U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
DelSoft Consulting, Inc.
------------------------
(Name of Small Business Issuer in its charter)
Georgia 75-2719614
-------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 Bombay Lane, Roswell, Georgia 30076
-----------------------------------------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (770) 518-4289
Securities to be registered under Section 12(b) of the Act:
None.
Securities to be registered under Section 12(g) of the Act:
Common Stock
------------
(Title of class)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The following discussion contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability; the uncertainty as to
the demand for information technology services and solutions; industry
trends towards outsourcing information technology services; increasing
competition in the information technology services market; the ability to
hire, train and retain sufficient qualified personnel; the ability to obtain
financing on acceptable terms to finance the Company's growth strategy;
the ability to develop and implement operational and financial systems to
manage the Company's growth; and other factors referenced in this
registration statement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward Looking Statements
and Associated Risks."
OVERVIEW
DelSoft Consulting, Inc. ("DelSoft" or the "Company") was founded
in July 1996 as a professional services staffing firm, and has, over
the past 22 months, developed its technological and managerial
infrastructure to offer its clients value added services, including
professional services staffing, solutions and services for the Year
2000 problem and application maintenance outsourcing (collectively
referred to as "solutions"). The Company markets solutions to both
existing and potential clients with the objective of becoming one of
such client's preferred providers of comprehensive information
technology ("IT") services and solutions. With the trend in the
commercial market moving toward fully integrated information systems
solutions, the Company offers its clients a broad range of business
and technical services as a service outsourcer and systems integrator
capable of providing complex tool solutions. This total solutions
approach includes proprietary software and tools, proven processes and
methodologies, tested project management practices and resources
management and procurement programs. The Company is headquartered in
the Metropolitan Atlanta area and has recently opened a second
domestic office near Indianapolis, Indiana. It also has human
resources officers stationed in Bangalore and Madras, India who are
actively recruiting IT professionals.
BACKGROUND
The Company was incorporated in Georgia on July 1, 1996. On
December 12, 1996, DelSoft acquired Pyke Corp., a publicly traded
Delaware corporation with no previous operations ("Pyke"), by merging
2<PAGE>
Pyke into DelSoft. In connection with the merger, holders of Pyke
Common Stock received one share of DelSoft Common Stock for each six
shares of Pyke Common Stock. In the aggregate, DelSoft issued
1,713,316 shares of Common Stock to Pyke's shareholders, or
approximately 17% of DelSoft's Common Stock on a fully diluted basis.
SERVICES
DelSoft provides its clients with a one-stop shop for a broad
range of IT applications solutions and services. Historically, the
substantial majority of the Company's projects have been client-
managed. On client-managed projects, DelSoft provides professional
services as a member of the project team on a time-and-materials
basis. On DelSoft-managed projects, DelSoft takes complete
responsibility for project management and bills the client on either a
time-and-materials or fixed-price basis. The Company is seeking to
shift a larger portion of its business to DelSoft-managed projects,
which generally carry higher profit margins.
The solutions and services offered by the Company include the
following:
(a) PROFESSIONAL SERVICES STAFFING: Providing highly-
skilled software professionals to augment the internal information
management staffs of major corporations remains the Company's primary
business. The Company supplies clients' staffing needs from among its
diverse supply of software professionals. The Company is committed to
expanding its professional services staffing operations in conjunction
with its solutions business in both the mainframe and client/server
development environments.
(b) SERVICES AND SOLUTIONS FOR THE YEAR 2000 PROBLEM: The
Company, through a teaming agreement with CAC Millennium Services,
offers the Signature 2000 (TM) proprietary software toolkit, along
with skilled resources, proven methodologies, experienced project
management, and significant Year 2000 project experience. The
Signature 2000 (TM) proprietary software toolkit analyzes, locates,
reports on, and then restructures all programs and database
definitions affected by the absence of a century date field to permit
processing of dates after December 31, 1999. The solution can be used
in any environment and is flexible enough to support any language.
(c) APPLICATION MAINTENANCE OUTSOURCING: Spurred by global
competition and rapid technological change, large companies, in
particular, are downsizing and turning to outside service providers to
perform their IT functions. The reasons for such outsourcing range
from cost reduction to capital asset improvement and from improved
technology introduction to better strategic focus. In response to
this trend, the Company, has at its disposal a complete staff that
includes experienced project managers, technicians and operators.
These professionals provide essential data functions including,
applications development, systems maintenance, data network
management, voice network administration and help desk operations.
3<PAGE>
SALES AND MARKETING
DelSoft sells its services to large organizations through a
direct sales force. The Company is also aggressively pursuing
preferred vendor arrangements with large organizations. As a
preferred vendor, the Company would be one of a limited number of
service providers to a particular client, thus enabling it to sell its
services more effectively. These contracts generally result in lower
margins due to negotiated discounts, but are expected to generate
higher and more steady revenues.
CLIENTS
The Company provides its services and solutions primarily to
Fortune 1,000 companies with significant IT budgets and recurring
staffing or software development needs. Substantially all of the
Company's clients are large companies, major systems integrators or
governmental agencies. The Company's strategy is to maximize its
client retention rate and secure follow-on engagements by providing
high quality services and client responsiveness.
Most of the Company's projects are terminable by the client
without penalty. The loss of any significant client and/or project
could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
The IT services industry is highly competitive and is served by
numerous national, regional and local firms, all of which are either
existing or potential competitors of the Company. Currently, the
Company's primary competitors include participants from a variety of
market segments, including "Big Six" accounting firms, service
departments of computer hardware and software companies, general
management consulting firms, programming companies and temporary
staffing firms. Many of these competitors have substantially greater
financial, technical and marketing resources and greater name
recognition than the Company. In addition, the Company's clients may
elect to increase their internal IT resources to satisfy their
solutions needs. The Company believes that the principal competitive
factors in the IT services industry include the range of services
offered, technical expertise, responsiveness to client needs, speed in
delivering IT solutions, quality of service and perceived value. The
Company believes that the range of services and solutions that it
offers combined with its diverse pool of labor resources gives the
Company a competitive advantage in the IT marketplace.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark
laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property.
4<PAGE>
The Company enters into confidentiality agreements with its employees
and limits distribution of proprietary information. There can be no
assurance that the steps taken by the Company in this regard will be
adequate to deter misappropriation of proprietary information or that
the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights. The
intellectual property rights to the software developed by the Company
in connection with a client engagement is typically assigned to the
client.
Although the Company's intellectual property has never been the
subject of an infringement claim, there can be no assurance that third
parties will not assert infringement claims against the Company in the
future, that assertion of such claims will not result in litigation or
that the Company would prevail in such litigation or be able to obtain
a license for the use of any infringed intellectual property from a
third party on commercially reasonable terms. Furthermore,
litigation, regardless of its outcome, could result in substantial
costs to, and diversion of effort by, the Company. Any infringement
claim or litigation against the Company could, therefore, materially
and adversely affect the Company's business, operating results and
financial condition.
HUMAN RESOURCES
The Company's success depends in large part on its ability to
attract, develop, motivate and retain highly skilled IT professionals.
The Company's human resources department is dedicated full-time to
recruiting IT professionals and managing its human resources. The
Company recruits in a number of countries and regions, including the
United States, India, Canada, South America, Central America, Mexico,
and the Philippines. The Company also advertises in various
newspapers. In addition, the Company's employees are a valuable
recruiting tool and are actively involved in referring new employees
and screening candidates for new positions. DelSoft uses a
standardized global selection process which includes interviews, tests
and reference checks.
The Company has a focused retention strategy that includes career
planning, training and benefits. The Company's comprehensive benefits
package includes Company-paid health insurance, a 401(k) plan, dental
insurance, tuition reimbursement, and green card processing. The
Company uses stock options as part of its recruitment and retention
strategy.
As of March 31, 1998, DelSoft employed 79 full-time employees,
consisting of 71 technical consultants, 2 employees in marketing and
sales and 6 employees in administration and support. DelSoft also has
contracts with 15 independent consultants. DelSoft's IT professionals
typically have Master's or Bachelor's degrees in Computer Science or
another technical discipline and two to ten years of IT experience.
In addition, the Company uses independent contractors to staff client
engagements.
The Company has reached an agreement in principle to acquire the
business of an IT recruiting company based in Detroit, Michigan. The
5<PAGE>
Company has maintained an ongoing relationship with this IT recruiting
company since 1996, and it has assisted the Company in finding and
placing IT professionals in the past. Management believes that the
proposed acquisition will reduce the costs of hiring its IT professionals.
GOVERNMENT REGULATION OF IMMIGRATION
The Company's solutions and services are not currently subject to
direct regulation by any government or law other than regulations
applicable to businesses generally. Some of DelSoft's consultants are
foreign nationals who reside in the United States on visas which
required the approval of the Immigration and Naturalization Service.
The Company cannot predict the impact, if any, that future regulation
or regulatory changes may have on its business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion contains certain forward-looking
statements that involve substantial risks and uncertainties. When
used in this section, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements.
OVERVIEW
DelSoft provides its clients with a one-stop shop for a broad
range of IT solutions and services. Since its inception in 1996, the
Company has experienced significant growth while remaining profitable.
The Company's revenues are derived from fees paid by clients for
professional services. Historically, a substantial majority of the
Company's projects have been client-managed. On client-managed
projects, DelSoft provides professional services as a member of the
project team on a time-and-materials basis. The Company recognizes
revenues on such projects as the services are performed.
DelSoft's most significant cost item is its personnel expense,
which consists primarily of salaries and benefits for the Company's
billable personnel. The number of IT professionals assigned to
projects may vary depending on the size and duration of each
engagement. Moreover, project terminations and completion and
scheduling delays may result in short periods when personnel are not
assigned to active projects. DelSoft manages its personnel costs by
closely monitoring client needs and basing personnel increases on
specific project engagements.
While the number of IT professionals may be adjusted to reflect
active projects, the Company continues to process H1-B visas and
maintain a database of available professionals to respond to increased
demand for the Company's services on both existing projects and new
engagements.
Since its inception, the Company has incurred significant
expenditures to build the infrastructure necessary to sustain the
Company's growth. These expenditures were incurred primarily in
connection with: (i) the hiring of additional personnel to support a
6<PAGE>
larger organization; (ii) the relocation of the Company's headquarters
to larger, more efficient office space; (iii) the development of
additional service offerings, including Year 2000 conversion services;
(iv) the establishment of an overseas recruitment division; and (v)
the opening of an Indiana sales office to provide better and more cost
effective access to the Midwest market. While these expenses have
increased the Company's selling, general and administrative expenses,
the Company believes that the revenues expected to be derived as a
result of these expenditures have not yet been fully realized.
RESULTS OF OPERATIONS
The following table sets forth selected data, expressed as a
percentage of revenues, for the periods indicated. Operating results
for any period are not necessarily indicative of results for any
future period:
12 Months Six Months
Ended June 30, Ended December 31
1997 1997 1996
---- ---- ----
Revenue: 100.0% 100.0% 100.0%
Direct Project Costs: 78.1 75.8 72.3
Net Revenues: 21.9 24.2 27.7
Selling, General
and Administrative: 19.4 18.5 21.8
Interest Expense: 0.3 1.4 -
--- --- ---
Income Before Income Tax: 2.2 4.3 5.9
Provision for Income Tax: 1.0 1.5 1.7
--- --- ---
Net Income: 1.2% 2.8% 4.2%
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1996
REVENUE. The Company's revenue increased 74% from approximately
$3.0 million during the six-month period ended December 31, 1996 to
approximately $5.2 million during the six-month period ended December
31, 1997. This growth in revenues was primarily attributable to
additional services provided to existing clients and engagements with
new clients.
DIRECT PROJECT COSTS. Direct project costs consist primarily of
salaries and employee benefits for billable IT professionals and the
associated travel and relocation costs of these professionals, as well
as the cost of the independent contractors used by the Company. The
Company's direct project costs increased 82% from approximately $2.1
million during the six-month period ended December 31, 1996 to
approximately $3.9 million during the six-month period ended December
31, 1997. This increase is primarily attributable to the Company's
ability to attract and retain its own qualified IT professionals to
staff additional projects.
7<PAGE>
NET REVENUE. Net revenue consists of revenues less direct
project costs. Net revenue increased 50% from approximately $800,000
during the six-month period ended December 31, 1996 to approximately
$1.2 million during the six-month period ended December 31, 1997.
This increase is attributable primarily to an increase in the number
of IT professionals utilized by the Company (including independent
contractors) from 26 as of December 31, 1996 to 90 as of December 31,
1997. In addition, billing rates increased at a slightly higher level
than professional salaries and engagements with new clients were more
profitable than those with existing clients. The increase in net
revenue was offset by higher personnel expenses resulting from the
hiring of additional professionals to support the increase in client
engagements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses consist of costs associated with the
Company's sales and marketing efforts, executive management, finance
and human resource functions, facilities and telecommunications costs
and other general overhead expenses. Selling, general and
administrative expenses increased 47% from approximately $647,000
during the six-month period ended December 31, 1996 to approximately
$950,000 during the six-month period ended December 31, 1997. This
increase was primarily attributable to the expenses incurred to build
the infrastructure necessary to support the Company's revenue growth
as discussed under "Overview" above.
INCOME BEFORE INCOME TAXES. The Company's income before income
taxes increased approximately $43,000 from approximately $176,000 during
the six-month period ended December 31, 1996 to approximately $219,000
during the six-month period ended December 31, 1997.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was
45% for the year ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through December 31, 1996, the Company
financed its working capital requirements through internally generated
funds. Since then, the Company has financed its working capital
requirements through internally generated funds, the sale of shares of
its common stock, and proceeds from short-term bank borrowings.
As of December 31, 1997, the Company had working capital of
approximately $665,000. The Company's current assets of approximately
$2,015,000 (as of December 31, 1997) consist principally of accounts
receivable of approximately $1,519,000. Management believes that any
uncollectible receivables (as of December 31, 1997) are immaterial.
The Company currently has a $1.25 million revolving credit
facility with Emergent Financial Group. The credit facility bears
interest at the higher of 3% over the prime rate or 9%. The revolving
credit facility was previously $1 million and bore interest at the
higher of 2% over the prime rate or 9%. Borrowings under the revolving
8<PAGE>
credit facility are secured by substantially all of the Company's assets.
In addition, certain of the Company's directors have executed a limited
personal guaranty. The facility contains certain restrictive covenants,
including, the maintenance of certain financial ratios and limitations on
payment of dividends and additional borrowings.
The Company currently anticipates existing sources of liquidity
and cash generated from operations are sufficient to satisfy its cash
needs through the next twelve months. In the future, the Company may
seek to increase the amount of its credit facilities, negotiate
additional credit facilities or issue corporate debt or equity
securities. Any debt incurred or issued by the Company may be secured
or unsecured, fixed or variable rate interest and may be subject to
such terms as the board of directors of the Company deem prudent. The
Company expects any proceeds from such additional credit or sales of
securities to be used primarily in the hiring of further IT
professionals and/or the acquisition of other consulting companies.
The Company does not believe that its business is subject to
seasonal trends.
The Company does not believe that inflation had a significant
impact on the Company's results of operations for the periods
presented. On an ongoing basis, the Company attempts to minimize any
effects of inflation on its operating results by controlling operating
costs, and, whenever possible, seeking to insure that billing rates
reflect increases in costs due to inflation.
ITEM 3. DESCRIPTION OF PROPERTY.
DelSoft's principal office is located at 106 Bombay Lane,
Roswell, Georgia 30076. The office, which is approximately 2300
square feet, is leased pursuant to a lease which expires in May 2000.
DelSoft's current location is adequate for its projected needs, and
the Company does not believe it will have difficulty obtaining
additional space as needed. DelSoft has a second office located at
1980 E. 116th Street, Suite 317, Carmel, Indiana. The office, which
is approximately 1,618 square feet, is leased pursuant to a lease
which expires in December 1999. DelSoft's current location is
adequate for its projected needs,and the Company does not believe it
will have difficulty obtaining additional space as needed.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company is authorized to issue 100,000,000 shares of
Common Stock, of which 10,188,316 shares are issued and outstanding.
As of March 31, 1998, there were 400 shareholders of record.
The following table sets forth certain information regarding
the beneficial ownership of the shares of Common Stock as of March 31,
1998, by (i) each person who is known by the Company to be the
9<PAGE>
beneficial owner of more than five percent (5%) of the issued and
outstanding shares of Common Stock, (ii) each of the Company's
directors and executive officers and (iii) all directors and executive
officers as a group:
Percent of Shares
Beneficial Owner* Shares Beneficially Owned Outstanding <F1>
----------------- ------------------------- -----------------
Ben J. Giacchino 2,868,650 <F2> 22.14%
Jerry Rosemeyer 2,868,650 <F2> 22.14
Jeffrey A. Rinde 2,464,720 <F3> 18.83
Michael Osso 2,400,000 <F4> 19.22
Adil Choksey 0 -
All Directors and
Executive Officers
as a Group (5 persons) 10,602,020 83.56%
- -------------------
[FN]
* Unless otherwise indicated, the beneficial owner's address is
the same as the Company's principal office.
<F1> Percentages calculated on the basis of the amount of outstanding
shares plus, for each person, any shares that person has the
right to acquire within 60 days pursuant to options or other
rights.
<F2> Includes 25,000 shares subject to stock options which are
currently exercisable.
<F3> Includes 150,000 shares subject to stock options which are
currently exercisable.
<F4> Consists of 2,400,000 shares subject to stock options which are
currently exercisable.
</FN>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following is a list of the names and ages of all
directors and executive officers of the Company:
Name Age Position
---- --- --------
Michael Osso 37 President and Director
Adil Choksey 34 Vice President
Jeffrey A. Rinde 31 Chief Financial Officer,
General Counsel, Secretary and
Director
Jerry Rosemeyer 43 Director
Ben J. Giacchino 42 Director
10<PAGE>
Mr. Osso has served as President of DelSoft since September
1997 and as a Director since November 1997. Prior to his employment
with DelSoft, Mr. Osso was employed by Bridgton Consulting, Inc.
("Bridgton"), an IT services provider similar to the Company, as a
Consultant from November 1993 to August 1997, by TTI Technologies, a
computer consulting company, as a Software Engineer from July 1993 to
November 1993, and by Long Island Savings Bank as a Systems Analyst
from November 1988 to June 1993.
Mr. Choksey has served as Vice President of DelSoft since
November 1996. Prior to his employment with DelSoft, Mr. Choksey was
employed by Bridgton as Vice President of Sales from November 1995 to
October 9 1996, by Beechwood Computing Limited, a software consulting
firm, as Vice President of Sales from July 1994 to October 1995, and
by Pertech Computers Ltd., a hardware/software sales company, as a
Regional Sales Manager from July 1990 to June 1994.
Mr. Rinde has served as Chief Financial Officer and General
Counsel of DelSoft since January 1997, as its Secretary since July
1997 and as a Director since November 1997. He has also been a member
of Briskin & Rinde, L.C., a general civil litigation firm with an
emphasis on commercial transactions and litigation,since May 1995.
Prior to his membership in Briskin & Rinde, L.C., Mr. Rinde was
employed by Chapman & Fennell, a general practice law firm, from April
1993 to November 1994. During the period from November 1994 through
May 1995, Mr. Rinde relocated from New York to Georgia and obtained a
license to practice law in the State of Georgia. From May 1992 to
April 1993, Mr. Rinde was General Counsel for Willow Peripherals, a
computer company.
Mr. Rosemeyer has served as a Director of DelSoft since July
1996, and as its President and Chief Executive Officer from July 1996
to August 1997. Mr. Rosemeyer has also been employed by Bridgton as
President and Director since January 1993, and by KnowledgeWare, Inc.,
a computer consulting company, as Project Manager from January 1991 to
January 1993.
Mr. Giacchino has served as a Director of DelSoft since July
1996. He also served as Chief Operating Officer and Secretary of the
Company from July 1996 to July 1997. Prior to his employment with
DelSoft, Mr. Giacchino was employed with Bridgton as Vice President
from January 1994 to July 1996 and as a Director since January 1994,
and with Greenway Capital Corp., a stock brokerage firm, as a stock
broker from August 1991 to December 1993. Mr. Giacchino has 15 years
experience as a manager at various levels in the investment banking
and brokerage industry.
Mr. Giacchino and Mr. Rosemeyer are brothers-in-law.
11<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding
the annual compensation for services to the Company for the fiscal
year ended June 30, 1997 with respect to the Company's Chief Executive
Officer and all other executive officers as of June 30, 1997 who
earned more than $100,000 in salary and bonus during such fiscal year
(the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Compensation Long-Term
---------------------------------------- Compensation
------------
Awards
------------
Other Securities
Name and Annual Underlying
Principal Position Year Salary Bonus Compensation Options
- -------------------------- -------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry Rosemeyer
President and
Chief Executive Officer 1997 $111,161.50 $0 N/A <F1> 125,000
Ben J. Giacchino
Chief Operating Officer 1997 $107,304.00 $0 N/A <F1> 125,000
and Secretary
Jeffrey A. Rinde
Chief Financial Officer 1997 $116,201.60 $73,590 N/A <F1> 250,000
- -----------------
<F1> Amount does not exceed 10% of the salary and bonus paid to such individual.
</FN>
</TABLE>
12<PAGE>
The following table contains certain information concerning the
options granted to the Named Executive Officers during the fiscal year ended
June 30, 1997.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted
Underlying to Employees in Exercise or
Name Options Granted Fiscal Year Base Price Expiration Date
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerry Rosemeyer
President and
Chief Executive
Officer 125,000 14.27% $2.00 February 28, 2006
- -------------------------------------------------------------------------------------------------------------
Ben J. Giacchino
Chief Operating
Officer and Secretary 125,000 14.27% $2.00 February 28, 2006
- -------------------------------------------------------------------------------------------------------------
Jeffrey A. Rinde
Chief Financial Officer 250,000 28.54% $2.00 February 28, 2006
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth certain information concerning the
exercise of stock options during the fiscal year ended June 30, 1997 by each
Named Executive Officer and the value at fiscal year end of unexercised
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End Options at FY-End
Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable*
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jerry Rosemeyer
President and
Chief Executive Officer 0 - 25,000/100,000 $84,375/$337,500
- -----------------------------------------------------------------------------------------------------------------
Ben J. Giacchino
Secretary and
Chief Operating Officer 0 - 25,000/100,000 $84,375/$337,500
- -----------------------------------------------------------------------------------------------------------------
Jeffrey A. Rinde
Chief Financial Officer 0 - 50,000/200,000 $168,750/675,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on the closing sale price of Common Stock reported by the
Nasdaq Stock Market OTC Bulletin Board as of June 30, 1997, which was
$5.375 per share, less exercise price payable by optionees.
13<PAGE>
STOCK OPTION AND INCENTIVE PLANS
In December 1997, the Company adopted the DelSoft Consulting,
Inc. Stock Option Plan (the "Stock Option Plan") to provide key
employees, officers and directors an opportunity to own Common Stock
of the Company and to provide incentives for such persons to promote
the financial success of the Company. Pursuant to the Stock Option
Plan, the Board of Directors of the Company is authorized to grant to
its key executives, other members of management and directors incentive
and/or nonincentive stock options for the purchase of up to 2,000,000
shares of the Company's common stock. Under the Stock Option Plan,
the exercise price of all options must be at least 100% of the fair
market value of the common stock on the date of grant (the exercise
price of an incentive stock option for an optionee that holds more
than ten percent of the combined voting power of all classes of stock
of the Company must be at least 110% of the fair market value on the
date of grant). The maximum term of an option may not exceed ten
years.
In July 1996, the Company adopted the Executive Incentive
Compensation Plan (the "Incentive Plan") that is administered by the
Company's Board of Directors. Under the terms of the Incentive Plan,
a participant earns incentive compensation, which is payable in cash
and/or common stock of the Company, based on a formula that takes into
consideration the percentage increase in the Company's billable hours,
gross revenues and profitability over the corresponding amounts in the
preceding fiscal year. Incentive compensation is limited to 80% of a
participant's base salary for the year. The Incentive Plan was
rescinded on July 1, 1997.
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement with Mr.
Osso, dated August 5, 1997, pursuant to which Mr. Osso agreed to serve
as President of the Company for a term of four years commencing on
September 1, 1997, and for additional one year terms unless the
Company elects not to extend the term. In consideration for his
services as President, Mr. Osso will receive on an annual basis, (i) a
base salary of not less than $130,000, subject to an annual increase
of 5%, (ii) options to purchase 25,000 shares of the Company's Common
Stock at a price equal to the fair market value of the Common Stock on
the date such options are granted, and (iii) a bonus for any month in
which the Company bills 15,000 hours or more. The Employment
Agreement contains covenants against competition, solicitation and a
confidentiality agreement. On April 1, 1998, Mr. Osso's base salary
was increased to $200,000.
The Company has entered into an Employment Agreement with Mr.
Choksey, dated July 1, 1996, pursuant to which Mr. Choksey agreed to
serve as Vice President of Sales of the Company for a term of five
years commencing on July 1, 1996, and for additional one year terms
unless the Company elects not to extend the term. In consideration
for his services as Vice President, Mr. Choksey will receive, (i) a
base salary of not less than $95,000 per year ($65,000 for 1996),
subject
14<PAGE>
to an annual increase of 5%, and (ii) a bonus for any month in which
the Company bills 15,000 hours or more. The Employment Agreement
contains covenants against competition and solicitation and a
confidentiality agreement.
The Company has entered into an Employment Agreement with Mr.
Rinde, dated July 1, 1996, pursuant to which Mr. Rinde agreed to serve
as General Counsel and Chief Financial Officer of the Company for a
term of five years commencing on January 1, 1997, and for additional
one year terms unless the Company elects not to so extend the term.
In consideration for his services as General Counsel and Chief
Financial Officer, Mr. Rinde will receive on an annual basis, (i) a
base salary of $111,500, subject to an annual increase of 5%, (ii)
options to purchase 50,000 shares of the Company's Common Stock at a
price equal to the fair market value of the Common Stock on the date
of exercise, and (iii) a bonus for any month in which the Company
bills 15,000 hours or more. The Employment Agreement contains
covenants against competition and solicitation and a confidentiality
agreement. On April 1, 1998, Mr. Rinde's base salary was increased to
$175,000.
The Company has entered into a Consulting Agreement with Mr.
Rosemeyer, dated September 1, 1997. Under the agreement, the Company
has agreed to pay Mr. Rosemeyer (i) $288,000 over a period of 24
months in consecutive equal monthly installments of $12,000, (ii) any
amount due and owing as of June 30, 1997 pursuant to the Company's
Executive Incentive Compensation Program, and (iii) a commission in
the amount equal to 10% of the gross sales price for any sale of the
Company's hyperdate methodology made by Mr. Rosemeyer on behalf of the
Company. The Company also agreed to grant to Mr. Rosemeyer, on an
annual basis for a period of four years, an option to purchase 25,000
shares of Common Stock in accordance with the Company's Stock Option
Plan. In consideration for the payments and options, Mr. Rosemeyer
agreed to provide up to 10 hours of services per week during the term
of the Agreement. The Consulting Agreement contains covenants against
competition and solicitation and a confidentiality agreement. Mr.
Rosemeyer was employed by Bridgton, which engages in a business
similar to the Company's, at the time the Consulting Agreement was
entered into. The Company has consented to, and has waived its rights
under the covenant against competition with respect to such
employment.
The Company has entered into a Consulting Agreement with Mr.
Giacchino, dated June 18, 1997. Under the agreement, the Company
agreed to pay Mr. Giacchino (i) $80,000 in 16 equal installments in
accordance with the Company's normal payroll practices and (ii) any
commissions and amounts payable pursuant to the Company Executive
Incentive Compensation Program due and owing as of June 1997. The
Company also agreed to grant to Mr. Giacchino, on an annual basis for
a period of four years, an option to purchase 25,000 shares of Common
Stock in accordance with the Company's Stock Option Plan. In
consideration for the payments and options, Mr. Giacchino agreed to
provide up to 10 hours of services per week during the term of the
Agreement. The Consulting Agreement contains covenants against
competition and solicitation, and a confidentiality agreement. Mr.
Giacchino was employed by Bridgton, which engages in a business
similar to the Company's, at the time the Consulting Agreement was
entered into. The Company has consented to, and has waived its rights
15<PAGE>
under the covenant against competition with respect to such
employment.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Jerry Rosemeyer and Ben Giacchino, who together own
approximately 56% of the issued and outstanding Common Stock, are
officers, directors and controlling shareholders of Bridgton. The
Company and Bridgton occupy the same office facilities, and Bridgton
is in the same business as the Company and deals with many of the same
customers and vendors. Michael Osso and Adil Choksey were also
previously employed by Bridgton.
During the period from July 1996 through December 1997, the
Company billed Bridgton a total of$488,000 for the services of its
programmers and engineers and realized a gross profit of
approximately $88,000; and Bridgton billed the Company approximately
$715,000 for the services of its programmers and engineers and, based
on information provided by the management of Bridgton, realized a
gross profit of approximately $159,000. Bridgton also billed the
Company approximately $131,000 for reimbursement of overhead expenses.
As of December 31, 1997, Bridgton owed the Company approximately
$10,700, which was included in accounts receivable in the accompanying
balance sheet.
In June 1997, the Company recorded the purchase of various
items of office equipment from Bridgton in the amount of $9,989. This
equipment was originally purchased by Bridgton from Mr. Giacchino at
the same price.
Mr. Rosemeyer and Mr. Giacchino have informed management that
Bridgton will cease operations in 1998.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of
100,000,000 shares of common stock, no par value per share. As of
March 31, 1998, there were 400 holders of record of Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable.
Holders of the Common Stock are entitled to one vote per share on all
matters voted on by shareholders, including elections of directors,
and the holders of the Common Stock exclusively possess all voting
power. The articles of incorporation do not provide for cumulative
voting in the election of directors. The holders of Common Stock are
entitled to such dividends as may be declared from time to time by the
board of directors from funds available therefor, and upon liquidation
they are entitled to receive pro rata all assets of the Company
available for distribution to such holders. The holders of Common
Stock have no preemptive rights.
DelSoft's articles of incorporation and bylaws do not contain
any provision that would delay, defer or prevent a change in control.
16<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
The Common Stock have been traded in the over-the-counter
market and quoted under the symbol "DSFT" since April 1997. The
following table sets forth, for the periods indicated, the high and
low bid information for the Common Stock. As of March 31, 1998, there
were approximately 400 holders of record of the Common Stock.
Price Range
-----------
YEAR ENDED JUNE 30, 1998 High Low
---- ---
Fourth Quarter (through April 20) 1.56 1.34
Third Quarter 2.25 1.50
Second Quarter 10.375 6.25
First Quarter 10.875 5.34375
YEAR ENDED JUNE 30, 1997
Fourth Quarter (from April 28) 7.375 5.00
The high and low bid information provided above are those
reported by the Nasdaq Stock Market OTC Bulletin Board. The
quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not represent actual transactions.
