 1997, notes for approximately $128,000 were converted to common
stock and approximately 32,000 related warrants were cancelled.
STOCK OPTION PLANS
During 1996, the Financial Accounting Standards Board issued Statement No. 123
(SFAS 123) "Accounting for Stock-Based Compensation," which establishes a
fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. The Company intends to account
for employee stock options under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and accordingly, has adopted the disclosure-only
provisions of SFAS 123.
The Company maintains two nonstatutory stock option plans that provide certain
officers, directors and key employees options to purchase shares of the
Company's common stock. The number of options granted and the option price per
share are determined by the Board of Directors. The options expire five to ten
years from the date of grant and vest over two to four years. The Board has
reserved 400,000 shares of stock under the 1994 Non-Qualified Stock Option Plan
For Executive Officers and Directors, and 500,000 shares under the 1992
Non-Qualified Stock Option Plan for key employees. On July 23, 1997, the Board
of Directors increased the shares reserved for issuance under the option plans
to 1,150,000 and 750,000 for the 1994 Plan and the 1992 Plan, respectively. On
June 12, 1997, the exercise price of a portion of the outstanding options was
reduced to $.50 per share.
<PAGE> 14
- 7 -
On June 5, 1997, three management team members were each granted stock options
of 250,000 shares under the 1994 Non-Qualified Stock Option Plan For Officers
and Directors with an exercise price of $.10 per share. These options provide
for 25% quarterly vesting and expire 10 years from date of grant. Compensation
expense in the amount of $300,000 was recorded for these options in accordance
with the provisions of APB 25. Options to purchase 249,000 shares were granted
under the 1992 Non-Qualified Stock Option Plan to other employees on the same
date with an exercise price of $.50 per share. Also, the options of a former
management member and a former employee were extended for a five year period.
The Company has adopted the disclosure-only provisions of SFAS 123. Accordingly,
no compensation cost has been recognized for the stock option plans under SFAS
123. Had compensation costs for the Company's two stock option plans been
determined based on the fair value at the grant date for awards in 1997
consistent with the provisions of this statement, there would be no impact on
the Company's net loss from operations.
The fair value of each option granted is estimated on the date of grant using
the fair value of the Company divided by the total number of shares of stock and
options outstanding as of December 31, 1997. The fair value of the Company is
based upon the selling price as stated in the Purchase Agreement (see Note 11).
A summary of the combined activity and balances for the Company's stock options
for the two plans as of December 31, 1997, and changes during the year ended on
that date are as follows:
<TABLE>
<CAPTION>
Wtd. Avg.
Exercise
Shares Price
------- ---------
<S> <C> <C>
Options outstanding, beginning of year 395,000 $ 3.35
Options granted 1,033,500 $ .21
Options exercised (100) $ .73
Options canceled (130,500) $ 2.76
--------- ------
Options outstanding, end of year 1,297,900 $ .74
========== ======
Options exercisable at year-end 974,047 $ .74
Weighted average fair value of options granted during the year $ -
</TABLE>
The following table summarizes information about stock options outstanding at
December 31,1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------------
WTD. AVG.
NUMBER REMAINING WTD. AVG. NUMBER WTD. AVG.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISE EXERCISABLE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ------------------------ ------------ ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
$ .10 to $ .50 1,290,400 17.55 months $ .69 966,547 $ .74
$ 9.00 7,500 18.68 months $ 9.00 7,500 $ 9.00
</TABLE>
<PAGE> 15
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9. RELATED PARTY TRANSACTIONS
The Company currently leases computer equipment from a company formerly
controlled by a director. Payments on the leases totaled $303,996 for the year
ended December 31, 1997.
The Company incurred consulting services from a director of $62,500 in 1997.
The Company has notes payable to two banks guaranteed by investors of $2,710,000
(See Note 4). Also, a Director and Officer of a bank that issued $2.46 million
of the loans is an investor in the Company.
The Company has an investor that is the insurance agent for the Company's
health, dental, disability and life insurance provided to employees. Payments to
insurance companies represented by the insurance agent net of employee
reimbursements totaled $67,220 for the year ended December 31, 1997.
10. CONTINGENCIES AND COMMITMENTS
LEASES
The Company leases certain computer equipment, office equipment and office space
under capital and operating lease arrangements. Minimum, noncancelable lease
payments due under these leases are as follows at December 31, 1997:
<TABLE>
<CAPTION>
Operating Leases
Capital ---------------------
Leases Equipment Office
------- ----------- --------
<S> <C> <C> <C>
1998 $170,873 $12,957 $ 95,125
1999 1,873 3,420 -
--------- ------- --------
172,746 $16,377 $ 95,125
======= ========
Less - amount representing interest 16,082
--------
Present value of net minimum lease payments $ 156,664
=========
Long-term obligations $ 1,758
========
</TABLE>
Total rent expense for all operating leases was $208,029 for the year ended
December 31, 1997.
11. SUBSEQUENT EVENTS
On February 26, 1998, a purchase agreement was signed with Deltek Systems, Inc.
("Deltek") of McLean, VA whereby substantially all of the assets of the Company
would be acquired by Deltek. According to the terms of the agreement, $500,000
would be paid immediately to the Company as a downpayment, an additional
$5,054,000 will be paid on the closing date of April 30, 1998, and 130,000
options on Deltek stock will be issued to various investors. The options have a
strike price of $22 per share and expire after 3 years. An additional $500,000
will be placed in escrow to indemnify Deltek against possible customer refunds.
Upon contract acceptance by these customers, which may occur at various times
from September, 1998 through December, 1998, these funds will be released to the
Company for liquidation distributions to its investors.
In April, 1998, the Board of Directors approved a plan for the distribution of
the sale proceeds. The initial liquidation distributions to investors are
scheduled to be paid in May, 1998.
<PAGE> 16
(b) Pro Forma Financial Information
The following unaudited financial statements (the "Pro Forma Financial
Statements") are based on the historical audited financial statements of Deltek
(incorporated herein by reference as noted above) and on the historical audited
financial statements of SalesKit included in this report. The Pro Forma
Financial Statements and accompanying notes should be read in conjunction with
such audited financial statements and notes thereto noted above.
The unaudited pro forma financial statements of operations for the year
ended December 31, 1997 give effect to the Transaction as if it had occurred on
January 1, 1997. The unaudited pro forma balance sheet as of December 31, 1997
has been prepared as if the Transaction had occurred on that date. The Unaudited
Pro Forma Financial Statements are not intended to be indicative of either
future results of operations or results that might have been achieved, and do
not give effect to the net cost savings expected to be achieved by Deltek based
on the negotiations of the purchase agreement. For example, Deltek has
discontinued future sales of the SalesKit products and will only service the
existing seven customers of SalesKit, and did not accept a majority of
SalesKit's debt obligations. Further, the pro formas do not reflect expected
lower payroll costs.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The
Transaction will be accounted for on the purchase method of accounting. In the
Pro Forma Financial Statements, the total purchase price of the tangible and
intangible assets and liabilities acquired is allocated based upon estimates of
their fair value. The Adjustments included in the unaudited Pro Forma Financial
Statements represent the Company's preliminary determination of these
adjustments based upon available information. There can be no assurance that the
actual adjustments will not differ significantly from the pro forma adjustments
reflected in the Pro Forma Financial Statements.
<PAGE> 17
PROFORMA BALANCE SHEET
BALANCE SHEET
<TABLE>
<CAPTION>
DELTEK SYSTEMS, SALESKIT SOFTWARE
INC. CORPORATION PROFORMA
YEAR ENDED YEAR ENDED ADJUST- BALANCE SHEET
ASSETS 12/31/97 12/31/97 MENTS (5) 12/31/97
- ------ -------- ----------- --------- --------
<S> <C> <C> <C> <C>
Cash $ 10,272 $ 13 $ (6,153) $ 4,132
Marketable securities 14,949 -- -- 14,949
Accounts receivable 8,825 177 (177) 8,825
Inventories 95 -- -- 95
Deferred income taxes 1,992 2,724 4,716
Prepaid expenses and other
current assets 1,267 27 (27) 1,267
---------------- ------------ ------------ -------------
Total current assets 37,400 217 (3,633) 33,984
---------------- ------------ ------------ -------------
Property & equipment, net 2,635 282 -- 2,917
Capitalized software development
costs, net 2,579 -- -- 2,579
Intangible assets from Saleskit -- -- 580 580
Other assets 110 24 (24) 110
---------------- ------------ ------------ -------------
Total assets $ 42,724 $ 523 $ (3,077) $ 40,170
---------------- ------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Notes payable to banks $ -- $ 2,710 $ (2,710) $ --
Notes payable to investors -- 8,059 (8,059) --
Current portion of capitalized
lease obligations -- 155 -- 155
Accounts payable and accrued
expenses 4,043 912 (912) 4,043
Accrued interest on notes payable -- 10 (10) --
Dividends payable 400 -- -- 400
Income taxes payable 573 -- -- 573
Deferred income taxes payable 2,177 -- -- 2,177
Deferred revenues 10,779 351 -- 11,130
---------------- ------------ ------------ -------------
Total current liabilities 17,972 12,197 (11,691) 18,478
---------------- ------------ ------------ -------------
Capitalized lease obligations -- 2 -- 2
Notes payable to investors -- 369 (369) --
---------------- ------------ ------------ -------------
Total liabilities $ 17,972 $ 12,568 $ (12,060) $ 18,480
---------------- ------------ ------------ -------------
Stockholders' equity (deficit):
Common stock $ 17 $ 571 $ (571) $ 17
Preferred stock -- -- -- --
Additional paid-in capital 17,924 13,025 (12,093) 18,856
Retained earnings (Accumulated
deficit) 7,263 (25,641) 21,647 3,269
Less unearned compensation (452) -- -- (452)
---------------- ------------ ------------ -------------
Total stockholders' equity 24,752 (12,045) 8,983 21,690
---------------- ------------ ------------ -------------
Total liabilities and
stockholders' equity $ 42,724 $ 523 $ (3,077) $ 40,170
---------------- ------------ ------------ -------------
</TABLE>
<PAGE> 18
PROFORMA INCOME STATEMENT
INCOME STATEMENT
<TABLE>
<CAPTION>
PRO FORMA
INCOME
SALESKIT SOFTWARE STATEMENT
DELTEK SYSTEMS, INC. CORPORATION YEAR
YEAR ENDED YEAR ENDED ADJUST- ENDED
12/31/97 12/31/97 MENTS 12/31/97
-------- -------- ----- --------
<S> <C> <C> <C> <C>
License fees $ 17,415 $ 897 $ 18,312
Services 29,316 -- 29,316
Third-party equipment and
software 2,051 -- 2,051
---------------- ------------- ----------
Total revenues $ 48,782 897 $ 49,679
---------------- ------------- ----------
Cost of software 1,764 625 116 (1) 2,505
Cost of services 11,980 -- 11,980
Cost of third-party equipment
and software 1,690 -- 1,690
Software development 9,539 1,715 11,254
Sales and marketing 4,767 1,040 5,807
General and administrative 2,522 1,497 4,019
Acquisition costs 320 -- -- 320
---------------- ------------- -------- ----------
Total operating expenses 32,582 4,877 116 37,575
---------------- ------------- -------- ----------
Income from operations 16,200 (3,980) (116) 12,104
Interest income 746 (603) (2) 143
Interest expense -- (1,426) 1,426 (3) --
---------------- ------------- -------- ----------
Income before income taxes 16,946 (5,406) 707 12,247
Provision for income taxes
(benefit) 5,634 -- (1,880) (4) 3,754
---------------- ------------- -------- ----------
Net income 11,312 (5,406) 2,587 8,493
---------------- ------------- -------- ----------
Proforma statement of
operations:
Income before income taxes $ 16,946 $ (5,406) 707 $ 12,247
Provision for income taxes
(benefit) 6,516 -- (1,880) (4) 4,636
---------------- ------------- -------- ----------
Net income $ 10,430 $ (5,406) $ 2,587 $ 7,611
---------------- ------------- -------- ----------
Weighted average shares
outstanding 16,699 -- -- 16,699
Weighted shares outstanding,
including dilutive effect
of stock options and warrants 17,177 -- -- 17,177
Pro forma basic net income
per share $0.62 $0.46
Pro forma diluted net income
per share $0.61 $0.44
</TABLE>
<PAGE> 19
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) The Cost of software has been adjusted to reflect the amortization of
$580,000 over a five year period, resulting in an amortization expense of
$116,000.
(2) Interest income has been reduced by $363,000 to reflect the reduction of
investment balances for the $6,054,000 cash purchase price at a 6% rate.
An additional reduction of $240,000 was made for the assumption that
Deltek would have funded the pro forma $4,000,000 losses from SalesKit by
utilizing cash from operations.
(3) The interest expense reduction reflects the elimination of the SalesKit
Software Corporation debt obligations.
(4) The tax provision reflects income taxes at a statutory rate of 40%.
(5) The balance sheet pro forma adjustments reflect reductions for the assets
and liabilities of SalesKit that Deltek did not acquire in the
transaction. The common stock and paid in capital of SalesKit were
eliminated, and the $932,000 value of the stock warrants that were issued
in the transaction is reflected as an increase to paid in capital. The
retained earnings adjustments reflect the charge to in-process research
and development costs of approximately $6.8 million before deferred income
tax benefits.
-4-
<PAGE> 20
(c) Exhibits
The following exhibits are filed herewith:
2.1 Asset Purchase Agreement dated February 25, 1998 between the
Company and SalesKit.
4.2 Warrant to Purchase Common Stock issued to SalesKit.
10.13 Escrow Agreement dated February 25, 1998.
27 Financial Data Schedule
-5-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Deltek Systems, Inc.
(Registrant)
Dated: May 12, 1998 By: /s/ Alan R. Stewart
-------------------
Alan R. Stewart,
Chief Financial Officer
-6-
<PAGE> 1
ASSET PURCHASE AGREEMENT
BY AND AMONG
SALESKIT SOFTWARE CORPORATION
AND
ARCH ACQUISITION CORP.
AND
DELTEK SYSTEMS, INC.
FEBRUARY 25, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article I PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Article II ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Enumeration of Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Liabilities Not Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article III PRICE AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Method of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Article IV REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Required Government Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Required Contract Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Title to Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Condition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9 Title to Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10 Adequacy of Technical Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Contracts--General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.12 Third-Party Components in Software Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.13 Third-Party Interests or Marketing Rights in Software Programs . . . . . . . . . . . . . . . . . . . . . . . 12
4.14 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.15 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.16. Absence of Joint Ventures, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.17 Major Vendors and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.18 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.19 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.20 Court Orders, Decrees, and Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.21 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.22 Personnel and Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.23 Seller's Insurance Polices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.24 Sufficiency of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.25 Disabling Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.26 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.27 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.28 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.29 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.30 Truth at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.31 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Article V REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 Valid Issuance of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.7 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Article VI CONDUCT OF SOFTWARE BUSINESS PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Relations With Licensors etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Prohibited Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Insurance; Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Article VII COVENANTS OF SELLER AND BUYER PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Updating of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Approvals of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.5 Third-Party Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.6 Negotiation With Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.7 Agreement to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.10 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ii
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<TABLE>
<S> <C>
7.11 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.12 Closing Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Article VIII CONDITIONS TO SELLER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.2 Performance of Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.3 Legal Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Article IX CONDITIONS TO BUYER'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Performance of Obligations of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Opinion of Seller's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Article X CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.2 Actions at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Article XI COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.1 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.2 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.3 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.4 No-Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.5 Nonsolicitation of Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.6 Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Article XII CERTAIN TRANSITION MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.1 Hiring of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.2 Services Provided by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Article XIII INDEMNIFICATION BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.2 Survival of Representation and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<TABLE>
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13.3 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.4 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.5 Resolution of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.6 Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.7 Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Article XIV CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.1 Confidentiality Obligation of Buyer Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.2 Confidentiality Obligation of Seller Following Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.3 Permitted Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
14.4 Scope of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Article XV TERMINATION PRIOR TO CLOSING AND DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.2 Buyer's Default and Seller's Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.3 Seller's Default and Buyer's Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.4 Termination of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Article XVI INDEMNIFICATION BY PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
16.2 Survival of Representation and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.3 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.4 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16.5 Resolution of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
16.6 Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Article XVII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.2 Parties Bound by Agreement; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
17.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
17.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
17.8 Bulk Sales Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
17.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
17.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
17.11 "Including." . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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17.12 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
17.13 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<PAGE> 7
List of Schedules
Schedule A Software Programs
Schedule 1.1.a Inventory
Schedule 1.1.c Software Contracts
Schedule 1.1.d Office Equipment
Schedule 1.1.e Leases
Schedule 1.1.f General Contracts
Schedule 1.1.h Authorizations
Schedule 1.1.k Business Interests, Participations and Ownership
Positions
Schedule 1.2 Excluded Assets
Schedule 4.1 Addresses of Seller's Offices
Schedule 4.4 Required Government Consents
Schedule 4.5 Required Contract Consents
Schedule 4.9.a Intellectual Property
Schedule 4.9.b Trade Secret Protection Program
Schedule 4.9.c Assignments
Schedule 4.9.f Infringements
Schedule 4.12 Royalty Obligations
Schedule 4.13.b(1) Other than End-User LicenseAgreements
Schedule 4.13.b(2) Seller's Standard Form End-User License Agreement
Schedule 4.13.b(3) Other Customer Commitments
Schedule 4.13.d Parties to Whom Seller has Delivered Technical
Documentation
Schedule 4.15(1) Seller's Existing Financial Statements
Schedule 4.15(2) Undisclosed Liabilities
Schedule 4.16 Joint Ventures
Schedule 4.17 Major Vendors and Customers
Schedule 4.18(1) Pending Litigation
Schedule 4.18(2) Prior Litigation
Schedule 4.19 Related Party Transactions
Schedule 4.20.c Environmental Compliance
Schedule 4.21.b State Sales Taxes
Schedule 4.22.a List of Personnel
Schedule 4.22.b Compensation Commitments
Schedule 4.22.c Retirement Plans
Schedule 4.22.g Welfare Plans
Schedule 4.23 Seller's Insurance Policies and Notices
Schedule 4.24 Sufficiency of Rights
Schedule 4.25 Disabling Procedures
Schedule 4.28 Principal Shareholders
Schedule 6.2.a Permitted Liens
Schedule 7.12(1) Unearned Revenue as of Closing
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Schedule 7.12(2) Purchase Price Adjustment as of Closing
Schedule 11.2 Allocation of Purchase Price
List of Exhibits
Exhibit 3.2.d Warrants
Exhibit 3.3.a Escrow Agreement
Exhibit 7.8(1) Seller's Incumbency Certificate
Exhibit 7.8(2) Seller's Legal Opinion
Exhibit 8.1 Buyer's Representations and Warranties Certificate
Exhibit 8.2 Buyer's Performance Certificate
Exhibit 8.3 Buyer's Legal Opinion
Exhibit 9.1 Seller's Representations and Warranties Certificate
Exhibit 9.2 Seller's Performance Certificate
Exhibit 10.2.b(1) Bill of Sale and Assignment
Exhibit 10.2.f Assumption Agreement
Exhibit 15.3.b Backup License Agreement
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Location of Defined Terms
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1997 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Advance Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Buyer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Buyer's Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Buyer's Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Cash Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Claimant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 36
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Closing Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exclusivity Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Existing Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
General Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Holdback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Indemnity Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter of Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Material Change in Circumstance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31, 36
Office Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
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Parent Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Required Government Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Seller Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Seller's Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Software Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Software Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Software Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Technical Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Unearned Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
written statement of pending claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered
into this 25th day of February, 1998 (the "Effective Date"), by and among
SalesKit Software Corporation, a Missouri corporation ("Seller"), Arch
Acquisition Corp., a Virginia corporation ("Buyer") and Deltek Systems, Inc., a
Virginia corporation and the parent corporation of Buyer ("Parent").