The Company has no current plan to register any shares of
Common Stock for sale to the public. All of the 10,188,316 shares of
Common Stock outstanding as of March 31, 1998 are subject to the
limitations of Rule 144 promulgated under the Securities Act. In
general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who holds shares of restricted securities
as to which a minimum of one year has elapsed since the latter of the
date of acquisition from the issuer or from an affiliate of the
issuer, and any person who is an "affiliate" as that term is defined
under the Securities Act, is entitled to sell, within any three month
period, a number of shares that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock of the Company
(approximately 101,883 shares as of the date of this registration
statement) or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the issuer. Under Rule 144, however, a person who
holds restricted securities as to which a minimum of two years has
elapsed since their acquisition from the issuer or an affiliate of the
issuer and who is not, and for the three months prior to the sale of
such shares has not been, an affiliate of the issuer is free to sell
such shares without regard to the volume, manner of sale and certain
other limitations contained in Rule 144.
17<PAGE>
The Company has not declared or paid any cash dividends since
its organization. The credit facility with Emergent Financial Group
prohibits the Company from declaring or paying any cash or other
dividends or distributions on any of its corporate stock (other than
stock dividends) while there is an outstanding balance.
WARRANTS AND OPTIONS
In March 1998, the Company granted Barry Kaplan Associates an
option to purchase up to 100,000 shares of Common Stock as
consideration for certain consulting services provided under a
Consulting Agreement dated February 20, 1998. The options have the
following exercise prices: $1.50 for the first 25,000 shares, $2.00
for the second 25,000 shares, $2.50 for the third 25,000 shares and
$3.00 for the last 25,000 shares. None of the options are exercisable
prior to March 15, 1998, and options not exercised on or before April
30, 2001 are rendered null and void.
As of March 31, 1998, options to purchase an aggregate of
876,250 shares of Common Stock had been granted under the Stock Option
Plan, of which options to purchase an aggregate of 26,000 shares of
Common Stock had been canceled due to the termination of a certain
employee's employment. As of March 31, 1998, none of the foregoing
options had been exercised.
As of March 31, 1998, the Company has outstanding a warrant
which entitles James Owen to purchase 15,000 shares of Common Stock at
$1.00 per share.
ITEM 2. LEGAL PROCEEDINGS.
An action entitled HAS, INC. V. BRIDGTON, INC., ET. AL.,
Civil Action No. IP98-0167 C was filed on February 6, 1998 in the
United States District Court for the Southern District of Indiana,
Indianapolis Division. The plaintiffs named the Company as a
co-defendant. The plaintiff alleges that the Company tortuously
interfered with the plaintiff's contracts with Bridgton, causing
Bridgton to breach such contracts, and that the Company tortuously
interfered with the plaintiff's business relationship with one of
plaintiff's clients by placing computer consultants with the
plaintiff's clients. The complaint seeks compensatory and punitive
damages and other relief. The Company believes such claim is baseless
and intends to defend itself vigorously.
The Company is, from time to time, a party to litigation
arising in the normal course of its business. Management believes
that none of these actions, individually or in the aggregate, will
have a material adverse effect on the financial position or results of
operations of the Company.
18<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
Effective as of December 31, 1997, the Company's board of
directors dismissed Allen P. Fields, CPA and appointed J.H. Cohn LLP as
the Company's independent public accountants. The report of Allen P.
Fields, CPA on the Company's financial statements as of June 30, 1997
did not contain an adverse opinion or disclaimer of opinion and was
not modified as to uncertainty, audit scope or accounting principles.
In connection with the audit for the period from July 31, 1996 (date
of inception) to June 30, 1997 and through December 31, 1997, there
were no disagreements with Allen P. Fields, CPA on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure at the time of the change of independent
public accountants or with respect to the Company's financial
statements. Prior to retaining J.H. Cohn LLP, the Company had not
consulted J.H. Cohn LLP regarding the application of accounting
principles or the type of audit opinion that might be rendered on the
Company's financial statements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On June 23, 1997, DelSoft sold 75,000 shares of Common Stock
to Mark Yagalla for $250,000 ($3.33 per share). There were no
underwriters involved in the sale, and no commissions were paid in
connection with the sale. The sale was exempt from registration under
Section 4(2) of the Securities Act.
On November 25, 1997, the Company issued 100,000 shares of
Common Stock to Millennium Holdings Group, Inc. as consideration for
certain consulting services provided under a Consulting Agreement
dated October 22, 1997. There were no underwriters involved in the
sale, and no commissions were paid in connection with the sale. The
transfer was exempt from registration under Section 4(2) of the
Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article VI of the Company's Articles of Incorporation,
the Company is required to indemnify its directors and officers
against those expenses (including attorney's fees), judgments, fines
and amounts paid in settlement which are actually and reasonably
incurred in connection with any action, suit, or proceeding in which
the director or officer may be involved by reason of his being or
having been a director or officer of the Company to the extent
permitted under Georgia law.
Under Section 14-2-851 of the Georgia Business Corporation
Code (the "Code"), a corporation is authorized to indemnify, or
obligate itself to indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred
in the proceeding (or, if the proceeding is by or in the right of the
corporation, the reasonable expenses incurred by the director in
connection with the proceeding) if he acted in a manner he believed in
good faith to be in or not opposed to the best interests of the
19<PAGE>
corporation and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful, in each case as
determined pursuant to Section 14-2-855 of the Code by the board of
directors,special legal counsel or the shareholders. To the extent
that a director is successful, on the merits or otherwise, in the
defense of such proceeding, indemnification by the corporation is
mandatory under Section 14-2-852 of the Code with respect to the
reasonable expenses incurred by the director in connection with the
proceeding. A corporation may not indemnify a director, however, in
connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation; or in
connection with any other proceeding in which he was adjudged liable
on the basis that personal benefit was improperly received by him.
Under Section 14-2-857 of the Code, an individual who is made
a party to a proceeding because he is or was an officer of the
corporation is entitled to indemnification by the corporation against
any reasonable expenses incurred by the director in connection with
the proceeding, to the extent the officer is successful, on the merits
or otherwise, in the defense of such proceeding. The corporation may
indemnify and advance expenses to an officer, employee or agent who is
not a director to the extent consistent with public policy.
20<PAGE>
PART F/S
DelSoft Consulting, Inc.
Index to Financial Statements
-----------------------------
Page
----
Report of Certified Public Accountant F-2
Balance Sheet - June 30, 1997 F-3
Statement of Income
Period from July 1, 1996 (Date of Inception) to
June 30, 1997 F-4
Statement of Stockholders' Equity
Period from July 1, 1996 (Date of Inception) to
June 30, 1997 F-5
Statement of Cash Flows
Period from July 1, 1996 (Date of Inception) to
June 30, 1997 F-6
Notes to Financial Statements F-7/16
Condensed Balance Sheet
December 31, 1997 (Unaudited) F-17
Condensed Statements of Income
Six Months Ended December 31, 1997 and 1996 (Unaudited) F-18
Condensed Statement of Stockholders' Equity
Six Months Ended December 31, 1997 (Unaudited) F-19
Condensed Statements of Cash Flows
Six Months Ended December 31, 1997 and 1996 (Unaudited) F-20/21
Notes to Condensed Financial Statements (Unaudited) F-22/25
* * *
F-1
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANT
-------------------------------------
To the Board of Directors and Stockholders
DelSoft Consulting, Inc.
I have audited the accompanying balance sheet of DelSoft Consulting,
Inc. as of June 30, 1997 and the related statements of income,
stockholders' equity and cash flows for the period from July 1, 1996
(date of inception) to June 30, 1997. These financial statements are
the responsibility of the Company's management. My responsibility is
to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe
that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of DelSoft
Consulting, Inc. as of June 30, 1997 and the results of its operations
and its cash flows for the period from July 1, 1996 (date of inception)
to June 30, 1997, in conformity with generally accepted accounting
principles.
Allen P. Fields, CPA
Atlanta, Georgia
September 19, 1997, except for
Note 10 Commitments and Contingencies
(Executive Incentive Compensation Plan),
which is dated April 24, 1998.
F-2
<PAGE>
DELSOFT CONSULTING, INC.
BALANCE SHEET
JUNE 30, 1997
ASSETS
------
Current assets:
Cash $ 197,514
Accounts receivable, net of allowance for doubtful
accounts of $3,750 865,774
Deferred tax assets 14,140
Other current assets 29,368
----------
Total current assets 1,106,796
Equipment and furnishings, net of accumulated depreciation 96,661
Capitalized software development costs, net of accumulated
amortization 135,963
Other assets 15,321
----------
Total $1,354,741
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 489,316
Current portion of long-term debt 18,437
Accounts payable 384,986
Accrued compensation and sundry liabilities 285,156
Income taxes payable 11,700
----------
Total current liabilities 1,189,595
Long-term debt, net of current portion 16,247
Deferred tax liabilities 63,640
----------
Total liabilities 1,269,482
----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 20,000,000 shares
authorized; 10,013,316 shares issued and
outstanding 260,777
Stock subscription receivable for 75,000 shares (250,000)
Retained earnings 74,482
----------
Total stockholders' equity 85,259
----------
Total $1,354,741
==========
See Notes to Financial Statements.
F-3
<PAGE>
DELSOFT CONSULTING, INC.
STATEMENT OF INCOME
PERIOD FROM JULY 1, 1996
(DATE OF INCEPTION) TO JUNE 30, 1997
Gross revenues $6,124,133
Direct project costs 4,784,351
----------
Net revenues 1,339,782
----------
Expenses:
Selling, general and administrative expenses 1,188,416
Interest expense 15,684
----------
Total 1,204,100
----------
Income before provision for income taxes 135,682
Provision for income taxes 61,200
----------
Net income $ 74,482
==========
Earnings per share - basic $ .01
==========
Weighted average common shares outstanding - basic 10,013,316
==========
See Notes to Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
DELSOFT CONSULTING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JULY 1, 1996 (DATE OF INCEPTION) TO JUNE 30, 1997
Common Stock
-------------------------
Stock Total
Number of Subscription Retained Stockholders'
Shares Amount Receivable Earnings Equity
----------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Initial issuance of shares of
common stock 8,300,000 $ 498 $ 498
Issuance of shares of common
stock in connection with
Pyke Corp. merger 1,713,316 10,279 10,279
Subscription for purchase of
75,000 shares of common stock 250,000 $(250,000)
$74,482 74,482
Net income ---------- -------- ---------- ------- -------
Balance, June 30, 1997 10,013,316 $260,777 $(250,000) $74,482 $85,259
========== ======== ========== ======= =======
</TABLE>
See Notes to Financial Statements.
F-5<PAGE>
DELSOFT CONSULTING, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1996 (DATE OF INCEPTION)
TO JUNE 30, 1997
Operating activities:
Net income $ 74,482
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 9,967
Provision for bad debts 3,750
Deferred income taxes 49,500
Changes in operating assets and liabilities:
Accounts receivable (869,524)
Other current assets (29,368)
Other assets (15,321)
Accounts payable 384,986
Accrued compensation and sundry liabilities 285,156
Income taxes payable 11,700
---------
Net cash used in operating activities (94,672)
Investing activities:
Net cash received through Pyke Corp. merger 10,279
Capital expenditures (85,393)
Capitalized software development costs (135,963)
---------
Net cash used in investing activities (211,077)
---------
Financing activities:
Net proceeds from line of credit borrowings 489,316
Proceeds from long-term borrowings 15,000
Repayments of long-term borrowings (1,551)
Net proceeds from issuances of common stock 498
---------
Net cash provided by financing activities 503,263
---------
Net increase in cash and cash balance, end of period $ 197,514
=========
Supplemental disclosure of cash flow data:
Interest paid $ 14,934
=========
Supplemental disclosure of noncash investing and
financing activities:
During fiscal 1997, the Company purchased equipment
at a cost of, and issued long-term obligations in the
principal amount of, $21,235.
See Notes to Financial Statements.
F-6
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
Delsoft Consulting, Inc. (the "Company"), which was
incorporated on July 1, 1996, provides customized
software solutions, system integration and
development services to large commercial enterprises
throughout the United States. The Company uses June
30 as its fiscal year end. The period from inception
to June 30, 1997 is referred to herein as fiscal
1997.
Merger:
On November 13, 1996, the Company entered into an
Agreement and Plan of Merger (the "Merger
Agreement") with Pyke Corp. ("Pyke"). Under the
Merger Agreement, the Company issued 1,713,316
shares of its common stock to the stockholders of
Pyke to acquire all of the shares of Pyke's common
stock then outstanding (all references to numbers of
shares and per share amounts in these notes and the
accompanying financial statements have been
retroactively restated for a 9-for-1 stock split
effected by the Company in November 1996) and Pyke
was merged with the Company (the "Merger"). At the
time of the Merger, Pyke was a publicly-traded shell
corporation with no previous operations of a
commercial nature. Pyke had a cash balance of
$10,279 and no other assets or liabilities.
The acquisition was accounted for as a purchase.
Accordingly, the historical financial statements
prior to November 13, 1996 are those of the Company.
Since Pyke did not have any operations and there was
no market for the shares of common stock that were
exchanged, the shares issued by the Company were
valued at Pyke's net asset value of $10,279 as of
the date of the Merger. Information as to the
unaudited pro forma results of operations of the
Company and Pyke assuming the Merger had been
consummated on July 1, 1996 (the date of the
Company's inception) has not been presented because
such information would not differ materially from
the information in the accompanying fiscal 1997
historical statement of operations of the Company
included herein.
Use of estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
F-7<PAGE>
Note 1 - Business and summary of accounting policies:
Equipment and furnishings:
Equipment and furnishings are stated at cost, net of
accumulated depreciation. Provision is made for
depreciation of equipment and furnishings under the
straight-line method by annual charges to operations over
their estimated useful lives.
Capitalized software development costs:
Pursuant to Statement of Financial Accounting Standards
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED, the Company is
required to charge the costs of creating a computer
software product to research and development expense as
incurred until the technological feasibility of the
product has been established; thereafter, all related
software development and production costs are required to
be capitalized.
Commencing upon the initial release of a product,
capitalized software development costs and any costs of
related purchased software are generally required to be
amortized over the estimated economic life of the product
based on current and future revenues. Thereafter,
capitalized software development costs and costs of
purchased software are reported at the lower of
unamortized cost or estimated net realizable value. Due
to the inherent technological changes in the software
development industry, the amortization period may have to
be accelerated.
The software development costs capitalized by the Company
in fiscal 1997 were related to its "Year 2000 Hyperdating
Methodology" product for which technological feasibility
was established in July 1997. Management estimates that
the initial release for this product will occur
subsequent to December 31, 1997. Accordingly, the
capitalized costs were not amortized during fiscal 1997.
In addition, costs charged to research and development
expenses prior to the establishment of feasibility were
not material.
Advertising:
The Company expenses the cost of advertising and
promotions as incurred. Advertising costs charged to
operations were not material during fiscal 1997.
Earnings per share:
The Company has presented earnings per share in the
accompanying fiscal 1997 statement of income based on the
retroactive adoption of the provisions of Statement of
Financial Accounting Standards No. 128, EARNINGS PER
SHARE ("SFAS 128"). SFAS 128 has replaced the
presentation of "primary" and "fully-diluted" earnings
per common share required under previously promulgated
accounting standards with the presentation of "basic" and
"diluted" earnings per common share.
F-8<PAGE>
Note 1 - Business and summary of accounting policies:
Basic earnings per common share is calculated by dividing
net income by the weighted average number of common
shares outstanding during the period. The calculation of
diluted earnings per common share is similar to that of
basic earnings per common share, except that the
denominator is increased to include the number of
additional common shares that would have been outstanding
if all potentially dilutive common shares, such as those
issuable upon the exercise of stock options and warrants,
were issued during the period.
For the purpose of computing the weighted average number
of common shares outstanding during fiscal 1997, the
1,713,316 shares issued in connection with the Merger in
November 1996 have been retroactively included as if they
were outstanding as of July 1, 1996. The assumed
exercise of all of the Company's warrants and the
application of the treasury stock method had an
insignificant effect on the weighted average number of
common shares outstanding during fiscal 1997 and,
accordingly, diluted earnings per share does not differ
from the amount presented for basic earnings per share.
In addition, the amount presented for basic earnings per
share does not differ from the amounts of primary and
fully-diluted earnings per share computed under
previously promulgated accounting standards.
Stock options:
In accordance with the provisions of Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES ("APB 25"), the Company will recognize
compensation costs as a result of the issuance of stock
options based on the excess, if any, of the fair value of
the underlying stock at the date of grant or award (or at
an appropriate subsequent measurement date) over the
amount the employee must pay to acquire the stock.
Therefore, the Company will not be required to recognize
compensation expense as a result of any grants of stock
options at an exercise price that is equivalent to or
greater than fair value. The Company will also make pro
forma disclosures, as required by Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), of net income or loss as if a
fair value based method of accounting for stock options
had been applied instead if such amounts differ
materially from the historical amounts.
F-9<PAGE>
Note 1 - Business and summary of accounting policies:
Income taxes:
The Company accounts for income taxes pursuant to the
asset and liability method which requires deferred income
tax assets and liabilities be computed annually for
differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
Note 2 - Equipment and furnishings:
Equipment and furnishings consisted of the following as
of June 30, 1997:
Range of
Estimated
Useful
Lives Amount
--------- ------
Equipment 3-7 years $ 85,737
Furnishings 7 years 19,514
--------
105,251
Less accumulated depreciation 8,590
--------
Total $ 96,661
========
Note 3 - Note payable to bank:
At June 30, 1997, the Company had a revolving credit
agreement with Emergent Financial Corp. that allowed
maximum borrowings of $500,000. On August 29, 1997, the
maximum borrowings allowed under the credit line were
increased to $1,000,000. Borrowings bear interest, which
is payable monthly, at the higher of 2% above the prime
rate or 9%. Outstanding borrowings are secured by
substantially all of the Company's assets.
The revolving credit agreement contains certain
restrictive covenants which, among other things, require
the maintenance of certain financial ratios and limit
payments of cash dividends and capital expenditures. The
lender has agreed to waive certain of these covenants
until July 1, 1998.
F-10<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 4 - Long-term debt:
Long-term debt consisted of the following as of June 30,
1997:
8.5% note payable to stockholder (A) $15,000
Equipment loan (B) 19,684
-------
34,684
Less current portion 18,437
-------
Long-term debt $16,247
(A) The balance arose from an advance the
Company received during December 1996 and repaid
in July 1997.
(B) The loan is payable in monthly installments
of $493, including interest at 13.65%, through
December 2001, and secured by equipment with a
net book value that approximated the outstanding
balance of the loan.
Principal payment requirements for long-term obligations
in each of the five years subsequent to June 30, 1997
total $18,437 in 1998; $3,936 in 1999; $4,509 in 2000;
$5,164 in 2001; and $2,638 in 2002.
Management of the Company believes that the note payable
to bank and the equipment loan had carrying values that
approximated their fair values as of June 30, 1997
because the interest rates and other relevant terms of
such financial instruments were the equivalent of those
that the Company could have obtained for new loans as of
that date.
F-11<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 5 - Related party transactions:
Certain stockholders, who owned approximately 56% of the
Company's common stock as of June 30, 1997, are also
directors and were previously officers of the Company.
These stockholders also own a controlling interest in,
and are officers and directors of, Bridgton Consulting,
Inc. ("Bridgton"). Bridgton's business activities are
similar to those of the Company's and it has many of the
same customers and vendors. The Company and Bridgton
occupy the same office facilities.
During fiscal 1997, the Company billed Bridgton approximately
$349,000 for the services of its programmers and engineers and
realized a gross profit of approximately $63,000 on such
billings. During fiscal 1997, Bridgton billed the Company
approximately $406,000 for the services of its programmers and
engineers and, based on information provided by the management
of Bridgton, realized a gross profit of approximately $97,000.
Bridgton also billed the Company approximately $81,000 for
reimbursement of overhead expenses it incurred on behalf of
the Company and approximately $10,000 for its historical
carrying value of equipment it transferred to the Company. At
June 30, 1997, Bridgton owed the Company approximately $5,400
which was included in accounts receivable.
The management of Bridgton has informed the management of the
Company that Bridgton will cease operations during 1998.
F-12<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Provision for income taxes:
Income taxes were provided in fiscal 1997 as follows:
Federal:
Current $ 8,300
Deferred 42,000
-------
50,300
-------
State:
Current 3,400
Deferred 7,500
-------
10,900
-------
Total $61,200
=======
At June 30, 1997, deferred tax assets and liabilities were
attributable to the following:
Deferred tax assets:
Provision for
doubtful accounts $ 1,500
Accrued vacation expenses 12,640
--------
Total 14,140
--------
Deferred tax liabilities:
Depreciation expense (9,185)
Write-off of capitalized software
development costs (54,455)
--------
Total (63,640)
--------
Net deferred tax liabilities $(49,500)
========
The provision for income taxes in fiscal 1997 differs from the
amount computed using the Federal statutory rate of 34% as a
result of the following:
Tax at Federal statutory rate 34%
State income taxes, net of
Federal income tax effect 2
Effect of nondeductible expenses 11
Other (primarily surtax exemptions) (2)
--
Effective tax rate 45%
==
F-13<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Stock option plan:
On July 1, 996, the Board of Directors approved the Company's
Stock Option Plan (the "Plan") whereby, subject to ratification
of the Plan by the Company's stockholders, incentive and/or
nonincentive stock options for the purchase of up to 2,000,000
shares of the Company's common stock may be granted to key
executives, other members of management, other employees and
directors of the Company. Under the Plan, the exercise price
of all options must be at least 100% of the fair market value
of the common stock on the date of grant (the exercise price
of an incentive stock option for an optionee that holds more than
ten percent of the combined voting power of all classes of stock
of the Company must be at least 110% of the fair market value on
the date of grant). The maximum term of an option may not exceed
ten years. The actual term of each option and the manner of
exercise are determined by the Board of Directors.
During fiscal 1997, the Company granted options under the Plan
for the purchase of 651,250 shares of its common stock at an
exercise price of $2.00 per share (the approximate fair market
value at the date of grant) and a term of ten years, all of which
were outstanding as of June 30, 1997. As of June 30, 1997,
options for the purchase of 210,000 shares are exercisable and
options for the purchase of 130,500 shares, 117,750 shares,
118,000 shares and 75,000 shares will vest and become
exercisable in the fiscal years ending June 30, 1998, 1999,
2000 and 2001, respectively.
Since the Company has elected to continue to use the provisions
of APB 25 in accounting for its stock options and the exercisable
price of all of the options granted approximated the fair market
at the date of grant, no earned or unearned compensation cost was
recognized in the accompanying statement of income for stock
options granted in fiscal 1997. Had compensation cost for the
stock options granted in fiscal 1997 been determined based on the
fair value of the options at the grant date under the provisions
of SFAS 123, the Company's net income and earnings per share
would have been reduced from the amounts reported in the
accompanying statements of income as shown below:
Net income - as reported $74,482
Net income - pro forma 44,452
Basic earnings per share - as reported .01
Basic earnings per share - pro forma -
The fair value of each option granted in fiscal 1997 was
estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions:
risk-free interest rate of 6.3%; expected option lives of ten
years; expected volatility of 40.0%; and expected dividends of 0%.
F-14<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stock purchase warrants:
On January 7, 1997, the Company issued two warrants to
purchase an aggregate of 15,000 shares of common stock at $1
per share to a lender as part of the consideration for a loan
made to the Company. The warrants became exercisable on the
date they were issued and will expire on December 31, 1999.
The estimated fair market value of the warrants on the date of
issuance was not material.
Note 9 - Stock subscription receivable:
An investor subscribed to purchase 75,000 shares of common
stock from the Company for an aggregate purchase price of
$250,000 during June 1997 and paid for the shares during July
1997.
Note 10 - Commitments and contingencies:
Consulting Agreements:
The Company has entered into consulting agreements with two of
its former officers (who are also members of its Board of
Directors) which obligate the Company to make aggregate payments
of $180,000 in 1998; $164,000 in 1999; and $24,000 in 2000.
Employment Agreements:
The Company has entered into employment agreements with two of
its key executives which obligate the Company to make aggregate
payments of approximately $233,000 in 1998; $256,000 in 1999;
$269,000 in 2000; $282,000 in 2001; and $80,000 in 2002.
Executive incentive compensation plan:
On July 1, 1996, the Company adopted, and on July 1, 1997, the
Company terminated, an executive incentive compensation plan
(the "Incentive Plan") that was administered by the Company's
Board of Directors. Under the terms of the Incentive Plan, a
participant was going to earn incentive compensation, which
would have been paid in cash and/or common stock of the Company,
based on, among other things, the percentage increase in the
Company's billable hours, gross revenues and profitability over
the corresponding amounts applicable to the preceding fiscal
year. Since fiscal 1997 was the base year and the Incentive
Plan was terminated as of the beginning of fiscal 1998, by a
resolution made by the Board of Directors dated April 24, 1998,
no amounts have been or will be charged to compensation based on
the terms of the Incentive Plan.
Lease:
During the period from July 1, 1996 through December 20, 1996,
the Company leased its office space for $1,000 per month from
certain Stockholders. During December 1996, the Company entered
into agreements with an unrelated lessor whereby it temporarily
leased office space on a month-to-month basis from December 21,
1996 through April 30, 1997 and moved into new office facilities
on May 1, 1997 under a noncancelable operating lease which
F-15<PAGE>
expires on April 30, 2000. The Company has a one-year renewal
option. Minimum annual rental commitments under the
noncancelable lease for periods after June 30, 1997 aggregate
$89,572 which is payable as follows: $30,250 in 1998; $31,762
in 1999; and $27,560 in 2000. The lease also requires the
Company to pay all operating expenses. Rent expense charged to
operations under all of the leases aggregated $16,035 in 1997.
Venture capital agreement:
On October 4, 1996, a venture capital group (the "Group") agreed
to assist the Company in finding and acquiring a publicly-
traded shell company; assist he Company in obtaining the
approvals necessary for the quotation and trading of the
Company's common stock on the NASDAQ Bulletin Board; and, upon
the completion of the acquisition and the commencement of
quotation and trading of the Company's common stock, contribute
$550,000 to the Company's capital or obtain equity financing
totaling at least $550,000 for the Company. In exchange, the
Company agreed to pay the Group $50,000 once the equity
financing and the other services had been provided.
As of June 30, 1997, the Group had assisted the Company in
consummating the acquisition of Pyke, which had been a publicly
traded, shell company, and obtaining the necessary approvals for
the quotation and trading of the Company's common stock on the
NASDAQ Bulletin Board. The members of the Group had been
stockholders of Pyke, and they or their nominees had received
a total of 1,356,664 shares of the Company's common stock as a
result of the Merger with Pyke. However, as of June 30, 1997,
the Group had not fulfilled its commitment to provide the Company
with $550,000 of equity financing. Management of the Company
cannot provide any assurance that the Group will be able to
fulfill its commitment, and it is considering what legal or
equitable actions to take against the members of the Group.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
trade accounts receivable. The Company maintains its cash
balances with high quality financial institutions. At times,
such balances may exceed Federally insured limits.
During 1997, approximately 68% of the Company's net revenues
were derived from two customers who also accounted for
approximately 51% of its accounts receivable balance at June
30, 1997. The Company closely monitors the extension of credit
to its customers while maintaining appropriate allowances for
potential credit losses. Accordingly, management does not
believe that the Company was exposed to significant credit
risk at June 30, 1997.
F-16<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
ASSETS
------
Current assets:
Cash $ 6,447
Accounts receivable, net of allowance for doubtful
accounts of $3,750 1,519,302
Deferred tax assets 14,140
Other current assets 475,079
----------
Total current assets 2,014,968
Equipment and furnishings, net of accumulated depreciation 193,568
Capitalized software development costs, net of accumulated
amortization 135,963
Other assets 15,113
----------
Total $ 2,359,612
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable to bank $ 795,556
Current portion of long-term debt 30,331
Accounts payable 221,575
Accrued compensation and sundry liabilities 285,255
Income taxes payable 16,949
----------
Total current liabilities 1,349,666
Long-term debt, net of current portion 64,456
Deferred tax liabilities 60,562
----------
Total liabilities 1,474,684
----------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value; 100,000,000 shares
authorized; 10,188,316 shares issued and
outstanding 665,777
Retained earnings 219,151
----------
Total stockholders' equity 884,928
----------
Total $ 2,359,612
===========
See Notes to Condensed Financial Statements.
F-17<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENTS OF INCOME
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
----------- -----------
Gross revenues $ 5,150,580 $ 2,968,369
Direct project costs 3,906,624 2,145,355
----------- -----------
Net revenues 1,243,956 823,014
----------- -----------
Expenses:
Selling, general and
administrative expenses 950,003 647,026
Interest expense 74,863 0
----------- -----------
Totals 1,024,866 647,026
----------- -----------
Income before provision for
income taxes 219,090 175,988
Provision for income taxes 74,421 51,762
----------- -----------
Net income $ 144,669 $ 124,226
=========== ===========
Earnings per share - basic $ .01 $ .01
=========== ===========
Weighted average common
shares outstanding - basic 10,108,697 10,013,316
=========== ===========
See Notes to Condensed Financial Statements.
F-18<PAGE>
<TABLE>
<CAPTION>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED DECEMBER 31, 1997
(Unaudited)
Common Stock
-------------------------- Stock Total
Number of Subscription Retained Stockholders'
Shares Amount Receivable Earnings Equity
--------- ------ ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1997 10,013,316 $ 260,777 $ (250,000) $ 74,482 $ 85,259
Issuance of shares upon receipt
of proceeds from subscriptions
receivable 75,000 250,000 250,000
Issuance of shares for services 100,000 405,000 405,000
144,669 144,669
Net income ---------- ---------- ---------- ---------- ---------
Balance, December 31, 1997 10,188,316 $ 665,777 $ -- $ 219,151 $ 884,928
========== ========== ========== ========== =========
</TABLE>
See Notes to Condensed Financial Statements.
F-19<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
1997 1996
------ ------
Operating activities:
Net income $144,669 $124,226
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation 22,989 909
Deferred income taxes (3,078) 5,435
Changes in operating assets and liabilities:
Accounts receivable (653,528) (582,516)
Other current assets (40,711) (698)
Other assets 208 (9,985)
Accounts payable (163,411) 575,925
Accrued compensation and sundry
liabilities 99 102,606
Income taxes payable 5,249 46,376
--------- --------
Net cash provided by (used in)
operating activities (687,514) 262,278
--------- --------
Investing activities:
Net cash received through Pyke Corp. merger 10,279
Capital expenditures (21,851) (6,000)
Capitalized software development costs (13,475)
--------- --------
Net cash used in investing
activities (21,851) (9,196)
--------- --------
Financing activities:
Repayment of long-term borrowings (37,942)
Net proceeds from the issuances of
common stock 306,240 498
Net proceeds from line of credit
borrowings 250,000 15,000
--------- --------
Net cash provided by financing
activities 518,298 15,498
--------- --------
Net increase (decrease) in cash (191,067) 268,580
Cash, beginning of period 197,514 --
--------- --------
Cash, end of period $ 6,447 $ 268,580
========= =========
Supplemental disclosure of cash flow data:
Interest paid $ 35,811
=========
Income taxes paid $ 56,200
=========
F-20<PAGE>
DELSOFT CONSULTING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(Unaudited)
Supplemental schedule of noncash investing and financing activities:
During the six months ended December 31, 1997 and 1996, the Company
purchased equipment at a cost of, and issued long-term obligations in the
principal amount of, $98,045 and $21,235, respectively.