WITNESSETH:
WHEREAS, the business conducted by Seller (the "Software Business")
consists primarily of the acquisition, development, marketing, distribution,
licensing, maintenance, and support of the systems and applications computer
programs described in Schedule A attached hereto (the "Software Programs"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy
from Seller, certain assets of Seller relating to the Software Business, and
Seller desires to transfer, and Buyer desires to assume, certain liabilities of
Seller arising in connection with the Software Business, all upon the terms and
conditions and subject to the limited exceptions set forth herein; and
WHEREAS, Buyer is the wholly owned subsidiary of Parent.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, and agreements of the parties hereinafter set forth, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase, accept, and acquire
from Seller, and Seller agrees to sell, transfer, assign, convey, and deliver
to Buyer, at the Closing, all right, title, and interest of Seller in and to
those assets, tangible or intangible, relating primarily to the Software
Business, (hereinafter collectively referred to as the "Assets") described in
this Section 1.1 below:
a. INVENTORIES. All inventories of (1) computer program code
(in all media) and materials, including the Software Programs; (2) program
documentation, including user materials; and (3) all other unused or reusable
materials, stores, and supplies, in each case to the
<PAGE> 12
extent used in, relating to, or arising out of the Software Business listed by
category and volume level in Schedule 1.1.a (the "Inventory").
b. TECHNICAL DOCUMENTATION All technical and descriptive
materials (other than Inventory) relating to the acquisition, design,
development, use, or maintenance of computer code and program documentation and
materials in the Software Business (the "Technical Documentation").
c. SOFTWARE CONTRACTS. 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, in each case relating to or
arising out of the Software Business consisting of the items listed and
classified in Schedule 1.1.c as (1) licenses from third parties (development
and/or marketing); (2) licenses from third parties (internal use only); (3)
development contracts, work-for-hire agreements, and consulting and employment
agreements; (4) distributorships, dealerships, franchises, and manufacturer's
representative contracts; (5) licenses and sublicenses to others; (6)
maintenance, support, or enhancement agreements; and (7) source code escrow
agreements (the "Software Contracts").
d. OFFICE EQUIPMENT. All office furniture, fixtures,
equipment and devices (including data processing hardware and related
telecommunications equipment, media, and tools) used in the Software Business,
including Seller's rights under all related warranties, listed in Schedule
1.1.d (the "Office Equipment").
e. LEASES. The entire leasehold or rental interest arising
under leases of:
(1) Equipment, including data processing hardware and
associated telecommunications equipment, media, and tools;
(2) Office furnishings and fixtures;
(3) Other personality, in each case as used in the
Software Business; and
(4) Real property, including buildings, structures,
and other improvements located thereon, and easements and other rights
relative thereto,
all listed in Schedule 1.1.e (collectively the "Leases").
f. OTHER CONTRACTS. To the extent not otherwise classified as
Software Contracts in Schedule 1.1.c, or Leases in Schedule 1.1.e, all
contracts, agreements, licenses, commitments,
2
<PAGE> 13
arrangements, and permissions respect the Software Business listed in Schedule
1.1.f (the "General Contracts").
g. BUSINESS RECORDS. All business and marketing records,
including accounting and operating records, asset ledgers, inventory records,
budgets, personnel records, payroll records, customer lists, employment and
consulting agreements, supplier lists, information and data respecting leased
or owned equipment, files, correspondence and mailing lists, advertising
materials and brochures, and other business records used in the Software
Business (the "Business Records").
h. AUTHORIZATIONS. All governmental approvals,
authorizations, certifications, consents, variances, permissions, licenses, and
permits to or from, or filings, notices, or recordings to or with, federal,
state, and local governmental authorities listed in Schedule 1.1.h (the
"Authorizations"), but subject, as to the reassignability to Buyer, to the
procurement of the Required Government Consents (listed in Schedule 4.4).
i. INTELLECTUAL PROPERTY. All patents, trademarks, service
marks, trade names, and copyrights (including registrations, licenses, and
applications pertaining thereto), and all other intellectual property rights,
trade secrets, and other proprietary information, processes, and formulae used
in the Software Business or otherwise necessary for the ownership and use of
the Assets and the conduct of the Software Business (the "Intellectual
Property").
j. CLAIMS. All claims Seller may have against any person
relating to or arising from the Assets or the Software Business, including
rights to recoveries for damages or defective goods, to refunds, insurance
claims, and chooses in action.
k. BUSINESS INTERESTS, PARTICIPATIONS, AND OWNERSHIP
POSITIONS. All interests, participations, and ownership positions held by
Seller in any corporation, partnership, joint venture, co-marketing
arrangement, or similar enterprise or undertaking relating to the Software
Business listed in Schedule 1.1.k.
1.2 EXCLUDED ASSETS. Seller shall not sell or assign to Buyer, and
Buyer shall not purchase or accept assignment from Seller of, the assets
identified in Schedule 1.2 (the "Excluded Assets").
ARTICLE II
ASSUMPTION OF LIABILITIES
2.1 ENUMERATION OF ASSUMED LIABILITIES. At and after the Closing,
Buyer shall assume and agree to pay or perform only the liabilities and
obligations of Seller that arise out of the Software Business or the Assets and
are expressly identified in this Section 2.1 (the "Assumed
3
<PAGE> 14
Liabilities") or are represented by any other covenant, agreement, or indemnity
of Buyer in this Agreement or the other agreements and instruments to be
executed and delivered by Buyer in connection with this Agreement. Subject to
the express exclusions set forth in Section 2.2, the Assumed Liabilities shall
consist of the following:
a. CONTRACTS. All payment and performance obligations arising
out of or relating to (1) the Software Contracts; (2) the Leases; and (3) the
General Contracts after the Closing Date, except to the extent attributable to
(a) any breach or default by Seller under any of the same on or before the
Closing Date or (b) any other liability or obligation not disclosed by Seller
pursuant to this Agreement, insofar as disclosure thereof is required hereunder
and Buyer does not receive property or services of substantially equivalent
value in respect of such liability or obligation.
b. OTHER LIABILITIES. The unearned revenue (determined in
accordance with AICPA Statement of Position 97-2) relating to Seller's
obligation to complete and deliver certain software (either custom or standard
product) and perform certain consulting, training and maintenance services for
which Seller has billed or has billed and collected revenues on or prior to
Closing (the "Unearned Revenue").
2.2 LIABILITIES NOT ASSUMED. Without in any way expanding the
specificity and limitation of Section 2.1, Buyer shall not assume or be
responsible for any of the following liabilities or obligations expressly
identified in this Section 2.2 (the "Excluded Liabilities"):
a. NONENUMERATED LIABILITIES. Any liability or obligation of
Seller of any kind, known or unknown, contingent or otherwise, not either
enumerated as an Assumed Liability in Section 2.1 or resulting from any other
covenant, agreement, or indemnity of Buyer in this Agreement or the other
agreements and instruments to be executed and delivered by Buyer in connection
with Agreement.
b. TAXES. Any liability or obligation of Seller for federal,
state, or local income, franchise, property, sales or use (to the extent
arising from pre-Closing transactions), or recapture taxes, assessments, and
penalties, whether arising out of the transactions contemplated by this
Agreement or otherwise.
c. VIOLATIONS OF LAW. Any liability or obligation resulting
from violations of any applicable laws or regulations by Seller prior to the
Closing Date or infringement of third-party rights or interests.
d. EMPLOYEE LIABILITIES. Any employee liabilities relating to
present and past employees of the Software Business with respect to plans,
programs, policies, commitments, and other benefit entitlement established or
existing on or prior to Closing (whether or not such
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liabilities are accrued or payable at Closing, and whether or not such
liabilities are contingent in nature), including without limitation:
(1) Any liability or obligation for workers'
compensation;
(2) Any current or future liabilities to employees
retiring on, before, or after Closing, and their dependents;
(3) Any current or future liabilities for benefits
that may have been accrued or earned by any employees associated with
the Software Business on or before Closing under any pension plans
relating to service prior to the Closing Date;
(4) Any current of future liabilities for claims
incurred prior to Closing and related expenses with respect to any
employees associated with the Software Business under any welfare or
disability plans established or existing at or prior to Closing,
regardless of when filed with Buyer, Seller, or the claims
administrator for any such plan;
(5) Any retrospective premium on pension, savings,
thrift, or profit-sharing plan contribution relating to any employees
associated with the Software Business incurred or accrued prior to the
Closing Date, regardless of when invoiced or recorded; and
(6) Any monetary liability for severance payments
that may arise at any time in favor of any of Seller's employees under
any plan, program, policy, commitment, or other benefit entitlement.
e. PRODUCT LIABILITY. Any liability or obligation for product
liability or warranty claims or damage claims arising out of defects in or
failures of any product, program, or material of Seller or the Software
Business provided, distributed, licensed, or delivered prior to the Closing
Date.
f. INCIDENTS TO EXCLUDED ASSETS. Any liability or obligation
associated with any of the Excluded Assets.
g. LITIGATION. Any Litigation (as defined in Section 4.18)
pending or threatened against Seller or the Assets.
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ARTICLE III
PRICE AND PAYMENT
3.1 PURCHASE PRICE. The aggregate purchase price for the Assets (the
"Purchase Price") shall be:
a. CASH. An amount equal to Six Million Fifty-four Thousand
Dollars ($6,054,000.00) less any Purchase Price Adjustment (as defined below)
at Closing (the "Cash Purchase Price"); plus
b. WARRANTS. Warrants (which shall be issued by Buyer to
Seller at Closing and may be transferred to or among Seller's security holders
at Closing or in connection with Seller's liquidation) for the purchase of One
Hundred Thirty Thousand (130,000) shares of Buyer's voting common stock (the
"Warrants"). The Warrants will have customary adjustment provisions in the
event of a stock dividend, recapitalization, or similar event. The Warrants to
be issued under this Section 3.1.b. shall be exercisable in full or in part on
or before the third anniversary of the Closing Date at a price of Twenty-two
Dollars ($22) per share.
For the purposes hereof, "Purchase Price Adjustment" means the amount of any
unearned revenue (determined in accordance with AICPA Statement of Position
97-2) relating to (i) Seller's obligations, arising after the Effective Date,
to deliver Seller's standard software and (ii) Seller's obligations to perform
certain software customization or development, consulting, training and
maintenance services, for which, in each case, Seller has billed or has billed
and collected revenues on or prior to Closing.
3.2 PAYMENT.
a. LETTER OF INTENT. Upon execution and delivery of that
certain Letter of Intent by and between the Seller and Parent dated February
12, 1998 (the "Letter of Intent"), Parent paid Seller a One Hundred Thousand
Dollars ($100,000) (the "Exclusivity Fee") in consideration of Seller's
agreement in the Letter of Intent not to negotiate with or solicit offers or
expressions of interest from, or provide information to, any other party with
respect to the possible purchase of the stock or assets of Seller outside the
ordinary course of business. At Closing, the Exclusivity Fee shall be credited
against Buyer's payment of the Purchase Price.
b. ADVANCE. So long as Seller has not failed to perform any
of its obligations under that certain Backup License Agreement by and between
Buyer and Seller of even date herewith or that certain Software Escrow
Agreement by and among Buyer, Seller and The Safe Deposit Company of even date
herewith, Buyer agrees to advance to Seller Four Hundred Thousand Dollars
($400,000) (the "Advance Payment") against payment of the Purchase Price at
Closing upon Seller's obtaining the approval of its shareholders required in
connection with the
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transactions contemplated hereby and delivering to Buyer the certificates and
legal opinion required by Section 7.8, which Advance Payment shall be made out
of the Escrow Fund in accordance with Section 3.3.a.
c. PAYMENT AT CLOSING. On the Closing Date, Buyer shall pay to
Seller (i) an amount equal to the Cash Purchase Price less (i) the Exclusivity
Fee; (ii) the Advance Payment and (ii) a holdback to be held as security for
Seller's indemnification obligations under Section 13.1 (the "Holdback") equal
to $500,000 plus any Closing Holdback, which cash payment shall be made out of
the Escrow Fund in accordance with Section 3.3.b. For the purposes hereof, the
"Closing Holdback" shall be an amount equal to the lesser of (i) total amount,
as reasonably determined by Buyer, of (A) all untrue or inaccurate
representations and warranties that pursuant to Section 9.1 would otherwise
permit Buyer not to perform its obligations hereunder and (B) all Adverse
Changes that pursuant to Section 9.4 would otherwise permit Buyer not to
perform its obligations hereunder or (ii) Two Hundred Fifty Thousand Dollars
($250,000).
d. WARRANTS AT CLOSING. On the Closing Date, Buyer shall
issue to Seller the Warrants in substantially the form attached hereto as
Exhibit 3.2.d.
3.3 ESCROW FUND. On the Effective Date of this Agreement, Buyer,
Seller and Crestar Bank (the "Escrow Agent") shall enter into the escrow
agreement attached hereto as Exhibit 3.3.a (the "Escrow Agreement"), and Buyer
shall deliver to the Escrow Agent Five Million Nine Hundred Fifty Four Thousand
Dollars ($5,954,000) (the "Escrow Fund") to be held by the Escrow Agent in
accordance with the Escrow Agreement to pay in full the cash portion of the
Purchase Price at Closing and, after Closing, to secure Seller's
indemnification obligations under Section 13.1 and to be disbursed by the
Escrow Agent as follows:
a. ADVANCE. Four Hundred Thousand Dollars ($400,000) from
the Escrow Fund shall be delivered to Seller as payment of the Advance Payment
upon Seller's receipt of the approval of its shareholders required in
connection with the transactions contemplated hereby as contemplated by Section
7.8.
b. CLOSING. At Closing an amount equal to the Cash Purchase
Price less the Exclusivity Fee, the Advance Payment and the Holdback shall be
delivered to Seller and the remaining balance of the Escrow Fund in excess of
the Holdback shall be delivered to Buyer.
c. TERMINATION. In the event that this Agreement is
terminated prior to Closing pursuant to Article XV, the entire Escrow Fund,
together with any interest earned thereon, shall be delivered to Buyer.
d. INDEMNIFICATION. After Closing, the Escrow Fund shall be
disbursed in accordance with Section 13.7 hereof.
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3.4 METHOD OF PAYMENT. All payments from one party to another under
this Agreement shall be made by wire transfer of immediately available federal
funds in United States dollars to an account designated in writing by the party
to receive such payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
4.1 ORGANIZATION. Seller is a corporation validly existing and in
good standing under the laws of the State of Missouri with the corporate power
and authority to conduct its business (including the Software Business) and to
own and lease its properties and assets (including the Assets) and, as to the
conduct of the Software Business and the use and ownership of the Assets
specifically, is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each other jurisdiction, if any, in which
properties owned or leased or business conducted by it make such licensing or
qualification necessary. Schedule 4.1 sets forth a list of the addresses of all
offices that Seller has maintained at any time within five (5) years prior to
the Effective Date.
4.2 POWER AND AUTHORITY. Seller has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder, and, subject to approval of this Agreement by Seller's shareholders,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, the performance by Seller of its obligations hereunder and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Seller,
except that this Agreement and the transactions contemplated hereby have not,
as of the date of this Agreement, been approved by Seller's shareholders. The
Board of Directors of Seller has, as of February 25, 1998, unanimously (i)
approved this Agreement and the transactions contemplated hereby, (ii)
determined that the transactions contemplated hereby are in the best interests
of the shareholders of Seller and are on terms that are fair to such
shareholders and (iii) recommended that the shareholders of Seller approve this
Agreement and the transactions contemplated hereby. No other corporate
proceeding on the part of Seller is necessary to authorize this Agreement or
the performance of Seller's obligations hereunder or the consummation of the
transactions contemplated hereby thereby, other than the approval of Seller's
shareholders. This Agreement has been duly executed and delivered by Seller and
constitutes the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies is subject to discretion of the court before which any
proceeding therefor may be brought.
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4.3 NO CONFLICT. Neither the execution and delivery of this Agreement
and the other agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, will violate
or conflict with (1) except insofar as Required Government Consents are to be
procured prior to Closing, any federal, state, or local law, regulation,
ordinance, zoning requirement, governmental restriction, order, judgment, or
decree applicable to Seller, the Software Business, or the Assets, (2) any
provision of any charter, bylaw or other governing or organizational instrument
of Seller, or (3) except insofar as Required Contract Consents are to be
procured prior to Closing, any mortgage, indenture, license, instrument, trust,
contract, agreement, or other commitment or arrangement to which Seller is a
party or by which Seller or any of the Assets is bound.
4.4 REQUIRED GOVERNMENT CONSENTS. Except for (1) the filing and/or
recording of deeds and other instruments of conveyance, transfer, or assignment
required by federal copyright, patent, or trademark laws or the laws of the
states in which the Assets are located, to occur upon Closing and (2) the
further exceptions set forth in Schedule 4.4 (the foregoing items (1) and (2)
being referred to herein as the "Required Government Consents"), no approval,
authorization, certification, consent, variance, permission, license, or permit
to or from, or notice, filing, or recording to or with, federal, state, or
local governmental authorities is necessary for (i) the execution and delivery
of this Agreement and the other agreements and instruments to be executed and
delivered in connection with the transactions contemplated hereby or thereby by
Seller, (ii) the consummation by Seller of the transactions contemplated hereby
or thereby, or (iii) the ownership and use of the Assets and the conduct of the
Software Business (including by Buyer).