During the six months ended December 31, 1997, the Company increased
both other current assets and common stock by $405,000, which was the
fair value of 100,000 shares of common stock issued in exchange for
advertising and promotional services that will be provided to the Company
over a twelve month period that will commence in April 1998.
See Notes to Condensed Financial Statements.
F-21
<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited
condensed financial statements reflect all adjustments,
consisting of normal recurring accruals, necessary to present
fairly the financial position of Delsoft Consulting, Inc.
(the "Company") as of December 31, 1997, its results of
operations and cash flows for the six months ended December
31, 1997 and 1996 and its changes in stockholders' equity
for the six months ended December 31, 1997. Certain terms
used herein are defined in the audited financial statements
of the Company as of June 30, 1997 and for the period from
July 1, 1996 (date of inception) to June 30, 1997 (the
"Audited Financial Statements") also included elsewhere
herein. Accordingly, these unaudited condensed financial
statements should be read in conjunction with the Audited
Financial Statements and the other financial statements
included herein.
The results of operations for the six months ended December
31, 1997 are not necessarily indicative of the results of
operations for the full year ending June 30, 1998.
Note 2 - Equipment and furnishings:
Equipment and furnishings consisted of the following as of
December 31, 1997:
Range of
Estimated
Useful
Lives Amount
---------- ------
Equipment 3-7 years $198,218
Furnishings 7 years 21,936
--------
220,154
Less accumulated depreciation 26,586
--------
Total $193,568
========
F-22<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Long-term debt:
At December 31, 1997, long-term debt consisted of equipment
loans totaling $94,787 which are payable in monthly
installments and bear interest at rates ranging from 7.6% to
8.81%. The loans were secured by equipment with a net book
value of approximately $114,000.
Principal payment requirements for long-term obligations in
each of the years subsequent to December 31, 1997 total
$30,331 in 1998; $32,917 in 1999; and $31,539 in 2000.
See Note 4 of the notes to the Audited Financial Statements
for additional information regarding long-term debt.
Note 4 - Related party transactions:
During the six months ended December 31, 1997, the Company
billed Bridgton (see Note 5 of the notes to the Audited
Financial Statements) approximately $139,000 for the services
of its programmers and engineers and realized a gross profit
of approximately $25,000 on such billings. During the six
months ended December 31, 1997, Bridgton billed the Company
approximately $309,000 for the services of its programmers
and engineers and, based on information provided by the
management of Bridgton, realized a gross profit of
approximately $62,000. Bridgton also billed the Company
approximately $50,000 for reimbursement of over-head
expenses. At December 31, 1997, Bridgton owed the Company
approximately $10,700 which was included in accounts
receivable.
F-23<PAGE>
DELSOFT CONSULTING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Provision for income taxes:
Income taxes were provided in the six months ended December
31, 1997 and 1996 as follows:
1997 1996
------- -------
Federal:
Current $61,887 $35,755
Deferred (credit) (3,078) 5,435
------- -------
58,809 41,190
State - current 15,612 10,572
------- -------
Totals $74,421 $51,762
======= =======
At December 31, 1997, deferred tax assets and liabilities
were attributable to the following:
Deferred tax assets:
Provision for doubtful accounts $ 1,500
Accrued vacation expenses 12,640
--------
Total 14,140
--------
Deferred tax liabilities:
Depreciation expense (6,107)
Write-off of capitalized software
development costs (54,455)
--------
Total (60,562)
--------
Net deferred liabilities $(46,422)
========
The provision for income taxes differs from the amount
computed using the Federal statutory rate of 34% for the six
months ended December 31, 1997 and 1996 as a result of the
following:
1997 1996
-------- --------
Tax at Federal statutory rate 34% 34%
State income taxes, net of
Federal income tax effect 5 4
Other (primarily surtax
exemptions) (5) (9)
-- --
Effective tax rate 34% 29%
== ==
F-24<PAGE>
Note 6 - Stock option plan:
On November 22, 1997, the Company's stockholders ratified
the Stock Option Plan that had been approved by the Board of
Directors in 1997. As of December 31, 1997, options for the
purchase of 651,250 shares of common stock were still
outstanding; options for the purchase of 265,500 shares were
exercisable; and options for the purchase of 250,000 shares,
117,500 shares, 118,000 shares and 75,000 shares will vest and
become exercisable in the fiscal years ending 1998, 1999, 2000
and 2001, respectively (see Note 7 of the notes to the Audited
Financial Statements).
Note 7 - Lease commitments:
Rent expense charged to operations under all of the Company's
leases aggregated approximately $15,000 in the six months
ended December 31, 1997 (see Note 10 of the notes to the
Audited Financial Statements).
Note 8 - Venture capital agreement:
As of December 31, 1997, the Group had not fulfilled its
commitment to provide the Company with $550,000 of equity
financing pursuant to their October 4, 1996 agreement (see
Note 10 of the notes to the Audited Financial Statements).
Note 9 - Concentrations of credit risk:
During the six months ended December 31, 1997, approximately
66% of the Company's net revenues were derived from two
customers who also accounted for approximately 60% of its
accounts receivable balance at December 31, 1997 (see Note
10 of the notes to the Audited Financial Statements).
Note 10- Earnings per share:
For the purpose of computing the weighted average number of
common shares outstanding during the six months ended
December 31, 1996, the 1,713,316 shares issued in connection
with the Merger in November 1996 have been retroactively
included as if they were outstanding as of July 1, 1996.
The assumed exercise of all of the Company's stock options
and warrants and the application of the treasury stock
method had an insignificant effect on the weighted average
number of common shares outstanding during the six months
ended December 31, 1997 and 1996 and, accordingly, diluted
earnings per share does not differ from the amounts
presented for basic earnings per share. In addition, the
amounts presented for basic earnings per share do not differ
from the amounts of primary and fully-diluted earnings per
share computed under previously promulgated accounting
standards.
F-25<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
ITEM 2. DESCRIPTION OF EXHIBITS.
2 Agreement and Plan of Merger, dated November 13, 1996, by and
between the Company and Pyke Corp.
3.1 Articles of Incorporation*
3.2 Bylaws
4 Form of Common Stock Certificate of the Company*
10.1 Lease Agreement, dated December 20, 1996 by and between the
Company and VPB Realty
10.2 Subcontractor Agreement, dated July 1, 1996, by and between the
Company and Bridgton, Inc.
10.3 Loan and Security Agreement, dated February 18, 1997, by and
between the Company and Emergent Financial Corp.
10.4 Employment Agreement, dated August 5, 1997, by and between the
Company and Michael Osso
10.5 Employment Agreement, dated July 1, 1996, by and between the
Company and Adil Choksey
10.6 Employment Agreement, dated July 1, 1996, by and between the
Company and Jeffrey A. Rinde
10.7 Consulting Agreement, dated September 1, 1997, by and between the
Company and Jerry Rosemeyer
10.8 Consulting Agreement, dated June 18, 1997, by and between the
Company and Benjamin J. Giacchino
10.9 Delsoft Consulting, Inc. Stock Option Plan
27 Financial Data Schedule (For SEC use only)
_____________
* To be filed by Amendment.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of
1934, the registrant caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELSOFT CONSULTING, INC.
By: __________________________________
Name: Michael Osso
Title: President
Date: April 30, 1998
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the
"Merger Agreement") is made effective as of November 1996, by and
between DelSoft Consulting, Inc., a Georgia corporation ("DelSoft"),
and Pyke Corp., a Delaware corporation ("Pyke"). DelSoft and Pyke
are sometimes referred to as the "Constituent Corporations," with
reference to the following facts:
A. The authorized capital stock of DelSoft consists of
20,000,000 shares of no par value common stock. The authorized
capital stock of Pyke consists of 20,000,000 shares of common stock,
$.001 par value.
B. There are 8,300,000 shares of common stock of DelSoft
issued and outstanding.
C. Pyke has no subsidiaries, and has a total of 10,279,216
shares of common stock issued and outstanding, and there are no
options or other rights to acquire any newly issued shares available
to any person.
D. The directors of the Constituent Corporations deem it
advisable and to the advantage of such corporations that Pyke merge
into DelSoft upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of merger
encompassed by this Merger Agreement and do hereby agree that Pyke
shall merge with and into DelSoft on the following terms, conditions
and other provisions:
1. TERMS AND CONDITIONS
1.1 MERGER. Pyke shall be merged with and into DelSoft (the
"Merger"), and DelSoft shall be the surviving corporation (the
"Surviving Corporation") effective upon the date when this Merger
Agreement or a Certificate of Merge is filed with the Secretary of
State of the states of Delaware and Georgia (the "Effective Date"),
1.2 SUCCESSION. On the Effective Date, DelSoft shall continue
its corporate existence under the law of the State of Georgia, and
the separate existence and corporate organization of Pyke, except
insofar as it may be continued by operation of law, shall be
terminated and cease.
1.3 TRANSFER OF ASSETS AND LIABILITIES. On the Effective
Date, the rights, privileges, powers and franchises, both of a
<PAGE>
public as well as of a private nature, of each of the Constituent
Corporations shall be vested in and possessed by the Surviving
Corporation, subject to all of the disabilities, duties and
restrictions of or upon each of the Constituent Corporations;
and all singular rights, privileges, powers and franchises of each
of the Constituent Corporations, and all property, real, personal
and mixed, of each of the Constituent Corporations, and all debts
due to each of the Constituent Corporations on whatever account, and
all things in action or belonging to each of the Constituent
Corporations shall be transferred to and vested in the Surviving
Corporation, and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter
the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by
deed or otherwise in either of the Constituent Corporations shall
not revert or be in any way impaired by reason of the Merger;
provided, however, that the liabilities of the Constituent
Corporations and of their stockholders, directors and officers shall
not be affected and all rights of creditors and all liens upon any
property of either of the Constituent Corporations shall be
preserved unimpaired, and any claim existing or action or proceeding
pending by or against either of the Constituent Corporations may be
prosecuted to judgments as if the Merger had not taken place except
as they may be modified with the consent of such creditors and all
debts, liabilities and duties of or upon each of the Constituent
Corporations shall attach to the Surviving Corporation, and may be
enforced against it to the same extent as if such debts liabilities
and duties had been incurred or contracted by it.
1.4 MANNER OF ACCOMPLISHING MERGER. The Merger shall be
accomplished by way of the exchange of 100% of the issued and
outstanding shares of Pyke for common stock of DelSoft, at the ratio
of one share of DelSoft for each six shares of Pyke outstanding on
the effective date of the Merger (1 for 6). The transfer agent will
automatically be instructed to issue new certificates of DelSoft,
based on the above ratio, to each of the shareholders of Pyke, at
the address listed in the register of Pyke shareholders. No
fractional shares will be issued, but each fractional share will be
rounded up to the next share and a certificate for DelSoft will be
issued to each record holder of Pyke accordingly. The exchange will
be accomplished pursuant to an exemption from registration provided
by Regulation D, Section 504 in each state where said exemption or a
registration of the issuance can be accomplished. In each state
where an exemption from registration is not available pursuant to
Rule 504 of Regulation D or some other available exemption from
registration which can be reasonably complied with, DelSoft shall
issue cash in lieu of the exchanged securities of Pyke at $.01 per
share exchanged.
1.5 RIGHTS OF APPRAISAL. This Merger shall be subject to the
rights of appraisal granted to the shareholders of Pyke in
accordance with the General Corporation Law of the State of
Delaware. Should more than ten percent (10%) of the shareholders of
Pyke, regardless of the number of shares owned, seek to enforce
their rights of appraisal, the Merger shall be deemed canceled and
all parties relieved of any obligation pursuant to this Agreement.
1.6 OBLIGATIONS OF PYKE NOT TO ISSUE ITS SECURITIES. As of
the date of this Merger Agreement and until the date of closing,
Pyke shall not issue any additional shares of its common stock to
any person or entity whatsoever, including as a result of having
previously issued any warrants to acquire common stock, any options
to acquire its securities as a result of any employee stock option
2
<PAGE>
plan or otherwise, or pursuant to any employee benefit plan. Pyke
further represents that the capitalization, as set forth in
paragraph C of the preamble of this Agreement, is true and accurate
in all respects.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate
of Incorporation of DelSoft in effect on the Effective Date shall
continue to be the Certificate of Incorporation of the Surviving
Corporation. The Bylaws of DelSoft shall be the Bylaws of the
Surviving Corporation, as they may be amended from time to time.
2.2 DIRECTORS. The directors of DelSoft immediately preceding
the Effective Date shall become the directors of the Surviving
Corporation on and after the Effective Date to serve until the
expiration of their terms and until their successors are elected and
qualified.
2.3 OFFICERS. The officers of DelSoft immediately preceding
the Effective Date shall become the officers of the Surviving
Corporation on and after the Effective Date to serve at the pleasure
of its Board of Directors.
3. MISCELLANEOUS
3.1 FURTHER ASSURANCES. From time to time, and when required
by the Surviving Corporation or by its successors and assigns, there
shall be executed and delivered on behalf of Pyke such deeds and
other instruments, and there shall be taken or caused to be taken by
it such further and other action as shall be appropriate or
necessary in order to vest or perfect in or to conform of record or
otherwise, in the Surviving Corporation the title to and possession
of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of Pyke and otherwise
to carry out the purposes of this Merger Agreement, and the officers
and directors of the Surviving Corporation are fully authorized in
the name and on behalf of Pyke or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other
instruments.
3.2 AMENDMENT. At any time before or after approval by the
stockholders of Pyke, this Merger Agreement may be amended in any
manner (except that, after the approval of the Merger Agreement by
the stockholders of Pyke and DelSoft, the principal terms may not be
amended without the further approval of the stockholders of Pyke and
DelSoft) as may be determined in the judgment of the respective
Board of Directors of DelSoft and Pyke to be necessary, desirable,
or expedient in order to clarify the intention of the parties hereto
or to effect or facilitate the purpose and intent of this Merger
Agreement.
3.3 CONDITIONS TO MERGER. The obligation of the Constituent
Corporations to effect the transactions contemplated hereby is
subject to satisfaction of the following conditions (any or all of
which may be waived by either of the Constituent Corporations in its
sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the
stockholder of Pyke in accordance with applicable provisions of the
General Corporate Law of the State of Delaware; and
3
<PAGE>
(b) any and all consents, permits, authorizations,
approvals, and orders deemed in the sole discretion of either Pyke
or DelSoft to be material to consummation of the Merger shall have
been obtained; and
(c) the securities issued by DelSoft shall be issued
pursuant to an exemption from registration pursuant to the
Securities Act of 1933 (as amended), Regulation D, Section 504, and
the shareholders who reside in certain states which comport with
said Regulation D, Section 504, or other tandem exemptions from
registration, may receive unrestricted securities in exchange for
the securities of Pyke; and
(d) an audit of the books and records of Pyke, conducted
in accordance with generally accepted accounting practices, shall
have been delivered to and approved by DelSoft; and
(e) any other requirements under applicable Delaware or
Georgia laws shall have been satisfied in connection with the
Merger.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective
Date, this Merger Agreement may be terminated and the Merger may be
abandoned by the Board of Directors of either Pyke or DelSoft or
both, notwithstanding the approval of the Merger by the stockholders
of Pyke or DelSoft, or the consummation of the Merger may be
deferred for a reasonable period of time if, in the opinion of the
Board of Directors of Pyke and DelSoft, such action would be in the
best interest of such corporations. In the event of termination of
this Merger Agreement, this Merger Agreement shall become void and
of no effect and there shall be no liability on the part of either
Constituent Corporation or its Board of Directors or stockholders
with respect thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and
recording of this Merger Agreement, the same may be executed in any
number of counterparts, each of which shall be deemed to be an
original.
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IN WITNESS WHEREOF, this Merger Agreement, having first been
duly approved by the Board of Directors of Pyke and DelSoft, is
hereby executed on behalf of each said corporation and attested by
their respective officers thereunto duly authorized.
PYKE CORP.,
a Delaware corporation
By: /s/ James Farinella
-------------------------------
James Farinella, President
ATTEST:
/s/
- --------------------------
- --------------------------
Secretary, Assistant
DELSOFT CONSULTING, INC.,
a Georgia corporation
By: /s/ Jerry Rosemeyer
-------------------------------
Jerry Rosemeyer, President
ATTEST:
/s/ B. Giacchino
- --------------------------
B. Giacchino
- --------------------------
Secretary
5
DELSOFT CONSULTING, INC.
BYLAWS
ARTICLE I
OFFICES
The Corporation shall at all times maintain a registered
office in the State of Georgia and a registered agent at that
address, but may have other offices located within or without the
State of Georgia as the Board of Directors may determine.
ARTICLE II
SHAREHOLDERS' MEETINGS
2.1. ANNUAL MEETING. A meeting of shareholders of the
Corporation shall be held annually. The annual meeting shall be
held at such time and place on such date as the directors shall
determine from time to time and as shall be specified in the
notice of the meeting.
2.2. SPECIAL MEETINGS. Special meetings of the shareholders
may be called at any time by the Board of Directors, the
President or any holder or holders of at least 25 percent of the
outstanding capital stock of the Corporation. Special meetings
shall be held at such a time and place and on such date as shall
be specified in the notice of the meeting.
2.3. PLACE. Annual or special meetings of shareholders may
be held within or without the State of Georgia.
2.4. NOTICE. Notice of annual or special shareholders'
meetings stating the place, day and hour of the meeting shall be
given in writing not less than 10 nor more than 60 days before
the date of the meeting, either mailed to the last known address
or personally given to each shareholder. Notice of any special
meeting of shareholders shall state the purpose or purposes for
which the meeting is called. Notice of any meeting at which
amendments to or restatements of the Articles of Incorporation, a
merger of the Corporation, a share exchange, or the disposition
of corporate assets requiring shareholder approval are to be
considered, shall state such purpose, and further comply with all
requirements of law. Notice of a meeting may be waived by an
instrument in writing executed before or after the meeting. The
waiver need not specify the purpose of the meeting or the
business transacted, unless one of the purposes of the meeting
concerns a plan of merger or consolidation, in which event the
waiver shall comply with the further requirements of law
concerning such waivers. Attendance at such meeting in person or
by proxy shall constitute a waiver of notice thereof unless the
shareholder shall provide written notice to the Corporation prior
to the taking of any action by the shareholders at such meeting
that his attendance is not to be deemed a waiver of the
requirement that such notice be given or of the adequacy of any
notice that may have been given to such shareholder.
2.5. QUORUM. At all meetings of shareholders a majority of
the votes entitled to be cast shall constitute a quorum for the
transaction of business. If a quorum exists, action on a matter
may be taken if within the voting group, the votes cast favoring<PAGE>
the action exceed the votes cast opposing the action. A lesser
number may adjourn from day to day, and shall announce the time
and place to which the meeting is adjourned.
2.6. ACTION IN LIEU OF MEETING. Any action to be taken at a
meeting of the shareholders of the Corporation, or any action
that may be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing setting forth the
action so taken shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof and
any further requirements of law pertaining to such consents have
been complied with.
ARTICLE III
DIRECTORS
3.1. MANAGEMENT. Subject to these Bylaws, or any lawful
agreement between the shareholders, the full and entire
management of the affairs and business of the Corporation shall
be vested in the Board of Directors, which shall have and may
exercise all of the powers that may be exercised or performed by
the Corporation.
3.2. NUMBER OF DIRECTORS. The shareholders shall fix by
resolution the precise number of members of the Board of
Directors. Directors shall be elected at each annual meeting of
the shareholders and shall serve for a term of one year and until
their successors are elected. A majority of said directors shall
constitute a quorum for the transaction of business. All
resolutions adopted and all business transacted by the Board of
Directors shall require the affirmative vote of a majority of the
directors present at the meeting.
3.3. VACANCIES. The place of any director which may become
vacant prior to the expiration of his term may be filled by the
shareholders, by the remaining directors, but if less than a
quorum only by the affirmative vote of a majority of all
remaining directors or by the sole remaining director, as the
case may be. Any such director elected to fill a vacancy shall
be elected for the unexpired term of the director whose place has
become vacant.
3.4. MEETINGS. The directors shall meet annually, without
notice, following the annual meeting of the shareholders.
Special meetings of the directors may be called at any time by
the President or by any director, on two days' written notice to
each director, which notice shall specify the date, time and
place of the meeting. Notice of any such meeting may be waived
by an instrument in writing executed before or after the meeting.
Directors may attend and participate in meetings either in person
or by means of conference telephones or similar communications
equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by
means of such communications equipment shall constitute presence
in person at any meeting. Attendance in person at such meeting
shall constitute a waiver of notice thereof.
3.5. ACTION IN LIEU OF MEETING. Any action to be taken at a
meeting of the directors, or any action that may be taken at a
meeting of the directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be
2
<PAGE>
signed by all of the directors and any further requirements of
law pertaining to such consents have been complied with.
ARTICLE IV
OFFICERS
4.1. GENERAL PROVISIONS. The officers of the Corporation
shall consist of a President, a Secretary, and a Treasurer who
shall be elected by the Board of Directors, and such other
officers as may be elected by the Board of Directors or appointed
as provided in these bylaws. Each officer shall be elected or
appointed for a term of office running until the meeting of the
Board of Directors following the next annual meeting of the
shareholders of the Corporation, or such other term as provided
by resolution of the Board of Directors or the appointment to
office. Each officer shall serve for the term of office for
which he is elected or appointed and until his successor has been
elected or appointed and has qualified or his earlier
resignation, removal from office or death. Any two or more
offices may be held by the same person.
4.2. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall have general and active
management of the operations of the Corporation. He shall be
responsible for the administration of the Corporation, including
general supervision of the policies of the Corporation and
general and active management of the financial affairs of the
Corporation, and shall execute bonds, mortgages or other
contracts in the name and on behalf of the Corporation.
4.3. SECRETARY. The Secretary shall keep minutes of all
meetings of the shareholders and directors and have charge of the
minute books, stock books and seal of the Corporation and shall
perform such other duties and have such other powers as may from
time to time be delegated to him by the President or the Board of
Directors.
4.4. TREASURER. The Treasurer shall be charged with the
management of the financial affairs of the Corporation, shall
have the power to recommend action concerning the Corporation's
affairs to the President, and shall perform such other duties and
have such other powers as may from time to time be delegated to
him by the President or Board of Directors.
4.5. ASSISTANT OFFICERS. Assistants to the Secretary and
Treasurer may be appointed by the President or by the Board of
Directors and shall have such duties as shall be delegated to
them by the President or the Board of Directors.
4.6. VICE PRESIDENTS. The Corporation may have one or more
Vice Presidents, elected by the Board of Directors, who shall
perform such duties as may be delegated by the President or the
Board of Directors.
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<PAGE>
ARTICLE V
CAPITAL STOCK
5.1. SHARE CERTIFICATES. Share certificates shall be
numbered in the order in which they are issued. They shall be
signed by the President and Secretary and the seal of the
Corporation shall be affixed thereto. Share certificates shall
be kept in a book and shall be issued in consecutive order
therefrom. The name of the person owning the shares, the number
of shares, and the date of issue shall be entered on the stub of
each certificate. Share certificates exchanged or returned shall
be canceled by the Secretary and placed in their original place
in the stock book.
5.2. TRANSFERS OF SHARES. Transfers of shares shall be made
on the stock books of the Corporation by the holder in person or
by power of attorney, on surrender of the old certificate for
such shares, duly assigned.
5.3. VOTING. The holders of the capital stock shall be
entitled to one vote for each share of stock standing in their
name.
ARTICLE VI
SEAL
The seal of the Corporation shall be in such form as the
Board of Directors may from time to time determine. In the event
it is inconvenient to use such a seal at any time, the signature
of the Corporation followed by the word "Seal" enclosed in
parentheses or scroll shall be deemed the seal of the
Corporation. The seal shall be in the custody of the Secretary
and affixed by him or by his assistants on the share certificates
and other appropriate papers.
ARTICLE VII
AMENDMENT
These bylaws may be amended by majority vote of the Board of
Directors of the Corporation or by majority vote of the
shareholders, provided that the shareholders may provide by
resolution that any bylaw provision repealed, amended, adopted or
altered by them may not be repealed, amended, adopted or altered
by the Board of Directors.
I HEREBY CERTIFY that the foregoing Bylaws were duly adopted
by the Board of Directors of the Corporation on the 1st day of
July, 1996.
(CORPORATE SEAL)
/s/ Benjamin J. Giacchino
Benjamin J. Giacchino
Secretary
4
LEASE AGREEMENT
THIS LEASE, made this 20th day of December, 1996, by
and between VPB Realty (hereinafter called "Landlord"), and
Delsoft Consulting, Inc. (hereinafter called "Tenant");
W I T N E S S E T H :
1. PREMISES. The Landlord, for and in consideration of
the rents, covenants, agreements, and stipulations hereinafter
mentioned, reserved, and contained, to be paid, kept and
performed by the Tenant, has leased and rented, and by these
presents does lease and rent, unto the said Tenant, and said
Tenant hereby agrees to lease and take upon the terms and
conditions which hereinafter appear, the following described
property (hereinafter called "Premises"), to wit:
consisting of approximately 2,272 square feet of finished office
space, Building 100, Units 105 and 106 and being known as a part
of Sun Valley Business Park. The attached floor plan (Exhibit
"A") represents an approximation of the Premises to be leased
pursuant to this Lease.
2. TERM. To have and to hold for a term of three years
beginning on the 1st day of _________________, 1996, and ending
on the 31st day of ____________________, 19___ at midnight,
unless sooner terminated as hereinafter provided.
In the event the Premises are ready for occupancy prior to
the commencement date of the term of this Lease and Tenant
chooses to occupy the Premises at that time, all terms, covenants
and conditions of this Lease shall be in full force and effect as
of such date. Tenant shall pay a prorated share of the monthly
rental payment for any partial calendar month during which Tenant
occupies of the Premises.
3. RENTAL. Tenant agrees to pay Landlord, by payments to
555 Sun Valley Drive, Suite J-4, Roswell, Georgia 30076 promptly
on the first day of each month in advance, during the term of
this lease, a monthly rental of [See Special Stipulation 36(b)].
Tenant hereby acknowledges that if any monthly payment of
rent or any monies due hereunder from Tenant shall not be
received by Landlord or the Managing Agent of Landlord within ten
days after such payment is due, then Tenant shall pay the
Landlord a late charge equal to 5% of such delinquent amount.
4. FIRST MONTH'S RENT IN ADVANCE AND SECURITY DEPOSIT.
Upon execution of this Lease by Tenant, Tenant shall pay the
first month's rent and security deposit, receipt of which is
acknowledged by Landlord. Interest shall not accrue on said
monies and in the event of any default by Tenant hereunder, such
amounts may be applied to any amounts owed by Tenant to Landlord.
<PAGE>
5. UTILITY BILLS. Tenant shall pay all utility bills,
including, but not limited to, gas, electricity, fuel, light, and
heat bills, for the Premises and Landlord shall pay all charges
for garbage collection services or other sanitary services
rendered to the Premises or used by Tenant in connection
therewith. Tenant shall be responsible for and shall pay when
due all taxes levied against any personal property or trade
fixtures placed by Tenant in the Premises. This Paragraph is
subject to Paragraph 13 of the Rules and Regulations. Tenant
shall pay for any janitorial services to the Premises.
6. USE OF PREMISES. The Premises shall be used for
general office purposes and no other purposes and in accordance
with the Rules and Regulations. The Premises shall not be used
for any illegal purposes, nor in any manner to create any
nuisance or trespass; nor in any manner to vitiate the insurance
or increase the rate of insurance on Premises.
7. ABANDONMENT OF PREMISES. Tenant agrees not to abandon
or vacate Premises during the period of this Lease, and agrees to
use said Premises for the purpose herein leased until the
expiration hereof.
8. REPAIRS BY LANDLORD. Landlord agrees to keep in good
repair the tool, foundations, and exterior walls of the Premises
and underground utility and sewer pipes outside the exterior
walls of the Building, except repairs rendered necessary by the
negligence of Tenant, its agents, employees, or invitees.
Landlord agrees to keep the plumbing, electrical, heating and air
conditioning systems in reasonably good working order and
condition consistent with the capacity and capabilities of such
systems and except that Landlord will not be required to repair
damages or malfunctions caused by excessive use or misuse by
Tenant, its employees, contractors, or invitees, it being agreed
that Tenant shall be responsible for such repairs. Landlord
shall be under no obligation to inspect said Premises. Tenant
shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair.
9. REPAIRS BY TENANT. Tenant accepts the Premises in
their present condition and as suited for the uses intended by
Tenant, without warranty or representation by Landlord, and
Tenant agrees to return said Premises to Landlord at the
expiration, or prior to termination, of this Lease in as good
condition and repair as when first received, natural wear and
tear, damage by storm, live, lightning, earthquake or other
casualty alone excepted. Tenant shall not make alterations to
the Premises without the consent of Landlord. Excepting the
repair responsibilities of Landlord described in Paragraph 8,
Tenant shall keep the Premises in good condition and repair.
11. DESTRUCTION OF, OR DAMAGE TO PREMISES. If the Premises
are totally destroyed by storm, fire, lightning, earthquake or
other casualty, this Lease shall terminate as of the date of such
destruction, and rental shall be accounted for as between
Landlord and Tenant as of that date. If Premises are damaged but
not wholly destroyed by any such casualty, rental shall abate in
<PAGE>
such proportion as use of Premises has been destroyed, and
Landlord shall restore Premises to substantially the same
condition as before damage as soon as reasonably possible,
whereupon full rental shall recommence.
12. INDEMNITY. Tenant and Landlord agree to indemnity and
save each other harmless against claims and liability to persons
and property caused by each's negligence or that of their
employees, and all expenses incurred by Tenant or Landlord as a
result thereof, including attorney fees and court costs.
13. GOVERNMENTAL ORDERS. Tenant agrees, at his own
expense, to promptly comply with all requirements of any legally
constituted public authority made necessary by reason of Tenant's
occupancy of said Premises. Landlord agrees to promptly comply
with any requirements if not made necessary by reason of Tenant's
occupancy.
14. CONDEMNATION. If the whole of the Premises, or such
portion thereof as will make Premises unusable for the purposes
herein leased, be condemned by any legally constituted authority
for any public use or purpose, then in either of said events the
term hereby granted shall cease from the date when possession
thereof is taken by public authorities, and rental shall be
accounted for as between Landlord and Tenant as of said date.
Such termination, however, shall be without prejudice to the
rights of either Landlord or Tenant to recover compensation and
damage caused by condemnation from the condemnor; provided,
however, Tenant shall not be entitled to claim compensation for
items which would reduce Landlord's award. It is further
understood and agreed that neither the Tenant nor Landlord shall
have any authority notwithstanding the termination of the lease
as herein provided. Landlord agrees to pay to Agent, from the
award made to Landlord under condemnation, the balance of lease
commissions, reduced to then present cash value, as provided in
Paragraph 15 hereof, and Agent may become a party to the
condemnation proceeding for the purpose of enforcing its rights
under this paragraph.
15. ASSIGNMENT AND SUBLETTING. Tenant may sublease
portions of the Premises to others provided such sublessee's
operation is a part of the general operation of Tenant and under
the supervision and control of Tenant, and provided such
operation is within the purposes for which said Premises shall be
used. Except as provided in preceding sentence, Tenant shall
not, without the prior written consent of Landlord, assign this
Lease or any interest hereunder, or sublease Premises or any part
thereof, or permit the use of Premises by any party other than
Tenant. Consent to any assignment or sublease shall not destroy
this provision, and all later assignments or subleases shall be
made likewise only on the prior written consent of Landlord. An
assignee of Tenant, at option of Landlord, shall become directly
liable to Landlord for all obligations of Tenant hereunder, but
no sublease or assignment by Tenant shall relieve Tenant of any
liability hereunder.