4.5 REQUIRED CONTRACT CONSENTS. Except as set forth in Schedule 4.5
(such scheduled items being referred to herein as the "Required Contract
Consents"), no approval, authorization, consent, permission, or waiver to or
from, or notice, filing, or recording to or with, any person (other than the
governmental authorities addressed in Section 4.4) is necessary for (1) the
execution and delivery of this Agreement and the other agreements and
instruments to be executed and delivered in connection with the transactions
contemplated hereby or thereby by Seller or the consummation by Seller of the
transactions contemplated hereby; (2) the transfer and assignment to Buyer at
Closing of the Software Contracts, the Leases or the General Contracts, or (3)
the ownership and use of the Assets and the conduct of the Software Business
(including by Buyer).
4.6 TITLE TO TANGIBLE PROPERTY. Buyer at Closing shall obtain good
and marketable title to all of the tangible Assets (i.e., the Inventories,
Technical Documentation, Office Equipment and Business Records), free and clear
of all title defects, liens, restrictions, claims, charges, security interests,
or other encumbrances of any nature whatsoever (except for the Leases listed in
Schedule 1.1.e and liens for taxes not yet due and payable).
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4.7 CONDITION OF PROPERTY. All of the tangible Assets are in
sufficient condition for operation of the Software Business by Buyer after the
Closing in substantially the same manner as it has been operated by Seller
during the twelve (12)-month period preceding the Closing.
4.8 INVENTORY. All Inventory is of usable quality and includes no
material amount of obsolete or discontinued items or items that cannot be used
by Buyer in the Software Business in the ordinary course.
4.9 TITLE TO INTELLECTUAL PROPERTY.
a. OWNERSHIP. Except for the rights and licenses validly and
effectively established by the Software Contracts, Seller owns, Buyer shall
receive at Closing, and the Intellectual Property includes, all patents,
trademarks, service marks, trade names, and copyrights (including
registrations, licenses, and applications pertaining thereto) and all other
intellectual property rights, trade secrets, and other proprietary information,
processes, and formulae used in the Software Business or otherwise necessary
for the ownership and use of the Assets and the conduct of the Software
Business. No Intellectual Property is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing thereof by Seller. Seller has the exclusive right to file, prosecute
and maintain all applications and registrations with respect to the
Intellectual Property. Schedule 4.9.a sets forth all registered trademarks and
service marks, all reserved trade names, all registered copyrights and all
filed patent applications and issued patents used in the Software Business or
otherwise necessary for the conduct of the Software Business as heretofore
conducted. All patents and registered trademarks, service marks, and other
company, product or service identifiers and registered copyrights held by
Seller are valid and subsisting.
b. PROCEDURES FOR TRADE SECRET PROTECTION. Seller has
promulgated and used its best efforts to enforce the trade secret protection
program set forth in Schedule 4.9.b. Insofar as Seller knows, there has been no
material violation of such program by any person or entity. The source code and
system documentation relating to the Software Programs (1) have at all times
been maintained in confidence and (2) have been disclosed by Seller only to
employees and consultants having "a need to know" the contents thereof in
connection with the performance of their duties to Seller.
c. PERSONNEL AGREEMENTS. All personnel, including employees,
agents, consultants, and contractors, who have contributed to or participated
in the conception and development of the Software Programs, Technical
Documentation, or Intellectual Property on behalf of Seller either (1) have
been party to a "work-for-hire" arrangement or agreement with Seller, in
accordance with applicable federal and state law, that has accorded Seller
full, effective, exclusive, and original ownership of all tangible and
intangible property thereby arising, or (2) have executed appropriate
instruments of assignment in favor of Seller as assignee that have conveyed to
Seller full, effective, and exclusive ownership of all tangible and
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intangible property thereby arising. Copies of all such instruments of
assignment are attached hereto at Schedule 4.9.c.
d. COPYRIGHT PROTECTION. In no instance has the eligibility
of the Software Programs for protection under applicable copyright law been
forfeited to the public domain.
e. ABSENCE OF CLAIMS. No claims with respect to the
Intellectual Property, including, without limitation, claims challenging
Seller's use of any Intellectual Property or the ownership, validity or
effectiveness of any of the Intellectual Property, have been asserted or, to
the best knowledge of Seller, after reasonable investigation, are threatened by
any person, and Seller does not know of any valid basis for any such claims.
Seller's use of the Intellectual Property does not infringe on the rights of
any person. Seller has not been sued or charged in writing as a defendant in
any claim, suit, action or proceeding which involves a claim of infringement of
any patents, trademarks, service marks, copyrights or other intellectual
property rights and which has not been finally terminated prior to the date
hereof; there are no such charges or claims outstanding; and to the best
knowledge of Seller, Seller has no infringement liability with respect to any
patent, trademark, service mark, copyright or other intellectual property right
of another.
f. ABSENCE OF INFRINGEMENTS. Except as set forth in Schedule
4.9.f, to the best knowledge of Seller, there has not been and there is not now
any material unauthorized use, infringement or misappropriation of any of the
Intellectual Property by any third party, including without limitation any
employee or former employee of Seller;
4.10 ADEQUACY OF TECHNICAL DOCUMENTATION. The Technical Documentation
includes the source code, system documentation, statements of principles of
operation, and schematics for all Software Programs, as well as any pertinent
commentary or explanation that may be necessary to render such materials
understandable and usable by a trained computer programmer. The Technical
Documentation also includes any program (including compilers), "workbenches,"
tools, and higher level (or "proprietary") languages used for the development,
maintenance, and implementation of the Software Programs.
4.11 CONTRACTS--GENERAL. The Software Contracts listed in Schedule
1.1.c, and the General Contracts listed in Schedule 1.1.f, are valid, binding,
and enforceable in accordance with their terms and are in full force and
effect. There are no existing defaults by Seller under any such contracts, and
no act, event, or omission has occurred that, whether with or without notice,
lapse of time, or both, would constitute a default thereunder.
4.12 THIRD-PARTY COMPONENTS IN SOFTWARE PROGRAMS. Seller 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
Programs and Technical Documentation pursuant to the Software Contracts
identified as "licenses from third parties (development and/or
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marketing)" or "Licenses from third parties (internal use only)" in Schedule
1.1.c, and Seller is not, nor as a result of the execution and delivery of this
Agreement or the performance of Seller's obligations hereunder will be, in
violation of, or lose any rights pursuant to any such Software Contracts. The
Software Programs 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. The Software Programs and Technical
Documentation do not contain derivative works of any programming or materials
not owned in their entirety by Seller and included in the Assets. Schedule
4.12 sets forth all obligations that Seller has to pay royalties to any third
party to use, copy, modify, and distribute the third-party programming and
materials contained in the Software Programs and Technical Documentation.
4.13 THIRD-PARTY INTERESTS OR MARKETING RIGHTS IN SOFTWARE PROGRAMS.
a. GENERAL. Seller has not granted, transferred, or assigned
any right or interest in the Software Programs, the Technical Documentation, or
the Intellectual Property to any person or entity, except pursuant to the
Software Contracts identified as "distributorships, dealerships, franchises,
and manufacturer's representative contracts," "licenses and sublicenses to
others" or "source code escrow agreements" in Schedule 1.1.c.
b. LICENSES AND SUBLICENSES TO OTHERS. Except as set forth in
Schedule 4.13.b(1), all Software Contracts identified as "licenses and
sublicenses to others' in Schedule 1.1.c constitute only end-user agreements,
each of which (except as noted on Schedule 4.13.b(1)) substantially conforms to
the standard form(s) established by Seller, copies of which are attached hereto
as Schedule 4.13.b(2). Except for reasonable and ordinary marketing and
service commitments and practices, or except as provided in written purchase
orders, license agreements, maintenance contracts, and customer files
identified in Schedule 4.13.b(3), Seller has not made or entered into any
contracts or commitments, written or oral, for the benefit of any current
customers or prospects, including, without limitation, custom software
development and other technical support.
c. DISTRIBUTORSHIPS, DEALERSHIPS, ETC. There are no
contracts, agreements, licenses, and other commitments and arrangements in
effect with respect to the marketing, distribution, licensing, or promotion of
the Software Programs or any other Inventory, the Technical Documentation, or
the Intellectual Property by any independent salesperson, distributor,
sublicensor, or other remarketer or sales organization, except for the Software
Contracts identified as "distributorships, dealerships, franchises, and
manufacturer's representative contracts" in Schedule 1.1.c.
d. SOURCE CODE ESCROW. There are no contracts, agreements,
licenses, and other commitments and arrangements in effect with respect to the
right to access to some or all of the Technical Documentation, except for the
Software Contracts identified as "source code escrow agreements" in Schedule
1.1.c. Schedule 4.13.d sets forth a list of all parties to whom Seller has
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delivered copies of some or all of the Technical Documentation, whether
pursuant to an escrow arrangement or otherwise, or parties who have the right
to receive some or all of the Technical Documentation.
4.14 LEASES. The Leases listed in Schedule 1.1.e constitute all of
the leases in effect: are valid, binding, and enforceable in accordance with
their terms; and are in full force and effect. There are no existing defaults
by Seller thereunder, and no act, event, or omission has occurred that, whether
with or without notice, lapse of time, or both, would constitute a default
thereunder.
4.15 UNDISCLOSED LIABILITIES. Seller has furnished Buyer with
unaudited financial statements of Seller as of its fiscal year end for 1996 and
1997 (collectively, the "Existing Financial Statements"). Copies of the
Existing Financial Statements are attached hereto as Schedule 4.15(1). The
Existing Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto), and fairly present in all material respects the
consolidated financial position of Seller as at the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended, except in the case of the unaudited financial
statements, for the omission of footnote information and for customary year-end
adjustments. There has been no change in Seller's accounting policies, except
as described in the notes to the Financial Statements. Except as set forth in
Schedule 4.15(2), there are no liabilities or obligations, secured or unsecured
(whether absolute, accrued, contingent, or otherwise, and whether due or to
become due), of a nature required by GAAP to be reflected in a balance sheet
of the Software Business evidencing the Assets and the Assumed Liabilities in
their entirety.
4.16. ABSENCE OF JOINT VENTURES, ETC. Except as set forth in Schedule
4.16, Seller is not a party to any joint venture or other similar agreement or
arrangement that involves any sharing of profits of the Software Business or
the Assets or is similar to or competitive with the Software Business, other
than the Software Contracts identified as "licenses from third parties
(development and/or marketing)" or "distributorships, dealerships, franchises,
and manufacturer's representative contracts" in Schedule 1.1.c.
4.17 MAJOR VENDORS AND CUSTOMERS. Schedule 4.17 lists each licensor,
developer, remarketer, distributor, and supplier of property or services to,
and each licensee, end-user, or customer of, Seller, to whom Seller paid or
billed in the aggregate Twenty-Five Thousand Dollars ($25,000) or more during
the most recent fiscal year, together with, in each case, the amount paid or
billed during such period. Seller has received no notice from any such person
or entity that the relationship with such person or entity might not be
continued by Buyer, after its acquisition of the Software Business, at least at
substantially the same level of business and on substantially the same terms as
Seller experienced during the twelve (12)-month period preceding the Closing.
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4.18 LITIGATION. Except as set forth in Schedule 4.18(1), no claim,
action, suit, proceeding, inquiry, hearing, arbitration, administrative
proceeding, or investigation (collectively, "Litigation") is pending, or, to
Seller's best knowledge, threatened against Seller, its present or former
directors, officers, or employees, or any party to any Software Contract,
affecting, involving, or relating to the Software Business or any of the
Assets. Except as set forth in Schedule 4.18(2), no Litigation has been brought
within the last five (5) years against Seller affecting, involving, or relating
to the Software Business or any of the Assets. Seller knows of no facts that
could reasonably be expected to serve as the basis for Litigation against
itself (or the Buyer upon acquisition of the Software Business), its present or
former directors, officers, or employees, or any party to the Software
Contracts, affecting, involving, or relating to the Software Business or the
Assets.
4.19 RELATED-PARTY TRANSACTIONS. Except as disclosed in Schedule
4.19, Seller is not a party to any contract, agreement, license, lease, or
arrangement with, or any other commitment to, directly or indirectly, (1) any
officer or salaried employee of the Seller in office within two (2) years of
the date of execution hereof; (2) any corporation, trust, or other entity in
which any such officer or salaried employee has a material equity or
participating interest; or (3) or any partnership in which any such officer or
salaried employee has a partnership or participating interest, in each case,
relating to or involving the Software Business, the Assets, or the Assumed
Liabilities, except, in each instance, for existing compensation arrangements
listed in Schedule 4.22.b. Each such contract, agreement, license, lease,
arrangement, and commitment was entered into by Seller in the ordinary course
of business upon terms that are fair and reasonable to the Software Business
without regard to the status and relationship of such other parties.
4.20 COURT ORDERS, DECREES, AND LAWS
a. COMPLIANCE WITH LAWS. There is no outstanding or, to
Seller's best knowledge, threatened order, writ, injunction, or decree of any
court, governmental agency, or arbitration tribunal against Seller affecting,
involving, or relating to the Software Business or the Assets. Seller is not in
violation of any applicable federal, state, or local law, regulation,
ordinance, zoning requirement, governmental restriction, order, judgment, or
decree affecting, involving, or relating to the Software Business or the Assets
except where noncompliance has no material adverse effect upon the financial
condition, operation, or prospects of the Software Business (including under
ownership by Buyer) or the Assets, and Seller has received no notices of any
allegation of any such violation. The foregoing shall be deemed to include laws
and regulations relating to the federal patent, copyright, and trademark laws,
state trade secret and unfair competition laws, and to all other applicable
laws, including equal opportunity, wage and hour, and other employment matters,
and antitrust and trade regulation laws.
b. ADEQUACY OF AUTHORIZATIONS. The Authorizations constitute
all approvals, authorizations, certifications, consents, variances,
permissions, licenses, or permits to or from, or filings, notices, or
recordings to or with, federal, state, or local governmental authorities that
are
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required for the ownership and use of the Assets and the conduct of the
Software Business under federal, state, and local law, regulation, ordinance,
zoning requirement, governmental restriction, order, judgment, or decree.
Seller is in compliance with all terms and conditions of such required
Authorizations. All of the Authorizations are in full force and effect, and, to
the best of Seller's knowledge, no suspension or cancellation of any of them is
being threatened, nor will any of the Authorizations be affected by the
consummation of the transactions described in this Agreement, except to the
extent any such Authorizations are transferable only upon receipt of the
Required Government Consents. Seller is in compliance with all other applicable
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in those laws or contained in
any law, regulation, code, plan, order, decree, judgment, notice, or demand
letter issued, entered, promulgated, or approved thereunder relating to or
affecting the Software Business.
c. ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule
4.20.c, neither Seller, nor, to the best of seller's knowledge, any prior
owner, user, controller, or occupant, nor any tenant, subtenant, prior tenant,
or prior subtenant has ever used Hazardous Materials (as hereinafter defined)
on, from, or affecting the Assets or any facility, site, area, or property
owned, used, controlled, or occupied by the Software Business in any manner
that violates any federal, state, or local law, regulation, governmental
restriction, order, judgment, or decree governing the use, storage, treatment,
transportation, manufacture, handling, production, or disposal of Hazardous
Materials. For purposes hereof, "Hazardous Materials" include any flammable
materials, explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 USC Sections 9601 et seq.), the Hazardous Materials
Transportation Act, as amended (49 USC Sections 1801 et seq.), the Resource
Conservation and Recovery Act, as amended (42 USC Sections 6901 et seq.), and
laws of the states of Missouri, and in the regulations adopted and publications
promulgated pursuant thereto, or any other federal, state, or local
environmental law, ordinance, rule, or regulation. The term "material" includes
asbestos, polychlorinated biphenyls, kerosene, and fuel oil. The term "release"
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing into the environment. The
term "environment" means any surface or groundwater water supply, land,
surface, or subsurface strata or the ambient air.
4.21 TAXES
a. TAX RETURNS AND PAYMENT OF TAXES. All tax returns of every
kind (including returns of real and personal property taxes, intangible taxes,
withholding taxes, and FICA and unemployment compensation taxes) relating to
the Software Business that are due to have been filed in accordance with any
applicable law have been duly filed; and all taxes shown to be due on such
returns have been paid in full.
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b. STATE SALES TAXES, ETC. Schedule 4.21.b identifies (1)
each jurisdiction in which the Software Business is conducted in which sales,
use, excise, or intangible taxes are due or paid on Software Programs or other
Inventory sold or licensed by Seller in conjunction with the Software Business
and (2) the Software Programs or other Inventory subject to taxation in such
jurisdiction.