<PAGE>
16. REMOVAL OF FIXTURES. Tenant may (if not in default
hereunder) prior to the expiration of this Lease, or any
extension thereof, remove all fixtures and equipment which he has
placed in the Premises, provided Tenant repairs all damages to
premises caused by such removal.
17. DEFAULT. (a) The following events shall be deemed to
be Events of Default by Tenant under this Lease: (i) Tenant
shall fail to pay any installment of rent or any other charge or
assessment against Tenant pursuant to the terms hereof when due
and shall not cure such failure within five (5) days after notice
thereof to Tenant; (ii) Tenant shall fail to comply with any
term, provision, covenant or warranty made under this Lease by
Tenant, other than the payment of rent or any other charge or
assessment payable by Tenant, and shall not cure such failure
within thirty (30) days after notice thereof to Tenant; (iii) any
court of competent jurisdiction shall enter, with regard to
Tenant a decree or order for relief in an involuntary case under
the federal bankruptcy laws, as now or hereafter constituted, or
any other applicable federal or state bankruptcy, insolvency or
other similar law, or a decree or order appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of Tenant or for any substantial part of
Tenant's property, or for a decree or order ordering the winding
up or liquidation of Tenant's affairs, and any such decree or
order shall continue unstayed and in effect for a period of
thirty (30) days; (iv) Tenant shall commence a voluntary case
under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or Tenant shall
consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of Tenant or for any substantial part of
Tenant's property; (v) Tenant shall abandon or vacate all or any
portion of the Premises or fail to take possession thereof as
provided in this Lease; or (vi) Tenant shall do or permit to be
done anything which creates a lien of any nature or whatsoever
upon the Premises.
(b) Upon the occurrence of any of the aforesaid Events of
Default, Landlord shall have the option to pursue any one or more
of the following causes of action without any further notice or
demand whatsoever: (i) terminate this Lease, in which event
Tenant shall immediately surrender the Premises to Landlord, but
if Tenant fails to do so, Landlord may, without prejudice to any
other remedy which it may have for possession or arrearages in
rent, enter upon and take possession of the Premises and expel or
remove Tenant and its effects and any other person, by force if
necessary, without being liable for prosecution or any claim of
damages therefor; and Tenant hereby agrees to indemnify Landlord
for loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises or
through decrease in rent or otherwise, and/or (ii) declare the
entire amount of the rent required to be paid hereunder by Tenant
which would become due and payable during the remainder of the
Term to be due and payable immediately, in which event, Tenant
<PAGE>
agrees to pay the same at once, together with all rents
theretofore due, at Landlord's address as provided herein;
provided, however, that such payment shall not constitute a
penalty for forfeiture or liquidated damages, but shall merely
constitute payment in advance of the rent for the remainder of
the Term. Upon making such payment, Tenant shall receive from
Landlord all rents received by Landlord from other tenants on
account of the Premises during the Term, provided that the monies
to which Tenant shall so become entitled shall in no event exceed
the entire amount actually paid by Tenant to Landlord pursuant to
the preceding sentence, less all costs, expenses and attorney
fees of Landlord incurred in connection with the termination of
this Lease, eviction of Tenant and reletting of the Premises and
the acceptance of such payment by Landlord shall not constitute a
waiver of any failure of Tenant thereafter occurring to comply
with any term, provision, condition or covenant of this Lease,
and/or (iii) enter Premises as the agent of Tenant by force if
necessary; without being liable to prosecution or any claim for
damages therefor, and relet the Premises as the agent of Tenant
receive the rent therefor and Tenant shall pay Landlord any
deficiency that may arise by reason of such reletting on demand
at the office of Landlord and/or (iv) as agent of Tenant, do
whatever Tenant is obligated to do by the provisions of this
Lease and Landlord may enter the Premises, by force if necessary,
without being liable to prosecution or any claims for damages
therefor, in order to accomplish this purpose. Tenant agrees to
reimburse Landlord immediately upon demand for any expenses which
Landlord may incur in this effecting compliance with this Lease
on behalf of Tenant, and Tenant further agrees that Landlord
shall not be liable for any damages to Tenant from such action,
unless caused by the negligence of Landlord or otherwise.
(c) Any reletting of the Premises by Landlord as the agent
of the Tenant shall not terminate this Lease and may be such a
term, rent amount, and other conditions as Landlord deems
desirable, without advertisement and by private negotiations.
Tenant shall reimburse Landlord for all Landlord's costs,
expenses and attorney fees in connection with such reletting,
including, without limitations all commissions and advertising
costs. No action taken by or on behalf of Landlord shall be
construed to be an acceptance of a surrender of the Premises and
no agreement to accept a surrender of the Premises shall be valid
unless in writing and executed by Landlord. In determining the
amount of loss or damage which Landlord may suffer by reason or
termination of this Lease or the deficiency arising by reason of
any reletting of the Premises by Landlord as above provided,
allowance shall be made for expense of repossession and any
repairs or remodeling undertaken by Landlord following
repossession and there shall be added to the amount of Rent due
to Landlord as herein provided, all costs and expenses incurred
by Landlord in the enforcement of this Lease, including, without
limitation, the fees of Landlord's attorneys.
18. EXTERIOR SIGNS. Tenant shall place no signs upon the
outside walls or roof of the Premises except with the written
<PAGE>
consent of the Landlord. Any and all signs placed within the
Premises by Tenant shall be maintained in compliance with rules
and regulations governing such signs and the Tenant shall be
responsible to Landlord for any damage caused by installation,
use, or maintenance of said signs, and Tenant agrees upon removal
of said signs to repair all damage incident to such removal.
19. ENTRY FOR CARDING, ETC. Landlord may card premises
"For Rent" or "For Sale" thirty (30) days before the termination
of this Lease. Landlord may enter the Premises at reasonable
hours to exhibit same to prospective purchasers or tenants and to
make repairs required of Landlord under the terms hereof, or to
make repairs to Landlord's adjoining property, if any.
20. EFFECT OF TERMINATION OF LEASE. No termination of this
Lease prior to the normal ending thereof, by lapse of time or
otherwise, shall affect Landlord's right to collect rent for the
period prior to termination thereof.
21. MORTGAGEE'S RIGHTS. Tenant's rights shall be subject
to any bonafide mortgage or deed to secure debt which is now or
may hereafter be placed upon the Premises by Landlord. The terms
of this provision shall be self-operative; provided however,
Tenant upon the request of any party in interest shall promptly
execute, deliver, and record, such instruments or certificates as
may be reasonably required to carry out the intent of this
Paragraph. In addition, at the request of Landlord, Tenant shall
execute and deliver instruments which provide that in any
proceedings or foreclosure of under any security deed or mortgage
or in the event of transfer of title by deed in lieu of
foreclosure to any mortgagee or designee thereof, Tenant at the
election and request of any mortgagee or designee thereof shall
attorn to the purchase at foreclosure under the security deed or
to any mortgagee or designee of mortgagee as the "Landlord" under
this Lease.
22. NO ESTATE IN LAND. This contract shall crate the
relationship of Landlord and Tenant between the parties hereto;
no estate shall pass out of Landlord. Tenant has only a
usufruct, not subject to levy and sale, and not assignable by
Tenant except by Landlord's consent.
23. LATE MOVE-IN. In the event Landlord fails, for any
reason whatsoever, to deliver possession of the Premises to
Tenant on or before the commencement date of the term hereof,
this Lease shall not be void or voidable, nor shall Landlord be
liable to Tenant for any loss or damage resulting therefrom.
24. HOLDING OVER. If Tenant remains in possession of
Premises after expiration of the term hereof, with Landlord's
acquiescence and without any express agreement of parties, Tenant
shall be a tenant at will at rental rate in effect at end of
Lease; and there shall be no renewal of this Lease by operation
of law.
<PAGE>
25. ATTORNEY'S FEES AND HOMESTEAD. If any rent owing under
this Lease is collected by or through an attorney at law, Tenant
agrees to pay ten percent (10%) thereof attorney's fees. Tenant
waives all homestead rights and exemptions which he may have
under any law as against any obligation owing under this Lease.
Tenant hereby assigns to Landlord his homestead and exemption.
26. RIGHTS CUMULATIVE. All rights, powers and privileges
conferred hereunder upon parties hereto shall be cumulative but
not restrictive to those given by law.
27. SERVICE OF NOTICE. Tenant hereby appoints as his agent
to receive service of all dispossessory or distraint proceedings
and notices hereunder, and all notices required under this Lease,
the person in charge of Premises at the time, or occupying said
Premises; and if no person is in charge of, or occupying said
Premises, then such service or notice may be made by attaching
the same on the main entrance to said Premises. A copy of all
notices under this Lease shall also be sent to Tenant's last
known address, if different from said Premises. If notice
address different from the address of the occupant, all notices
shall be sent to the address below:
_________________________________________________________________
28. WAIVER OF RIGHTS. No failure of Landlord to exercise
any power given Landlord hereunder, or to insist upon strict
compliance by Tenant with his obligation hereunder, and no custom
or practice of the parties at variance with the terms shall
constitute a waiver of Landlord's right to demand exact
compliance with the terms hereof.
29. TIME OF ESSENCE. Time is of the essence of this
agreement.
30. DEFINITIONS. "Landlord" as used in this Lease shall
include his heirs, representatives, assigns and successors in
title to Premises. "Tenant" shall include his heirs and
representatives, and if this Lease shall be validly assigned or
sublet, shall include also Tenant assignees or sublessees, as to
premises covered by such assignment or sublease. "Agent" shall
include his successors, assigns, heirs, and representatives.
"Landlord", "Tenant", and "Agent", include male and female,
singular and plural, corporation, partnership or individual, as
may fit the particular parties.
31. LIABILITY INSURANCE. Tenant agrees to carry
Comprehensive General Liability insurance and in amount not less
than $500,000 per bodily injury and property damage liability.
Such coverage shall name Landlord as an additional named
insurance. Tenant shall provide to Landlord certificates of
insurance evidencing such coverage.
<PAGE>
32. WAIVER OF SUBROGATION PROPERTY INSURANCE. Landlord
and Tenant hereby release each other and their respective
officers, directors, employees and agents from liability or
responsibility for any loss or damage to property or persons
insured under the policies maintained by Landlord and Tenant with
respect to the Premises. Landlord's and Tenant's aforesaid
policies or insurance shall contain an endorsement recognizing
this release and waiving all rights of subrogation by their
respective insurance carriers.
33. ESTOPPEL CERTIFICATES. Within ten (10) days after any
requests therefor by Landlord, Tenant shall execute, acknowledge,
and deliver to Landlord a written certificate acceptable to
Landlord certifying if the same be true as to such matters
relating to this Lease, the Premises or the Tenant, as Landlord
shall reasonably request, or, if the same be not true, stating
the manner in and the extent to which the same not be true.
34. FORCE MAJEURE. In the event of strike, lockout, labor
trouble, civil commotion, act of God, or any other cause
(collectively herein "force majeure") outside and beyond
Landlord's control, resulting in the impairment of Landlord's
ability to perform any obligation or provide any service
hereunder, this Lease shall not terminate except at Landlord's
election, and Tenant's obligation to pay Annual Rental,
additional rental and all other charges and sums due payable by
Tenant shall not be altered or excused and Landlord shall not be
considered to be in default under this Lease or liable in damages
to Tenant in any manner.
35. BROKER COMMISSION. Landlord agrees to pay N/A
(hereinafter called "Agent"), as compensation for services
rendered in procuring this Lease, the first month's rent plus
five percent (5%) of all rents received thereafter, payable from
rents received. If the term of this Lease is extended or renewed
or if a new Lease is entered between Landlord and Tenant covering
the premises, or any part thereof, or covering any other Premises
as an expansion thereof or substitute for Premises herein leased,
then in either of said events, Landlord, in consideration of
Agent's having procured Tenant hereunder, agrees to pay Agent 5%
of all rentals thereafter paid under such new Lease. Agent
agrees that in the event Landlord sells the Premises, and upon
Landlord's furnishing Agent with an agreement by Purchaser
assuming Landlord's obligations to Agent under this Lease,
Landlord will be thereafter released from any further obligations
to Agent hereunder and Agent will execute any additional release
which Landlord may request. Agent is party to this contract
solely for the purpose of enforcing his rights under this
paragraph and it is understood by all parties hereto that Agent
is acting solely in the capacity as Agent for Landlord, to who
Tenant must look as regards all covenants, agreements and
warranties herein contained, and that Agent shall never be liable
to Tenant in regard to any matter which may arise by virtue of
this Lease. Monthly commissions are payable to Agent within ten
(10) days of receipt by Landlord of Tenant's monthly rent.
36. SPECIAL STIPULATIONS. In so far as the following
stipulations conflict with any of the foregoing provisions, the
following shall control:
Special Stipulations attached hereto and by reference made a
part hereof.
<PAGE>
Signed, sealed and delivered as
to Landlord, in the presence of:
/s/ Heather A. Miller /s/
- ----------------------------- -------------------------(SEAL)
Notary Public (Landlord)
/s/
-------------------------(SEAL)
(Landlord)
Signed, sealed and delivered as
to Tenant, in the presence of:
/s/
-------------------------(SEAL)
(Tenant)
/s/ Heather A. Miller
- ----------------------------
Notary Public
/s/
-------------------------(SEAL)
(Tenant)
Signed, sealed and delivered as
to Broker, in the presence of:
- ------------------------------- -------------------------------
Notary Public (Agent)
<PAGE>
SPECIAL STIPULATIONS
LANDLORD: VPB Realty
TENANT: Delsoft Consulting Inc.
PROPERTY: Building 100, Unit 105 & 106 Roswell,
Georgia 30076
36(a). SECURITY DEPOSIT: Tenant has deposited with Landlord
the sum of $2500.00 as a security deposit which shall be held by
Landlord, without liability for interest thereon, as security for
the full and faithful performance by Tenant of each and every
term, covenant, and condition of this Lease on the part of the
Tenant to be observed and performed. If, from time to time, any
of the rents herein set forth or any other charges or sums
payable by Tenant to Landlord shall be overdue and unpaid or
should Landlord make payments on behalf of the Tenant, or should
Tenant fail to perform any of the terms of this Lease, and Tenant
is in default hereunder and does not cure said default pursuant
to Section 17 herein, then Landlord may, at its option, from time
to time and without prejudice to any other remedy which Landlord
may have on account thereof, appropriate and apply the security
deposit, or so much thereof as may be necessary to compensate
Landlord toward the payment of the rents, charges or other sums
due from the Tenant, or resulting from such default on the part
of the Tenant; and in such event Tenant shall forthwith upon
demand restore the security deposit to the original sum
deposited. In the event Tenant shall fully and faithfully comply
with all of the terms, covenants, and conditions of the lease and
pay all of the rentals as they become due and all other charges
and sums payable by Tenant to Landlord, the security deposit
shall be returned in full to Tenant within thirty (30) days after
the date of the expiration or sooner termination of the Lease and
surrender of the Premises by Tenant in compliance with the
provision of the Lease.
36(b). RENTAL RATE: Rental as noted in Paragraph #3 shall be
as follows:
First 12 months $2,500.00 per month
Second 12 months $2,625.00 per month
Third 12 months $2,756.00 per month
36(c). OPTION TO RENEW: Tenant shall have an option to renew
lease for a one (1) year term with a ninety (90) day prior
written notice to Landlord. Rental rate for the renewal term
shall be $2,894.00 per month.
INITIALS: Tenant: _________ Landlord:_________
SUBCONTRACTOR AGREEMENT
THIS AGREEMENT is made this 1st day of July, 1996
(hereinafter referred to as the "Effective Date"), by and between
BRIDGTON, INC., a corporation organized and existing under the
laws of the State of Georgia and having a principal place of
business at 555 Sun Valley Drive, Suite J-2, Roswell, Georgia
30076 (hereinafter referred to as "Company"), and DELSOFT
CONSULTING, INC., a corporation organized and existing under the
laws of the State of Georgia and having a principal place of
business at 555 Sun Valley Drive, Suite J-2, Roswell, Georgia
30076 (hereinafter referred to as "Subcontractor").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business, among other
things, of providing professional consulting services; and
WHEREAS, the Company has contracted, or will contract, with
various third parties (the "Customers") to perform certain
professional consulting services (the "Work"); and
WHEREAS, the Company is desirous of receiving the
Subcontractor's technical assistance, support and/or know-how to
perform the Work for the Company's Customers; and
WHEREAS, the Subcontractor is desirous of providing such
technical assistance, support and/or know-how to the Company's
Customers; and
WHEREAS, the parties hereto deem it to be in their best
interests to set forth in writing the terms and conditions under
which said agreement is to be made;
NOW, THEREFORE, in consideration of the mutual promises and
covenants of the parties contained herein, the parties agree as
follows:
ARTICLE I
DEFINITIONS
As used throughout this Agreement, the following terms shall
have the meanings set forth below unless otherwise indicated:
(a) "Company" shall mean Bridgton, Inc. all business
entities with which it is or has been affiliated, together with
any predecessor, successor, parent, or subsidiary entity as well
as any officers, directors, employees, agents, designees,
assignees, representatives, or any other person acting or
purporting to act on behalf of the Company or any such other
business entity previously described herein.
<PAGE>
(b) "Subcontractor" shall mean Delsoft Consulting, Inc.,
all business entities with which it is or has been affiliated,
together with any predecessor, successor, parent, or subsidiary
entity as well as any officers, directors, employees, agents,
designees, assignees, representatives, or any other person acting
or purporting to act on behalf of Subcontractor or any such other
business entity previously described herein.
(c) "Party" or "Parties", in its singular or plural form,
shall mean either the Company or Subcontractor or both, as
dictated by the use.
(d) "Subcontractor Personnel" shall mean any and all
employees, agents, designees, representatives, or any other
person acting or purporting to act on behalf of Subcontractor.
(e) "Agreement" shall mean this Agreement, any Exhibits
attached hereto, and any other documents incorporated herein by
reference, including any written amendments to the foregoing
which have been signed by the authorized representatives of the
Parties.
(f) "Order" shall mean a written request by the Company for
services to be provided by Subcontractor under this Agreement.
(g) "Work" shall mean the services to be provided by
Subcontractor to the Company's Customers.
(h) "Documentation" shall include, without limitation, all
manuals, handbooks, maintenance libraries, and any other printed
materials provided to the Subcontractor or Subcontractor by the
Company.
(i) "Customer" shall mean any customer of the Company,
including, without limitation, all business entities with which
it is or has been affiliated, together with any predecessor,
successor, parent, or subsidiary entity as well as any officers,
directors, employees, agents, designees, assignees,
representatives, or any other person acting or purporting to act
on behalf of the Customer or any such other business entity
previously described herein.
ARTICLE II
TERM OF AGREEMENT
SECTION 2.01. DURATION. Subject to the provisions of
Article V herein, the term of this Agreement shall be for an
initial period of one (1) year from the date hereof or until all
Work on any outstanding Order is completed. After the initial
one (1) year term, this Agreement shall automatically renew and
continue for additional one (1) year term or until all Work on
any outstanding Order is completed, unless, and until, terminated
as hereinafter provided.
SECTION 2.02. SCOPE. Subcontractor agrees to perform all
Work requested in an Order from the Company. Subcontractor
expressly acknowledges and agrees that each Order is considered
to be independent of any other Order. Each Order shall be
appended to this Agreement as an addendum hereto and shall
incorporate all terms and conditions of this Agreement by
reference.
2
<PAGE>
ARTICLE III
RELATIONSHIP OF PARTIES
SECTION 3.01. NON-EXCLUSIVE BASIS. Subcontractor expressly
acknowledges that its contractual relationship with the Company
is non-exclusive. Subcontractor expressly acknowledges and
understands that the Company shall have the right to contract
with other persons, business entities, or otherwise to provide
the same or similar services to the Company's Customers.
SECTION 3.02. RELATIONSHIP. Company and Subcontractor
hereby expressly acknowledge and agree that Subcontractor is an
independent contractor for all purposes.
ARTICLE IV
COMPENSATION
SECTION 4.01. COMPENSATION. Company and Subcontractor
shall negotiate in good faith the fee to be paid to Subcontractor
for the Work to be provided with regard to each Order. If the
Company and Subcontractor mutually agree to the fee to be paid to
Subcontractor for the Work to be provided with regard to each
Order, said fee shall be paid on the fifteenth (15th) day of the
month following the month in which the Work is completed, or upon
receipt of payment for the Work from the Customer, whichever is
later.
SECTION 4.02. INVOICES. Subcontractor shall submit
invoices to the Company for all Work performed by the
Subcontractor and/or Subcontractor Personnel on the last business
calendar day of each month.
ARTICLE V
TERMINATION
SECTION 5.01. TERMINATION BY WRITTEN NOTICE. This
Agreement may be terminated in whole or in part by either Party
upon the giving of written notice to the non-terminating Party at
least thirty (30) days prior to the proposed date of termination.
In the event the Company terminates this Agreement or any Order,
or portion thereof, the Company's liability to Subcontractor
shall be limited to that Work completed by Subcontractor prior to
and including the date of termination.
SECTION 5.02. TERMINATION FOR CAUSE. Notwithstanding the
provisions of Section 5.01 of this Agreement, the Company may
terminate this Agreement at any time for cause, including, but
not limited to, willful violation of any of the terms of this
Agreement; failure of the Subcontractor to complete the Work
within a reasonable time; failure of the Subcontractor to
adequately and/or properly complete the Work; and/or failure to
cure any defect in the Work within twenty (20) days after receipt
of written notice from the Company of such defect. The Company
may terminate Subcontractor under this section by giving written
notice to the Subcontractor whereupon all duties and obligations
of the Company hereunder shall immediately cease.
SECTION 5.03. EFFECT OF TERMINATION. Upon a termination of
this Agreement, however effectuated, the exclusive remedy of the
3
<PAGE>
Subcontractor shall be limited to payment of that portion of any
fee earned pursuant to any Order hereunder through the last date
any Work was provided by the Subcontractor, it being the
understanding and agreement of the Parties that such payment
shall afford the Subcontractor adequate and full relief on
termination. Subcontractor and/or Subcontractor Personnel shall
return all Documentation and any copies thereof to the Company.
SECTION 5.04. LIQUIDATED DAMAGES. In the event
Subcontractor is terminated pursuant to Section 5.02 herein, the
Parties agree the Company shall, in addition to any other rights
provided for in this Agreement, by law, in equity, or otherwise,
have the right to recover from Subcontractor the costs incurred
by the Company for a replacement Subcontractor to complete the
Work.
It is further agreed by Subcontractor that said amount is a
reasonable estimation by the Parties of the damages the Company
will have suffered by reason of Subcontractor's conduct, actions
and/or inactions, or otherwise, that resulted in the
Subcontractor's termination pursuant to Section 5.02 herein.
ARTICLE VI
INTELLECTUAL PROPERTY INDEMNIFICATION AND DEFENSE
Subcontractor shall defend, at its expense, any claim
(including any suit) brought against the Company alleging that
any Work or other products provided by Subcontractor and/or
Subcontractor Personnel hereunder infringes or misappropriates a
United States patent, copyright, trade secret or other Third
Party proprietary right and shall pay all liabilities, costs and
damages awarded or settled, provided that the Company gives
Subcontractor prompt written notice of such claim, and such
information, reasonable assistance and authority as necessary to
defend or settle the claim. In the defense or settlement of the
claim, or in the event of a final injunction, Subcontractor shall
either obtain for the Company the right to continue using the
Work or other products provided by Subcontractor and/or
Subcontractor Personnel, or replace or modify the Work or other
products provided by Subcontractor and/or Subcontractor Personnel
so it becomes non-infringing while still meeting the requirements
of the Order.
Notwithstanding the above, Subcontractor shall not have any
liability for a claim alleging that the Subcontractor's
and/or Subcontractor Personnels' products or Services
infringes or misappropriates a U.S. patent, copyright trade
secret, or other third proprietary right:
(i) if the allegation results solely from the
Subcontractor's and/or Subcontractor Personnels'
compliance with design specifications furnished
by, or oral or written direction given by, the
Company and not from an exercise of discretion on
the part of the Subcontractor and/or Subcontractor
Personnel in providing such compliance; or
(ii) if the Subcontractor's and/or Subcontractor
Personnels' products or Services alleged to be
infringing is the result of a modification made by
the Company or any third party without
4
<PAGE>
Subcontractor's prior written consent; or
(iii) if the alleged infringement results from the
incorporation of any third party product into the
Work or other products provided by Subcontractor
and/or Subcontractor personnel by anyone other
than Subcontractor and/or Subcontractor Personnel
where such incorporation was not specified in the
Order; or
(iv) if the alleged infringement relates to the
combination of Subcontractor and third party
products by anyone other than Subcontractor and/or
Subcontractor Personnel, except that where there
would be infringement even in the absence of a
combination, Subcontractor shall be liable for the
infringement that is not based on the combination;
or
(v) if the alleged infringement results from the
Company's use of any third party product not in a
manner provided under the Order; or
(vi) if the trade secret alleged to be misappropriated
consists, in whole or in part, of information
furnished by the Company.
SUBCONTRACTOR AND THE COMPANY DISCLAIM ALL OTHER LIABILITY FOR
MISAPPROPRIATION OR INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS,
TRADE SECRET RIGHTS, OR PROPRIETARY RIGHTS AND FURTHER DISCLAIM
ANY LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES.
ARTICLE VII
INDEMNIFICATION
Subcontractor, at its own expense, shall indemnify and hold
the Company, its directors, officers, employees, agents,
subsidiaries, affiliates, customers, designees, and assignees
harmless from any loss, damage, liability or expense, on account
of damage to property and injuries, including death, to all
persons, arising from any occurrence caused by any act or
omission of Subcontractor or Subcontractor Personnel related to
the performance of this Agreement; provided that Company gives
Subcontractor prompt notice of any and all claims for which
Company expects indemnification and provided that Subcontractor
shall retain authority to control the defense of any and all
claims for which Company may seek indemnification, Subcontractor,
at its expense, shall defend any suit or dispose of any claim or
other proceedings brought against the Company on account of such
damage or injury, and shall pay all expenses, including
attorney's fees, and satisfy' all judgments which may be incurred
by or rendered against the Company.
5
<PAGE>
ARTICLE VIII
CONFIDENTIAL AND PROPRIETARY INFORMATION
Each Party acknowledges and agrees that any and all
information concerning the other's business is "Confidential and
Proprietary Information," and each Party agrees that it will not
permit the duplication, use or disclosure of any such
Confidential and Proprietary Information to any person (other
than its own employee, agent or representative who must have such
information for the performance of its obligations hereunder),
unless such duplication, use or disclosure is specifically
authorized by the other Party. "Confidential and Proprietary
Information" is not meant to include any information which, at
the time of disclosure, is generally known by the public and any
competitors of the Customer.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.01. GOVERNING LAW. The validity of this
Agreement and any of its terms or provisions, as well as the
rights and duties of the parties to this Agreement, shall be
governed and construed by the laws of the State of Georgia.
SECTION 9.02. ATTORNEYS OR ARBITRATORS FEES. Should either
Party institute any action or proceeding in any court to enforce
any of the provisions hereof, for damages by reason of any
alleged breach of any provision of this Agreement or for the
enforcing of any covenant herein contained, the prevailing Party
shall be entitled to receive from the losing Party such amounts
that the court shall adjudge to be reasonable attorney's fees for
the services rendered the prevailing Party in such action
(including any appeal thereof).
SECTION 9.03. ENTIRE AGREEMENT. This Agreement supersedes
any and all other agreements, either oral or in writing, between
the Parties to this Agreement with respect to its subject matter,
and no other agreement, statement, or promise relating to the
subject matter of this Agreement that is not contained in it
shall be valid or binding.
SECTION 9.04. BINDING EFFECT. This Agreement shall be
binding on the heirs, executors, administrators, legal
representatives, successors, and assigns of the respective
Parties.
SECTION 9.05. WAIVERS AND AMENDMENTS. Any term or
provision of this Agreement may be waived at any time by the
Party that is entitled to the benefits thereof, and any term or
provision of this Agreement may be amended or supplemented at any
time by the mutual consent of the Parties hereto, except that any
waiver of any term or condition, or any amendment or
supplementation of this Agreement must be in writing. A waiver
of any breach or failure to enforce any of the terms or
conditions of this Agreement shall not in any way effect, limit
or waive a Party's rights hereunder at any time to enforce strict
compliance thereafter with every term or condition of this
Agreement.
6
<PAGE>
SECTION 9.06. SEVERABILITY. The Parties intend and agree
that each covenant and agreement contained herein shall be a
separate and distinct covenant and agreement. If any provision or
condition of this Agreement and/or the application thereof to any
person or entity shall to any extent be declared unenforceable,
the remainder of this Agreement and the application of the entire
Agreement to such persons or entities other than those as to
which such provisions may be unenforceable, shall not be affected
thereby. Each covenant and condition herein shall separately be
valid and enforceable to the fullest extent permitted by law.
SECTION 9.07. NOTICES. Any notice by either Party to the
other shall be valid only if in writing and shall be deemed to be
duly given only when delivered personally or deposited in the
United States Postal Service by registered or certified mail,
return receipt requested, to the following addresses or at such
other addresses as the Parties hereto may designate from time to
time:
If to the Bridgton, Inc.
Company: 555 Sun Valley Drive
Suite J-2
Roswell, Georgia 30076
If to Delsoft Consulting,
Subcontractor: Inc.
555 Sun Valley Drive
Suite 1-2
Roswell, Georgia 30076
All notices shall be deemed to be given when deposited in
the United States mail as aforesaid or when personally delivered.
Any Party may from time to time change the address to which to
send notices by notifying the other Party of such change of
address in writing in accordance with the provisions of this
Section 9.07 provided notice of such change of address shall be
effective only upon actual receipt.
SECTION 9.08. BANKRUPTCY. In the event Subcontractor shall
(i) apply for or consent to the appointment of or taking of
possession by a receiver, custodian, trustee, or liquidator of
itself or of all or a substantial part of its property, (ii) make
a general assignment for the benefit of creditors, (iii) commence
a voluntary case under the Federal Bankruptcy Code (as now or
hereinafter in effect), or (iv) fail to contest in a timely or
appropriate manner or acquiesce in writing to any petition filed
against it in an involuntary case under such Bankruptcy Code or
any application for the appointment of a receiver, custodian,
trustee, or liquidation of itself or of all or a substantial part
of its property, or its liquidation, reorganization, or
dissolution, the other Party may terminate this Agreement as
provided in Article V herein.
SECTION 9.09. HEADINGS. The Headings used in this
Agreement are for reference only and shall not be deemed a part
of this Agreement.
SECTION 9.10. LIMITATION OF LIABILITY. Notwithstanding any
other provisions herein to the contrary, under no circumstances
shall either Party be liable to the other for any special,
incidental, indirect or consequential damages under this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed and do each hereby warrant and represent that
their respective signatory whose signature appears below has been
and is on the date of this Agreement duly authorized by all
necessary and appropriate corporate action to execute this
Agreement.
COMPANY: SUBCONTRACTOR:
BRIDGTON, INC. DELSOFT CONSULTING, INC.
By: /s/ Jerry Rosemeyer By: /s/ Benjamin Giocchino
Title: President Title: CEO
8
LOAN AND SECURITY AGREEMENT
BETWEEN
DELSOFT CONSULTING, INC. ("DEBTOR")
ADDRESS: 555 SUN VALLEY DRIVE, SUITE J-2, ROSWELL, GEORGIA 30076
(Chief executive office if more than one place of business)
AND
Emergent Financial Corp. ("Secured Party")
6100 Lake Forrest Parkway, Suite 240
Atlanta, GA 30328
DATED: FEBRUARY 18, 1997
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.1 CERTAIN SPECIFIC TERMS. . . . . . . . . . . . . . . . . . . . . .2
1.2 SINGULAR AND PLURALS. . . . . . . . . . . . . . . . . . . . . . .7
1.3 U.C.C. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . .8
1.4 SECTION REFERENCES. . . . . . . . . . . . . . . . . . . . . . . .8
2. ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 REQUESTS FOR AN ADVANCE. . . . . . . . . . . . . . . . . . . . . .8
2.2 PROCEEDS OF AN ADVANCE . . . . . . . . . . . . . . . . . . . . . .8
2.3 ESTABLISHMENT OF RESERVES. . . . . . . . . . . . . . . . . . . . .8
3. COLLATERAL AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . .9
3.1 SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . .9
3.2 OTHER COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . .9
3.3 INDEBTEDNESS SECURED . . . . . . . . . . . . . . . . . . . . . . .9
4. CONDITIONS TO ADVANCES. . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 CORPORATE ACTION . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 CORPORATE DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . 10
4.3 OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.4 TRANSACTION DOCUMENTS . . . . . . . . . . . . . . . . . . . . . 11
4.5 THIRD PARTY ACTION . . . . . . . . . . . . . . . . . . . . . . . 11
4.6 ASSIGNMENT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES . . . 11
4.7 OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . 11
5.1 CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . 11
5.2 CORPORATE CAPACITY . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 VALIDITY OF RECEIVABLES . . . . . . . . . . . . . . . . . . . . 12
5.4 INVENTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.5 TITLE TO COLLATERAL . . . . . . . . . . . . . . . . . . . . . . 13
5.6 NOTES RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 PLACE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . 13
5.9 FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . . . . 13
5.11 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 ERISA MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.13 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 15
5.14 VALIDITY OF TRANSACTION DOCUMENTS. . . . . . . . . . . . . . . . 15
5.15 NO CONSENT OR FILING . . . . . . . . . . . . . . . . . . . . . . 15
5.16 NO VIOLATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.17 TRADEMARKS AND PATENTS . . . . . . . . . . . . . . . . . . . . . 16
5.18 CONTINGENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . 16
5.19 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.20 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 16
5.21 LICENSES, PERMITS, ETC.. . . . . . . . . . . . . . . . . . . . . 16
5.22 MARGIN STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.23 COMMISSIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.24 LABOR CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . 16
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5.25 CONSOLIDATED SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . 17
5.26 ACCURACY OF REPRESENTATIONS. . . . . . . . . . . . . . . . . . . 17
5.27 AUTHORIZED SHARES. . . . . . . . . . . . . . . . . . . . . . . . 17
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY . . . . . . . . . . 17
6.1 RECEIVABLE SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . 17
6.2 INVOICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 AGING REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 INVENTORY REPORTS. . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 NOTES OR OTHER INSTRUMENTS . . . . . . . . . . . . . . . . . . . 18
6.6 CHATTEL PAPER. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 OTHER DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 18
7. COLLECTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 DELIVERY OF PROCEEDS TO SECURED PARTY. . . . . . . . . . . . . . 19
7.2 APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 19
7.3 DEBTOR TO FORWARD SCHEDULES TO SECURED PARTY . . . . . . . . . . 19
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES . . . . . 19
8.1 PROMISE TO PAY PRINCIPAL . . . . . . . . . . . . . . . . . . . . 19
8.2 PROMISE TO PAY INTEREST. . . . . . . . . . . . . . . . . . . . . 20
8.3 PROMISE TO PAY FEES. . . . . . . . . . . . . . . . . . . . . . . 20
8.4 PROMISE TO PAY COSTS AND EXPENSES. . . . . . . . . . . . . . . . 20
8.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 COMPUTATION OF DAILY OUTSTANDING BALANCE . . . . . . . . . . . . 22
8.7 ACCOUNT STATED . . . . . . . . . . . . . . . . . . . . . . . . . 23
9. PROCEDURES AFTER SCHEDULING RECEIVABLES. . . . . . . . . . . . . . . . 23
9.1 RETURNED MERCHANDISE . . . . . . . . . . . . . . . . . . . . . . 23
9.2 CREDITS AND EXTENSIONS . . . . . . . . . . . . . . . . . . . . . 23
9.3 RETURNED INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . 24
9.4 DEBIT MEMORANDA. . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 NOTES RECEIVABLE . . . . . . . . . . . . . . . . . . . . . . . . 24
10. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 25
10.1 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 25
10.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES . . . . . . . . . . . . 25
10.3 TERMS OF SALE. . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.4 BOOK AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . 26
10.5 INVENTORY IN POSSESSION OF THIRD PARTIES . . . . . . . . . . . . 26
10.6 EXAMINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.7 VERIFICATION OF COLLATERAL . . . . . . . . . . . . . . . . . . . 26
10.8 RESPONSIBLE PARTIES. . . . . . . . . . . . . . . . . . . . . . . 26
10.9 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.10 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.11 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.12 GOOD STANDING; BUSINESS. . . . . . . . . . . . . . . . . . . . . 28
10.13 NET WORKING CAPITAL; CONSOLIDATED TANGIBLE NET WORTH . . . . . . 28
10.14 PENSION REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.15 NOTICE OF NON-COMPLIANCE . . . . . . . . . . . . . . . . . . . . 28
10.16 COMPLIANCE WITH ENVIRONMENTAL LAWS . . . . . . . . . . . . . . . 28
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10.17 DEFEND COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . 29
10.18 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 29
10.19 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 29
10.20 MAINTENANCE OF PROPERTY . . . . . . . . . . . . . . . . . . . . 29
10.21 LICENSES, PERMITS, ETC. . . . . . . . . . . . . . . . . . . . . 29
10.22 TRADEMARKS AND PATENTS . . . . . . . . . . . . . . . . . . . . . 29
10.23 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.24 MAINTENANCE OF OWNERSHIP . . . . . . . . . . . . . . . . . . . . 29
10.25 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES . . . . . . . . . . . . 30
11. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS. . . . . . 30
11.2 BORROWED MONEY . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.3 SECURITY INTEREST AND OTHER ENCUMBRANCES . . . . . . . . . . . . 30
11.4 STORING THE COLLATERAL . . . . . . . . . . . . . . . . . . . . . 30
11.5 USE OF COLLATERAL. . . . . . . . . . . . . . . . . . . . . . . . 30
11.6 MERGERS, CONSOLIDATIONS, OR SALES. . . . . . . . . . . . . . . . 31
11.7 CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.8 DIVIDENDS OR DISTRIBUTION. . . . . . . . . . . . . . . . . . . . 31
11.9 INVESTMENTS AND ADVANCES . . . . . . . . . . . . . . . . . . . . 31
11.10 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.11 LEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.12 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . 32
11.13 COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.14 NAME CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
11.15 DISPOSITION OF COLLATERAL. . . . . . . . . . . . . . . . . . . . 32
12. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 32
12.2 EFFECTS OF ANY EVENT OF DEFAULT. . . . . . . . . . . . . . . . . 35
13. SECURED PARTY'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . 35
13.1 GENERALLY . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.2 NOTIFICATION OF ACCOUNT DEBTORS. . . . . . . . . . . . . . . . . 35
13.3 POSSESSION OF COLLATERAL . . . . . . . . . . . . . . . . . . . . 36
13.4 COLLECTION OF RECEIVABLES. . . . . . . . . . . . . . . . . . . . 36
13.5 INDORSEMENT OF CHECKS; DEBTOR'S MAIL . . . . . . . . . . . . . . 36
13.6 REGISTERED HOLDER OF COLLATERAL. . . . . . . . . . . . . . . . . 36
13.7 INCOME FROM AND INTEREST ON INSTRUMENTS. . . . . . . . . . . . . 37
13.8 INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS. . . . . . . . . . 37
14. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
14.1 PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL. . . 37
14.2 PERFORMANCE OF DEBTOR'S DUTIES . . . . . . . . . . . . . . . . . 38
14.3 NOTICE OF SALE . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.4 WAIVER BY SECURED PARTY. . . . . . . . . . . . . . . . . . . . . 38
14.5 WAIVER BY DEBTOR . . . . . . . . . . . . . . . . . . . . . . . . 38
14.6 SETOFF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
14.7 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
14.8 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . 39
14.9 MODIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 39
14.10 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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14.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPALS . . . . . . . . . . . . 39
14.12 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 39
14.13 TERMINATION; PREPAYMENT PREMIUM. . . . . . . . . . . . . . . . . 40
14.14 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . 41
14.15 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.16 CUMULATIVE SECURITY INTEREST, ETC. . . . . . . . . . . . . . . . 41
14.17 SECURED PARTY'S DUTIES . . . . . . . . . . . . . . . . . . . . . 41
14.18 NOTICES GENERALLY . . . . . . . . . . . . . . . . . . . . . . . 42
14.19 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.20 INCONSISTENT PROVISIONS . . . . . . . . . . . . . . . . . . . . 42
14.21 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . 42
14.22 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.23 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . 42
14.24 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SCHEDULE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
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Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1 CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meaning:
(a) ACCOUNT DEBTOR means the person, firm or entity obligated to
pay a Receivable.
(b) ADVANCE means a loan made to Debtor by Secured Party pursuant
to this Agreement.
(c) BORROWING CAPACITY means, at the time of computation, the
amount specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday or
other day on which banks are authorized or required to close under the
laws of the State.
(e) COLLATERAL means collectively all of the property of Debtor
subject to the Security Interest and described in Sections 3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any corporation of which at
least 50% of the voting stock is owned by Debtor directly, or indirectly
through one or more Consolidated Subsidiaries. If Debtor has no
Consolidated Subsidiaries, the provisions of this Agreement relating to
Consolidated Subsidiaries shall be inapplicable without affecting the
applicability of such provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate, or
adjustment granted by Debtor with respect to a Receivable, other than a
cash discount described in Item 3 of the Schedule.
(h) DEBTOR means the person or entity defined on the cover page
of this Agreement.
(i) ELIGIBLE INVENTORY means all Inventory of Debtor in which
Secured Party has a first priority perfected security interest reduced
by (i) the amount of any reasonable Inventory reserves required by
Secured Party in its sole discretion, (ii) any Inventory as to which a
representation or warranty contained in Section 5.4 or 5.5 is not, or
does not continue to be, true and accurate, and (iii) any Inventory
which is otherwise reasonably unacceptable to Secured Party it its sole
discretion.
(j) ERISA means the Employee Retirement Income Security Act of
1974, as amended from time to time.
(k) EXTENSION means the granting to an Account Debtor of
additional time within which such Account Debtor is required to pay a
Receivable.
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(l) FEDERAL BANKRUPTCY CODE means Title 11 of the United States
Code, entitled "Bankruptcy , as amended, or any successor federal
bankruptcy law.
(m) GENERAL INTANGIBLES means general intangibles as defined
in the Uniform Commercial Code as in effect in the State as of the date
of Agreement, and in any event shall include, without limitation,
patents, trademark, trade names, servicemarks, copyrights, tradesecrets,
customer lists, computer programs, and computer records, and all
applications for, rights and business goodwill associated with, license
and royalty agreements with respect to, and causes of action for
infringement of, any of the foregoing.
(n) INDEBTEDNESS means the indebtedness secured by the Security
Interest and described in Section 3.3.
(o) INELIGIBLE RECEIVABLES means the following described
Receivables and any other Receivables which, in the sore' discretion of
Secured Party, are not satisfactory for credit or any other reason.
Debtor acknowledges that the following description of specific types of
Ineligible Receivables does not limit Secured Party s absolute
discretion to deem other Receivables to be Ineligible Receivables.
(i) Any Receivable which has remained unpaid for more than
the number of days specified in Item 4 of the Schedule.
(ii) Any Receivable which respect to which a representation
or warranty contained in Section 5.3, 5.5 or 5.6 is not or does not
continue to be, true and accurate, including without limitation,
any receivable subject to a setoff.
(iii) Any Receivable with respect to all or put of which a
check, promissory note, draft, trade acceptance, or other
instrument for the payment of money has been received, presented
for payment, and returned uncollected for any reason.
(iv) Any Receivable with respect to which Debtor has
extended the time for payment without the consent of Secured Party,
except as provided in Section 9.2 (a).
(v) Any Receivable as to which any one or more of the
following events occurs: a Responsible Party shall die or be
judicially declared incompetent; a request or petition for
liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, or other relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or
territory thereof, or any foreign jurisdiction, now or hereafter
in effect shall be filed by or against a Responsible Party; a
Responsible Party shall make any general assignment for the benefit
of creditors; a receiver or trustee, including, without limitation,
a "custodian" as defined in the Federal Bankruptcy Code, shall be
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appointed for a Responsible Party or for any of the assets of a
Responsible Party; any other type of insolvency proceeding with
respect to a Responsible Party (under the bankruptcy laws of the
United States or otherwise) or any formal or informal proceeding
for the dissolution or liquidation of, settlement of claims
against, or winding up of affairs of, a Responsible Party shall
be instituted; all or any material part of the assets of a
Responsible Party shall be sold, assigned, or transferred; a
Responsible Party shall fail to pay its debts as they become due;
or a Responsible Party shall cease doing business as a going
concern.
(vi) All Receivables owed by an Account Debtor owing
Receivables classified as ineligible under any criterion set forth
in any of Sections 1.1(o)(i) through 1.1(o)(v) or in Section
1.1(o)(ix), if outstanding dollar amount of such Ineligible
Receivables constitutes a percentage of the aggregate outstanding
dollar amount of all Receivables owed by such Account Debtor equal
to or greater than the percentage specified in Item 5 of the
Schedule.
(vii) All Receivables owed by an Account Debtor which does
not maintain its chief executive office in the United States or
which is not organized under the laws of the United States or any
state, unless otherwise specified in Item 6 of the Schedule.
(viii) All receivables owed by an Account Debtor if Debtor
or any person who, or entity which, directly or indirectly
controls Debtor, either owns in whole or material part, or
directly or indirectly controls, such Account Debtor.
(ix) Any Receivable as to which the perfection,
enforceability, or validity of Secured Party's Security Interest in
such receivable, or Secured Party's right or ability to obtain
direct payment to Secured Party of the Proceeds of such Receivable;
is governed by any federal or state statutory requirements other
than those of the Uniform Commercial Code,including, without
limitation, any Receivable subject to the Federal Assignment of
Claims Act of 1940, as amended.
(x) Any Receivable arising from a consignment or other
arrangement pursuant to which the subject Inventory is returnable
if not sold or otherwise disposed of by the Account Debtor, any
Receivable constituting a partial billing under terms providing
for payment only after full shipment or performance; any Receivable
arising from a bill and hold safe or in connection with any
prebilling where the Inventory or services have not been
delivered, performed, or accepted by the Account Debtor; and any
Receivable as to which the Account Debtor contends the balance
reported by Debtor is incorrect or not owing.
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<PAGE>
(xi) Any Receivable which is unenforceable against
the Account Debtor for any reason, including, without limitation,
a failure to file with the State of New Jersey a Notice of Business
Activities Report.
(xii) Any Receivable which is an Instrument, Document
or Chattel Paper or which is evidenced by a note, draft, trade
acceptance, or other instrument for the payment of money where such
Instrument, Document, Chattel Paper, note, draft, trade acceptance,
or other instrument has not been endorsed and delivered by Debtor
to Secured Party.
(xiii) Any Receivable or Receivables owed by an Account
Debtor which exceeds any credit limit established by Secured Party
for such Account Debtor; provided, that such Receivable or
Receivables shall be ineligible only to the extent of such excess.
(p) INTERNAL REVENUE CODE means the Internal Revenue Code of
1986, as amended from time to time.
(q) INVENTORY means inventory as defined in the Uniform
Commercial Code as in effect in the State as of the date of this
Agreement, and in any event shall include returned or repossessed Goods.
(r) INVENTORY BORROWING BASE means, at the time of computation,
an amount not exceeding the percentages specified in Item 2 of the
Schedule of the dollar value of Eligible Inventory, such dollar value to
be calculated at the lower of actual cost or market value and accounted
for in the manner specified in Item 7 of the Schedule, less the amount
of any reserves established by Secured Party in accordance with Section
2.3.
(s) INVOICE means any document or documents used or to be used
to evidence a Receivable.
(t) PAYMENT ACCOUNT means the special bank account owned by
Secured Party to which proceeds of Collateral, including, without
limitation, payments on Receivables and other payments from sales or
leases of Inventory, are credited. There is a Payment Account if so
indicated in Item 8 of the Schedule.
(u) PENSION EVENT means, with respect to any Pension Plan, the
occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code, (ii) any
Reportable Event, (iii) any complete or partial withdrawal or proposed
complete or partial withdrawal of Debtor or any Consolidated Subsidiary
from such Pension Plan, (iv) any complete or partial termination or
proposed complete or partial termination of such Pension Plan, or (v)
any accumulated funding deficiency (whether or not waived) as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code.
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<PAGE>
(v) PENSION PLAN means any pension plan as defined in Section
3(2) of ERISA which is a multi-employer plan or a single employer plan
as defined in Section 4001 of ERISA and subject to Title IV of ERISA and
which is (i) a plan maintained by Debtor or any Consolidated Subsidiary
for employees or former employees of Debtor or of any Consolidated
Subsidiary, (ii) a plan to which Debtor or any Consolidated Subsidiary
contributes or is required to contribute, (iii) a plan to which Debtor
or any Consolidated Subsidiary was required to make contributions at any
time during the five (5) calendar years preceding the date of this
Agreement, or (iv) any other plan with respect to which Debtor or any
Consolidated Subsidiary has incurred or may incur liability, including,
without limitation, contingent liability, under Title IV of ERISA either
to such plan or to the Pension Benefit Guaranty Corporation. For
purposes of this definition and for purposes of Sections 1.1(u), 5.12,
and 12.1(h), Debtor shall include any trade or business (whether or not
incorporated) which, together with Debtor or any Consolidated
Subsidiary, is deemed to be a "single employer" within the meaning of
Section 4001(b)(1) of ERISA.
(w) PRIME RATE means the rate of interest publicly announced by
the bank or financial institution specified in Item 39 of the Schedule
from time to time as its prime rate and is a base rate for calculating
interest on certain loans. The rate announced by the bunk or financial
institution specified in Item 39 of the Schedule as its prime rate may
or may not be the most favorable rate changed by the referenced bank or
financial institution to its customers.
(x) RECEIVABLE means the right to payment for Goods sold or
leased or services rendered by Debtor, whether or not earned by
performance, and may, without limitation, in whole or in put be in the
form of an Account, Chattel Paper, Document, or Instrument.
(y) RECEIVABLE BORROWING BASE means, at the time of its
computation, the aggregate amount of the outstanding Receivables in
which Secured Party has a first priority perfected security interest
(adjusted with respect to Credits and returned merchandise as provided
in Article 9 hereof) less the amount of Ineligible Receivables and any
reserves established by Secured Party in accordance with Section 2.3.
(z) REPORTABLE EVENT means any event with regard to a Pension
Plan described in Section 4043(b) of ERISA or in regulations issued
thereunder.
(aa) RESPONSIBLE PARTY means an Account Debtor, a general partner
of an Account Debtor, or any party otherwise in any way directly or
indirectly liable for the payment of a Receivable.
(bb) SCHEDULE means the schedule executed in connection with, and
which is a part of, this Agreement.
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(cc) SECURED PARTY means the person or entity defined on the
cover page of this Agreement and any successors or assigns of Secured
Party.
(dd) SECURITY INTEREST means the security interest granted to
Secure Party by Debtor as described in Section 3.1 of this Agreement.
(ee) SOLVENT means, with respect to any person or entity on a
particular determination date, that on such date (i) the fair value of
the property of such person or entity is greater than the total amount
of debts and other liabilities, including, without limitation,
contingent and unliquidated liabilities, of such person or entity, (ii)
the present fair salable value of the asset of such person or entity is
greater than the amount that will be required to pay the probable
liability of such person or entity on its existing debts and other
liabilities as they become absolute and matured, (iii) such person or
entity is able to realize upon its assets any pay its debts and other
liabilities, contingent obligations and other commitments as they mature
in the normal course of business, (iv) such person or entity does not
intend to, and does not believe that it will, incur debts or other
liabilities beyond such person's or entity's ability to pay as such
debts and other liabilities mature or become due, and (v) such person or
entity is not engaged in a business or a transaction, for which such
person's or entity's property would constitute unreasonably small
capital.
(ff) STATE means the State of the United States specified in Item
34 of the Schedule.
(gg) THIRD PARTY means any person or entity who has executed and
delivered, or who in the future may execute and deliver, to Secured
Party any agreement, instrument, or document pursuant to which such
person or entity has guarantied to Secured Party the payment of the
Indebtedness or has granted Secured Party a security interest in or lien
on some or all of such person's or entity's real or personal property to
secure the payment of the Indebtedness.
(hh) TRANSACTION DOCUMENTS means this Agreement and all documents
including, without limitation, collateral documents, letter of credit
agreements, security agreements, pledges, guaranties, mortgages, title
insurance, assignments and subordination agreements required to be
executed by Debtor, any Third Party or any Responsible Party pursuant
hereto or in connection herewith.
(ii) CORPORATION means any entity or business organization
representing the Debtor as described in this document.
1.2 SINGULAR AND PLURALS. Unless the context otherwise requires, words
in the singular number include the plural, and in the plural include the
singular.
1.3 U.C.C. DEFINITIONS. Unless otherwise defined in Section I. I or
elsewhere in this Agreement, capitalized words shall have the meaning
set forth in the Uniform Commercial Code as in effect in the State as of
the date of this Agreement.
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1.4 SECTION REFERENCES. Unless otherwise specified, article, section,
subsection and schedule references are to this Agreement.
2. ADVANCES
2.1 REQUESTS FOR AN ADVANCE.
(a) Written Requests. From time to time, Debtor may make a
written request for an Advance, so long as the sum of the aggregate
principal balance of outstanding Advances and the requested Advance does
not exceed the Borrowing Capacity as then computed; and Secured Party
shall make such requested Advance, provided that (i) the Borrowing
Capacity would not be so exceeded, (ii) there has not occurred an Event
of Default or an event which, with notice or lapse of time or both,
would constitute an Event of Default, (iii) all representations and
warranties contained in this Agreement and in the other Transaction
Documents are true and comet on the date such requested Advance is made
as though made on and as of such date, and (iv) all of the conditions in
Article 4 have been satisfied. Notwithstanding any other provision of
this Agreement, Secured Party may from time to time reduce the
percentages applicable to the Receivables Borrowing Base and the
Inventory Borrowing Base as they relate to amounts of the Borrowing
Capacity if Secured Party determines in its sole discretion that there
has been a material change in circumstances related to any or all
Receivables or Inventory from those circumstances in existence on or
prior to the date of this Agreement.
(b) Oral Requests. Secured Party may make an Advance to Debtor
upon Debtor's oral request, subject to the same conditions applicable to
a written request set forth in subparagraph (a) above. Each oral request
for an Advance shall be conclusively presumed to be made by a person
authorized by Debtor to do so; and the making of the Advance to Debtor
as hereinafter provided shall conclusively establish Debtor's obligation
to repay the Advance.
2.2 PROCEEDS OF AN ADVANCE. Advances shall be made in the manner
agreed by Debtor and Secured Party in writing or, absent any such
agreement, as determined by Secured Party.
2.3 ESTABLISHMENT OF RESERVES. Secured Party may at any time and from
time to time in its sole discretion establish reasonable reserves
against the Receivables or the Inventory of Debtor. The amount of such
reserves shall be subtracted from the Receivables Borrowing Base or
Inventory Borrowing Base, as applicable, when calculating the amount of
the Borrowing Capacity.
3. COLLATERAL AND INDEBTEDNESS
3.1 SECURITY INTEREST. Debtor hereby grants to Secured Party a
security interest in and a lien on the following property of Debtor
wherever located and whether now owned or hereafter acquired:
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(a) All Accounts, Inventory, General Intangibles, Chattel
Paper, Documents, and Instruments, whether or not specifically assigned
to Secured Party, including, without limitation, all Receivables and all
Equipment, whether or not affixed to realty, and fixtures.
(b) All guaranties, collateral, liens on or security interests
in real or personal property, leases, letters of credit, and other
rights, agreements, and property securing or relating to payment of
Receivables.
(c) All books, records, ledger cards, dab processing records,
computer software, and other property at any time evidencing or relating
to Collateral.
(d) All monies, securities, and other property now or hereafter
held or received by, or in transit to, Secured Party from or for Debtor,
and all of Debtor's deposit accounts, credits, and balances with Secured
Party existing at any time.
(e) All proceeds and products of all of the foregoing in any
form including, without limitation, amounts payable under any policies
of insurance insuring the foregoing against loss or damage, all parts,
accessories, attachments, special tools, additions, replacements,
substitutions and accessions to or for all of the foregoing and all
increases and profits received from all of the foregoing.
3.2 OTHER COLLATERAL. Nothing contained in this Agreement shall limit
the rights of Secured Party in and to any other Collateral securing the
Indebtedness which may have been or may hereafter be granted to Secured
Party by Debtor or any Third Party pursuant to any other agreement.
3.3 INDEBTEDNESS SECURED. The Security Interest secures payment of
any and all indebtedness, and performance of all obligations and
agreements, of Debtor to Secured Party, whether now existing or
hereafter incurred or arising, of every kind and character, primary or
secondary, direct or indirect, absolute or contingent, sole, joint or
several, similar or dissimilar or related or unrelated and whether such
indebtedness is from time to time reduced and thereafter increased, or
entirely extinguished and thereafter reincurred, including, without
limitation: (a) all Advances; (b) all interest which accrues on any such
indebtedness, until payment of such indebtedness in full, including,
without limitation, all interest provided for under this Agreement; (c)
all other monies payable by Debtor, and all obligations and agreements
of Debtor to Secured Party, pursuant to the Transaction Documents; (d)
all debts owed or to be owed by Debtor to others which Secured Party has
obtained, or may obtain, by assignment or otherwise; (e) all monies
payable by any Third Party, and all obligations and agreements of any
Third Party to Secured Party, pursuant to any of the Transaction
Documents, and (f) dl monies due and to become due pursuant to Section
8.3.
4. CONDITIONS TO ADVANCES. Notwithstanding any other provision of this
Agreement or any of the other Transaction Documents, and without affecting in
any manner the rights of Secured Party under any other provision of this
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Agreement, Secured Party shall not be obligated to make advances unless and
until the following conditions have been and continue to be satisfied.
4.1 CORPORATE ACTION. Debtor shall have taken all necessary and
appropriate corporate action and the Board of Directors of Debtor shall
have adopted resolutions authorizing and the shareholders of Debtor (to
the extent required under Debtor's organizational documents or
applicable law) shall have consented to, this Agreement, and the
borrowing hereunder, the execution and delivery of the Transaction
Documents and the taking of all action required of Debtor by the
Transaction Documents; and Debtor shall have furnished to Secured Party
certified copies of such corporate resolutions and such other corporate
documents as Secured Party shall reasonable request.
4.2 CORPORATE DOCUMENTS. There shall have been furnished to Secured
Party (a) copies of the articles or certificate of incorporation and by-
laws of Debtor and each Consolidated Subsidiary, certified by its
Secretary as of the date of this Agreement; (b) a certificate of
Debtor's and each Consolidated Subsidiary's good standing or equivalent
certificate duly issued of recent date by the Secretary of State of the
state specified in Item 9 of the Schedule, and certificates of authority
to do business in each state in which Debtor is licensed or qualified to
do business; (c) a certificate of incumbency specifying the officers of
Debtor, together with their specimen signatures; and (d) such other and
further documents as Secured Party may reasonably request including,
without limitation, tax status reports covering payment of franchise
taxes and other taxes.
4.3 OPINIONS. Independent counsel for Debtor shall have furnished to
Secured Party their favorable opinion, in form and content satisfactory
to Secured Party and its counsel, dated the date of this Agreement, as
to the matters referred to in Sections 5.1, 5.2, 5.11, 5.12, 5.14, 5.15,
5.16, 5.20, 5.21 and 5.27, and such other matters as are requested by
Secured Party. If this Agreement is being executed and delivered in
connection with the acquisition of stock or assets by Debtor, Debtor
shall also have caused the seller of such stock or assets to furnish to
Secured Party an opinion of counsel for such seller or a letter
authorizing Secured Party to rely on such an opinion, in form and
content satisfactory to Secured Party and its counsel, dated the date of
this Agreement.
4.4 TRANSACTION DOCUMENTS. Debtor shall have delivered to Secured
Party all the Transaction Documents, in form and content satisfactory to
Secured Party and its counsel.
4.5 THIRD PARTY ACTION. Each Third Party shall have (i) taken all
necessary and appropriate corporation and shareholder action and the
Board of Directors of the Third Party shall have adopted resolutions
authorizing the execution and delivery of the guaranty of such Third
Party and the taking of all action called for thereby, and (ii)
furnished to Secured Party certified copies of evidence of such
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corporate and shareholder action and such other corporate documents as
Secured Party shall reasonably request.
4.6 ASSIGNMENT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. If
this Agreement is being executed in conjunction with the acquisition of
stock or assets by Debtor pursuant to an acquisition agreement, Debtor
shall execute and deliver to Secured Party as continuing collateral
security for the payment of the Indebtedness an assignment, in form and
content satisfactory to Secured Party, of any and all representations,
warranties and indemnities made by the seller of such stock or assets to
Debtor, and such assignment shall be duly consented to by such seller.
4.7 OTHER MATTERS. All matters incidental to the execution and
delivery of the Transaction Documents and all action required by the
Transaction Documents, shall be satisfactory to Secured Party and to its
counsel.
5. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement and make Advances to Debtor from time to time as herein
provided, Debtor represents and warrants and, so long as any Indebtedness
remains unpaid or this Agreement remains in effect, shall be deemed
continuously to represent and warrant as follows:
5.1 CORPORATE EXISTENCE. Debtor and each Consolidated Subsidiary is
duly organized and existing and in good standing under the laws of the
state specified in Item 9 of the Schedule and is duly licensed or
qualified to do business and in good standing in every state in which
the nature of its business or ownership of its property requires such
licensing or qualification.
5.2 CORPORATE CAPACITY. The execution, delivery, and performance of
the Transaction Documents are within Debtor's corporate powers, have
been duly authorized by dl necessary and appropriate corporate and
shareholder action, and are not in contravention of any law or the terms
of Debtor's articles or certificate of incorporation or by-laws or any
amendment thereto, or of any indenture, agreement, undertaking, or other
document to which Debtor is a party or by which Debtor or any of
Debtor s property is bound or affected.