4.22 PERSONNEL AND COMPENSATION
a. LIST OF PERSONNEL. Schedule 4.22.a is a true and complete
list of the names and current compensation levels of (1) all salaried or annual
employees and (2) all consultants involved in the Software Business.
b. COMPENSATION, ETC. Except as set forth in Schedule 4.22.b,
Seller is not subject to, and has no obligation under, any employment,
consulting, or collective bargaining contracts, deferred compensation, pension
(as defined in Section 3(2) of the Employee Retirement Income Security Act
(ERISA)), profit-sharing, bonus, stock option, stock appreciation, stock
purchase, or other nonqualified benefit or compensation commitments, benefit
plans, arrangements, or plans, including any welfare plans (as defined in
Section 3(1) of ERISA), fringe benefit arrangements, or multi-employer plans
(as defined in Section 3(37)(A) of ERISA) of or pertaining to the present or
former employees involved in the Software Business. Seller has complied with
all of its obligations under the foregoing in all material respects.
c. RETIREMENT PLANS. Schedule 4.22.c identifies all of the
retirement plans, by plan name and plan year, that Seller ever has established
for the benefit of persons who are or were involved in the Software Business
(the "Plans"). The Plans and their administration are the sole responsibility
of Seller.
d. COMPLIANCE WITH LAW. Seller is in compliance with the
applicable provisions of ERISA, the regulations and published authorities
thereunder, and all other applicable laws with respect to the Plans. Seller
has performed its obligations under all Plan, including, without limitation,
the full payment of all amounts required to be made as contributions thereto or
otherwise. There are not actions, suits, claims (other than routine claims for
benefits) pending or, to the knowledge of Seller, threatened against the Plans
or their assets, arising out of the Plans, and to the knowledge of Seller, no
facts exist which should give rise to any such actions, suits or claims.
e. SUBMISSION TO BUYER FOR REVIEW. All documents, including
plan and trust instruments, annual reports, actuarial reports and
discrimination tests, relating to the Plans for the Plans' most recently ended
Plan years, have been furnished to Buyer for its review.
f. MULTI-EMPLOYER PLAN. Neither Seller or any predecessor in
interest thereto, nor any trade or business under common control with Seller or
any predecessor in interest thereto
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(within the meaning of Section 414(i) of the Internal Revenue Code) has ever
contributed to any pension Plan that is a Multi-employer Plan for the benefit
of employees involved in the Software Business.
g. ADEQUATE RESERVES FOR WELFARE PLANS. Schedule 4.22.g
identifies all of the welfare plans (as defined in Section 3(2) of ERISA), by
plan name and plan year, that Seller ever has established for the benefit of
persons who are or were involved in the Software Business. Reserves have been
established by Seller or its insurance companies at least sufficient to pay all
claims incurred under the provisions of such plans on or prior to the Closing
Date. Seller has not received notice of, nor does it know any basis for, any
retrospective premium charge for claims relating to any period prior to the
Closing Date under such contracts.
h. COMPLIANCE WITH LAWS. To the best of Seller's knowledge,
Seller is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and occupational safety and health pertaining to the Software Business and the
employees involved in the Software Business, and is not engaged in any unfair
labor practice within the meaning of Section 8 of the National Labor Relations
Act. To the best of Seller's knowledge, there is no unfair labor practice,
charge, or complaint or any other matter against or involving Seller pending
or, to the knowledge of Seller, threatened before the National Labor Relations
Board or any court of law pertaining to the Software Business or the employees
involved in the Software Business. To the best of Seller's knowledge, there
are no charges, investigations, administrative proceedings, or formal
complaints of discrimination (including discrimination based upon sex, age,
marital status, race, national origin sexual preference, handicap, or veteran
status) pending or, to the knowledge of Seller, threatened before the Equal
Employment Opportunity Commission or any federal, state, or local agency or
court against Seller pertaining to the Software Business or the employees of
the Software Business, and, to the knowledge of the Seller, no basis for any
such charge, investigation, administrative proceeding, or complaint exists.
4.23 SELLER'S INSURANCE POLICES. Schedule 4.23 lists all of Seller's
insurance policies as of the Effective Date (the "Insurance Policies"). Other
than as set forth in Schedule 4.23, Seller has not received notice of any
pending or threatened termination or retroactive premium increase with respect
thereto; and Seller is in compliance with all conditions contained therein, the
noncompliance with which could result in termination of insurance coverage or
increased premiums for prior or future periods. There are no pending claims
against such insurance by Seller as to which insurers have denied liability or
are defending under any reservation of rights, and, to the knowledge of Seller,
there exists no claim under such insurance that has not been properly filed by
Seller.
4.24 SUFFICIENCY OF RIGHTS. Except as set forth in Schedule 4.24, and
assuming the renewal or continuation of all business arrangements currently in
place (and, to the best of Seller's knowledge, no reason exists why such
renewal or continuation in favor of Buyer could be
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obstructed), the Assets constitute all of the properties, rights, and
privileges necessary for the continuation of the conduct of the Software
Business by Buyer in substantially the same manner as it has been operated by
Seller during the twelve (12)-month period preceding the closing.
4.25 DISABLING PROCEDURES. Except as set forth in Schedule 4.25, the
Software Programs do not contain any programs, routine, device or other
undisclosed feature, including, without limitation, a time bomb, virus,
software lock, drop dead device, malicious logic, worm, Trojan horse, or trap
door, which is designed to delete, disable, deactivate, interfere with or
otherwise harm the Software Programs or any user's hardware, data or other
programs, or which is intended to provide unauthorized access or produce
unauthorized modifications.
4.26 YEAR 2000 COMPLIANCE. The Software Programs are capable of
performing all functions specified in the applicable related Documentation both
prior to and following January 1, 2000, including, but not limited to, date
data century recognition, calculations which accommodate same century and
multi-century formulas and date values, and date data interface values which
reflect the correct century.
4.27 BROKER'S OR FINDER'S FEES. Seller has not authorized any person
to act as broker or finder or in any other similar capacity in connection with
the transactions contemplated by this Agreement in any manner that may or will
impose liability on Buyer.
4.28 CAPITALIZATION. Seller's authorized capital consists of
20,000,000 (with an amendment previously approved and to be filed for an
increase to 25,000,000) shares of common stock, par value $0.10 per share, of
which 5,749,847 shares are issued and outstanding and 1,000,000 shares of
preferred stock, par value $0.10 per share, of which none are outstanding. The
individuals whose names are listed on Schedule 4.28 are the legal and
beneficial owners of all of the outstanding shares of Seller's common stock.
Prior to the Effective Date, Seller has obtained from the Principal
Shareholders (as defined below) verbal commitments to vote all of their shares
of Seller's common stock at the special meeting of Seller's shareholders
contemplated by Section 7.8 in favor of authorizing the transactions
contemplated by this Agreement. For the purposes hereof, the "Principal
Shareholders" include those persons or entities that own more than two thirds
(2/3) of the shares of Seller's common stock that would be outstanding if (i)
all outstanding rights to subscribe for or to purchase, and all outstanding
options for the purchase of, Seller's common stock or stock or securities
convertible into or exchangeable for Seller's common stock and (ii) all
outstanding stock or securities convertible into or exchangeable for Seller's
common stock, were exercised by the holders thereof.
4.29 DISCLOSURE. No representation, warranty, or statement made by
Seller in this Agreement or in any document or certificate furnished or to be
furnished to Buyer pursuant to this Agreement contains or will contain any
untrue statement or omits or will omit to state any fact necessary to make the
statements contained herein or therein not misleading. Seller has disclosed to
Buyer all facts known or reasonably available to Seller that are material to
the
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financial condition, operation, or prospects of the Software Business, the
Assets, and the Assumed Liabilities.
4.30 TRUTH AT CLOSING. All of the representations, warranties, and
agreements of Seller contained in this Article IV shall be true and correct and
in full force and effect on and as of the Closing Date.
4.31 DISCLAIMER. Except as expressly set forth in this Agreement or
in any document, certificate, agreement, or other instrument furnished or to be
furnished to Buyer pursuant to this Agreement, SELLER MAKES NO REPRESENTATION
OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS OR THE SOFTWARE
BUSINESS, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR THE PERFORMANCE OF ANY SOFTWARE PROGRAM.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent hereby represents and warrants to Seller as follows:
5.1 ORGANIZATION. Each of Buyer and Parent is a corporation validly
existing and in good standing under the laws of the Commonwealth of Virginia
with the corporate power and authority to conduct its business and to own and
lease its properties and assets.
5.2 POWER AND AUTHORITY. Each of Buyer and Parent has the power and
authority to execute, deliver, and perform this Agreement and the other
agreements and instruments to be executed and delivered by it in connection
with the transactions contemplated hereby and thereby, and each of Buyer and
Parent has taken all necessary corporate action to authorize the execution and
delivery of this Agreement and such other agreements and instruments and the
consummation of the transactions contemplated hereby and thereby. This
Agreement is, and, when such other agreements and instruments are executed and
delivered, the other agreements and instruments to be executed and delivered by
Buyer and Parent in connection with the transactions contemplated hereby and
thereby shall be, the legal, valid, and binding obligation of Buyer and Parent,
enforceable in accordance with their terms.
5.3 BROKER'S OR FINDER'S FEES. Neither Buyer, nor Parent has
authorized any person to act as broker, finder, or in any other similar
capacity in connection with the transactions contemplated by this Agreement.
5.4 NO CONFLICT. Neither the execution and delivery by Buyer, or
Parent of this Agreement and of the other agreements and instruments to be
executed and delivered by Buyer and Parent in connection with the transactions
contemplated hereby or thereby, nor the
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consummation by Buyer and Parent of the transactions contemplated hereby or
thereby will violate or conflict with (1) any federal, state, or local law,
regulation, ordinance, governmental restriction, order, judgement, or decree
applicable to Buyer or Parent, or (2) any provision of any charter, bylaw, or
other governing or organizational instrument of Buyer or Parent.
5.5 VALID ISSUANCE OF WARRANTS. The Warrants are duly authorized, and
the shares of stock of Parent subject to the Warrants are reserved for
issuance. When issued and delivered in accordance with the terms of the
Warrants for the consideration provided for therein, the stock issued under the
Warrants shall be duly and validly issued, fully paid and nonassessable and
free of preemptive rights.
5.6 CONSENTS. No approval, authorization, certification, consent,
variance, permission, license, or permit to or from, or notice, filing, or
recording to or with, federal, state, or local governmental authorities or any
other third party is necessary for the execution and delivery of this Agreement
and the other agreements and instruments to be executed and delivered in
connection with the transactions contemplated hereby by Buyer or Parent or the
consummation by Buyer or Parent of the transactions contemplated hereby or
thereby, except for (i) the filing of the S-3 and such other documents with,
and the obtaining of such orders from, the SEC and various state securities or
"blue sky" authorities, and the making of such reports under the Exchange Act
of 1934, as amended (the "Exchange Act"), as are required in connection with
the shares that may be issued in connection with the Warrants and (ii) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a material adverse impact. Since September
30, 1997, there has not been any material adverse change in the financial
condition or business of Parent.
5.7 SEC DOCUMENTS. Parent has furnished Seller with or made
available to Seller true and complete copies of each statement, annual,
quarterly and other report, registration statement (without exhibits) filed by
Parent with the SEC since December 19, 1996 (the "Parent SEC Documents"). As of
their respective filing dates, the Parent SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act of 1933, as amended, as the case may be, and none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Parent
SEC Document. The financial statements of Parent included in the Parent SEC
Documents (the "Parent Financial Statements") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of Parent at the dates thereof and the
consolidated results of their operations and changes in financial position for
the periods then ended (subject, in the case of unaudited statements, to
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normal, recurring audit adjustments, provided that the notes and accounts
receivable are collectible in the amounts shown thereon and inventories are not
subject to write-down, except in either case in an amount not material or for
which Parent has provided adequate reserves). There has been no change in
Parent's accounting policies or estimates except as described in the notes to
the Parent Financial Statements.
ARTICLE VI
CONDUCT OF SOFTWARE BUSINESS PRIOR TO CLOSING
6.1 RELATIONS WITH LICENSORS ETC. Seller shall use its best efforts
to preserve intact for Buyer, Seller's relationship with licensors, developers,
consultants, remarketers, suppliers, distributors, customers, and others having
regular business relations with Seller.
6.2 PROHIBITED ACTIONS. Seller shall conduct the Software Business
diligently and substantially in the same manner as heretofore conducted, and
Seller shall not institute any new methods of accounting or operation or engage
in any transaction or activity, enter into any agreement, or make any
commitment, except in the ordinary course of such business and consistent with
past practice. Notwithstanding the foregoing, in no event shall Seller take any
of the following actions without the prior written approval of Buyer:
a. LIENS. Permit any of the Assets to be subjected to any
mortgage, pledge, lien, or encumbrance, except for those liens shown on
Schedule 6.2.a.
b. LICENSES. Dispose of, license, or permit to lapse any
rights in any Intellectual Property.
c. INCREASES IN COMPENSATION. Increase the compensation of
any officers, employees, or consultants whom Buyer has stated an intention to
hire or retain on or after Closing, as referred to in Section 12.1.
d. SOFTWARE CONTRACTS. Enter into any new Software Contracts.
e. MODIFICATION OF CONTRACTS. Violate or materially amend or
otherwise modify the terms of any Software Contracts or Other Contracts. For
the purposes hereof, a material amendment or modification means any amendment
or modification that would increase the obligations under any such Software
Contract or Other Contract by more than $25,000.
f. OTHER ARRANGEMENTS. Authorize or propose any of the
foregoing, or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing.
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6.3 INSURANCE; PROPERTY. Seller shall maintain the Insurance Policies
in effect and shall at all times continue to insure all property constituting
the Assets against all ordinary and insurable casualty risks.
6.4 NO DEFAULT. Seller shall not perform any act or omit to perform
any act, or permit any act or omission, that will cause a breach or default of
any covenant, agreement, warranty, or representation in this Agreement.
ARTICLE VII
COVENANTS OF SELLER AND BUYER PRIOR TO CLOSING
7.1 ACCESS. From the date of this Agreement to the Closing Date,
Seller shall (1) provide Buyer with such information as Buyer may from time to
time reasonably request with respect to the Software Business and the
transactions contemplated by its Agreement; (2) provide Buyer and its officers,
counsel, and other authorized representatives access during regular business
hours and upon reasonable notice to the books, records, and offices of Seller,
as Buyer may from time to time reasonably request; and (3) permit Buyer to make
such inspections thereof as Buyer may reasonably request. Any investigation
shall be conducted in such a manner as not to interfere unreasonably with the
operation of the business of Seller.
7.2 FINANCIAL STATEMENTS. Seller shall take such actions as are
required, including the payments of any past due accounts payable, to cause
Arthur Andersen & Co. to complete their audit of Seller's financial statements
for fiscal year 1997 and to prepare, finalize and issue (i) audited financial
statements and footnotes for 1997 all in accordance with SEC SX Regulations and
(ii) an opinion (collectively the "1997 Financial Statements"). Seller shall
also take all actions as may be necessary to cause Arthur Anderson to consent
to making the 1997 Financial Statements and their work papers related thereto
available to Buyer's accountants. In addition to the 1997 Financial Statements
Seller shall deliver to Buyer as promptly as practicable after each month-end
or quarter-end, as the case may be, from the date of this Agreement to the
Closing Date, all monthly and quarterly financial reports in the form that it
customarily prepares for its internal purposes concerning the Software
Business.
7.3 UPDATING OF INFORMATION. From the date of this Agreement to the
Closing Date, Seller shall deliver to Buyer revised or supplementary schedules
to this Agreement containing accurate information as of the Closing Date, in
order to enable Buyer to confirm the accuracy of Seller's representations and
warranties and otherwise to give full effect to the provisions of this
Agreement; provided, that any such schedules may not include events or actions
subsequent to the date of such schedules. Any such revised or supplementary
schedule shall be deemed part of this Agreement unless Buyer notifies Seller in
writing within five (5) business days after Buyer's receipt of any such
schedule that Buyer objects to any such schedule.
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7.4 APPROVALS OF THIRD PARTIES. Seller and Buyer shall make good
faith efforts, and shall cooperate with one another, to secure all Required
Government consents and all Required Contract Consents, and to obtain the
satisfaction of the conditions specified in Articles VIII and IX, as shall be
required in order to enable Seller and Buyer to effect the transactions
contemplated hereby in accordance with the terms and conditions hereof.
7.5 THIRD-PARTY CERTIFICATES. Seller shall use its best efforts to
procure for the benefit of Buyer consent, assignment, and/or estoppel
certificates in such form, from such third parties, and with respect to such
Assets to be assigned to Buyer at Closing as Buyer may reasonably specify on or
before Closing.
7.6 NEGOTIATION WITH OTHERS. Seller will not, directly or indirectly,
through any officer, director, shareholder, affiliate or agent of Seller or
otherwise, solicit, initiate, entertain, encourage or negotiate any proposals
or offers from any third party relating to the merger or acquisition of Seller
or a significant portion of its assets or capital stock of Seller, nor will
Seller, during this period participate in any negotiations regarding, or
furnish to any person any information with respect to, or otherwise cooperate
with, facilitate or encourage any effort or attempt by any person to do or seek
any such transaction. Seller shall immediately cease and cause to be terminated
all such negotiations with the third parties (other than Buyer) which have
occurred prior to the date of this Agreement.
7.7 AGREEMENT TO COOPERATE. Subject to the terms and conditions of
this Agreement, each of the parties shall use all reasonable efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
7.8 SHAREHOLDER APPROVAL. Seller will call a meeting of its
shareholders to be held not later than March 15, 1998, for the purpose of
obtaining the shareholder approval required in connection with the transactions
contemplated hereby and shall use all reasonable efforts to obtain such
approval. The resolution approving the transaction contemplated by this
Agreement shall specifically authorize and direct the directors and officers of
the Seller to execute and deliver this Agreement and to take all such actions
and to execute and deliver all such documents as may be necessary to consummate
the sale of the Assets pursuant to the terms of this Agreement. Seller shall
not change the date of the shareholders meeting without the prior written
consent of Buyer, nor shall Seller adjourn the shareholders meeting without the
prior written consent of Buyer, unless such adjournment is due to the lack of a
quorum, in which case the chairman of the shareholders meeting shall announce
at such meeting the time and place of the adjourned meeting. Buyer agrees to
execute written instructions to the Escrow Agent authorizing release of the
Advance Payment pursuant to Section 3.2.a upon receipt of (i) a copy of the
resolutions adopted by Seller's Board of Directors and shareholders certified
by Seller's corporate secretary authorizing the execution and delivery of this
Agreement, the performance by
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Seller of its obligations hereunder and the consummation of the transactions
contemplated hereby, (ii) an incumbency certificate in the form of Exhibit
7.8(1) and (ii) an opinion of Armstrong, Teasdale, Schlafly & Davis, counsel to
Seller ("Seller's Legal Opinion") in substantially the form attached hereto
Exhibit 7.8(2).
7.9 PUBLIC ANNOUNCEMENTS. Buyer and Seller shall cooperate with each
other prior to releasing information concerning this Agreement and the
transactions contemplated hereby, shall furnish to the other drafts of all
press releases or other public announcements prior to publication and shall
obtain the consent of the other prior to the issuance of press releases or the
release of other public announcements; provided that any party hereto shall
have the right, with prior written notice delivered to such other party where a
written response is required (i) to furnish any information to any Governmental
Entity or (ii) to issue any other release, in each case when in the reasonable
opinion of its counsel it is legally required to do so.
7.10 NOTIFICATION OF CERTAIN MATTERS. Seller shall give prompt notice
to Buyer, and Buyer shall give prompt notice to Seller, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
likely to cause (a) any representation or warranty contained in this Agreement
to be untrue or inaccurate at any time from the date of this Agreement to the
Closing Date, or (b) any failure of Seller or Buyer, as the case may be, or of
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement.
7.11 OTHER TRANSACTIONS. The parties acknowledge that any action that
is taken by either party and that has been approved by the other party will not
be deemed a breach of any representation, warranty or covenant, notwithstanding
the terms of any such representation, warranty or covenant.
7.12 CLOSING SCHEDULES. Immediately prior to Closing, Seller shall
prepare (i) Schedule 7.12(1) showing the Unearned Revenue as of Closing and
(ii) Schedule 7.12(2) showing the Purchase Price Adjustment as of Closing.
ARTICLE VIII
CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of Seller to be performed hereunder shall be
subject to the satisfaction (or waiver by Seller) at or prior to the Closing
Date of each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct in
all material respects (i) as of the date of this Agreement and (ii) as of the
Closing Date, as though made on and as of the Closing Date
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(provided that in the cases of clauses (i) and (ii) any such representation and
warranty made as of a specific date shall be true and correct as of such
specific date), and there shall have been no willful breach by Buyer of any of
its representations or warranties made in the Agreement. Seller shall have
received a certificate in the form attached hereto as Exhibit 8.1 signed by the
chief executive officer of Buyer to such effect on the Closing Date.
8.2 PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have performed
in all material respects all obligations and covenants required to be performed
by it under this Agreement prior to or as of the Closing Date, and Seller shall
have received a certificate in the form attached hereto as Exhibit 8.2 signed
by the chief executive officer and the chief financial officer of Buyer to
such effect.
8.3 LEGAL OPINION. Buyer shall have delivered to Seller an opinion of
Hazel & Thomas, P.C., dated as of the Closing Date ("Buyer's Legal Opinion") in
substantially the form attached hereto as Exhibit 8.3.
ARTICLE IX
CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of Buyer to be performed hereunder shall be
subject to the satisfaction (or the waiver by Buyer) at or prior to the Closing
Date of each of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. Except to the limited extent
permitted pursuant to Section 9.5 below, the representations and warranties of
Seller set forth in this Agreement shall be true and correct in all respects
(i) as of the date of this Agreement and (ii) as of the Closing Date, as though
made on and as of the Closing Date (provided that in the cases of clauses (i)
and (ii) any such representation and warranty made as of a specific date shall
be true and correct in all respects as of such specific date) and there shall
have been no willful breach by Seller of any of its representations or
warranties made in the Agreement. Buyer shall have received a certificate in
the form attached hereto as Exhibit 9.1 signed by the chief executive officer
of Seller to such effect on the Closing Date.
9.2 PERFORMANCE OF OBLIGATIONS OF SELLER. Seller shall have
substantially performed all obligations and covenants required to be performed
by it under this Agreement prior to or as of the Closing Date, and Buyer shall
have received a certificate in the form attached hereto as Exhibit 9.2 signed
by the chief executive officer and the chief financial officer of Seller to
such effect.
9.3 CONSENTS. All Required Government Consents and Required Contract
Consents shall have been obtained.
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9.4 NO ADVERSE CHANGE. Except to the limited extent permitted
pursuant to Section 9.5 below, Seller shall not have suffered any adverse
change or effect (collectively "Adverse Changes") upon the financial
condition, operation, or prospects of the Software Business (including under
ownership by Buyer), the Assets or Assumed Liabilities (including any act,
omission, event, or circumstances that would entail loss, liability, damage, or
expense to Buyer with respect to the rights and benefits expected by Buyer to
be obtained under this Agreement).
9.5 MATERIAL CHANGE IN CIRCUMSTANCE. Notwithstanding anything to the
contrary, the conditions to Buyer's performance under this Agreement contained
in Sections 9.1 and 9.4 above, shall not apply to the extent, but only to the
extent, that the total amount of (i) any and all untrue or inaccurate
representations and warranties that pursuant to Section 9.1 would otherwise
permit Buyer not to perform its obligations hereunder and (ii) all Adverse
Changes that pursuant to Section 9.4 would otherwise permit Buyer not to
perform its obligations hereunder do not constitute a "Material Change in
Circumstance." For purposes of this Section 9.5 a "Material Change In
Circumstance" shall be found to occur if the total amount of all untrue or
inaccurate representations and warranties under Section 9.1 and all Adverse
Changes under Section 9.4 exceeds Five Hundred Thousand Dollars ($500,000) as
reasonably determined by Buyer.
9.6 OPINION OF SELLER'S COUNSEL. Seller shall have delivered an
update to Seller's Legal Opinion by Armstrong, Teasdale, Schlafly & Davis,
dated as of the Closing Date in form and substance satisfactory to Seller, to
the effect that all opinions originally contained in Seller's Legal Opinion
continue to be true and correct.
ARTICLE X
CLOSING
10.1 CLOSING. Unless this Agreement is first terminated as provided
in Article XVI, the closing of the purchase and sale of the Assets and the
transfer and assumption of the Assumed Liabilities (the "Closing") shall take
place at the offices of Armstrong, Teasdale, Schafly & Davis at One
Metropolitan Square, St. Louis, MO 63102-2740, at 9:00 a.m. Central time
o'clock on April 30, 1998, or on such other time, date, and place as the
parties may agree (the "Closing Date").
10.2 ACTIONS AT CLOSING. At Closing, Buyer and Seller shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
a. COPIES OF CONSENTS. Seller shall deliver to Buyer copies
of all Required Contract Consents and all Required Government Consents.
b. CONVEYANCE INSTRUMENTS. Seller shall deliver to Buyer a
Bill of Sale and Assignment in the form attached hereto as Exhibit 10.2.b and
such other instruments of
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conveyance and transfer as Buyer may reasonably request to effect the
assignment to Buyer of the Assets.
c. MASTER COPY OF SOFTWARE PROGRAMS. Seller shall deliver to
Buyer a master copy of each Software Program and related Technical
Documentation (including without limitation both source code and object code
forms of each program).
d. ISSUANCE OF WARRANTS. Buyer shall issue to Seller the
Warrants.
e. PAYMENT FROM ESCROW FUND. The Escrow Agent shall deliver
(i) to Seller Five Million Fifty-four Thousand Dollars ($5,054,000) from the
Escrow Fund (representing the Cash Purchase Price less the Exclusivity Fee, the
Advance Payment and the Holdback) and (ii) to Buyer all of the remaining
balance of the Escrow Fund in excess of the Holdback.
f. ASSUMPTION AGREEMENT. Buyer shall deliver to Seller an
Assumption Agreement in the form attached hereto as Exhibit 10.2.f by which
Buyer assumes and agrees to pay and perform the Assumed Liabilities.
g. CERTIFICATES. Each party shall deliver the certificates
required under Sections 8.1 and 8.2 and Sections 9.1 and 9.2, respectively, as
to the accuracy of the representations and warranties contained herein, the
compliance with the covenants and agreements contained herein, and the
satisfaction of the conditions to Closing contained herein.
h. LEGAL OPINIONS. Seller shall cause its counsel to deliver
to Buyer the Seller's Legal Opinion updated as of Closing as required by
Section 9.6 and Buyer shall cause its counsel to deliver to Seller the Buyer's
Legal Opinion.
i. CLOSING SCHEDULES. Seller shall deliver to Buyer Schedule
7.12(1) and Schedule 7.12(2).
10.3 ADJUSTMENTS. Except as otherwise specifically provided in this
Agreement, all expenses relating to the ownership, operation and enjoyment of
the Assets, including but not limited to lease or other rental payments, ad
valorem, severance, production, property and other taxes, prepaid insurance,
utility and similar charges, shall be prorated by Seller and Buyer as of 5:00
p.m. on the Closing Date.
10.4 FURTHER ASSURANCES. At and after the Closing, without further
consideration, Seller shall take all such other actions and shall procure or
execute, acknowledge, and deliver all such further certificates, conveyance
instruments, consents, and other documents as Buyer or its counsel may
reasonably request (1) to vest in Buyer, and perfect and protect Buyer's right,
title, and interest in, and enjoyment of, the Assets and the Software Business,
or (2) to ensure more
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effectively the compliance of Seller with its agreements, covenants,
warranties, and representatives under this Agreement.
ARTICLE XI
COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING
11.1 TAX MATTERS.
a. SELLER'S RIGHT AND RESPONSIBILITY FOR PRECLOSING TAX
MATTERS. Sellers shall have the right and responsibility to direct the
handling of all tax matters affecting or relating to the conduct of the
Software Business prior to the Closing Date, including the prosecution of all
administrative and judicial remedies, the settlement of all issues, and the
execution of agreements, consents, or waivers, extending the statute of
limitations, provided that no such action, agreement, or stipulation shall have
any effect on the tax position or liability of Buyer, including as successor to
the Software Business, or result in any increase in the Assumed Liabilities.
b. BUYER'S COOPERATION. Buyer shall use its reasonable
efforts to provide Seller such assistance as it may reasonably request in
connection with matters relating to taxes, including information with respect
to Seller's preparation of any returns of taxes, any audit or other examination
by any taxing authority, any judicial or administrative proceeding relating to
Seller's liability for taxes, or any claims arising hereunder respecting the
Software Business. Buyer shall retain and provide Seller with records or
information which may be relevant to any such return, audit, examination,
proceeding, or determination, and Buyer shall retain all such books and records
for so long as necessary in keeping with applicable statutes of limitations.
11.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated to the Assets and Assumed Liabilities as set forth in Schedule 11.2,
and all tax returns and reports filed by Seller and Buyer with respect to the
transactions contemplated by this Agreement shall be consistent with that
allocation.
11.3 TRANSFER TAXES. All sales, transfer, and similar taxes and fees
(including all recording fees, if any) incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by Seller,
and Seller shall file all necessary documentation with respect to such taxes.
11.4 NO-COMPETE. For a period of five (5) years after the Closing
Date, Seller shall not engage in the business of acquiring, developing,
marketing, distributing, licensing, or maintaining systems and application
computer programs having any function similar to, competitive with, or
substitutable for, the Software Programs, anywhere in the world , except as a
customer or authorized distributor of Buyer or otherwise with Buyer's consent
(which may be
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withheld in Buyer's sole discretion). Seller acknowledges and agrees that the
current market for the Software Programs extends throughout the entire world,
and it is therefore reasonable to prohibit Seller from competing with Buyer
anywhere in such territory. Seller shall not engage in any such activity,
directly or indirectly, on its own behalf or in the service of or on behalf of
others. Notwithstanding the foregoing, this Section 11.4 shall not restrict in
any manner the acquisition or use of any programming or materials by Seller
solely for internal purposes.
11.5 NONSOLICITATION OF PERSONNEL. For a period of five (5) years
after the Closing Date, Seller shall not solicit, divert, or recruit, for its
own benefit or for the benefit of any other person or entity, any of Seller's
managerial or executive employees whom Buyer has expressed interest in hiring
or retaining.
11.6 SHELF REGISTRATION. Within nine (9) months after Closing, Parent
agrees at its sole expense (i) to file with the United States Securities and
Exchange Commission a registration statement under the Securities Act of 1933
to register the shares of Parent's common stock issuable upon the exercise of
the Warrants, (ii) to use its best efforts to cause such registration statement
to become effective as soon thereafter as is practicable and to remain
effective until the earlier of the sale pursuant thereto of the shares so
registered or the expiration date of the Warrants and (iii) to qualify under
applicable blue sky laws to permit the sale of such shares.
ARTICLE XII
CERTAIN TRANSITION MATTERS
12.1 HIRING OF EMPLOYEES. Prior to and after Closing, Seller shall
use its best efforts to enable Buyer to hire, on such terms as Buyer may
reasonably establish, such of Seller's employees associated with the operation
or management of the Software Business as Buyer may specify on or before
Closing. Buyer shall, at least fourteen (14) days prior to Closing, advise
Seller which is Seller's employees Buyer intends to hire after Closing.
12.2 SERVICES PROVIDED BY BUYER. After Closing, Buyer shall collect
and promptly pay over to Seller all accounts receivable, including all license
fees and maintenance fees and charges owing to Seller under Software Contracts,
that arose from the Software Business prior to, and that were outstanding as
of, the Closing Date. All amounts collected by Buyer hereunder shall be
applied to the oldest outstanding invoice.
ARTICLE XIII
INDEMNIFICATION BY SELLER
13.1 INDEMNIFICATION. From the date of Closing through December 15,
1998 (the "Indemnity Period"), Seller hereby agrees, subject to the terms and
conditions of this Article XIII, to indemnify, defend and hold Buyer, Parent
and their respective successors and assigns
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and the directors, officers, employees and agents of each (collectively the
"Buyer Group") harmless from and against any and all claims, losses,
obligations, demands, actions or causes of action, assessments, damages,
judgments, liabilities, costs and expenses (including, without limitation,
costs of court and reasonable attorney and accounting fees) of every kind and
nature (collectively "Claims") imposed upon or incurred by the Buyer Group,
directly or indirectly by reason of or resulting from:
a. BREACH OF REPRESENTATION OR WARRANTY. Any inaccuracy or
breach of any representation or warranty of Seller contained in this Agreement
or any Schedule or document related to this Agreement including, but not
limited to any representation, or warranty, or Adverse Change that Buyer
included in its determination that a Material Change in Circumstance had not
occurred;
b. NONPERFORMANCE. Any nonperformance of the covenants and
obligations to be performed by Seller under this Agreement or under any
document delivered hereunder at Closing;
c. THIRD PARTY CLAIMS. Any claims of or liabilities and
obligations to parties other than Seller or the Buyer Group ("Third Party
Claims") (whether absolute, accrued, contingent or otherwise) existing as of
the time of the Closing Date or arising out of facts or circumstances existing
as of the Closing Date or prior thereto, whether or not known at the Closing
Date to Buyer, which arise from or relate to the conduct of the Software
Business, the ownership or use of the Assets prior to the Closing Date, the
consummation of the transactions contemplated by this Agreement or any failure
to comply with any "bulk sales" or similar laws relating to notices to
creditors, except for the Assumed Liabilities (Notwithstanding the foregoing
exception for Assumed Liabilities, refunds payable by the Buyer Group to
customers under the Software Contracts, where Seller received the benefit prior
to the Closing Date of the amount refunded, shall be deemed to be Third Party
Claims for which the Buyer Group is entitled to indemnification by Seller
pursuant to the terms and conditions of this Article XIII); or
d. INCIDENTAL MATTERS. To the extent not covered by the
foregoing, any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including
reasonable fees and expenses of counsel, other expenses of investigation,
handling, and litigation, and settlement amounts, together with interest and
penalties, incident to the foregoing.
The remedies provided in this Section 13.1 shall be the Buyer Group's exclusive
remedy for any of the foregoing Claims.
13.2 SURVIVAL OF REPRESENTATION AND WARRANTIES. The representation
and warranties of Seller, which are contained herein or in any certificate or
other document delivered pursuant hereto, shall survive the Closing for a
period not to exceed the Indemnity Period.
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13.3 NOTICE OF CLAIM. Whenever a Third Party Claim covered by
Seller's indemnification obligation pursuant to Section 13.1 is made against
any member of the Buyer Group (the "Claimant"), the Claimant shall notify
Seller in writing (the "Notice of Claim") within thirty (30) days after the
Claimant has received written notice of the facts constituting the basis for
such Third Party Claim; provided that such Notice of Claim shall be given
earlier if Seller would be materially prejudiced by delay. Whenever any Claim
for indemnification pursuant to Section 13.1 not involving a Third Party Claim
is made by a Claimant, the Claimant shall send a Notice of Claim to Seller as
soon as practicable after the Claimant becomes aware of such Claim. The Notice
of Claim shall specify all facts known to the Claimant giving rise to such
Claim and the amount or an estimate of the amount of the liability arising
therefrom. The Claimant shall provide to Seller as promptly as practicable
thereafter information and documentation reasonably requested by Seller to
support and verify the claim asserted, provided that, in so doing, it may
restrict or condition any disclosure in the interest of preserving privileges
of importance in any foreseeable litigation.
13.4 DEFENSE OF THIRD PARTY CLAIMS. Seller shall have the right to
assume and thereafter conduct the defense of any Third Party Claim with counsel
of its choice, which counsel shall be reasonably satisfactory to the Claimant;
provided, however, that Seller shall not consent to the entry of any judgment
or enter into any settlement with respect to such Third Party Claim without the
prior written consent of the Claimant, which consent shall not be unreasonably
withheld, but such consent shall not be required if the judgment or proposed
settlement involves only the payment of money damages, all of which shall be
paid by Seller or out of the Escrow Funds, and does not impose an injunction or
other equitable relief upon the Claimant. The Claimant shall have the right to
employ counsel separate from counsel employed by Seller in the defense of any
Third Party Claim and to participate therein, but the fees and expenses of such
counsel employed by the Claimant shall be at its expense. Seller's assumption
and conduct of such defense shall be deemed to be an acknowledgment of Seller's
indemnification obligation under Section 13.1 and an authorization for the
Escrow Agent to pay from the Escrow Funds the amount of such Third Party Claim
upon its final adjudication. Unless and until Seller assumes the defense of the
Third Party Claim as provided herein, the Claimant may defend against the Third
Party Claim in any manner it reasonably may deem appropriate. In no event
shall the Claimant consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of Seller, which consent shall not be unreasonably withheld; provided,
however, if Seller withholds its consent, Seller shall explain in writing its
reasons for withholding consent, and upon receipt of such written explanation,
the Claimant shall nevertheless be authorized to consent to the entry of any
judgment or enter into any settlement, the terms of which are reasonable.
Seller shall, within ten (10) business days of Seller's being notified of the
proposed consent judgment or settlement, provide its consent or its written
explanation of the reasons for refusing to consent. The parties hereto shall
cooperate in the defense of any Third Party Claim and shall furnish such
records, information, and testimony, and attend such conferences, discovery
proceedings, hearings, trials, and appeals, as may be reasonably requested in
connection therewith.
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13.5 RESOLUTION OF CLAIMS. The parties shall undertake, in good
faith, to resolve any dispute with respect to any Claim. If the parties are
unable to agree on such resolution within thirty (30) days after Seller
receives the Notice of Claim, the respective rights of the parties shall be
determined in accordance with the rules of the American Arbitration
Association, unless the issue of Seller's indemnification obligation pursuant
to Section 13.1 has been or will be decided in litigation involving a Third
Party Claim in which Seller and the Claimant are each parties. The arbitration
shall be conducted in the St. Louis, Missouri area by three arbitrators, each
of whom shall have experience reasonably related to the business of Seller.