5.3 VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed
and bona fide indebtedness owing to Debtor by the Account Debtor
obligated thereon; (b) there are no defenses, setoffs, or counterclaims
against any Receivable; (c) no payment has been received on any
Receivable and no Receivable is subject to any Credit or Extension or
agreements therefor unless written notice specifying such payment,
Credit, Extension, or agreement has been delivered to Secured Party; (d)
each copy of each Invoice is a true and genuine copy of the original
Invoice sent to the Account Debtor named therein and accurately
evidences the transaction from which the underlying Receivable arose;
and the date payment is due as stated on each such Invoice or computed
based on the information set forth on each such Invoice is correct; (e)
all Chattel Paper and all promissory notes, drafts, trade acceptances,
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and other instruments for the payment of money relating to or evidencing
each Receivable, and each indorsement thereon, are true and genuine and
in all respects what they purport to be, and are the valid and binding
obligation of all parties thereto; and the date or dates stated on all
such items as the date on which payment in whole or in part is due is
correct; (f) all Inventory described in each Invoice has been delivered
to the Account Debtor named in such Invoice or placed for such delivery
in the possession of a carrier not owned or controlled directly or
indirectly by Debtor, (g) all evidence of the delivery or shipment of
Inventory is true and genuine; (h) all services to be performed by
Debtor in connection with each Receivable has been performed by Debtor,
and (i) all evidence of the performance of such services by Debtor is
true and genuine.
5.4 INVENTORY. (a) All representations made by Debtor to Secured
Party, and all documents and schedules given by Debtor to Secured Party,
relating to the description, quantity, quality, condition, and valuation
of the Inventory are true and correct; (b) Debtor has not received any
Inventory on consignment or approval unless Debtor (i) has delivered
written notice to Secured Party describing any Inventory which Debtor
has received on consignment or approval, (ii) has marked such Inventory
on consignment or approval or has segregated it from all other
Inventory, and (iii) has appropriately marked its records to reflect the
existence of such Inventory on consignment or approval; (c) Inventory is
located only at the address or addresses of Debtor set forth at the
beginning of this Agreement, the locations specified in Item 10 of the
Schedule, or such other place or places as approved by Secured Party in
writing; and (d) all Inventory is insured as required by Section 10.11
pursuant to policies in full compliance with the requirements of such
Section.
5.5 TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral
free of all security interests, liens, and other encumbrances except the
Security Interest and except as described in Item 11 of the Schedule;
(b) Debtor has the unconditional authority to grant the Security
Interest to Secured Party; and (c) assuming that all necessary Uniform
Commercial Code filings have been made, Secured Party has an enforceable
first lien on all Collateral, subordinate only to those security
interests, liens, or encumbrances described as having priority over the
Security Interest in Item 11 of the Schedule.
5.6 NOTES RECEIVABLE. No Receivable is an Instrument, Document or
Chattel Paper or is evidenced by any note, draft, trade acceptance, or
other instrument for the payment of money, except such Instrument,
Document, Chattel Paper, note draft, trade acceptance, or other
instrument as has been indorsed and delivered by Debtor to Secured
Party.
5.7 EQUIPMENT. Equipment is located, and Equipment which is a Fixture
is affixed to real property, only at the address or addresses of Debtor
set forth at the beginning of this Agreement, the locations specified in
Item 10 of the Schedule, or such other place or places as approved by
Secured Party in writing. Such real property is owned by Debtor or by
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the person or persons named in Item 10 of the Schedule and is encumbered
only by the mortgage or mortgages listed in Item 10 of the Schedule.
5.8 PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured
Party in Item 10 or Item 12 of the Schedule, Debtor is engaged in
business operations which are in whole or in part carried on at the
address or addresses specified at the beginning of this Agreement and at
no other address or addresses; (b) if Debtor has more than one place of
business, its chief executive office is at the address specified as such
at the beginning of this Agreement; and (c) Debtor's records concerning
the Collateral are kept at the address or addresses specified at the
beginning of this Agreement or in Item 12 of the Schedule.
5.9 FINANCIAL CONDITION. Debtor has furnished to Secured Party
Debtor's most recent current financial statements, which statements
represent correctly and fairly the results of the operations and
transactions or Debtor and the Consolidated Subsidiaries as of the dates
and for the period referred to, and have been prepared in accordance
with generally accepted accounting principles consistently applied
during each interval involved and from interval to interval. Since the
date of such financial statements, there have not been any materially
adverse changes in the financial condition reflected in such financial
statements, except as disclosed in writing by Debtor to Secured Party.
5.10 TAXES. Except as disclosed in writing by Debtor to Secured Party:
(a) all federal and other tax returns required to be filed by Debtor and
each Consolidated subsidiary have been filed and all taxes required by
such returns have been paid; and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice from the Internal Revenue Service or
any other taxing authority proposing additional taxes.
5.11 LITIGATION. Except as disclosed in writing by Debtor to Secured
Party, there are no actions, suits, proceedings, or investigations
pending or, to the knowledge of Debtor, threatened against Debtor or any
Consolidated Subsidiary or any bests therefor which, if adversely
determined, would, in any case or in the aggregate, materially adversely
affect the property, assets, financial condition, or business of Debtor
or any Consolidated Subsidiary or materially impair the right or ability
of Debtor or any Consolidated Subsidiary to carry on its operations
substantially as conducted on the date of this Agreement.
5.12 ERISA MATTERS. (a) No Pension Plan has been terminated or
partially terminated or is insolvent or in reorganization, nor have any
proceedings been instituted to terminate or reorganize any Pension Plan;
(b) neither Debtor nor any Consolidated Subsidiary has withdrawn, nor
has a condition occurred which if continued would result in a complete
or partial withdrawal; (c) neither Debtor nor any Consolidated
Subsidiary has incurred any withdrawal liability, including without
limitation, contingent withdrawal liability, to any Pension Plan
pursuant to Title IV of ERISA; (d) neither Debtor nor any Consolidated
Subsidiary has incurred any liability to the Pension Benefit Guaranty
Corporation other than for required insurance premiums which have been
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paid when due; (e) no Reportable Event has occurred; (f) no Pension Plan
or other "employee pension benefit plan" as defined in Section 3(2) of
ERISA to which debtor or any Consolidated subsidiary is a party has an
"accumulated funding deficiency. (whether or not waived) as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code; (g)
the present value of all benefits vested under any Pension Plan does not
exceed the value of the assets of such Pension Plan allocable to such
vested benefits; (h) each Pension Plan and each other "employee benefit
plan" as defined in Section 3(3) of ERISA to which Debtor or any
Consolidated Subsidiary is a party is in substantial compliance with
ERISA, and no such plan or any administrator, trustee, or fiduciary
thereof has engaged in a prohibited transaction described in Section 406
of ERISA or in Section 4975 of the Internal Revenue Code; (i) each
Pension Plan and each other "employee benefit plan" as defined in
Section 3(2) of ERISA to which Debtor or any Consolidated Subsidiary is
a party has received a favorable determination by the Internal Revenue
Service with respect to qualification under Section 401(a) of the
Internal Revenue Code; and j) neither Debtor nor any Consolidated
Subsidiary has incurred any liability to a trustee or trust established
pursuant to Section 4049 of ERISA or to a trustee appointed pursuant to
Section 4042(b) or (c) of ERISA.
5.13 ENVIRONMENTAL MATTERS. (a) Debtor and each Consolidated
subsidiary have performed all of their respective obligations under,
have obtained all necessary approvals, permits, authorizations, and
other consents required by, and are not in material violation of, any
applicable state or federal health or environmental law, ordinance,
rule, regulation, or order, and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice or request from any governmental
agency, other entity, or person for information, nor has Debtor or any
Consolidated Subsidiary provided any notice or information to any such
agency, entity, or person, concerning the presence or release of
hazardous substances, waste, or other materials (as such terms are
defined by any applicable federal, state, or local law) within, on,
from, related to, or affecting any real property owned or occupied by
Debtor or any Consolidated Subsidiary.
5.14 VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy and insolvency laws and laws affecting
creditors' rights generally.
5.15 NO CONSENT OR FILING. No consent, license, approval or
authorization of, or registration, declaration or filing with, any
court, governmental body or authority or other person or entity is
required in connection with valid execution, delivery or performance of
the Transaction Documents or for the conduct of Debtor's business as now
conducted, other than filings and recordings in connection with the
Transaction Documents.
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5.16 NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary is
in violation of any term of its articles or certificate of incorporation
or by-laws, or of any mortgage, borrowing agreement or other instrument
of agreement pertaining to indebtedness for borrowed money. Neither
Debtor nor any Consolidated Subsidiary is in violation of any term of
any other indenture, instrument, or agreement to which it is a party or
by which it or its property may be bound, resulting, or which might
reasonably be expected to result, in a material and adverse effect upon
its business or assets. Neither Debtor nor any Consolidated Subsidiary
is in violation of any order, writ, judgment, injunction or decree of
any court of competent jurisdiction or of any statute, rule or
regulation of any governmental authority. The execution and delivery of
the Transaction Documents and the performance of all of the same is and
will be in compliance with the foregoing and will not result in any
violation thereof or result in the creation of any mortgage, lien,
security interest, charge or encumbrance upon any properties or assets
except in favor of Secured Party. There exists no fact or circumstance
(whether or not disclosed in the Transaction Documents) which materially
adversely affects or in the future (so far as Debtor can now foresee)
may materially adversely affect the condition, business or operations of
Debtor or any Consolidated Subsidiary.
5.17 TRADEMARKS AND PATENTS. Debtor and each Consolidated Subsidiary
possesses all trademarks, trademark rights, patents, patents rights,
licenses, permits, tradenames, tradename rights, copyrights, and
approvals that are required to conduct its business as now conducted
without conflict with the rights of others. A list of the foregoing is
set forth in Item 13 of the Schedule.
5.18 CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any
Consolidated Subsidiary which are not disclosed by the financial
statements described in Section 5.9 or Item 29 of the Schedule.
5.19 SOLVENCY. Debtor individually is, and Debtor and the Consolidated
Subsidiaries taken as a whole are, and during the term of this
Agreement, Debtor individually, and Debtor and the Consolidated
Subsidiaries taken as a whole, will be at all times, Solvent, both
before and after giving effect to the transactions contemplated by the
Transaction Documents and any acquisition of stock or assets occurring
in conjunction with or related to the Transaction Documents.
5.20 COMPLIANCE WITH LAWS. Debtor is in compliance with all applicable
laws, rules, regulations, and other legal requirements with respect to
its business and the use, maintenance, and operations of the real and
personal property owned or leased by it in the conduct of its business.
5.21 LICENSES, PERMITS, ETC. Each franchise, grant, authorization,
license, permit, easement, consent, certificate and order of Debtor and
each Consolidated Subsidiary is in full force and effect.
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5.22 MARGIN STOCK. Neither Debtor's execution and delivery of any of
the Transaction Documents not the borrowing by Debtor of any sums
pursuant thereto violates Section 7 of the Securities Exchange Act of
1934, as amended, or any rule or regulation thereunder, and Debtor
neither owns nor intends to purchase or carry any "margin stock" except
as set forth in Item 14 of the Schedule.
5.23 COMMISSIONS. No brokerage commission, finders fee, or investment
banking fees are payable by Debtor to any person or entity in connection
with the Transaction Documents or the transaction contemplated thereby.
5.24 LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary
is a party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in Item 15
of the Schedule.
5.25 CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated
Subsidiaries other than those listed in Item 36 of the Schedule and the
percentage ownership of Debtor in each such Consolidated Subsidiary is
specified in such Item 36.
5.26 ACCURACY OF REPRESENTATIONS. No representation, warranty or
statement by Debtor or any Third Party contained herein or in any
certificate, financial statement or other document furnished by Debtor
or any Third Party pursuant hereto or in connection herewith fails to
contain any statement of material fact necessary to make such
representation or warranty not misleading in light of the circumstances
under which it is made. There is no fact which Debtor knows or should
know and has not disclosed to Secured Party which does or may materially
or adversely affect Borrower, any Consolidated Subsidiary, or any Third
Party, or any of their respective operations.
5.27 AUTHORIZED SHARES. Debtor's total authorized common shares, the
par value of such shares, and the number of such shares issued and
outstanding, are set forth in Item 16 of the Schedule. All of such
shares are of one class and have been validly issued in full compliance
with all applicable federal and state laws, and w fully paid and non-
assessable. No other shares of the Debtor of any class or type are
authorized or outstanding.
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
6.1 RECEIVABLE SCHEDULE. Debtor shall deliver to Secured Party, daily
or at such other intervals as may be specified in Item 17 of the
Schedule, a schedule in form and content satisfactory to Secured Party
describing the Invoices issued by Debtor since the last schedule
submitted to Secured Party. The schedules to be provided under this
Section 6.1 are solely for the convenience of Secured Party in
administering this Agreement and maintaining records of the Collateral.
Debtor's failure to provide Secured Party with any such schedule shall
not affect the Security Interest.
6.2 INVOICES. Debtor shall cause all of its Invoices, including the
copies thereof, to be printed and to beer consecutive numbers and shall
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prepare and issue its Invoices in such consecutive numerical order. If
requested by Secured Party, all copies of Invoices not previously
delivered to Secured Party shall be delivered to Secured Party with each
schedule of receivables. Copies of all Invoices which are voided or
canceled or which for any reason do not evidence a Receivable shall be
included in such delivery. If any Invoice or copy thereof is lost,
destroyed, or otherwise unavailable, Debtor shall account in writing in
form satisfactory to Secured Party, for each missing Invoice.
6.3 AGING REPORTS. Within ten (10) calendar days after the end of
each month or on such other more frequent buds as may be required by
Secured Party from time to time, Debtor shall submit to Secured Party an
aging report in form satisfactory to Secured Party showing the amounts
due and owing on all Receivables according to Debtor's records as of the
close of such month or shorter period as may be required by Secured
Party from time to time, together with such other information as Secured
Party may require. If Debtor's aging reports are prepared by an
accounting service or other agent, Debtor hereby authorizes such service
or agent to deliver such aging reports and any other related documents
to Secured Party.
6.4 INVENTORY REPORTS. Debtor shall furnish to Secured Party at the
intervals specified in Item 17 of the Schedule, the following reports in
form satisfactory to Secured Party, if such reports are required by
Secured Party as specified in Item 17 of the Schedule:
(a) An inventory value report describing all Inventory by value
based on the lower of cost or market value;
(b) A periodic summary report listing all Inventory by nature,
quantity and location, together with such other information as Secured
Party may require; and
(c) A dispute report describing any dispute with any processor
of Inventory or other person or entity in possession of any Inventory.
6.5 NOTES OR OTHER INSTRUMENTS. Each note, draft, trade acceptance,
or other instrument for the payment of money evidencing a Receivable
shall be delivered to Secured Party with the schedule listing the
Receivable which it evidences and shall be indorsed by Debtor to the
order of Secured Party.
6.6 CHATTEL PAPER. The original of each item of Chattel Paper
evidencing a Receivable shall be delivered to Secured Party with the
schedule listing the Receivable which it evidences, together with an
assignment in form and content satisfactory to Secured Party of such
Chattel Paper by Debtor to the Secured Party, if any such chattel paper
exists.
6.7 OTHER DOCUMENTS. Debtor shall deliver to Secured Party all
documents specified in Item 17 of the Schedule, as frequently as
indicated therein or at such other times as Secured Party may request,
and all other documents and information requested by Secured Party.
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7. COLLECTIONS.
7.1 DELIVERY OF PROCEEDS TO SECURED PARTY. Unless Secured Party
notifies Debtor that it specifically dispenses with one or more of the
following requirements, any Proceeds of Collateral received by Debtor,
including without limitation, payments on Receivables and other payments
from sales or leases of Inventory, shall be held by Debtor in trust for
Secured Party in the same medium in which received, shall not be
commingled with assets of Debtor, and shall be delivered immediately to
Secured Party. So long as Secured Party elects to keep the Payment
Account in existence, Debtor shall deposit Proceeds of Collateral into
the Payment Account and shall, on the day of each such deposit, forward
to Secured Party a copy of the deposit receipt of the depository bank
indicating that such deposit has been made.
7.2 APPLICATION OF PROCEEDS. Upon receipt of Proceeds of Collateral,
Secured Party, in its sole discretion, may apply such Proceeds directly
to the Indebtedness in the manner provided in Section 8.5. Checks drawn
on the Payment Account and all or any part of the balance of the Payment
Account may be applied from time to time to the Indebtedness in the
manner provided in Section 8.5.
7.3 DEBTOR TO FORWARD SCHEDULES TO SECURED PARTY. Whenever Debtor
delivers payments on Receivables and other payments from sales or leases
of Inventory to Secured Party, whether directly or indirectly by deposit
to the Payment Account, such payments shall be accompanied by a schedule
in form satisfactory to Secured Party consisting of a copy of Debtor's
cash receipt journal covering such payments, certified to be correct by
an authorized officer of Debtor. Individual cash receipt journals shall
be segregated by the months in which payments reflected thereon are
received by Debtor.
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
8.1 PROMISE TO PAY PRINCIPAL. Debtor promises to pay to Secured Party
the principal of Advances as follows:
(a) Borrowing Capacity Exceeded. Whenever the outstanding
principal balance of Advances exceeds the Borrowing Capacity, Debtor
shall immediately pay to Secured Party the excess of the outstanding
principal balance of Advances over the Borrowing Capacity.
(b) Payment in Full on Termination or Acceleration. Forthwith
upon termination of this Agreement pursuant to Section 14.13 or
acceleration of the time for payment of the Indebtedness pursuant to
Section 12.2, Debtor shall pay to Secured Party the entire outstanding
principal balance of Advances.
8.2 PROMISE TO PAY INTEREST. Debtor promises to pay to Secured Party,
on the first day of each month in arrears, on termination of this
Agreement pursuant to Section 14.13, on acceleration of the time for
payment of the Indebtedness pursuant to Section 12.2 and on the date the
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Indebtedness is paid in full, interest on the principal of Advances from
time to time unpaid at the fluctuating per annum rate specified in Item
18 of the Schedule. Any change in the interest rate resulting from a
change in the Prime Rate shall take effect simultaneously with such
change in the Prime Rate. Interest shall be computed on the daily
unpaid principal balance of Advances. Interest shall be calculated for
each calendar day at 1/360th of the applicable per annum rate which will
result in any effective per annum rate higher than that specified in
Item 18 of the Schedule. From and after the occurrence of an Event of
Default and for so long as such Event of Default shall continue, Debtor,
as additional compensation to Secured Party for its increased credit
risk, and not as penalty, shall pay interest at a per annum rate of 3%
greater than the rate of interest specified in the Schedule. In no
event shall the rate of interest exceed the maximum rate permitted by
applicable law. If Debtor pays to Secured Party interest in excess of
the amount permitted by applicable law, such excess shall be applied in
reduction of the principal of Advances made pursuant to this Agreement,
and any remaining excess interest, after application thereof to the
principal of Advances, shall be refunded to Debtor.
8.3 PROMISE TO PAY FEES. Debtor promises to pay to Secured Party any
fees specified in Item 19 of the Schedule on the applicable due dates
also specified in Item 19 of the Schedule.
8.4 PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party on demand, all costs
and expenses as provided in this Agreement, and all costs and expenses
incurred by Secured Party from time to time in connection with this
Agreement, including without limitation those incurred in: (i)
preparing, negotiating, amending, waiving or granting consent with
respect to the terms of any and all of the Transaction Documents; (ii)
enforcing the Transaction Documents; (iii) performing, pursuant to
Section 14.2, Debtor's duties under the Transaction Documents upon
Debtor's failure to perform them; (iv) filing financing statements,
assignments, or other documents relating to the Collateral, (e.g.,
filing fees, recording taxes, and documentary stamp taxes); (v)
maintaining the Payment Account; (vi) administering the Transaction
Documents, but not ordinary general administrative expenses; (vii)
compromising, pursuing, or defending any controversy, action, or
proceeding resulting, directly or indirectly, from Secured Party's
relationship with Debtor, regardless of whether Debtor is a party to
such controversy, action, or proceeding occurs before or after the
Indebtedness has been paid in full; (viii) realizing upon or protecting
any Collateral; (ix) enforcing or collecting any Indebtedness or
guaranty thereof; (x) employing collection agencies or other agents to
collect any or all of the Receivables; (xi) examining Debtor's books and
records or inspecting the Collateral where such examinations or
inspections must be conducted, in Secured Party s sole discretion, more
frequently than is customary, including, without limitation, the
reasonable costs of examinations and inspections conducted by third
parties, provided that nothing herein shall limit Secured Party's right
to audit, examination, inspection, or other fees otherwise payable under
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Section 8.3 and (xii) obtaining independent appraisals from time to time
as deemed necessary or appropriate by Secured Party.
(b) Without limiting Section 8.4(a), Debtor also agreed to pay
Secured Party, on demand, the actual fees and disbursements incurred by
Secured Party for attorneys retained by Secured Party for advice, suit,
appeal, or insolvency or other proceedings under the Federal Bankruptcy
Code or otherwise, or in connection with any purpose specified in
Section 8.4(a).
(c) If after the date hereof, Secured Party determines that (i)
the adoption of any applicable law, rule, or regulation regarding
capital requirements for banks or bank holding companies or the
subsidiaries thereof, (ii) any change in the interpretation or
administration of any such law, rule, or regulation by any governmental
authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or (iii) compliance by Secured
Party or its holding company with request or directive of any such
governmental authority, central bank, or comparable agency regarding
capital adequacy (whether or not having the force of law), has the
effect of reducing the return on Secured Party's capital to a level
below that which Secured Party could have achieved (taking into
consideration Secured Party's and its holding company's policies with
respect to capital adequacy immediately before such adoption, change, or
compliance and assuming that Secured Party's capital was fully utilized
prior to such adoption, change, or compliance as a consequence of
Secured Party's commitment to make Advances pursuant hereto by any
amount deemed by Secured Party to be material:
(x) Secured Party shall promptly, after Secured Party s
determination of such occurrence, give notice thereof to Debtor; and
(y) Debtor shall pay Secured Party as an additional fee from
time to time, on demand, such amount as Secured Party certifies to be
the amount that will compensate Secured Party for such reduction. A
certificate of Secured Party claiming entitlement to compensation as set
forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to
such compensation, the additional amount or amounts to be paid to
Secured Party, and the method by which such amounts were determined. In
determining such amount, Secured Party may use any reasonable averaging
and attribution method.
8.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES. Without limiting Debtor's obligation pursuant to Sections
8.1, 8.2, 8.3, and 8.4 to pay the principal of Advances, interest, fees,
and costs and expenses, the following provisions shall apply to the
payment thereof:
(a) Payment of Principal. Debtor authorizes Secured Party to
apply any Proceeds of Collateral, including, without limitation,
payments on Receivables, other payments from sales or lease of
Inventory, and any funds in the Payment Account, to the unpaid principal
of Advances.
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(b) Payment of Interest, Fees and Costs and Expenses. If any
accrued interest, fees, or costs and expenses have not been paid when
due, Debtor authorizes Secured Party in its sole discretion to
(provided, however, Secured Party shall have no obligation to): (i)
make an Advance to pay for such items; or (ii) apply Proceeds of
Collateral, including, without limitation, payments on Receivable other
payments from sales or leases of Inventory, and any funds in the Payment
Account, to the payment of such items
(c) Notwithstanding any other provisions of this Agreement,
Secured Party, in its sole discretion, shall determine the manna and
amount of application of payments and credits, if any, to be made on all
or any part of any component or components of the Indebtedness, whether
principal, interest, fees, costs and expenses, or otherwise.
8.6 COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances
under Section 2. 1(a) and (b), Advances shall be deemed to be paid on
the date that checks drawn on or other funds received from the Payment
Account are applied by Secured Party to Advances, or within one Business
Day after any other payments on Receivable or other payments from sales
of leases of Inventory to be so applied have been processed for
collection by Secured Party; provided, however, for the purpose of
calculating interest payable by Debtor, funds from the Payment Account,
payments on Receivables, other payments from sales or leases of
Inventory and any other payments, shall be deemed to be applied to
Advances the number of days specified in Item 20 of the Schedule after
the application of such funds from the Payment Account or receipt of
such payments by Secured Party, and the amount of interest payable will
be adjusted by Secured Party from time to time accordingly.
Notwithstanding any other provision of this Agreement, if any Item
presented for collection by Secured Party is not honored, Secured Party
may reverse any provisional credit which has been given for the Item and
make appropriate adjustments to the amount of interest and principal
due.
8.7 ACCOUNT STATED. Debtor agrees that each monthly or other
statement of account mailed or delivered by Secured Party to Debtor
pertaining to the outstanding balance of Advances, the amount of
interest due thereon, fees, and costs and expenses shall be final,
conclusive, and binding on Debtor and shall constitute an "account
stated" with respect to the matters contained therein unless, within
twenty (20) calendar days from when such statement was mailed or, if not
mailed, delivered to Debtor, Debtor shall deliver to Secured Party
written notice of any objections which it may have as to such statement
of account, and in such event, only the items to which objection is
expressly made in such notice shall be considered to be disputed by
Debtor.
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.
9.1 RETURNED MERCHANDISE. Debtor shall notify Secured Party
immediately of the return, rejection, repossession, stoppage in transit,
loss, damage, or destruction of any Inventory. In addition to making
appropriate adjustments to the Receivables Borrowing Base and the
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Inventory Borrowing Base to reflect the return of such Inventory,
Secured Party may, in its sole discretion, request Debtor to pay Secured
Party an amount equal to the consideration to have been paid for such
Inventory by the Account Debtor, such payment to be applied directly to
unpaid Advances.
9.2 CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant such
Credits and such Extensions as are ordinary in the usual course of
Debtor's business without the prior consent of Secured Party; provided,
however, that any such Extension shall not extend the time for payment
beyond thirty (30) days after the original due date as shown on the
Invoice evidencing the related Receivable, or as computed based on the
information set forth on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall make a
full accounting of each grant of Credit or an Extension including a
brief description of the reasons therefor and a copy of all credit
memoranda Such accounting shall be in form satisfaction to Secured Party
daily or at such other intervals as may be specified in Item 17 of the
Schedule. All credit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manna as
provided in Section 6.2 with respect to Invoices.
(c) Adjustment to Receivables Borrowing Base. The Receivable
Borrowing Base will be reduced by the amount of all credits reflected in
an accounting required by Section 9.2(b) and may, in the sole discretion
of Secured Party, be reduced by the full amount of any Receivable for
which Extensions were granted. Debtor shall pay to Secured Party with
each such accounting an amount equal to the aggregate of such reductions
of the Receivables Borrowing Base resulting therefrom, such payment to
be applied directly to Advances unless Secured Party, in its sole
discretion, waives its right to such payment where, after such
reductions of the Receivable Borrowing Base, the total outstanding
Advances to Debtor under this Agreement do not exceed the Borrowing
Capacity as then computed.
9.3 RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be resumed
uncollected for any reason, Secured Party may, in its sole discretion,
again forward the same for collection or return the same to Debtor. Upon
receipt of a resumed check or instrument by Debtor, Debtor shall
immediately make the necessary entries on its books and records to
reinstate the Receivable as outstanding and unpaid and immediately
notify Secured Party of such entries, Pursuant to Section 1.1(o)(iii),
the Receivable with respect to which such check or instrument was
received shall thereupon become an Ineligible Receivable.
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9.4 DEBIT MEMORANDA.
(a) Debtor shall deliver to Secured Party copies of all debit
memoranda by Debtor.
(b) Unless Secured Party otherwise notifies Debtor in writing,
Debtor shall deliver at least weekly to Secured Party together with the
schedule of Receivables provided for in Section 6.1, copies of all debit
memoranda issued by Debtor since the last such debit memoranda delivered
to Secured Party.
(c) All debit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manner as
provided in Section 6.2 with respect to Invoices, or the current form
used by the Debtor.
9.5 NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment
of money) with respect to any Receivable without the prior written
consent of Secured Party. If Secured Party in its sole discretion
consents to the acceptance of any such not or instrument, the same shall
be considered as evidence of the Receivable giving rise to such note or
instrument, shall be subject to the Security Interest, and shall not
constitute payment of such Receivable, and Debtor shall forthwith
indorse such note or instrument to the order of Secured Party and
deliver the same to Secured Party. Upon collection, the proceeds of
such note or instrument may be applied directly to unpaid Advances,
interest, and costs and expenses as provided in Section 8.5.
10. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor shall comply with the
covenants contained in Item 21 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
10.1 FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:
(a) Unless otherwise specified in Item 22 of the Schedule,
within ninety (90) days after the end of each fiscal year, consolidated
and consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of such year, fairly presenting Debtor's and
each Consolidated Subsidiary's financial position, which statements
shall consist of a balance sheet, an income statement, a statement of
cash flow, and a statement of changes in financial position covering the
period of Debtor's immediately preceding fiscal year, and which shall be
in the form specified in Item 23 of the Schedule.
(b) Unless otherwise specified in Item 24 of the Schedule,
within twenty (20) days after the end of each month, consolidated and
consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of the month fairly presenting Debtor's and
such Consolidated Subsidiary's financial position, which statements
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shall consist of a balance sheet, an income statement, a statement of
cash flow, and a statement of changes in financial position covering the
period from the end of the immediately preceding fiscal year to the end
of such month, all in such detail as Secured Party may request and
certified to be correct by the president or chief financial officer of
Debtor or other financial officer satisfactory to Secured Party.
(c) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which Debtor sends
to its shareholders, and copies of any and all periodic and special
reports and registration statements which Debtor files with the
Securities and Exchange Commission.
(d) Such additional information as Secured Party may from time
to time reasonably request regarding the financial and business affairs
of Debtor or any Consolidated Subsidiary.
10.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to
which the perfection enforceability, validity of Secured Party's
Security Interest in such Receivable, or Secured Party's right or
ability to obtain direct payment to Secured Party of the Proceeds of
such Receivable, is governed by any federal or state statutory
requirements other than those of the Uniform Commercial Code, including
without limitation, any Receivable subject to the Federal Assignment of
Claims Act of 1940, as amended.
10.3 TERMS OF SALE. The terms on which sales or leases giving rise to
Receivable are made shall be as specified in Items 3 and 25 of the
Schedule.
10.4 BOOK AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the
Collateral, in form satisfactory to Secured Party, and including, but
not limited to, records of all payments received and all Credits arid
Extensions granted with respect to the Receivables, of the return,
rejection, repossession, stoppage in transit, loss, damage, or
destruction of any Inventory, and of all other dealings affecting the
Collateral. Debtor shall deliver such books and records to Secured
Party or its representative on request. At Secured Party's request,
Debtor shall mark all or any records to indicate the Security Interest.
Debtor shall further indicate the Security Interest on all financial
statements issued by it or shall cause the Security Interest to be so
indicated by its accountants. The Payment Account, if any, is not an
asset of Debtor and shall not be shown as an asset of Debtor in such
books and records or in such financial statements.
10.5 INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory
remains in the hands or control of any of Debtor's agents, finishers,
contractors, or processors, or any other third party, Debtor, if
requested by Secured Party, shall notify such party of Secured Party's
Security Interest in the Inventory and shall instruct party to hold such
Inventory for the account of Secured Party and subject to the
instructions of Secured Party.