The Claimant and Seller each shall have the right to designate one of the
arbitrators. The third arbitrator shall be designated by mutual agreement of
the parties or, if they cannot agree, by mutual agreement of the two
arbitrators. The decision of the arbitrators in any arbitration pursuant
hereto will be final and binding upon the parties, and the judgment of a court
of competent jurisdiction may be entered thereon. Fees of the arbitrators and
costs of arbitration shall be borne by the parties in such manner as shall be
determined by the arbitrators.
13.6 THRESHOLD. No indemnification or any other claim for damages
under this Agreement or any other instrument or agreement to be executed and
delivered by Seller in connection with the transactions contemplated hereby
shall be payable by Seller to the Buyer Group until (and then only to the
extent that) the total of all Claims against Seller equals or exceeds $50,000.
However, this Section 13.6 will not apply to any breach of Seller's
representations or warranties of which Seller had actual knowledge at any time
prior to the date on which such representation or warranty is made or any
intentional breach by Seller of any covenant or obligation, and Seller shall be
liable for all Claims with respect to such breaches. Seller shall be deemed to
have "actual knowledge" of a particular fact or matter only if Anthony P.
Mitchell, John Levis, Michael L. Martin or Charles A. Dill is actually aware of
such fact or other matter.
13.7 ESCROW FUND. Seller and Buyer have agreed that the Holdback
shall not be delivered to Seller at Closing but shall continue to be held in
the Escrow Fund by the Escrow Agent after Closing in accordance with the terms
of the Escrow Agreement as security for Seller's indemnification obligations
under Section 13.1. The Escrow Fund may be drawn upon by the Buyer Group in
payment of any Claims incurred by the Buyer Group arising out of, based upon,
relating to, or in connection with Indemnity matters set forth in Section 13.1
so long as the Escrow Agreement is in existence. The Claimant shall be paid
promptly by the Escrow Agent from the Escrow Fund such amount or amounts of
Claims as may from time to time be specified in written instructions executed
by Buyer and Seller or in any final decisions of the arbitrators with respect
to Claims for indemnity submitted to arbitration pursuant to Section 13.5 or of
any court with respect to litigation involving a Third Party Claim in which
both Seller and the Claimant are parties and in which Seller's indemnification
obligation pursuant to Section 13.1 has been decided. The Escrow Fund shall
constitute security for the obligations of Seller under the indemnification
under Section 13.1 and any indemnity claims shall be limited to the amount of
the Escrow Fund. The Escrow Agent shall deliver to Seller the amount of the
Escrow Fund
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held in the escrow on December 15, 1998; unless, prior to said date, Buyer
provides to the Escrow Agent a "written statement of pending claims" (with a
copy to Seller). A "written statement of pending claims" shall mean a
statement, executed by Buyer, setting forth pending or threatened Claims or
other matters which may result in Claims for which Buyer believes Seller is
obligated to provide indemnification pursuant to Section 13.1. In such
statement Buyer shall also make a good faith estimate of the amount of such
possible damages. Following receipt of such a written statement, Escrow Agent
shall continue to hold a sufficient amount of the Escrow Fund to reimburse the
Buyer Group for such estimated Claims until such time as the Claimants and
Seller have agreed upon a resolution of such Claims and Buyer and Seller have
provided joint written instructions to the Escrow Agent or the arbitrators have
issued a final decision with respect to those Claims that have been submitted
to arbitration pursuant to Section 13.5 or of any court with respect to
litigation involving a Third Party Claim in which both Seller and the Claimant
are parties and in which Seller's indemnification obligation pursuant to
Section 13.1 has been decided.
ARTICLE XIV
CONFIDENTIALITY
14.1 CONFIDENTIALITY OBLIGATION OF BUYER PRIOR TO CLOSING. Until
Closing (and, if this Agreement is terminated for any reason, forever
thereafter), each of Buyer and Parent shall, and shall use its best efforts to
cause its personnel and agents to, hold in strict confidence, not disclose to
any person without the prior written consent of Seller, and not use in any
manner except in connection with the transactions contemplated hereby, any
confidential business or technical information obtained from Seller in
connection with the transactions contemplated hereby concerning the Software
Business or the Assets. This obligation shall cease to apply to Buyer and
Parent upon the occurrence of Closing. In the event that this Agreement
terminates for any reason, Buyer and Parent shall return to Seller or destroy
all materials in its possession containing any such confidential information,
including all copies, extracts, adaptations, and transcriptions thereof.
14.2 CONFIDENTIALITY OBLIGATION OF SELLER FOLLOWING CLOSING.
Following the occurrence of Closing, Seller shall, and shall use its best
efforts to cause its personnel and agents to, hold in strict confidence, not
disclose to any person without the prior written consent of Buyer, and not use
in any manner whatsoever, any confidential business or technical information
remaining in its possession concerning the Software Business or the Assets.
Such confidential information specifically includes all source code, system and
user documentation, and other Technical Documentation pertaining to the
Software Programs, including any proposed design and specifications for future
products and products in development, marketing plans, and all other technical
and business information concerning the Software Business. Promptly following
Closing, Seller shall surrender to Buyer or destroy all materials remaining in
its possession
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containing any such confidential information, including all copies, extracts,
adaptations, and transcriptions thereof.
14.3 PERMITTED DISCLOSURES. Notwithstanding Sections 14.1 and 14.2,
either party may disclose confidential information (1) where necessary to any
regulatory authorities or governmental agencies pursuant to legal process or
(2) if required by court order or decree.
14.4 SCOPE OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, information shall not be deemed confidential (1) if such information
is available in full from public sources; (2) if such information is received
from a third party not under an obligation to keep such information
confidential; or (3) if the recipient can conclusively demonstrate that such
information was independently developed by the recipient.
ARTICLE XV
TERMINATION PRIOR TO CLOSING AND DEFAULT
15.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at
any time prior to the Closing by the mutual consent of Buyer and Seller.
15.2 BUYER'S DEFAULT AND SELLER'S REMEDY. If (i) there has been a
breach by Buyer of any representation, warranty, covenant or agreement set
forth in this Agreement on the part of Buyer; or (ii) any representation or
warranty of Buyer shall have become untrue, in either case such that the
condition set forth in Sections 8.1 or 8.2 would not be satisfied as of the
time of such breach or as of the time such representation or warranty shall
have become untrue and which breach or inaccuracy Buyer, as the case may be,
fails to cure within seven (7) days after notice thereof is given by Seller
(except that no cure period shall be provided for a breach by Buyer or Sub
which by its nature cannot be cured) or (iii) the conditions set forth in
Section 8.3 have not been satisfied as of Closing; then the Seller as its sole
remedy and exclusive remedy may terminate this Agreement by written notice to
Buyer and Escrow Agent ("Seller's Termination Notice") and Seller shall retain
(i) the Exclusivity Fee (if the Advance Payment has not then been paid) and
(ii) the Exclusivity Fee and the Advance Payment (once the Advance Payment is
made) as liquidated damages in lieu of any and all other remedies, or damages
that may be available at law, or at equity. Upon the termination of this
Agreement by Seller pursuant to this Section 15.2, the Escrow Agent shall
deliver the Escrow Fund and all interest thereon to Buyer.
15.3 SELLER'S DEFAULT AND BUYER'S REMEDY. If (i) there has been a
breach by Seller of any representation, warranty, covenant or agreement set
forth in this Agreement on the part of Seller; or (ii) if any representation or
warranty of Seller shall have become untrue, in either case such that the
condition set forth in Sections 9.1 or 9.2 would not be satisfied as of the
time of such breach or as of the time such representation or warranty shall
have become untrue and
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which breach or inaccuracy Seller fails to cure within seven (7) days after
notice thereof is given by Buyer (except that no cure period shall be provided
for a breach by Seller or inaccuracy which by its nature cannot be cured); or
(iii) the conditions set forth in Sections 9.3, 9.4, 9.6 or 9.7 have not been
satisfied as of Closing; and in any of such events then Buyer as its sole and
exclusive remedies may elect in its sole and absolute discretion to do either
(but not both) of the following:
a. TERMINATION OF AGREEMENT AND RETURN OF ADVANCE PAYMENT.
Terminate this Agreement by written notice to Seller and Escrow Agent ("Buyer's
Termination Notice") and require (by election in the Buyer's Termination
Notice) that Seller pay to Buyer within three (3) days of Seller's Termination
Notice an amount equal to the Advance Payment. Upon the termination of this
Agreement by Buyer pursuant to this Section 15.3.a, the Escrow Agent shall
deliver the Escrow Fund and all interest thereon to Buyer.
b. TERMINATION OF AGREEMENT AND LICENSE FOR SOFTWARE.
Terminate this Agreement by Buyer's Termination Notice and elect (by election
in the Buyer's Termination Notice) to exercise Buyer's rights under Backup
License Agreement by and between Buyer and Seller dated as of the Effective
Date, a copy of which is attached hereto as Exhibit 15.3.b. Upon the
termination of this Agreement by Buyer pursuant to this Section 15.3.b, the
Escrow Agent shall deliver the Escrow Fund and all interest thereon to Buyer.
15.4 TERMINATION OF OBLIGATIONS. Termination of this Agreement
pursuant to this Article XV shall terminate all obligations of the parties
hereunder, except for the obligations set forth in Articles XIII
[Indemnification] and XIV [Confidentiality] and in Sections 3.4. 15.2 and 15.3
with respect to the disposition of the Escrow Fund as provided therein and
Section 16.13.
ARTICLE XVI
INDEMNIFICATION BY PARENT
16.1 INDEMNIFICATION. From the date of Closing through the Indemnity
Period, Parent hereby agrees, subject to the terms and conditions of this
Article XVI, to indemnify, defend and hold Seller and its respective successors
and assigns and the directors, officers, employees and agents of each
(collectively the "Seller Group") harmless from and against any and all Claims
imposed upon or incurred by the Seller Group, directly or indirectly by reason
of or resulting from:
a. BREACH OF REPRESENTATION OR WARRANTY. Any breach of any
representation or warranty of Buyer or Parent contained in this Agreement;
b. NONPERFORMANCE. Any breach of any covenant or obligation
by Buyer or Parent contained herein or in any document delivered hereunder at
Closing;
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c. ASSUMED LIABILITIES. Any failure of Buyer or Parent to pay
or otherwise discharge the Assumed Liabilities, except in so far as such Claim
represents (i) an Excluded Liability or (ii) a refund payable by the Buyer
Group to customers under the Software Contracts, where Seller received the
benefit prior to the Closing Date of the amount refunded and the refund is a
Claim to which Buyer is entitled to indemnification by Seller pursuant to
Article XIII; or
d. INCIDENTAL MATTERS. To the extent not covered by the
foregoing, any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs, and expenses, including
reasonable fees and expenses of counsel, other expenses of investigation,
handling, and litigation, and settlement amounts, together with interest and
penalties, incident to the foregoing.
16.2 SURVIVAL OF REPRESENTATION AND WARRANTIES. The representation
and warranties of Seller, which are contained herein or in any certificate or
other document delivered pursuant hereto, shall survive the Closing for a
period not to exceed the Indemnity Period.
16.3 NOTICE OF CLAIM. Whenever a Third Party Claim covered by Buyer's
indemnification obligation pursuant to Section 16.1 is made against any member
of the Seller Group (the "Claimant"), the Claimant shall notify Parent in
writing (the "Notice of Claim") within thirty (30) days after the Claimant has
received written notice of the facts constituting the basis for such Third
Party Claim; provided that such Notice of Claim shall be given earlier if
Parent would be materially prejudiced by delay. Whenever any Claim for
indemnification pursuant to Section 16.1 not involving a Third Party Claim is
made by a Claimant, the Claimant shall send a Notice of Claim to Parent as soon
as practicable after the Claimant becomes aware of such Claim. The Notice of
Claim shall specify all facts known to the Claimant giving rise to such Claim
and the amount or an estimate of the amount of the liability arising therefrom.
The Claimant shall provide to Parent as promptly as practicable thereafter
information and documentation reasonably requested by Parent to support and
verify the claim asserted, provided that, in so doing, it may restrict or
condition any disclosure in the interest of preserving privileges of importance
in any foreseeable litigation.
16.4 DEFENSE OF THIRD PARTY CLAIMS. Parent shall have the right to
assume and thereafter conduct the defense of any Third Party Claim with counsel
of its choice, which counsel shall be reasonably satisfactory to the Claimant;
provided, however, that Parent shall not consent to the entry of any judgment
or enter into any settlement with respect to such Third Party Claim without the
prior written consent of the Claimant, which consent shall not be unreasonably
withheld, but such consent shall not be required if the judgment or proposed
settlement involves only the payment of money damages, all of which shall be
paid by Seller, and does not impose an injunction or other equitable relief
upon the Claimant. The Claimant shall have the right to employ counsel separate
from counsel employed by Parent in the defense of any Third Party Claim and to
participate therein, but the fees and expenses of such counsel employed by the
Claimant shall be at its expense. Parent's assumption and conduct of such
defense shall be
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deemed to be an acknowledgment of Parent's indemnification obligation under
Section 16.1 and an authorization for the Escrow Agent to pay from the Escrow
Funds the amount of such Third Party Claim upon its final adjudication. Unless
and until Parent assumes the defense of the Third Party Claim as provided
herein, the Claimant may defend against the Third Party Claim in any manner it
reasonably may deem appropriate. In no event shall the Claimant consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of Parent, which consent shall
not be unreasonably withheld; provided, however, if Parent withholds its
consent, Parent shall explain in writing its reasons for withholding consent,
and upon receipt of such written explanation, the Claimant shall nevertheless
be authorized to consent to the entry of any judgment or enter into any
settlement, the terms of which are reasonable. Parent shall, within ten (10)
business days of Parent's being notified of the proposed consent judgment or
settlement, provide its consent or its written explanation of the reasons for
refusing to consent. The parties hereto shall cooperate in the defense of any
Third Party Claim and shall furnish such records, information, and testimony,
and attend such conferences, discovery proceedings, hearings, trials, and
appeals, as may be reasonably requested in connection therewith.
16.5 RESOLUTION OF CLAIMS. The parties shall undertake, in good
faith, to resolve any dispute with respect to any Claim. If the parties are
unable to agree on such resolution within thirty (30) days after Parent
receives the Notice of Claim, the respective rights of the parties shall be
determined in accordance with the rules of the American Arbitration
Association, unless the issue of Parent's indemnification obligation pursuant
to Section 16.1 has been or will be decided in litigation involving a Third
Party Claim in which Parent and the Claimant are each parties. The arbitration
shall be conducted in the St. Louis, Missouri area by three arbitrators, each
of whom shall have experience reasonably related to the business of Parent.
The Claimant and Parent each shall have the right to designate one of the
arbitrators. The third arbitrator shall be designated by mutual agreement of
the parties or, if they cannot agree, by mutual agreement of the two
arbitrators. The decision of the arbitrators in any arbitration pursuant
hereto will be final and binding upon the parties, and the judgment of a court
of competent jurisdiction may be entered thereon. Fees of the arbitrators and
costs of arbitration shall be borne by the parties in such manner as shall be
determined by the arbitrators.
ARTICLE XVII
MISCELLANEOUS
17.1 ENTIRE AGREEMENT. This Agreement (including the Schedules), and
the other certificates, agreements, and other instruments to be executed and
delivered by the parties in connection with the transactions contemplated
hereby constitute the sole understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements between the parties
with respect to the subject matter hereof. No amendment, modification, or
alteration of
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the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto.
17.2 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights
under this Agreement to any subsidiary of Parent. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give
any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
17.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
17.4 HEADINGS. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
17.5 WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.
17.6 EXPENSES. Seller and Buyer shall each pay all costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accounts, and counsel.
17.7 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by
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<PAGE> 49
hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
if to Seller to:
SalesKit Software Corporation
10845 Olive Boulevard
Suite 190
St. Louis, MO 63141
Attention: Anthony P. Mitchell
Telephone No. (314) 432-7205
Facsimile No. (314) 567-0439
with a copy to:
Armstrong, Teasdale, Schafly & Davis
One Metropolitan Square
St. Louis, MO 63102-2740
Attention: Jeffrey D. Fisher, Esquire
Facsimile No. (314) 621-5065
if to Buyer to:
Arch Acquisition Corp.
8280 Greensboro Drive
Suite 300
McLean, Virginia 22102
Attention: Kenneth E. deLaski
Telephone No. (703) 734-8606 Ext. 4410
Facsimile No. (703) 734-1146
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<PAGE> 50
with a copy to:
Hazel & Thomas, P.C
3110 Fairview Park Drive
Suite 1400
Falls Church, Virginia 22042
Attention: Robert E. Gregg, Esquire
Facsimile No. (703) 641-4340
if to Parent to:
Deltek Systems, Inc.
8280 Greensboro Drive
Suite 300
McLean, Virginia 22102
Attention: Kenneth E. deLaski
Facsimile No. (703)734-1146
with a copy to:
Hazel & Thomas, P.C
3110 Fairview Park Drive
Suite 1400
Falls Church, Virginia 22024
Attention: Robert E. Gregg, Esquire
Facsimile No. (703) 641-4340
17.8 BULK SALES LAW. The parties waive compliance with any bulk sales
laws or similar laws relating to notices to creditors.
17.9 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the Commonwealth of Virginia without giving
effect to the principles of conflicts of law thereof.
17.10 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
17.11 "INCLUDING." Words of inclusion shall not be construed as terms
of limitation herein, so that references to "included" matters shall be
regarded as nonexclusive, noncharacterizing illustrations.
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<PAGE> 51
17.12 REFERENCES. Whenever reference is made in this Agreement to any
Article, Section, or Schedule, such reference shall be deemed to apply to the
specified Article or Section of this Agreement or the specified Schedule to
this Agreement.
17.13 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf on the date first above written.
ARCH ACQUISITION CORP.
By: /s/ KENNETH E. DELASKI
------------------------------------
Kenneth E. deLaski, President
SALESKIT SOFTWARE CORPORATION
By: /s/ ANTHONY P. MITCHELL
------------------------------------
Anthony P. Mitchell, President
DELTEK SYSTEMS, INC.
By: /s/ KENNETH E. DELASKI
------------------------------------
Kenneth E. deLaski, President
41
<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES UNDERLYING THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
TRANSFER OR DISPOSITION DOES NOT VIOLATE THE SECURITIES ACT, THE RULES AND
REGULATIONS THEREUNDER OR APPLICABLE STATE SECURITIES LAWS. NO TRANSFER OF
THIS WARRANT OR THE SECURITIES UNDERLYING THIS WARRANT SHALL BE MADE UNLESS THE
CONDITIONS SPECIFIED HEREIN ARE SATISFIED.
No. of Shares: 130,000 Warrant No. One (1)
WARRANT
To Purchase Capital Stock of
DELTEK SYSTEMS, INC.
Expiring April 30, 2001
THIS CERTIFIES THAT, for value received, SALESKIT SOFTWARE
CORPORATION, a Missouri corporation (the "Initial Holder"), or registered
assigns, is entitled to purchase from DELTEK SYSTEMS, INC., a Virginia
corporation (the "Company"), at any time after April 30, 1998, and on or before
April 30, 2001 (the "Expiration Date"), ONE HUNDRED THIRTY THOUSAND (130,000)
shares of Capital Stock of the Company, at the Purchase Price (as hereinafter
defined) in lawful money of the United States of America, subject to the
provisions, limitations and restrictions of Sections 3 and 5 hereof. The
number of shares of Capital Stock purchasable hereunder and the Purchase Price
therefor are subject to adjustment as hereinafter set forth in Section 6. No
adjustments shall be made for any cash dividends on Warrant Shares issuable
upon the exercise of this Warrant.
SECTION 1. DEFINITIONS. For all purposes of this Warrant the following terms
shall have the meanings indicated:
"Affiliate" of any Person shall mean any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such Person. A Person shall be deemed to control another Person
if such first Person possesses directly or indirectly the power to direct, or
cause the direction of, the management and policies of the second Person,
whether through the ownership of voting securities, by contract or otherwise.
"Basic Purchase Price" shall mean the initial purchase price per share
of Capital Stock set forth in Section 2.
<PAGE> 2
"Capital Stock" shall mean the shares of capital stock of the Company
as defined in Section 7.
"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency then administering the Securities Act.
"Company" shall include any corporation which shall succeed to or
assume the obligations of the Company hereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Person" means an individual, an association, a partnership, a
corporation, a trust or an unincorporated organization or any other entity or
organization.
"Purchase Price" shall mean the Basic Purchase Price or such Basic
Purchase Price as adjusted from time to time pursuant to the provisions hereof.
"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time.
"Transfer" as used in Section 5 shall include any disposition of any
Warrants or Warrant Shares, or of any interest in either thereof which would
constitute a sale thereof within the meaning of the Securities Act.
"Warrant Shares" shall mean the shares of Capital Stock purchased or
purchasable by the registered holders of Warrants upon the exercise thereof
pursuant to Section 3 thereof.
"Warrantholders" shall mean the registered holder or holders of the
Warrants and any related Warrant Shares.
"Warrants" shall mean this Warrant and all Warrants issued in
exchange, transfer or replacement hereof.
All terms used in this Warrant which are not defined in Section 1 have
the meanings respectively set forth therefor elsewhere in this Warrant.
SECTION 2. BASIC PURCHASE PRICE. The Basic Purchase Price at which a holder
may exercise this Warrant shall be a price per share equal to Twenty-two and
No/100 Dollars ($22.00).
SECTION 3. EXERCISE OF WARRANT, ETC.
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<PAGE> 3
3.1. Procedure for Exercise of Warrant. To exercise this Warrant in
whole or in part, the registered holder hereof shall deliver to the Company at
its principal executive offices in McLean, Virginia (or such other office or
agency of the Company in the continental United States as shall also be a
transfer agent for the Capital Stock as the Company may designate by notice in
writing to the holder of this Warrant) (i) the Subscription Form attached
hereto completed to specify the number of shares of Capital Stock as to which
such holder is electing to exercise this Warrant, (ii) cash or a certified or
official bank check, payable to the order of the Company, in an amount equal to
the then aggregate Purchase Price of the shares of Capital Stock being
purchased and (iii) this Warrant. Upon receipt thereof, such holder shall be
deemed to be the holder of record of the Capital Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Capital Stock shall not
then be actually delivered to such holder, and the Company shall, as promptly
as practicable, and in any event within five business days thereafter, execute
or cause to be executed and delivered to such holder, or as such holder may
direct, a certificate or certificates representing the aggregate number of
shares of Capital Stock specified in said Subscription Form. Each stock
certificate so delivered shall be in such denomination as may be requested by
the registered holder hereof and shall be registered in the name of such holder
or such other name as shall be designated by such holder. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of said stock certificate or certificates, deliver to such holder a
new Warrant evidencing the rights of such holder to purchase the remaining
shares of Capital Stock covered by this Warrant.
3.2. Transfer Restriction Legend. Each certificate for Warrant
Shares initially issued upon exercise of this Warrant, unless at the time of
exercise such Warrant Shares are registered under the Securities Act, shall
bear the following legend (and any additional legend required by applicable law
or any securities exchange upon which such Warrant Shares may, at the time of
such exercise, be listed) on the face thereof:
"The transfer, disposition for value or surrender for exchange
of the securities represented hereby is subject to the restrictions
set forth in Section 5 of the Warrant No. One (1) dated as of April
30, 1998 of Deltek Systems, Inc. and delivered to the original holder
thereof, a copy of which is available for inspection at the office of
Deltek Systems, Inc. and no transfer, disposition for value or
surrender for exchange of such securities shall be valid or effective
unless and until the terms and conditions of such Section 5 of said
Warrant shall have been complied with."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof reasonably satisfactory to counsel
for the Company, the securities represented thereby need no longer be subject
to the restrictions contained in said Section 5. The provisions of said
Section 5 shall be binding upon all subsequent holders of
3
<PAGE> 4
certificates bearing the above legend, and shall also be applicable to all
subsequent holders of this Warrant.
3.3. Character of Warrant Shares. All shares of Capital Stock
issuable upon the exercise of this Warrant shall be duly authorized, validly
issued, fully paid and non-assessable; and without limiting the generality of
the foregoing, the Company covenants and agrees that it will from time to time
take all such action as may be requisite to assure that the par value per share
of Capital Stock is at all times equal to or less than the then effective
Purchase Price.
3.4. Expenses. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, execution and delivery of
stock certificates pursuant to this Section 3, except that, in case such stock
certificates shall be registered in a name or names other than the name of the
registered holder of this Warrant, funds sufficient to pay all stock transfer
taxes which shall be payable upon the execution and delivery of such stock
certificate or certificates shall be paid by the registered holder hereof to
the Company at the time of delivering this Warrant to the Company as mentioned
in Subsection 3.1 above.
SECTION 4. OWNERSHIP OF THIS WARRANT.
4.1. Registration. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or other writing hereon made by
anyone other than the Company) for all purposes and shall not be affected by
any notice to the contrary, until presentation of this Warrant for registration
of transfer as provided in this Section 4. Acceptance of this Warrant by the
Warrantholder shall be deemed to constitute the unqualified acceptance by the
Warrantholder of all of the terms and conditions set forth herein.
4.2. Exchange. This Warrant is exchangeable, upon the surrender
hereof by the registered holder to the Company at its office or agency
described in Section 3, for new Warrants of like tenor and date representing in
the aggregate the right to purchase the number of shares purchasable hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by said registered holder at the time of such
surrender.
4.3. Transfer. This Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company, subject to the
provisions of Section 5, (i) only by the Initial Holder hereof, in person or by
duly authorized attorney and (ii) only to an Affiliate or to one or more of the
Initial Holder's stockholders and debentureholders as contemplated by Section
13. A new Warrant shall be made and delivered by the Company, of the same
tenor as this Warrant but registered in the name of the transferee, upon
surrender of this Warrant duly endorsed, at said office or agency of the
Company. Any such new Warrant and any rights thereunder shall not be
transferrable by such transferee except to an Affiliate of such transferee.
4
<PAGE> 5
4.4. Replacement. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant, provided, that if the registered holder hereof
is an institutional holder or a nominee for an institutional holder an
agreement of indemnity by such institutional holder shall be sufficient for all
purposes of this Section 4. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any exchange, transfer or
replacement.
4.5. Expenses. The Company shall pay all expenses (other than those
in connection with any opinion of Warrantholder's counsel require pursuant to
Section 5.2), taxes (other than stock transfer taxes) and other charges payable
in connection with the preparation, execution and delivery of Warrants pursuant
to this Section 4.
SECTION 5. RESTRICTIONS ON EXERCISE AND TRANSFER.
5.1. Restriction. Notwithstanding any provisions contained in this
Warrant to the contrary, this Warrant shall not be exercisable or transferable
and the related Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended to insure
compliance with the provisions of the Securities Act in respect of the exercise
or transfer of such Warrant or transfer of such Warrant Shares. The holder of
this Warrant agrees that it will not (i) transfer this Warrant prior to
delivery to the Company of an opinion of such holder's counsel as described in
clause (1) of Subsection 5.2, (ii) exercise this Warrant prior to delivery to
the Company of an opinion of such holder's counsel as described in clause (1)
of Subsection 5.2, or until registration of the related Warrant Shares under
the Securities Act has become effective, or (iii) transfer such Warrant Shares
prior to delivery to the Company of an opinion of such holder's counsel as
described in clause (1) of Subsection 5.2, or until registration of such
Warrant Shares under the Securities Act has become effective.
5.2. Notice of Intention to Exercise; Counsel. The holder of this
Warrant agrees that prior to any exercise or transfer of this Warrant or any
transfer of the related Warrant Shares (unless the registration of such Warrant
Shares under the Securities Act has become effective), such holder will give
written notice to the Company of its intention to effect such exercise and/or
transfer, together with a copy of the opinion of such holder's counsel as to
the necessity or non-necessity for registration and the availability of an
exemption from registration under the Securities Act in connection with such
exercise and/or transfer (which opinion shall be reasonably satisfactory to
counsel for the Company). The following provisions shall then apply:
(1) If in the opinion of such counsel, the proposed exercise
or transfer of this Warrant and/or the proposed transfer of such
Warrant Shares may be effected without registration under the
Securities Act of this Warrant and/or such Warrant Shares pursuant to
an exemption from registration, the holder of this Warrant shall be
entitled to exercise
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<PAGE> 6
or transfer this Warrant and/or transfer such Warrant Shares in
accordance with the intended method of disposition specified in the
notice delivered by such holder to the Company.
(2) If in the opinion of such counsel the proposed exercise or
transfer of this Warrant and/or the proposed transfer of such Warrant
Shares may not be effected without registration under the Securities
Act of this Warrant and/or such Warrant Shares, the holder of this
Warrant shall not be entitled to exercise or transfer this Warrant
and/or transfer such Warrant Shares until such registration is
effective, and the Expiration Date shall be extended until
seventy-five (75) days after such registration has become effective;
provided however, that nothing contained in this clause (2) shall
require the Company to register this Warrant.
SECTION 6. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF WARRANT SHARES
PURCHASABLE.
6.1. Adjustments. The Purchase Price and the number of Warrant
Shares purchasable pursuant to this Warrant shall be subject to adjustment from
time to time as hereinafter provided.
6.2. Stock Dividends, Splits and Reverse Splits. In case at any time
the Company shall (i) declare a dividend on its Capital Stock in shares of any
class of its Capital Stock, (ii) subdivide its outstanding shares of Capital
Stock into a greater number of shares, or (iii) combine its outstanding shares
of Capital Stock into a smaller number of shares, the Exercise Price in
effect, and the number and kind of Warrant Shares purchasable upon the exercise
of this Warrant, immediately prior to the record date for such dividend or the
effective date of such subdivision or combination shall be proportionately
adjusted so that the holder of this Warrant shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified herein, the
aggregate number and kind of shares of Capital Stock which, if this Warrant had
been exercised immediately prior to such time, the holder of this Warrant would
have owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision or combination.
6.3. Effect of Reorganizations and Asset Sales. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the sale or
transfer of all or substantially all of its assets to another corporation, or
any divisive reorganization by way of a spin-off, split-up or otherwise, shall
be effected in such a way that holders of Capital Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Capital
Stock, then as a condition of such transaction, lawful and adequate provision
shall be made whereby each holder of Warrants shall thereafter have the right
to receive upon the basis and upon the terms and conditions specified herein
and in lieu of or in addition to the shares of the Capital Stock of the Company
immediately theretofore receivable upon the exercise of such Warrants, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Capital Stock
equal to the number of shares of such stock immediately theretofore so
receivable had such transaction not taken place; and in any such case
appropriate provision shall be made
6
<PAGE> 7
with respect to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for adjustment of
the Purchase Price and of the number of Warrant Shares issuable upon exercise)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any shares of stock, securities or assets thereafter deliverable upon the
exercise of such Warrants. The Company shall not effect any such transaction
unless prior to or simultaneously with the consummation thereof each successor
corporation (if other than the Company) resulting from such transaction or the
entities or entity purchasing such assets shall assume by written instrument
executed and mailed or delivered to each holder, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Warrantholder may be entitled to receive, and
containing its or their express assumption of the due and punctual performance
and observance of every provision of this Warrant to be performed and observed
by the Company and of all (or the appropriate part) of the liabilities and
obligations of the Company hereunder.
6.4. Accountants' Certificate. Upon each adjustment of the Purchase
Price and upon each change in the number of shares of Capital Stock issuable
upon the exercise of this Warrant, and in the event of any change in the rights
of the holder of this Warrant by reason of other events herein set forth, then
and in each such case, the Company will promptly obtain a certificate of a firm
of independent certified public accountants of recognized standing selected by
the Company's Board of Directors (who may be the regular auditors of the
Company), stating the adjusted Purchase Price and the new number of shares so
issuable, or specifying the other shares of stock, securities or assets and the
amount thereof receivable as a result of such change in rights, and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. The Company will promptly mail a copy of such
accountants' certificate to the registered holder of this Warrant. The
certificate of such firm of independent public accountants shall be conclusive
evidence of the correctness of the computation with respect to any such
adjustment of the Purchase Price and any such change in the number of such
shares so issuable.
6.5. Fractional Warrant Shares. If the number of Warrant Shares
purchasable upon the exercise of this Warrant is adjusted pursuant to
Subsection 6.2, the Company shall nonetheless not be required to issue
fractions of Warrant Shares upon exercise of this Warrant or to distribute
certificates which evidence fractional Warrant Shares. In lieu of fractional
Warrant Shares, there shall be paid to the registered Warrantholder hereof at
the time this Warrant is exercised as herein provided an amount in cash in
United States dollars equal to the same fraction of the Current Market Price of
one share of Capital Stock. For the purposes hereof, "Current Market Price"
for a share of Capital Stock on any date shall be deemed to be the average of
the daily market prices over a period of thirty (30) consecutive calendar days
before such date. The market price for each such business day shall be the
last sale price on such day on the principal securities exchange on which the
Capital Stock is then listed or admitted to trading, or, if no sale takes place
on such day on any such exchange, the closing bid price on such as officially
quoted on any such exchange, or if the Capital Stock is not then listed or
admitted to trading on any stock exchange, the market price for each such
business day shall be the representative closing
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<PAGE> 8
bid price on such day in the over-the-counter market, as reported through
NASDAQ, or, if such prices are not at the time so reported, as furnished by any
member of the National Association of Securities Dealers, Inc. selected by the
Company. If and so long as there shall be no exchange or over-the-counter
market for the Capital Stock during the 30-day period prior to the date on
which Current Market Price is to be determined, the Current Market Price shall
be deemed to be the greater of the Exercise Price or such price, if any, at
which the most recent issue and sale by the Company of Capital Stock in an
arm's length transaction took place within the 180-day period prior to the date
on which Current Market Price is to be determined.
SECTION 7. DEFINITION OF CAPITAL STOCK. As used therein, the term "Capital
Stock" shall mean and include the Company's authorized Common Stock, $.001 par
value, as constituted at April 30, 1998, and shall also include any capital
stock of any class of Company hereafter authorized which shall not be limited
to a fixed sum or percentage of par value in respect of the rights of the
holders thereof to participate in dividends and in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company, provided, that, except as provided in Subsection 6.2, the shares
receivable upon exercise of the Warrants shall include only shares designated
as capital stock on that date, or shares of any class or classes resulting from
any reclassification or reclassifications thereof which are not limited to any
such fixed sum or percentage of par value and are not subject to redemption by
the Company.
SECTION 8. SPECIAL AGREEMENTS OF THE COMPANY. The Company covenants and
agrees as hereinafter provided in this Section 8.
8.1. Reserve Shares. The Company will reserve and set apart and have
at all times, free from preemptive rights, a number of shares of authorized but
unissued Capital Stock deliverable upon the exercise of the Warrants or of any
other rights or privileges provided for therein sufficient to enable it at any
time to fulfill all its obligations thereunder.
8.2. Certain Actions. The Company will not, by amendment of its
articles of incorporation or through any reorganization, transfer of assets,
consolidation, merger, issue or sale of securities or otherwise, avoid or take
any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying out all of the
provisions of this Warrant.
8.3. Governmental Approvals. If any shares of Capital Stock required
to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible use its best effort to cause such shares to be
duly registered or approved, as the case may be.
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<PAGE> 9
8.4. Registration of Warrant Shares. Not later than December 31,
1998, the Company shall, at its sole expense, file an appropriate registration
statement with the Commission under the Securities Act with respect to the
Warrant Shares and will use its best efforts to cause such registration
statement to become effective under the Act as soon thereafter as is
practicable. The Issuer will, at its sole expense, use its best efforts to
keep such registration effective, by post-effective amendment or otherwise,
until the earlier of the sale pursuant thereto of the Warrant Shares so
registered or the Expiration Date.
8.5. Listing on Securities Exchanges; Registration. If, and so long
as the Company's Capital Stock is listed on any national securities exchange
(as defined in the Exchange), the Company will, at its expense, obtain and
maintain the approval for listing upon official notice of issuance of all
shares of Capital Stock issuable upon the exercise of the Warrants at the time
outstanding and maintain the listing of such shares after their issuance; and
the Company will use its best effort so to list on such national securities
exchange, to register under the Exchange Act (or any similar statute then in
effect), and to maintain such listing of, any other securities that at any time
are issuable upon exercise of the Warrants if and at the time that any
securities of the same class shall be listed on such national securities
exchange by the Company.