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10.6 EXAMINATIONS. Debtor shall at all reasonable times and from time
to time permit Secured Party or its agents to inspect the Collateral and
to examine and make extracts from or copies of any of Debtor's books,
ledges, reports, correspondence, and other records.
10.7 VERIFICATION OF COLLATERAL. Secured Party shall have the right to
verify all or any Collateral in any manner and through any medium
Secured Party may consider appropriate and Debtor agreed to furnish all
assistance and information and perform any acts which Secured Party may
require in connection therewith.
10.8 RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1(o)(v) with respect to
any Responsible Party promptly after receiving notice thereof.
10.9 TAXES. Debtor shall promptly pay and discharge all of its taxes,
assessments , and other governmental charges prior to the date on which
penalties are attached thereto, established adequate reserves for the
payment of such taxes, assessments, and other governmental charge, make
all required withholdings and other tax deposits, and, upon request,
provide Secured Party with receipts or other proof that such taxes,
assessments, and other governmental charges have been paid in a timely
fashion; provided, however that nothing contained herein shall require
the payment of any tax assessment, or other governmental charge so long
as its validity is being contested in good faith and appropriate
proceedings diligently conducted and adequate reserves for the payment
thereof have been established.
10.10 LITIGATION
(a) Debtor shall promptly notify Secured Party in writing of any
litigation. proceeding, or counterclaim against, or of any investigation
of, Debtor or any Consolidated Subsidiary if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation may materially
and adversely affect the finances or operations of Debtor or any
Consolidated Subsidiary or title to, or the value of, any Collateral; or
(ii) such litigation, proceeding, counterclaim, or investigation
questions the validity of any Transaction Document or any action taken
or to be taken pursuant to any Transaction Document.
(b) Debtor shall furnish to Secured Party such information
regarding any such litigation, proceeding, counterclaim, or
investigation as Secured Party shall request.
10.11 INSURANCE.
(a) Debtor shall at all times carry and maintain in full force
and effect such insurance as Secured Party may from time to time
require, in coverage, form, and amount, and issued by insurers,
satisfactory to Secured Party, including, without limitation; (i) all
workers' compensation or similar insurance as may be required under the
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laws of any jurisdiction; (ii) public liability insurance against claims
of personal injury, death, or property damage suffered upon, in, or
about any premises occupied by Debtor or occurring as a result of the
ownership, maintenance, or operation by it of any automobile, truck, or
other vehicle or as a result of the use of products manufactured,
constructed, or sold by it, or services rendered by it, (iii) business
interruption insurance covering risk of loss as a result of the
cessation for all or any part of the business conducted by Debtor; and
(iv) insurance against such other risks as are usually insured against
by business entities of established reputation engaged in the same or
similar businesses as Debtor and similarly situated.
(b) Debtor shall deliver to Secured Party the policies of
insurance required by Secured Party, with appropriate endorsement
designating Secured Party as an additional insured and loss payee as
requested by Secured Party. Each policy of insurance shall provide that
if such policy is canceled for any reason whatsoever, if any substantial
change is made in the coverage which affects Secured Party, or if such
policy is allowed to lapse for nonpayment of premium, such cancellation,
change, or lapse shall not be effective as to Secured Party until thirty
(30) days after receipt by Secured Party of written notice thereof from
the insurer issuing such policy.
(c) Debtor hereby appoints Secured Party as its attorney-in-
fact, with full authority in the place and stead of Debtor and in the
name of Debtor, Secured Party, or otherwise, from time to time in
Secured Party's discretion, to take any actions and execute any
instruments which Secured Party may deem necessary or desirable to
obtain, adjust, make claims under, and otherwise deal with insurance
required pursuant hereto and to receive, indorse, and collect any drafts
or other instruments delivered in connection therewith.
10.12 GOOD STANDING; BUSINESS.
(a) Debtor shall take dl necessary steps to preserve its
corporate existence and its right to conduct business in all states in
which the nature of its business or ownership of its property requires
such qualification.
(b) Debtor shall engage only in the business conducted by it on
the date of this Agreement.
10.13 NET WORKING CAPITAL; CONSOLIDATED TANGIBLE NET WORTH. Debtor
shall maintain net working capital and a consolidated tangible net worth
as specified in Item 26 of the Schedule.
10.14 PENSION REPORTS. Upon the occurrence of any Pension Event, Debtor
shall furnish to Secured Party, as soon as possible and in any event
within thirty (30) days after Debtor knows or has reason to know of such
occurrence, the statement of the president or chief financial officer of
Debtor setting forth the details of such Pension Event and the action
which Debtor proposes to take with respect thereto.
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10.15 NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any
provision of any Transaction Document immediately upon reaming of such
non-compliance, or if any representation or warranty contained in any
Transaction Document is no longer true.
10.16 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall conduct its operation in compliance with the
provisions of all federal, state and local laws, ordinance, rules,
regulations, and orders applicable to any natural or environmental
resource or media located on, above, within, or in the vicinity of, or
affected by, any real property.
(b) Debtor shall promptly notify Secured Party in writing of
Debtor or any Consolidated Subsidiary receives any notice or request
from any governmental agency, other agency, or person for information,
or if Debtor or any Consolidated Subsidiary provides any notice or
information to any such agency, entity, or person, concerning the
presence or release of hazardous substances, waste, or other materials
(as such terms are defined by any applicable federal, state, or local
law) within, on, from, related to, or affecting any real property.
10.17 DEFEND COLLATERAL. Debtor shall defend the Collateral against the
claims and demands of all other parties (other than Secured Party)
including, without limitation, defenses, setoffs, and counterclaims
asserted by any Account Debtor against Debtor or Secured Party.
10.18 USE OF PROCEEDS. Debtor shall use the proceeds of Advances solely
for Debtor's working capital and for such other lead and proper and
corporate purposes as are consistent with all applicable laws, Debtor's
articles or certificate of incorporation and by-laws, resolutions of
Debtor's Board of Directors, and the terms of this Agreement.
10.19 COMPLIANCE WITH LAWS. Debtor shall comply with all applicable
laws, rules, regulations, and other legal requirements with respect to
is business and the use, maintenance, and operations of the real and
personal property owned and leased by it in the conduct of is business.
10.20 MAINTENANCE OF PROPERTY. Debtor shall maintain is property
including, without limitation, the Collateral, in good condition and
repair and shall prevent the Collateral or any part thereof from being
or becoming an accession to other goods not constituting Collateral.
10.21 LICENSES, PERMITS, ETC. Debtor shall maintain all of is
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, and orders, if any, in full force and effect
until their respective expiration dates.
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10.22 TRADEMARKS AND PATENTS. Debtor shall maintain all of its
trademarks, trademark rights, patents, patent rights, licenses, permits,
tradenames, tradename rights, and approvals, if any, in full force and
effect until their respective expiration dates.
10.23 ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
10.24 MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding capital stock of
each Consolidated Subsidiary set forth in Item 36 of the Schedule and
notify Secured Party in writing prior to the incorporation of any new
Consolidated Subsidiary.
10.25 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions
of this Section 10.25 are expressly waved by Secured Party in writing,
Debtor shall cause each Consolidated Subsidiary to comply with Sections
10.1(b), 10.9, 10.11(a), 10.12, 10.16 and 10.19 through 10.23,
inclusive, and any of the provisions contained in Item 21 of the
Schedule, and shall cause each Consolidated Subsidiary to refrain from
doing any of the acts prescribed by Sections 11.2, 11.3, 11.6 through
11.15, inclusive, or proscribed by any of the provisions contained in
Item 21 of the Schedule.
11. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor, without the written
consent of Secured Party, shall not violate any covenant contained in Item 21
of the Schedule and shall not:
11.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS. Move the
Inventory, Equipment or the records concerning the Collateral from the
location where they are kept as specified in Items 10 and 12 of the
Schedule.
11.2 BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may
be specified in Item 27 of the Schedule.
11.3 SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume,
or suffer to exist any mortgage, security interest, lien, or other
encumbrance upon any of its properties or assets, whether now owned or
hereafter acquired, except mortgages, security interests, liens, and
encumbrance (a) in favor of Secured Party and (b) as may be specified in
Item 11 of the Schedule.
11.4 STORING THE COLLATERAL. Place the Collateral in any warehouse
which may issue a negotiable Document with respect thereto.
11.5 USE OF COLLATERAL Use the Collateral in violation of any
provision of the Transaction Documents, of any applicable statute,
regulation, or ordinance, or of any policy insuring the Collateral.
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11.6 MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate with
or into any corporation; (b) enter into any joint venture or partnership
with any person, firm, or corporation; (c) convey, lease, or sell all or
any material portion of is property or assets or business to any other
person, firm, or corporation except for the safe of Inventory in the
ordinary course of business and in accordance with the terms of this
Agreement; or (d) convey, lease, or sell any of its assets to any
person, firm, or corporation for less than the fair market value
thereof.
11.7 CAPITAL STOCK. Purchase or retire any of its capital stock or
issue any capital stock, except pro rata to its present stockholders, or
otherwise change the capital structure of Debtor or change the relative
rights, preferences or limitations relating to any of is capital stock.
11.8 DIVIDENDS OR DISTRIBUTION. Pay or declare any cash or other
dividend or distributions on any of its corporate stock, except that
stock dividends may be paid, and except that a Consolidated Subsidiary
may pay dividends of any kind to Debtor.
11.9 INVESTMENTS AND ADVANCES. Make any investment in or advances to
any other person, firm, or corporation, except (a) advance payments or
deposits against purchase made in the ordinary course of Debtor's
regular business; (b) direct obligations of the United States of
America; (c) any existing investments in, or existing advances to, the
Consolidated Subsidiaries; or (d) any investments or advances that may
be specified in Item 28 of the Schedule.
11.10 GUARANTIES. Become a guarantor, a surety, or otherwise liable for
the debts or other obligations of any other person, firm, or
corporation, whether by guaranty or suretyship agreement, agreement to
purchase indebtedness, agreement for furnishing funds through the
purchase of goods, supplies, or services (or by way of stock purchase,
capital contribution, advance, or loan) for the purpose of paying or
discharging indebtedness, or otherwise, except as an indorser or
instruments for the payment of money deposited to its bank account for
collection in the ordinary course of business and except as may be
specified in Item 29 of the Schedule.
11.11 LEASES. Enter, as lessee, into any lease of real or persona
property (whether such lease is classified on Debtor's financial
statements as a capital lease or operating lease) if the aggregate of
the rentals of such lease and of Debtor's other than existing leases
would exceed in any one of Debtor's fiscal years the amount specified in
Item 30 of the Schedule.
11.12 CAPITAL EXPENDITURES. Make or incur any capital expenditures in
any one fiscal year in an aggregate amount in excess of the amount, if
any, specified in Item 31 of the Schedule.
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11.13 COMPENSATION.
(a) Pay or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to its officers or
directors, or members of their immediate families, in the aggregate
exceeding the amount, if any, specified in Item 32 of the Schedule.
(b) Pay or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to individuals, if
any, specified in Item 33 of the Schedule in excess of the amount
therein specified for such individuals.
11.14 NAME CHANGE. Change is name without giving at least thirty (30)
days prior written notice of is proposed new name to Secured Party,
together with delivery to Secured Party of UCC-1 Financing Statements
reflecting Debtor's new name, all in form and substance satisfactory to
Secured Party.
11.15 DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of or encumber the Collateral or any interest therein, or grant
a security interest therein or license thereof, except to Secured Party
and except the sale or lease of Inventory in the ordinary course of
business of Debtor and in accordance with the terms of this Agreement.
12. EVENTS OF DEFAULT.
12.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following evens shall constitute an event of default (individually, an
Event of Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal, interest,
premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 11.
(c) Other Covenants. Default in the observance of any of the
covenants or agreements or Debtor contained in the Transaction
Documents, other than in Article 11 or Sections 8.1, 8.2, 8.3 or 8.4 or
any other agreement with Secured Party which is not remedied within the
earlier of ten (10) days after (i) notice thereof by Secured Party to
Debtor, or (ii) the date Debtor was required to give notice to Secured
Party under Section 10.15.
(d) Cessation of Business or Voluntary Insolvency Proceedings.
The (i) cessation of operations of Debtor's business as conducted on the
date of this Agreement; (ii) filing by Debtor of a petition or request
for liquidation reorganization, arrangement, adjudication as a bankrupt,
relief as a debtor, or other relief under the bankruptcy, insolvency, or
other similar laws of the United States of America or any state or
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territory thereof or any foreign jurisdiction now or hereafter in
effect; (iii) making by Debtor of a general assignment for the benefit
of creditors; (iv) consent by the Debtor to the appointment of a
receiver or trustee, including without limitation, a "custodian" as
defined in the Federal Bankruptcy Code for Debtor or any of Debtor's
assets; (v) making of any, or sending of any notice of any intended,
bulk sale by Debtor, or of insolvency proceeding (under the Federal
Bankruptcy Code or otherwise) or any formal or informal proceeding for
the dissolution or liquidation of, or settlement of claims against or
winding up of affairs of, Debtor.
(e) Involuntary Insolvency Proceedings. (i) The appointment of
a receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian" as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's uses; or the filing
against Debtor of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of America,
any state or territory thereof, or of any other foreign jurisdiction now
or hereafter in effect; or of any other type of insolvency proceedings
(under the Federal Bankruptcy Code or otherwise) or any formal or
informal proceeding for the dissolution or liquidation of, settlement of
claims against or winding up of affairs of Debtor and (ii) such
appointment shall not be vacated or such petition or proceeding shall
not be dismissed within sixty days after such appointment, filing or
institution.
(f) Other Indebtedness and Agreements. Failure by Debtor to pay
when due (or, if permitted by the terms of any applicable documentation,
within any applicable grace period) any indebtedness owing by Debtor to
Secured Party or any other or entity (other than the Indebtedness
incurred pursuant to this Agreement and including, without limitation
indebtedness evidencing a deferred purchase price), whether such
indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise, or failure by the
Debtor to perform any term, covenant, or agreement on its part to be
performed under any agreement or instrument (other than a Transaction
Document) evidencing or securing or relating to any indebtedness owing
by Debtor when required to be performed if the effect of such failure is
to permit the holder to accelerate the maturity of such indebtedness.
(g) Judgments. Any judgment or judgments against Debtor (other
than any judgment for which Debtor is fully insured) shall remain
unpaid, unstayed on appeal, undischarged, unbonded, or undismissed for a
period of thirty (30) days.
(h) Pension Default. Any Reportable Event which Secured Party
shall determine in good faith constitutes grounds for the termination of
any Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States district court of a trustee
to administer any Pension Plan shall occur and shall continue thirty
(30) days after written notice thereof to Debtor by Secured Party; or
the Pension Plan Guaranty Corporation shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any
Pension Plan; or a Trustee shall be appointed by an appropriate United
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State district court to administer any Pension Plan; or any Pension Plan
shall be terminated; or Debtor or any Consolidated Subsidiary shall
withdraw from a Pension Plan in a complete withdrawal; or there shall
arise vested unfunded liabilities under any Pension Plan that, in good
faith opinion of Secured Party, have or will or might have a material
adverse effect on the finances or operations of Debtor, or Debtor of any
Consolidated Subsidiary shall fail to pay to any Pension Plan any
contribution which it is obligated to pay under the terms of such plan
or any agreement or which is required to meet statutory minimum funding
standards.
(i) Collateral; Impairment. There shall occur with respect to
the Collateral any (i) misappropriation, conversion, diversion, or
fraud, (ii) levy, seizure, or attachment, or (iii) material loss, theft,
or damage.
(j) Insecurity; Change. Secured Party shall believe in good
faith that the prospect of payment of all or any part of the
Indebtedness or performances of Debtor's obligations under the
Transaction Documents or any other agreement between Secured Party and
Debtor is impaired; or there shall occur any materially adverse change
in the business or financial condition of Debtor.
(k) Third Party Default. There shall occur with respect to any
Third Party or any Consolidated Subsidiary, including, without
limitation, any guarantor or Consolidated Subsidiary (i) any event
described in Section 12.1(d), 12.1(e), 12.1(f) or 12.1(g), (ii) any
pension default event such as described in Section 12.1(h) with respect
to any pension plan maintained by Third Party or such Consolidated
Subsidiary, or (iii) any failure by Third Party or such Consolidated to
perform in accordance with the terms of any agreement between such Third
Party and Secured Party.
(l) Representations. Any certificate, statement,
representation, warranty, or financial statement furnished by or on
behalf of Debtor or any Third Party pursuant to or in connection with
this Agreement (including, without limitation, representations and
warranties contained herein) or as an inducement to Secured Party to
enter into this Agreement or any other lending agreement with Debtor
shall prove to have been false in any material respect at the time as of
which the facts therein set forth were certified or to have omitted any
substantial contingent or unliquidated liability or claim against Debtor
or any such Third Party, or if on the date of the execution of this
Agreement there shall have been any materially adverse change in any of
the facts disclosed by any such statement or certificate which shall not
have been disclosed in writing to Secured Party at or prior to the time
of execution.
(m) Challenge to Validity. Debtor or any Third Party commences
any action or proceeding to contest the validity or enforceability of
any Transaction Document or any lien or security interest granted or
obligations evidenced by any Transaction Document.
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(n) Death or Incapacity; Termination. Any Third Party dies or
becomes incapacitated, or terminates or attempts to terminate, in
accordance with its terms or otherwise, any guaranty or other
Transaction Document executed by such Third Party.
(o) Change of Ownership. If all or a controlling interest of the
capital stock of Debtor shall be sold, assigned, or otherwise
transferred or if a security interest or other encumbrance shall be
granted or otherwise acquired therein or with respect thereto.
12.2 EFFECTS OF ANY EVENT OF DEFAULT.
(a) Upon the happening of one or more Evens of Default (except
an Event of Default under either Section 12.1(d) or 12.1(e), Secured
Party may declare any obligations it may have hereunder to be canceled
and the principal of the Indebtedness then outstanding to be immediately
due and payable, together with all interest thereon and cost and
expenses accruing under the Transaction Documents. Upon such
declaration, any obligations Secured Party may have hereunder shall be
immediately canceled and the Indebtedness then outstanding shall become
immediately due and payable without presentation, demand or further
notice of any kind to Debtor.
(b) Upon the happening of one or more Evens of Default under
Section 12.1(d) or 12.1(e), Secured Party's obligations hereunder shall
be canceled immediately, automatically, and without notice, and the
Indebtedness then outstanding shall become immediately due and payable
without presentation, demand, or notice of any kind to the Debtor.
13. SECURED PARTY'S RIGHTS AND REMEDIES.
13.1 GENERALLY. Secured Party's rights and remedies with respect to
the Collateral, in addition to those rights granted herein and in any
other agreement between Debtor and Secured Party now or hereafter in
effect, shall be those of a secured party under the Uniform Commercial
Code as in effect in the State and under any other applicable law.
13.2 NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may, at any time
and from time to time, notify any or all Account Debtors of the Security
Interest and may direct such Account Debtors to make all payments on
Receivables directly to Secured Party.
13.3 POSSESSION OF COLLATERAL. Whenever Secured Party may take
possession of the Collateral pursuant to Section 13.1, Secured Party may
take possession of the Collateral on Debtor's premises or may remove the
Collateral or any part thereof to such other places as the Secured Party
may in its sole discretion determine. If requested by Secured Party,
Debtor shall assemble the Collateral and deliver it to Secured Party at
such place as my be designated by Secured Party.
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13.4 COLLECTION OF RECEIVABLES. Secured Party may demand, collect, and
sue for all monies and Proceeds due or to become due on the Receivables
(in either Debtor's or Secured Party's name at the latter's option) with
the right to enforce, compromise, settle, or discharge any or dl
Receivables. If Secured Party takes any action contemplated by this
Section with respect to any Receivable, Debtor shall not exercise any
right that Debtor would otherwise have had to take such action with
respect to such Receivable.
13.5 INDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same
manner, to the same extent, and with the same effect as if Debtor were
to do the same: to indorse Debtor's name on any Instruments or
Documents pertaining to any Collateral; to receive and collect all mail
addressed to Debtor, to direct the place of delivery of such mail to any
location designated by Secured Party; to open such mail; to remove all
contents therefrom; and to retain all contents thereof constituting or
relating to the Collateral. This agency is unconditional and shall not
terminate until all of the Indebtedness is paid in full and this
Agreement has been terminated. Secured Party agrees to give Debtor
notice in the event it exercises this agency, except with respect to the
indorsement of Debtor's name on any instruments or documents pertaining
to any Collateral.
13.6 REGISTERED HOLDER OF COLLATERAL. If any Collateral consists of
investment securities, Debtor authorizes Secured Party to transfer the
same or any part thereof into its own name or that of its nominee so
that Secured Party is nominee may appear of record as the sole owner
thereof and if such securities are so transferred prior to an Event of
Default, the Secured Party gives to Debtor a revocable proxy to vote and
take all action with respect to such securities, such proxy to be
effective so long as there has not occurred an Event of Default and
Secured Party has not delivered to Debtor a written notice of revocation
of such proxy. After receipt of such revocation, Debtor waives all
rights to be advised of or to receive any notices, statements or
communications received by Secured Party or its nominee as such record
owner, and agrees that no proxy or proxies given by Secured Party to
Debtor as aforesaid shall thereafter be effective.
13.7 INCOME FROM AND INTEREST ON INSTRUMENTS.
(a) Until the occurrence of an Event of Default, Debtor reserves
the right to receive all income from or interest on the Collateral
consisting of Instruments, and if Secured Party shall receive any such
income or interest prior to such Event of Default, Secured Party shall
pay the same promptly to Debtor.
(b) Upon the occurrence of an Event of Default, Debtor will not
demand or receive any income from or interest on such Collateral, and if
Debtor receives any such income or interest without any demand by it,
same shall be held by Debtor in trust for Secured Party in the same
medium in which received, shall not be commingled with any assets of
Debtor and shall be delivered to Secured Party in the form received,
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properly indorsed to permit collection, not later than the next business
day following the day of its receipt. Secured Party may apply the net
cash receipts from such income or interest to payment of any of the
Indebtedness, provided that Secured Party shall account for and pay over
to Debtor any such income or interest remaining after payment in full of
the Indebtedness.
13.8 INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS.
(a) Whether or not any Event of Default has occurred, Debtor
authorizes Secured Party: (i) to receive any increases in or profits on
the Collateral (including, without limitation, any stock issued as a
result of any stock split or dividend, any capita distributions and the
like), and to hold the same as part of the Collateral; and (ii) to
receive any payment or distribution on the Collateral upon exchange or
redemption by, or dissolution and liquidation of, the issuer, to
surrender such Collateral or any part thereof in exchange therefor, and
to hold the net cash receipts or other property from any such payment or
distribution as part of the Collateral.
(b) If Debtor receives any such increase, profits, payments or
distributions, Debtor will receive and deliver same promptly to Secured
Party on the same terms and conditions set forth in Section 13.7(b)
respecting income or interest, to be held by Secured Party as part of
the Collateral.
14. MISCELLANEOUS.
14.1 PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL.
Debtor will execute and deliver to Secured Party such financing
statements, assignments, and other documents and will do such other
things in connection with the Transaction Documents as Secured Party may
request. Debtor hereby authorizes Secured Party to file such financing
statements relating to the Collateral without Debtor's signature thereon
as Secured Party may deem appropriate, and appoints Secured Party as
Debtor's attorney-in-fact (without requiring Secured Party) to execute
any such financing statement of statements in Debtor's name and to
perform all other acts which Secured Party deems appropriate to perfect
and continue the Security Interest and to protect, preserve, and realize
upon the Collateral.
14.2 PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to perform
any of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 10.11,
Secured Party may, but shall not be obligated to, perform any or all
such duties.
14.3 NOTICE OF SALE. Without in any way requiring notice to be given
in the following manner, Debtor agrees that any notice by Secured Party
of sale, disposition, or other intended action hereunder or in
connection herewith, whether required by the Uniform Commercial Code as
in effect in the State or otherwise, shall constitute reasonable notice
to Debtor if such notice is mailed by regular or certified mail, postage
pre-paid, at least five (5) days prior to such action, to Debtor's
address or addresses specified above or to any other address which
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Debtor has specified in writing to Secured Party as the address to which
notices hereunder shall be given to Debtor.
14.4 WAIVER BY SECURED PARTY. No course of ceding between Debtor and
Secured Party and no delay or omission by Secured Party in exercising any
right or remedy under the Transaction Documents or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any
other or further excise thereof or the exercise of any other right or
remedy. All rights and remedies of Secured Party are cumulative.
14.5 WAIVER BY DEBTOR. Secured Party shall have no obligation to take,
and Debtor shall have the sole responsibility for taking, any and all
steps to preserve rights against any and all Account Debtors and against
any and all prior parties to any note, Chattel Paper, draft, trade
acceptance, or other instrument for the payment of money covered by the
Security Interest whether or not in Secured Party's possession. Secured
Party shall not be responsible to Debtor for loss or damage resulting
from Secured Party's failure to enforce any Receivables or to collect any
moneys due or to become due thereunder or other Proceeds constituting
Collateral thereunder. Debtor waives protest of any note, check, draft,
trade acceptance, or other instrument for the payment of money
constituting Collateral at any time held by Secured Party on which Debtor
is in any way liable and waives notice of any other action taken by
Secured Party.
14.6 SETOFF. Without limiting any other right of Secured Party,
whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether of not it has so declared) Secured
Party at its sole election may setoff against the Indebtedness any and
all monies then or thereafter owed to Debtor by Secured Party in any
capacity, whether or not the Indebtedness or the obligation to pay such
monies owed by Secured Party is then due, and Secured Party shall be
deemed to have exercised such right to setoff immediately at the time of
such election even though any charge therefor is made or entered on
Secured Party s records subsequent thereto.
14.7 ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party acquiring any
interest in the Indebtedness or any part thereof.
14.8 SUCCESSORS AND ASSIGNS. Secured Party and Debtor as used herein
shall include the successors or assigns of those parties, except that
Debtor shall not have the right to assign its rights hereunder or any
interest herein.
14.9 MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as
may be provided in Item 38 of the Schedule or by written agreement
signed by Debtor and a duly authorized officer of Secured Party.
14.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor or separate counterparts,
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each of which when so executed and delivered shall be an original, but
all of which shall together constitute one in the same Agreement.
14.11 GENERALLY ACCEPTED ACCOUNTING PRINCIPALS. Any financial
calculation to be made, all financed statements and other financial
information to be provided, and all books and records to be kept in
connection with the provisions of this Agreement, shall be in accordance
with generally accepted accounting principles consistently applied
during each interval and from interval to interval; provided, however,
that in the event changes in generally accepted accounting principles
shall be mandated by the Financed Accounting Standards Board or similar
accounting body of comparable standing, or should be recommended by
Debtor's certified public accountants, to the extent such changes would
affect any financed calculations to be made in making such calculations
only from and after such date as Debtor and Secured Party shall have
amended this Agreement to the extent necessary to reflect such changes
in the financed and other covenants to which such calculations relate.
14.12 INDEMNIFICATION.
(a) If after receipt of any payment of all or any part of the
Indebtedness, Secured Party is for any reason compelled to surrender
such payment to any person or entity because such payment is determined
to be void or voidable as a preference, an impermissible setoff, or a
diversion of trust funds, or for any other reason, the Transaction
Documents shall continue in full force and Debtor shall be liable, and
shall indemnify and hold Secured Party harmless for, the amount of such
payment surrendered. The provisions of this Section shall be and remain
effective notwithstanding any contrary action which may have been taken
by Secured Party in reliance upon such payment, and any such contrary
action so taken shall be without prejudice to Secured Party's rights
under the Transaction Documents and shall be deemed to have been
conditioned upon such payment having become find and irrevocable. The
provisions of this Section 14.12(a) shall survive the termination of
this Agreement and the Transaction Documents.
(b) Debtor shall indemnify and hold Secured Party harmless
against any and all claims, expenses, demands, losses, costs, fines, or
liabilities of whatever kind or nature (including, without limitation,
any of the foregoing arising from personal injury or property damage) in
any way related to any environmental condition on, above, within, in the
vicinity of, related to, or affected by any red property which is
subject to any mortgage securing all or any portion of the Indebtedness.
The provisions of this Section 14.12(b) shall survive termination of
this Agreement and the Transaction documents and shall apply to any and
all such claims, expenses, demands, losses, costs, fines, and
liabilities of whatever kind or nature, notwithstanding the payment of
the Indebtedness secured by, or any discharge of, any such mortgage.
(c) Debtor agrees to pay, indemnify, and hold Secured Party
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
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disbursements of any kind or nature whatsoever (including, without
limitation, counsel and special counsel fees and disbursements in
connection with any litigation, investigation, hearing or other
proceeding) with respect or in any way related to the existence,
execution, delivery, enforcement, performance and administration of this
Agreement and any other Transaction Document (all of the foregoing,
collectively, the "Indemnified Liabilities"). The agreements in this
Section 14.12(c) shall survive repayment of the Indebtedness.
14.13 TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is and is intended to be a
continuing Agreement and shall remain in full force and effect for an
initial term equal to the term set forth in Item 35 of the Schedule and
for any renewal term also specified in Item 35 of the Schedule provided,
however, that either party may terminate this Agreement as of the end of
the initial term or any subsequent renewal term by giving the other
party notice to terminate in writing at least sixty (60) days prior to
the end of any such period whereupon at the end of such period all
Indebtedness shall be due and payable in full without presentation,
demand, or further notice of any kind. Notwithstanding the foregoing or
anything in this Agreement or elsewhere to the contrary, the Security
Interest, Secured Party's rights and remedies under the Transaction
Documents and Debtor's obligations and liabilities under the Transaction
Documents, shall survive any termination of this Agreement and shall
remain in full force and effect until all of the Indebtedness
outstanding, or contracted or committed for (whether or not
outstanding), before the receipt of such notice by Secured Party, and
any extensions or renewals thereof (whether made before or after receipt
of such notice), together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full. No collateral
shall be released or financing statement terminated until such find and
irrevocable payment in full of the Indebtedness as described in the
preceding sentence.
(b) Prepayment Premium. If Debtor pays in full all or
substantially all of the principal balance of Advances prior to the end
of the initial term or any renewed term of this Agreement as set forth
in Item 37 of the Schedule, other than temporarily from funds internally
generated in the ordinary course of business, at the time of any such
payment Debtor shall also pay to Secured Party the prepayment premium
set forth in Item 37 of the Schedule. Any tender of payment in full of
principal balance following an acceleration by Secured Party of the
Indebtedness pursuant to Section 12.2 shall be for purposes of this
Section 14.13(b), deemed to be considered a prepayment requiring Debtor
to pay the prepayment premium set forth in Item 37 of the Schedule.
14.14 FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional
documents, instruments, certificates, and agreements as Secured Party
may reasonably request to effectuate the purposes of the Transaction
Documents.
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14.15 HEADINGS. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this
Agreement.
14.16 CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery of
this Agreement shall in no manner impair or affect any other security
(by endorsement or otherwise) for payment or performance of the
Indebtedness and no security taken hereafter as security for payment or
performance of the Indebtedness shall impact in any manner or affect
this Agreement or the security interest granted hereby, all such present
and future additional security to be considered as cumulative security.