8.6. Successors. This Warrant shall be binding upon any corporation
succeeding to the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
SECTION 9. NOTIFICATIONS BY THE COMPANY. In case at any time:
(1) the Company shall declare any dividend payable in stock
upon its Capital Stock or make any distribution (other than cash
dividends which are not in a greater amount per share than the most
recent cash dividend) to the holders of its Capital Stock;
(2) the Company shall propose to make an offer for
subscription pro rata to the holders of its Capital Stock of any
additional shares of stock of any class or other rights;
(3) there shall be proposed any other transaction of a type
referred to in Subsections 6.2 or 6.3; or
(4) there shall be proposed a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the registered holder of this Warrant of the date on which (a) the books of
the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights, or other transaction, and (b) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
other transaction, liquidation or winding-up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of Capital
Stock of record shall participate in such dividend,
9
<PAGE> 10
distribution or subscription rights, or shall be entitled to exchange their
Capital Stock for, or receive in respect of their Capital Stock, securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, other transaction, liquidation, or
winding-up, as the case may be. Such written notice shall be given not less
than 30 and not more than 90 days prior to the action in question and not less
than 30 days and not more than 90 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto and such
notice may state that the record date is subject to the effectiveness of a
registration statement under the Securities Act, or to a favorable vote of
stockholders, if either is required.
SECTION 10. NOTICES. Any notice or other document required or permitted to be
given or delivered to Warrantholders shall be delivered at, or sent by
certified or registered mail to each Warrantholder at the address shown on such
Warrantholder's Warrant or such other address as shall have been furnished to
the Company in writing by such Warrantholder. Any notice or other document
required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, the principal office
of the Company, at
Deltek Systems, Inc.
8280 Greensboro Drive
McLean, Virginia 22102-3841
Attention: Corporate Secretary
or such other address as shall have been furnished to the Warrantholders by the
Company.
SECTION 11. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY. This Warrant
shall not entitle any holder hereof to any of the rights of a stockholder of
the Company. No provision hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Capital Stock, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
SECTION 12. LAW GOVERNING. This Warrant shall be governed by and construed in
accordance with the law of the Commonwealth of Virginia, without regard to
choice of law and conflicts of law rules. The parties agree that any action at
law, suit in equity, or other judicial proceeding for the enforcement of this
Warrant or any provision hereof shall be instituted and prosecuted only in the
courts of the County of Fairfax, Virginia or the federal courts of the Eastern
District of Virginia sitting in Alexandria, Virginia, which shall be the
exclusive venue for any such action, suit or other proceeding. Each party
hereby waives any and all rights to change of venue with respect to such
actions, suits or proceedings.
SECTION 13. TRANSFERABILITY. This Warrant is being issued to the Initial
Holder with a view to the Initial Holder's distributing this Warrant to its
shareholders and debentureholders in connection with its dissolution. The
Company agrees to cooperate in the distribution of this
10
<PAGE> 11
Warrant to the shareholders and debentureholders of the Initial Holder and to
issue replacement Warrants to the shareholders and debentureholders of the
Initial Holder in such denominations as the Initial Holder may specify.
SECTION 14. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction of
any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer under its corporate seal, attested by its duly
authorized officer, and to be dated as of April 30, 1998.
DELTEK SYSTEMS, INC.
[CORPORATE SEAL]
By/s/ Kenneth E. deLaski
------------------------
Kenneth E. deLaski, President
ATTEST:
/s/ Alan R. Stewart
- --------------------------
Alan R. Stewart, Secretary
11
<PAGE> 12
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED INITIAL HOLDER IF IT DESIRES
TO TRANSFER THE WITHIN WARRANT OF
DELTEK SYSTEMS, INC.
FOR VALUE RECEIVED, SALESKIT SOFTWARE CORPORATION, a Missouri corporation,
hereby sells, assigns and transfers, effective as of the ___ day of
____________, ____, the right to purchase a total of _______________________
(____________________________ ) shares of Deltek Systems, Inc. Capital Stock,
covered by the within Warrant, and does hereby irrevocably constitute and
appoint Alan R. Stewart Attorney to transfer the said Warrant on the books of
the Company (as defined in said Warrant), with full power of substitution, unto
the shareholders and debenture holders set forth on Schedule A attached to this
Assignment, whose respective complete and correct names, addresses and taxpayer
identification numbers are set forth on said Schedule A, in the amounts set
forth on said Schedule A.
SALESKIT SOFTWARE CORPORATION
[CORPORATE SEAL]
By:
----------------------------------
Anthony P. Mitchell, President
ATTEST:
- ----------------------
, Secretary
- ---------
In the presence of [Name of Institution]
By
- ----------------- ---------------------
<PAGE> 13
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
2
<PAGE> 14
SCHEDULE A
TO
ASSIGNMENT
<TABLE>
<CAPTION>
====================================================================================================
Number of
Taxpayer Shares
Name of Shareholder/ Identification Under
Debentureholder Address Number Warrant
====================================================================================================
<S> <C>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total 130,000
====================================================================================================
</TABLE>
SALESKIT SOFTWARE CORPORATION
By:
-------------------------------------
Anthony P. Mitchell, President
<PAGE> 15
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES
TO EXERCISE THE WITHIN WARRANT OF
DELTEK SYSTEMS, INC.
The undersigned hereby exercises the right to purchase
_____________________________________________________ (__________________)
Warrant Shares covered by the within Warrant according to the conditions
thereof and herewith makes payment of the Purchase Price of such shares in
full.
Signature
-----------------------------------------
Name
----------------------------------------------
Address
-------------------------------------------
-------------------------------------------
-------------------------------------------
Taxpayer ID No.
------------------------------------
Dated:__________ ___, _____
In the presence of [Name of Institution]
By
- ------------------ -----------------------
<PAGE> 1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into as of the
25th day of February, 1998, (the "Effective Date"), by and among SalesKit
Software Corporation, a Missouri corporation ("Seller"); Arch Acquisition
Corp., a Virginia corporation ("Buyer"); and Crestar Bank, a Virginia banking
corporation ("Escrow Agent").
RECITALS:
R-1. As of the date hereof Buyer and Seller have entered into an
Asset Purchase Agreement (the "Purchase Agreement") under the terms of which
Buyer has agreed to purchase from Seller and Seller has agreed to sell to Buyer
various assets described therein.
R-2. Under the terms of the Purchase Agreement Buyer is to deliver
in escrow to Escrow Agent the sum of Five Million Nine Hundred Fifty-Four
Thousand Dollars ($5,954,000.00) which is intended to be applied under the
terms of the Purchase Agreement to pay all of the "Cash Purchase Price" except
the "Exclusivity Fee" as those terms are used in the Purchase Agreement.
R-3. The capitalized terms used but not otherwise defined herein
shall have the meaning given such terms in the Purchase Agreement.
NOW, THEREFORE, in consideration of their respective promises and
undertakings hereunder, the parties hereto, each intending to be legally bound
hereby, do covenant and agree respectively as follows:
1. Delivery and Receipt of Funds. Simultaneously with the
execution of this Agreement and pursuant to the Purchase Agreement, Buyer has
delivered to the Escrow Agent the sum of Five Million Nine Hundred Fifty-Four
Thousand Dollars ($5,954,000.00) in immediately available funds to be held
under the terms and conditions set forth herein and in the Purchase Agreement.
Receipt of the funds so deposited (the "Escrow Fund") is hereby acknowledged by
the Escrow Agent.
2. Duties of the Escrow Agent.
(a) The Escrow Agent shall invest and reinvest the Escrow
Fund in Authorized Investments (as defined below). Interest or other income
and net gains, if any, realized on any assets held in the Escrow Fund shall be
deemed a portion of the Escrow Fund and shall from time to time be reinvested
by the Escrow Agent in Authorized Investments as promptly as practicable. The
Escrow Agent may refrain from investing the Escrow Fund until it receives such
written investment instructions as it may reasonably request.
1
<PAGE> 2
(b) For purposes of this Agreement, "Authorized
Investments" means investments in tax exempt municipal bonds having a rating of
"AA" (or equivalent) or better or in tax exempt money market accounts that
invest in tax exempt municipal bonds having a rating of "AA" (or equivalent) or
better. All Authorized Investments shall mature not more than one (1) year
after the date of purchase thereof.
3. Disbursement of Funds.
(a) Unless otherwise provided in Section 3(b) below the
Escrow Fund shall be disbursed by Escrow Agent as follows:
(i) At such time as the Escrow Agent receives
written notification and instructions from Buyer that the requirements of
Section 3.2.b of the Purchase Agreement have been satisfied, the Escrow Agent
shall disburse Four Hundred Thousand Dollars ($400,000.00) to Seller as payment
of the Advance Payment.
(ii) At such time as the Escrow Agent receives
written notice and instructions from Buyer that the Closing conditions of
Article IX of the Purchase Agreement have been satisfied and that the documents
required to be delivered by Seller under Article X of the Purchase Agreement
have been delivered, the Escrow Agent shall disburse Four Million Seven Hundred
Four Thousand and No/100 Dollars ($4,704,000.00) to Seller and will disburse to
Buyer any amount in the Escrow Fund in excess of the Holdback.
(iii) Escrow Agent shall disburse the balance of
the Escrow Fund (constituting the Holdback under the terms of the Purchase
Agreement) only upon receipt, and pursuant to the terms of (1) written
instructions signed by both Buyer and the Seller, (2) a copy of the final
decision of the arbitrators with respect to those Claims that have been
submitted to arbitration pursuant to Section 13.5 of the Purchase Agreement,
which copy shall be certified by such arbitrators or (3) a certified copy of
the final decree of any court in litigation involving a Third Party Claim in
which both Seller and the Claimant were parties and in which Seller's
indemnification obligation pursuant to Article XIII of the Purchase Agreement
was decided.
(iv) On December 15, 1998, the Escrow Agent shall
release to Seller from the Escrow Fund the remaining balance of the Escrow
Fund, unless, prior to said date, Buyer provides to the Escrow Agent (with a
copy to Seller) a "written statement of pending claims" as defined in Section
13.7 of the Purchase Agreement, which sets forth pending or threatened Claims
or other matters which may result in Claims for which Buyer believes Seller is
obligated to provide indemnification pursuant to Section 13.1 of the Purchase
Agreement and an estimate of the amount of such possible damages. Following
receipt of such a written statement, the Escrow Agent shall continue to hold a
sufficient amount of the Escrow Fund to reimburse the Buyer Group for such
estimated Claims and shall disburse such amount only upon receipt, and pursuant
to the terms, of (1) written instructions signed by both Buyer and the Seller,
(2) a copy
2
<PAGE> 3
of the final decision of the arbitrators with respect to those Claims that have
been submitted to arbitration pursuant to Section 13.5 of the Purchase
Agreement, which copy shall be certified by such arbitrators or (3) a certified
copy of the final decree of any court in litigation involving a Third Party
Claim in which both Seller and the Claimant were parties and in which Seller's
indemnification obligation pursuant to Article XIII of the Purchase Agreement
was decided.
(b) Notwithstanding anything to the contrary contained in
Section 3(a) above to the contrary, Escrow Agent shall release the entire
Escrow Fund to Buyer, if either (i) Escrow Agent receives notice from Buyer
that Seller has terminated the Purchase Agreement pursuant to Section 15.2 of
the Purchase Agreement (with a copy of Seller's Termination Notice attached
thereto), or (ii) Escrow Agent receives notice from Buyer that Buyer has
terminated the Purchase Agreement pursuant to Section 15.3.a or Section 15.3.b
of the Purchase Agreement (with copy of Buyer's Termination Notice attached
thereto). Upon disbursement of the Escrow Fund to Buyer pursuant to this
Section 3(b), Escrow Agent shall thereupon and thereafter be freed and
discharged of all obligations and liabilities under this Agreement.
4. Fees. Buyer and Seller shall share equally and shall pay to
Escrow Agent, in advance, all fees of the Escrow Agent at its prescribed rate.
5. Limitation Upon Obligation of Escrow Agent.
(a) Escrow Agent shall not be required to inquire into
the truth of any statements or representations contained in any notices,
certificates, or other documents required or permitted hereunder, and it may
assume that the signatures on any such documents are genuine, that the persons
signing on behalf of any party thereto are duly authorized to issue such
document, and that all actions necessary to render any such documents binding
on any party thereto have been duly undertaken. Without limiting the foregoing,
Escrow Agent may in its discretion require from Seller or Buyer additional
documents which it deems to be necessary or appropriate to aid it in the course
of performing its obligations hereunder.
(b) Notwithstanding any other provision of this
Agreement, in the event Escrow Agent receives conflicting demands from Seller
and Buyer respecting the Escrow Fund to Buyer hereunder, Escrow Agent may, in
its sole discretion, file an interpleader action with respect thereto in any
court of competent jurisdiction and deposit the Escrow Fund with the clerk of
the court or withhold release of the Escrow Fund until instructed otherwise by
court order.
(c) Seller and Buyer do hereby jointly and severally (i)
release, and agree to indemnify and hold harmless, Escrow Agent from and
against any and all liability for losses, damages, and expenses (including
attorneys' fees) that may be incurred by it on account of any action taken by
Escrow Agent in good faith pursuant to this Agreement, and (ii) agree to defend
and indemnify Escrow Agent from and against any and all claims, demands, or
actions arising
3
<PAGE> 4
out of or resulting from any action taken by Escrow Agent in good faith
pursuant to this Agreement.
(d) Escrow Agent undertakes to perform only such duties
as are expressly set forth herein. The Escrow Agent (i) shall not be under any
duty to give the Escrow Fund any greater degree of care than it gives its own
similar property and (ii) does not have and will not have any interest in the
Escrow Fund but is a mere holder thereof. The Escrow Agent shall be under no
obligation to institute or defend any actions, suit or legal proceeding in
connection herewith or to take any other action likely to involve it in expense
unless first indemnified to its satisfaction.
6. Independent Contractor Status. The parties hereto are and
shall be independent contractors under this Agreement, and nothing herein shall
be construed to create a partnership, joint venture, or agency relationship
between or among the parties hereto. Without limiting the generality of the
foregoing, Escrow Agent shall be regarded as an independent custodian of the
Licensed Work and not as an agent or trustee of Seller.
7. Term of Agreement. The term of this Agreement shall
commence on the effective date hereof and shall continue until the entire
Escrow Fund is disbursed to either Buyer or Seller pursuant to Section 3 above.
8. Miscellaneous.
(a) The parties hereto agree that they shall comply with
all applicable laws and regulations of governmental bodies or agencies in their
respective performance of their obligations under this Agreement.
(b) Each party represents that it is acting on its own
behalf and is not acting as an agent for or on behalf of any third party; and
further agrees that it may not assign its rights or obligations under this
Agreement without the prior written consent of the other parties hereto (except
that an assignment by Buyer of such rights requires only the consent of Seller,
and an assignment by Seller requires only the consent of Buyer).
(c) All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
4
<PAGE> 5
if to Seller to:
SalesKit Software Corporation
10845 Olive Boulevard
Suite 190
St. Louis, MO 63141
Attention: Anthony P. Mitchell
Telephone No. (314) 432-7205
Facsimile No. (314) 567-0439
with a copy to:
Armstrong, Teasdale, Schafly & Davis
One Metropolitan Square
St. Louis, MO 63102-2740
Attention: Jeffrey D. Fisher, Esquire
Telephone No. (314) 621-5070
Facsimile No. (314) 621-5065
if to Buyer to:
Arch Acquisition Corp.
8280 Greensboro Drive
Suite 300
McLean, Virginia 22102
Attention: Kenneth E. deLaski
Telephone No. (703) 734-8606 Ext. 4410
Facsimile No. (703) 734-1146
with a copy to:
Hazel & Thomas, P.C.
3110 Fairview Park Drive
Suite 1400
Falls Church, Virginia 22042
Attention: Robert E. Gregg, Esquire
Telephone No. (703) 641-4234
Facsimile No. (703) 641-4340
5
<PAGE> 6
if to Escrow Agent to:
Crestar Bank
919 East Main Street
Richmond, Virginia 23219
Attention: Corporate Trust - Escrow Administration
Telephone No. (804) 782-5170
Facsimile No. (804) 782-7855
(d) This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without regard to its
conflicts of laws principles.
(e) No amendment or modification of this Agreement shall
be effective unless set forth in a writing executed by authorized
representatives of the parties hereto. No waiver of any provision of this
Agreement shall be effective unless it is set forth in a writing which refers
to the provisions so waived and the instrument in which such provision is
contained and is executed by an authorized representative of the party waiving
its rights. No failure or delay by any party in exercising any right, power, or
remedy will operate as a waiver of any such right, power, or remedy.
(f) Unless otherwise specified in this Agreement, time
shall be of the essence with respect to the duties, obligations, and
performance of Seller under this Agreement.
(g) No party shall be held responsible for any act,
failure, event, or circumstance addressed herein if such act, failure, event,
or circumstance is caused by conditions beyond such party's reasonable control.
(h) If any provision of this Agreement is held illegal,
unenforceable, or in conflict with any law of any federal, state, or local
government having jurisdiction over this Agreement, the validity of the
remaining provisions hereof shall not be affected thereby.
(i) The provisions of this Agreement and its Attachments,
by their terms, constitute the entire agreement between the parties and
supersede all prior agreements, oral or written, and all other communications
relating to the subject matter hereof.
(j) This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as set forth below.
BUYER:
ARCH ACQUISITION CORP.
By: /s/
---------------------------------
Kenneth E. deLaski, President
SELLER:
SALESKIT SOFTWARE CORPORATION
By: /s/
---------------------------------
Anthony P. Mitchell, President
ESCROW AGENT:
CRESTAR BANK
By: /s/
---------------------------------
Name:
-------------------------------
Title:
------------------------------
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SALESKIT
SOFTWARE CORPORATION FINANCIAL STATEMENTS INCLUDED IN THIS STATEMENT ON FORM 8-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 177
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 217<F1>
<PP&E> 282
<DEPRECIATION> 0
<TOTAL-ASSETS> 523<F2>
<CURRENT-LIABILITIES> 12,197<F3>
<BONDS> 0
0
0
<COMMON> 571
<OTHER-SE> (12,045)
<TOTAL-LIABILITY-AND-EQUITY> (12,045)
<SALES> 897
<TOTAL-REVENUES> 897
<CGS> 625
<TOTAL-COSTS> 4,877
<OTHER-EXPENSES> 4,252
<LOSS-PROVISION> (3,878)
<INTEREST-EXPENSE> 1,426
<INCOME-PRETAX> (5,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,406)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
<FN>
<F1>INCLUDES OTHER CURRENT ASSETS OF $27.
<F2>INCLUDES OTHER ASSETS OF $24.
<F3>CURRENT LIABILITIES INCLUDE NOTES PAYABLE TO BANKS, INVESTORS, ACCOUNTS PAYABLE
AND ACCRUED EXPENSES, AND DEFERRED REVENUE.
</FN>
</TABLE>