14.17 SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers confirmed on Secured Party hereunder are
solely to protect is interest and shall not impose any duty to exercise
any such powers and (b) except as may be required by applicable law,
Secured party shall not have any duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against any parties or
any other rights pertaining to any Collateral.
14.18 NOTICES GENERALLY. All notices and other communications hereunder
shall be made by telegram, telex, electronic transmitter, overnight air
courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom sent one Business
Day after sending, if sent by telegram, telex, electronic transmitter,
or overnight air courier, and three Business Days after mailing, if sent
by certified or registered mail. All such notices and other
communications to a party hereto shall be addressed to such party at the
address set forth on the cover page hereof or to such other address as
such party may designate for itself in a notice to the other party given
in accordance with this Section 14.18.
14.19 SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no such provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole
or in part. If any provision of this Agreement is prohibited or
unenforceable in any jurisdiction, such provision shall be ineffective
in such jurisdiction only to the extent of such prohibition or
unenforceability, and such prohibition or unenforceability shall not
invalidate the balance of such provision to the extent it is not
prohibited or unenforceable nor render prohibited or unenforceable such
provision in any other jurisdiction.
14.20 INCONSISTENT PROVISIONS. The terms of this Agreement and other
Transaction Documents shall be cumulative except to the extent they are
specifically inconsistent with each other, in which case the terms of
this Agreement shall prevail.
14.21 ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement and understanding between the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior negotiations, understandings, and agreements between
such parties with respect to such transactions, including, without
-39-
<PAGE>
limitation, those expressed in any commitment letter delivered by
Secured Party to Debtor.
14.22 APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE
STATE, WITHOUT REGARD TO PRINCIPALS OF CONFLICT OF LAW, AS THE SAME MAY
FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE
UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE.
14.23 CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT ANY
ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THE TRANSACTION
DOCUMENTS MAY BE COMMENCED IN ANY COURT OF THE STATE IN ANY COUNTY, OR
IN THE DISTRICT COURT OF THE UNITED STATES IN ANY DISTRICT, IN WHICH
SECURED PARTY HAS AN OFFICE AND AGREES THAT A SUMMONS AND COMPLAINT
COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY
SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR
CERTIFIED MAIL TO DEBTOR, OR AS OTHERWISE PROVIDED BY THE LAWS OF THE
STATE OR THE UNITED STATES.
14.24 ARBITRATION. Disputes regarding the nonpayment of any amount due
under this Agreement to Secured Party or any of its affiliate which
arise from, result from or relate to a counterclaim, offset, recoupment,
claim or defense of the Debtor which is founded upon, arises out of or
is related to, any theory of lender liability or other similar theory,
and all disputes and clams relating to any provision hereof or relating
to or arising out of the parties relationship or creation or termination
hereof (including, without limitation, any claim that any provision of
this Agreement is illegal, unenforceable or voidable under any law,
ordinance or ruling) shall be settled by arbitration at the office of
the American Arbitration Association in Atlanta, Georgia, in accordance
with the United States Arbitration Act (9 U.S.C. Section, ET SEQ.) and
the RULES OF THE AMERICAN ARBITRATION ASSOCIATION. Suits to compel
arbitration or to determine arbitrability shall be brought in the United
States District Court for the Northern District of Georgia All awards of
the arbitration shall be binding and non-appealable except as otherwise
provided in the United State Arbitration Act. Judgment upon the award of
the arbitrator may be entered in any court having jurisdiction thereof.
PROVIDED, HOWEVER, that nothing contained in this Paragraph shall be
interpreted or construed so as to make clams by the Secured Party to
enforce its rights in the Collateral or for the payment of sums due to
the Secured Party or the others by the Debtor (whether prior or
subsequent to any Event of Default), subject to arbitration, even though
counterclaims, offsets, recoupments, and other defenses and claims by
Debtor are subject to arbitration.
-40-
<PAGE>
Accepted by:
Emergent Financial Corp. Borrower: DELSOFT CONSULTING, INC.
By: ________________________ By: __________________________________
(Title) Jerry Rosemeyer, President
-41-
<PAGE>
SCHEDULE
This Schedule is a part of a Loan and Security Agreement, dated FEBRUARY
18, 1997, between DELSOFT CONSULTING, INC. and Emergent Financial Corp.
1. Borrowing Capacity (SS 1.1(c))
Borrowing Capacity at any time shall be the net amount determined by
taking the lesser of the following amounts:
(A) $300,000.00
or
(B) the amount equal to the sum of:
(i) 85% of the Receivable Borrowing Base;
(ii) n/a% of the Inventory Borrowing Base;
and subtracting from the lessor of (A) or (B) above, the sum of (a)
banker's acceptances, plus (b) letters of guaranty, plus (c) standby
letters of credit.
2. Inventory Borrowing Base Percentages (SS 1.1(r))
The following percentages of dollar value (calculated at the lower of
actual cost or market value) are applicable to the following categories of
Eligible Inventory:
(n/a) finished goods, to the extent of 0%;
(n/a) raw materials, to the extent of 0%;
(n/a) work in process to the extent of 0%.
3. Cash Discount (SS 11.1(g) & 10.3)
Maximum Cash Discount of 2.00%, 10 days
4. Receivable -- Age (SS 1.1(o)(i))
90 days after ( x ) Invoice date
( ) due date (not to exceed ___ days after invoice
date) shown on the Invoice evidencing the
applicable Receivable.
5. Receivable Disqualification Percentage (SS 1.1(o)(vi))
25% or more.
6. Permissible Foreign Account Debtors (SS 1.1(o)(vii))
None
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<PAGE>
7. Inventory Accounting (SS 1.1(r))
(n/a) First-in, first-out (FIFO)
(n/a) Last-in, first-out (LIFO)
(n/a) Other as specified below
Actual cost of identified items.
8. Payment Account (SS 1.1(t))
There is (X)
a Payment Account
is not ( )
Name and address of depository bank:
NATIONSBANK OF GEORGIA, N.A.
9. State of Incorporation (SS 4.2(b), 5.1)
Debtor: GEORGIA
Consolidated Subsidiary None
10. Location(s) of Inventory and Equipment (SS 5.4(c), 5.7, 5.8(a) & 11.1)
Inventory Locations:
Same as the address on the front page of the Loan and Security Agreement
Equipment Locations (including names and addresses of owners or real
property and mortgages):
Same as the address on the front page of the Loan and Security Agreement
11. Permitted Encumbrances (SS 5.5(a), 5.5.(c) & 11.3)
None, other than current obligations.
12. Business Records Location (SS 5.7(a), 5.7(c) & 11.1)
Same as the address on the front page of the Loan and Security Agreement
13. Trademarks and Patents (SS 5.17)
Debtor: None
Consolidated Subsidiary: None
14. Margin Stock: (SS 5.22)
None
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<PAGE>
15. Labor Contracts (SS 5.24)
Debtor: None
Consolidated Subsidiary: None
16. Authorized Shares (SS 5.27)
No. of authorized common shares: 20,000,000
Par Value of common shares: $1.00
No. of issued and outstanding shares: ___________
17. Required Documents (SS 6.1, 6.4, 6.7, 9.2(b))
Check if Required Frequency Due
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<PAGE>
Receivable Schedule (Aging) (X) Monthly, for the end
of the month, due by
the 10th of the
following month.
Inventory Reports
(a) Value Reports (X) Upon Request
(b) Periodic Summary Reports (X) Upon Request
(c) Dispute Report (X) Upon Request
Credits & Extension Reports (X) Same as Receivable
Aging
Copies of billing documents (X) At each billing cycle
relating to the Receivables
List of names and addresses of (X) At closing and upon
Account Debtors request
Reconciliation report, in form (X) Monthly, for the end
satisfactory to Secured Party, of the month, due by
showing all Receivables, the 10th of the
collections, payments, Credits, following month
& Extensions since the
proceeding report
Payable aging report, showing (X) Monthly, for the end
the amounts due and owing on of the month, due by
all of Debtor's payable the 10th of the
according to Debtor's records following month
as of the close of such periods
as shall be specified by
Secured Party.
Payroll tax returns (X) Quarterly
Payroll tax calculations and (X) Monthly
deposit information
Invoice and Credit registers (X) Daily or with each
Advance Request
18. Interest Rate (SS 8.2)
Two and percent (2.00%) plus the greater of (i) the Prime Rate or (ii)
Seven percent (7.00%)
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<PAGE>
19. Fees and Due Dates (SS 8.3)
Type Amount Due Date(s)
---- ------ -----------
Monthly Service Fee 1.00% of the average Due and payable on the
daily balance of the first day of each month
outstanding loan for the preceding month
balance, subject to
a $1,000.00 minimum
per month
Facility Fee 1.00% ($3,000.00) of At closing and at the
the total credit anniversary date of the
facility Loan and Security
Agreement, in the event
of renewal.
Overline Fee 0.50% per daily Due and payable on the
occurrence of the first day of each month
excess of for the preceding month
indebtedness over
the borrowing
capacity defined in
Schedule Item 1(A)
Overcollateral Fee 0.50% per daily Due and payable on the
occurrence of the first day of each month
excess of for the preceding month
indebtedness over
the borrowing
capacity defined in
Schedule Item 1(A)
Audit Fee $400.00 per QUARTER Due on the first day of
plus out of pocket the month following the
expenses audit work
20. Uncollected Funds Adjustment (SS 8.6)
( ) ____ calendar days; or
(xx) Three (3) Business Days; or
( ) for each Item, the number of days estimated by Secured party
as necessary for collection of funds from the particular
institution on which such Item is drawn.
21. Additional Covenants (SS 10 & 1)
22. Annual Financial Statements -- Timing (SS 10.1(a))
- Within 90 days following the end of the fiscal year
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<PAGE>
23. Annual Financial Statements -- Form (SS 10.1(a))
The following prepared by independent certified public accountants
satisfactory to Secured Party
( ) a compilation
( ) a review
(X) audited
24. Interim Financial Statements (SS 10.1(b))
- Within 20 days after the end of the month
25. Terms of Sale (SS 10.3)
Due dates of no more than 30 calendar days from date of Invoice, except
in regard to transactions specified below under "Datings."
Datings: None
26. Net Working Capital; Consolidated Tangible Net Worth (SS 10.13)
Minimum net working capital $100,000.00
Minimum consolidated tangible net worth: $100,000.00
27. Permitted Borrowing (SS 11.2)
Debtor: None, other than Emergent Financial Corp.
Consolidated Subsidiary: None
28. Permitted Investments and Advances (SS 11.9(d))
Debtor: None
Consolidated Subsidiary: None
29. Permitted Guaranties (SS 5.18, 11.10)
Debtor: None, other than obligations relating to
company automobiles
Consolidated Subsidiary: None
30. Maximum Annual Lease Rentals (SS 11.11)
Debtor: Current lease obligations at the time of
this agreement plus any new lease
obligations tied to permissible capital
expenditures
Consolidated Subsidiary: None
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<PAGE>
31. Permitted Capital Expenditures (SS 11.12)
Debtor: $100,000.00 annually
Consolidated Subsidiary: None
32. Maximum Aggregate Compensation (SS 11.13(a))
Debtor: $ n/a
Consolidated Subsidiary: $ n/a
33. Maximum Annual Compensation for Certain Individuals (SS 11.13(b))
Name Amount
---- ------
Debtor: JERRY ROSEMEYER $175,000.00
BENJAMIN J. GIACCHINO $175,000.00
JEFFREY A. RINDE $175,000.00
Consolidated Subsidiary:
34. State (SS 1.1(ff))
Georgia
35. Initial Term and Renewal Term (SS 14.13)
Initial Term: ONE (1) YEAR
Renewal Term: Annually
36. Percentage of Stock Ownership of Consolidated Subsidiaries (SS 5.25, SS
10.24)
Consolidated Subsidiary Debtor's Percentage of ownership
----------------------- --------------------------------
None None
37. Prepayment Premium (SS 14.13)
1.00% OF THE TOTAL CREDIT FACILITY
38. Other Provisions (SS 14.9)
Borrower will pay all legal fees incurred by EFC relative to the close of
this transaction
39. Bank or Financial Institution (SS 1.1(w))
NationsBank of Georgia, N.A.
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<PAGE>
The undersigned have executed this Schedule on the 18TH DAY OF FEBRUARY, 1997.
Lender: Emergent Financial Corp. Borrower: DELSOFT CONSULTING, INC.
By:_____________________________ By:_____________________________
Connie Warne, President JERRY ROSEMEYER, PRESIDENT
Attest:_________________________ Attest:_________________________
BENJAMIN J. GIACCHINO,
SECRETARY
(Corporate Seal) (Corporate Seal)
-49-
<PAGE>
DEMAND PROMISSORY NOTE
$300,000.00 ATLANTA, GEORGIA
February 18, 1997
FOR VALUE RECEIVED, the undersigned (herein referred to as "Debtor")
promises to pay on demand to the order of Emergent Financial Corp., a South
Carolina corporation (herein referred to as "Secured Party".), at its office
at 6100 Lake Forrest Drive, N.W., Suite 240 Atlanta Georgia 30328, or at such
other place as the holder hereof may designate, the principal sum of THREE
HUNDRED THOUSAND DOLLARS ($300,000.00) or so much thereof as shall have been
advanced here against and shall be outstanding, together with interest,
calculated on the basis of a 360-day year, on so much of the principal balance
of this Note as may be outstanding and unpaid from time to time, at the rate
per annum of TWO (2.00%) percent above the Prime Rate as defined in that
certain Loan and Security Agreement executed by Debtor on the same date as
this Debtor Promissory Note (the applicable rate per annum at any given time
being hereinafter referred to as the "Interest Rate").
The Interest Rate shall mean the floating and fluctuating rate per annum
as calculated hereunder. The Interest Rate shall be TEN AND ONE-QUARTER
PERCENT (10.25%), expressed in simple interest terms, until adjusted
hereunder.
Unless demand for payment is earlier made, accrued interest shall be
payable monthly on the first say of the calendar month following the month in
which it accrues with payments thereof commencing on the first day of MARCH
1997, and continuing to be due on the same day of each succeeding calendar
month thereafter until principal and interest are paid in full.
For purpose of calculating interest hereunder, the Prime Rate shall be
adjusted daily. The Prime Rate as "pounced by the Bank ("Bank" as defined in
that certain Loan and Security Agreement executed by Debtor on the same date
as this Demand Promissory Note) on each business day shall be the Prime Rate
for that day and all immediately succeeding non-business days of Bank. In the
event the Prime Rate as announced by Bank is discontinued as a standard, the
holder hereof shall a comparable reference rate as a substitute thereof any
overdue payment of principal or interest on this Note shall bear interest at
the interest rate until paid, but only to the extent that payment of such
interest on overdue principal or interest enforceable under applicable law.
The rate of interest charged to the undersigned hereunder shall in no
event be higher than that allowed by law. All payments received will applied
in the manner defined in that certain Loan and Security Agreement executed by
Debtor on the same date as this Demand Promissory Note.
The undersigned has entered into a Loan and Security Agreement and other
related agreements of even date herewith (the "Transaction Documents),
pursuant to which this Debtor Promissory Note has been made and delivered to
Secured Party. Any act of default by the undersigned under any of the
<PAGE>
Transaction Documents shall constitute a default under this Note. The
undersigned and Secured Party contemplate that the original principal sum
evidenced by this Note may be reduced from time to time and that additional
loans may be made by Secured Party to the undersigned in the future. Such
additional loan, as so designated, shall be evidenced by this Note and subject
to its terms; provided, however, that the principal amount evidenced by this
Note shall not exceed the principal amount shown above.
If any proceedings be instituted by or against Debtor alleging that
Debtor is insolvent, unable to pay his debts as they mature, or not generally
paying his debts as such debts become due; or if any proceedings be instituted
by or against Debtor under the Federal Bankruptcy Code or any successor
statute; or if any proceeding be instituted seeking the appointment of a
receiver or trustee for all of any portion of Debtor's property; or if any
proceedings affecting the rights of creditors generally be instituted by or
against Debtor, this Note, without demand or notice of any kind, immediately
shall become due and payable. This paragraph is in addition to and in no way
is a limitation upon the other rights of Secured Party under this Note, any
other instrument, or any of the Transaction Documents between Secured Party
and Debtor, or applicable law.
In case this Note is collected by or through an attorney-at-law, all
costs of collection, including reasonable attorney's fees, shall be paid by
Debtor.
Time is of essence.
Demand, presentment, notice, notice of demand, notice of payment,
protest and notice of dishonor are hereby waived by each and every maker,
guarantor, surety and other person or entity primarily or secondarily liable
on this Note.
Secured Party shall not be deemed to waive any of its rights unless such
waiver be in writing and signed by Secured Party. No delay or omission by
Secured Party in exercising any of its rights shall operate as a waiver of
such rights and a waiver in writing on one occasion shall not be construed as
a consent to or a waiver of any right or remedy on my future occasion.
This note shall be governed by an construed and enforced in accordance
with the laws of the State of Georgia. Wherever possible, each provision of
this Note shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Note shall be prohibited by
or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision of this Note. The word "Secured Party" as used
herein shall include transferees, successors and assigns of Secured Party, and
all rights of Secured Party hereunder shall inure to the benefit of its
transferees, successors and assigns. All obligations of Debtor shall bind his
heirs, legal representatives, successors and assigns.
Words importing the singular number hereunder shall include the plural
number and vice versa, and any pronoun used herein shall be deemed to cover
all genders. Without limiting the generality of the foregoing, should more
than one person execute this Note as maker, the words "Debtor," "he," "his,"
and "its" as used herein shall include all such persons collectively and each
<PAGE>
person individually, and each maker shall be jointly end severally liable
hereunder. "Person" as used herein means my individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated association or government or any agency or political
subdivision thereof.
IN WITNESS WHEREOF, the undersigned has caused this Demand Promissory
Note to be duly executed and its seal affixed by its duly authorized officers,
or has signed and sealed this Note as the case may be, and has delivered this
Note to Secured Party, the day and year first written above.
BORROWER: Delsoft Consulting, Inc.
By:_______________________________________
Jerry Rosemeyer, President
Attest:___________________________________
Benjamin J. Giacchino, Secretary
(CORPORATE SEAL)
<PAGE>
DISCLOSURE STATEMENT REGARDING INTEREST AND OTHER CHARGES
THIS AGREEMENT, made as of the 18TH DAY OF FEBRUARY, 1997, by and
between Delsoft Consulting, Inc., Inc. a Georgia Corporation (herein referred
to as" Borrower") and Emergent Financial Corp. (herein referred to as
"Lender").
WHEREAS, contemporaneously herewith, Lender is making to Borrower a
certain loan (hereinafter referred to as the "Loan") evidenced by that certain
Demand Promissory Note (hereinafter referred to as the "Note") of even date
herewith in the face principal amount of $300,000.00; and
WHEREAS, in connection with the Loan, Lender and Borrower have agreed on
a certain rate of interest which will be charged to Borrower for the use of
loan proceeds, and on certain other charges to be paid by Borrower to
compensate Lender for certain services to be rendered by Lender and for
certain costs to be incurred by Lender; and
WHEREAS, Lender and Borrower desire to evidence in writing their
agreement with respect to interest and other charges in connection with the
Loan;
NOW, THEREFORE, for and in consideration of the sum of TEN DOLLARS
($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and pursuant to O.C.G.A. Section
7-4-2(a) (1), Lender and Borrower do hereby covenant and agree as follows:
1. Rate of Interest. The rate of interest under the Note, expressed
in simple interest terms, annual percentage rate, shall be TWO PERCENT (2.00%)
above the prime rate of interest as announced by NationsBank of Georgia N.A.
as its prime rate, the initial interest rate as of the date hereof being Eight
and one-quarters percent (8.25%). Interest shall be computed at the
applicable rate on the daily outstanding principal balance of the indebtedness
evidenced by the Note for the actual number of days outstanding on the basis
of a 360-day year.
2. Interest and Charges. Lender and Borrower hereby agree that the
only charge imposed by Lender upon Borrower for the use of money in connection
with the Loan is and skill be in interest expressed in the Note, at the rate
set forth in the Note, which rate of interest is expressed in simple interest
terms as of the date of the evidence of indebtedness in Paragraph 1
hereinabove. Any service charge imposed by Lender upon Borrower in connection
with the Loan, as described in the Loan and Security Agreement Schedule
attached to the Loan and Security Agreement and any other service charges and
reimbursements to Lender from Borrower, including, without limitation,
statutory attorneys' fees and reimbursements for costs and expenses paid by
Lender to the third parties or for damage incurred by Lender are and shall be
deemed to be charges made to compensate Lender for underwriting and
administrative services and costs, and other services, costs or losses
<PAGE>
performed or incurred and to be performed or incurred, by Lender in connection
with the Loan, and shall under no circumstances be deemed to be charges for
the use of money. In the event the service charge described in the Loan and
Security Agreement Schedule should be deemed interest, then for the purpose of
disclosure, the initial rate of interest under the Loan and Security Agreement
as of the date hereof is, expressed in simple interest terms, Twenty three and
one-quarter percent (23.25%) per annum. All such charges skill be fully
earned and non-refundable when due.
3. Successors and Assigns. This Agreement shall be construed under
the laws of the State of Georgia and shall be binding upon and inure to the
benefit of the respective heirs, representatives, successors and assigns of
the parties hereto.
IN WITNESS WHEREOF, the duly authorized representatives of Lender and
Borrower have hereunto set their hands under seal the day and year first above
written.
Sworn to, signed and delivered this the 18TH DAY OF FEBRUARY, 1997, in
the presence of:
LENDER: EMERGENT FINANCIAL CORP.
_________________________________ By:___________________________________
Witness
(Corporate Seal)
BORROWER: DELSOFT CONSULTING, INC.
_________________________________ By:____________________________________
Witness JERRY ROSEMEYER, PRESIDENT
_________________________________ Attest:________________________________
Witness BENJAMIN J. GIACCHINO, SECRETARY
(Corporate Seal)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is being entered into as of
August 5th, 1997, by and between DELSOFT CONSULTING, INC., a
Georgia corporation with principal offices at 555 Sun Valley
Drive, Suite J-2, Roswell, Georgia 30076 (hereinafter called the
"Company"), and MICHAEL OSSO, residing at 11510 Harlequin Lane,
#301, City of Fishers, State of Indiana 46038, (hereinafter
called the "Employee").
1. POSITION; DUTIES.
Employee shall serve as President of the Company. As such,
Employee shall report to the Board of Directors of the Company.
Employee shall use his best efforts to perform the duties
generally associated with his position as Vice President of
Sales of the Company and as are reasonably assigned by the Board
of Directors of the Company. Employee shall in good faith devote
his full time and best efforts to performance of his duties
hereunder, and shall not actively engage in any other business in
any capacity whatsoever, except upon the written approval of the
Board of Directors of the Company.
2. TERM OF EMPLOYMENT AGREEMENT; EXTENSION.
The term of this Employment Agreement shall begin as of
September 1, 1997, and terminate as of the close of business on
August 31, 2001. On September 1, 2001, and on each anniversary
thereof, the term of this Employment Agreement shall be
automatically extended one year unless, not less than 90 days
prior thereto, the Company notifies Employee that it is electing
not to so extend the term of this Employment Agreement. The term
of this Employment Agreement shall automatically terminate upon
any termination of this Employment Agreement pursuant to
Section 4.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY. Employee's salary shall not be less
than $130,000 per year, payable in accordance with the Company's
normal pay practices. Employee shall be entitled to an annual
increase equal to 5% of his base salary for the prior year. In
addition, on a quarterly basis, Employee shall receive a stipend
of $100 for each day during the preceding quarter that Employee
spent traveling for business purposes and that required an
overnight stay.
(b) BONUS. Employee shall receive an annual basis an
option, in substantially the form attached hereto as Schedule A,
to purchase twenty five thousand (25,000) shares of the Company
stock at a price equal to the fair market value of the Company
stock on the calendar date Employee is granted such option.
Employee will further be entitled to the additional sum
of $500.00 for any month in which the hours billed by the Company
equal or exceed fifteen thousand (15,000) hours. Payment, if
any, shall be made in cash on the 15th day of each month based on
the total hours billed in the preceding month. The additional
sum of $500.00 shall be further increased in increments of
$250.00 for each increase of five thousand (5,000) hours billed
by the Company in any month (e.g., Employee will be entitled to
the additional sum of $750.00 for any month in which the hours
<PAGE>
billed by the Company equal or exceed twenty thousand (20,000)
hours, the additional sum of $1,000.00 for any month in which the
hours billed by the Company equal or exceed twenty five thousand
(25,000) hours, etc.).
Employee will also participate in the Company Executive
Incentive Compensation Program which provides payout opportunity
to a maximum of 80 percent of base salary. Payout opportunities
under this plan will be measured on specific goals agreed upon
with the Board of Directors of the Company.
(c) FRINGE BENEFITS. Employee shall be entitled to
participate and receive benefits under the Company employee and
fringe benefit plans and arrangements. Employee will also
participate in the Company Director and Officer Insurance, plus
two times Base Salary of life insurance.
(d) COMPANY AUTOMOBILE. Employee will be provided
with a Company automobile in accordance with the Company Car
policy.
(e) VACATION. Employee shall be eligible for four (4)
weeks of vacation, plus five (5) sick days and Company holidays,
annually. In addition, Employee will be included in the Company
Vacation Carry-over Policy.
(f) BUSINESS EXPENSES. Employee shall be entitled to
reimbursement of up to three hundred ($300.00) dollars per month
for all reasonable marketing, advertising, and/or entertainment
expenses incurred in the performance of his duties hereunder.
4. TERMINATION.
(a) DEATH. This Employment Agreement shall terminate
upon Employee's death. Upon such termination, the Company shall
pay to Employee's estate (or as Employee or his estate shall
otherwise direct) Employee's base salary through the end of the
calendar month in which Employee's death occurs and will use its
reasonable efforts to assist in the prompt processing of claims
under applicable employee benefit plans.
(b) CAUSE. This Employment Agreement may be
terminated by the Company by written notice to Employee for cause
as defined in this section. Cause means willful misconduct,
injurious to the Company and of a material nature, gross
negligence of duties, or material breach of this Agreement.
(c) OTHER. The Employee may terminate this Employment
Agreement by a 90-day written notice to the Company at any time.
If Employee, however, elects to terminate this Employment
Agreement during its initial terms, Employee will not be entitled
to receive any severance compensation.
(d) ELECTION NOT TO EXTEND. If the Company elects not
to extend the term of this Employment Agreement pursuant to
Section 2, the Company shall pay Employee his base salary in
accordance with Section 3(a) for twelve (12) months following the
Date of Termination and continue Employee's health and welfare
benefits for six (6) months following the Date of Termination on
substantially the same basis as existed on the Date of
Termination.
(e) DATE AND EFFECT OF TERMINATION. The Date of
<PAGE>
Termination of this Employment Agreement shall be (i) in the case
of Section 4(a), the date of Employee's death; (ii) in the case
of a termination of this Employment Agreement pursuant to
Sections 4(b) or 4(c), the date specified in the Company's or
Employee's notice of such termination; or (iii) in the case of
the Company's election not to extend the term of this Employment
Agreement pursuant to Section 2, the last date of the term of
this Employment Agreement. Upon any termination of this
Employment Agreement pursuant to this Section 4 or election not
to extend the term of this Employment Agreement pursuant to
Section 2, Employee shall not be entitled to any further payments
or benefits of any nature pursuant to this Employment Agreement,
or as a result of such termination or election, except as
specifically provided for in this Employment Agreement.
Sections 5, 6, 7, 8, and 9 (and to the extent applicable thereto,
Sections 9, 10, 11, 12, and 13) shall survive any termination of
this Employment Agreement pursuant to this Section 4 or election
not to extend the term of this Employment Agreement pursuant to
Section 2.
5. CONFIDENTIALITY.
During the term of this Employment Agreement and for a
period of two (2) years following the termination of such
employment for any reason whatsoever, Employee will not divulge
to anyone or use for his own benefit or the benefit of any third
party any confidential information of the Company or any of its
subsidiaries (including, without limitation, all technical
designs and specifications, trade secrets, financial data and
marketing strategies) learned by Employee in connection with the
performance of his duties hereunder unless (a) any such
information becomes generally available to the public other than
as a result of disclosure by Employee, and/or (b) Employee is
requested or required (by oral question, interrogatories,
requests for information or documents, subpoena, civil
investigative demand or similar process) to disclose any such
information, in which case Employee will (i) promptly notify the
Company of such request or requirement, so that the Company may
seek an appropriate protective order, and (ii) cooperate with the
Company, at its expense, in seeking such an order. Upon
termination of this Employment Agreement, Employee shall promptly
deliver to the Company all confidential information of the
Company or any of its subsidiaries.
6. NONCOMPETITION.
During the term of this Employment Agreement and for a
period of two (2) years following the termination of such
employment for any reason whatsoever, the Employee will not in
the City of Indianapolis, Indiana or within a radius of thirty
(30) miles of such city's limits, directly or indirectly, engage
or participate in as owner, officer, director, manager, employee,
consultant or otherwise or have any financial interest in, or aid
or assist anyone else in the conduct of, any business which
competes with the Company or any of its subsidiaries in any line
of business conducted or contemplated during the term of this
Employment Agreement; provided, however, that Employee's
ownership of not more than 5 percent (5%) of the securities of
any corporation or other entity which are traded on any national
securities market or in the over-the-counter market shall not
constitute a violation of this Section 6. It is expressly
understood and agreed to by the parties that the City of
Indianapolis, Indiana, and the radius of thirty (30) miles from
<PAGE>
such city's limits, is the geographical area where the Employee
performs or performed services on behalf of the Company under
this Agreement, or within a reasonable time prior to, the
termination of the Employee's employment.
7. NONSOLICITATION OF EMPLOYEES.
During the term of this Employment Agreement and for a
period of two (2) years following the Date of Termination of this
Employment Agreement, Employee will not either directly or
indirectly, on the Employee's own behalf or on behalf of others,
solicit, divert or hire, any person employed by the Company at
any location where the Employee performed services for the
Corporation or any person with whom the Employee had regular
contact in the court of his employment by the Company, whether or
not the employment of any such person is pursuant to a written
agreement, for a determined period or at will.
8. NONSOLICITATION OF CUSTOMERS.
During the term of this Employment Agreement and for a
period of two (2) years following the Date of Termination of this
Employment Agreement for any reason whatsoever, Employee will not
(except on behalf of or with the prior written consent of the
Corporation), either directly or indirectly, on the Employee's
own behalf or on behalf of others, (1) solicit, divert,
appropriate to, or accept on behalf of any business which
competes with, or is substantially the same as, the business
conducted by or contemplated by the Company or any of its
subsidiaries during the term of this Employment Agreement, any
business from any customer or actively sought prospective
customer of the Company with whom the Employee has had regular
contact, and/or whose contacts with the Company have been
supervised by the Employee.
9. EQUITABLE RELIEF.
Employee: (i) acknowledges that any breach or attempted
breach of the provisions of any of Sections 5, 6, 7, or 8 will
cause immediate and irreparable harm to the Company and that a
remedy at law for any such breach or attempted breach shall be
inadequate; (ii) agrees that the Company shall be entitled to
temporary or permanent injunctive relief with respect to any such
breach or attempted breach (in addition to any other remedies, at
law or in equity as may be available to it with respect to any
such breach or attempted breach); and (iii) agrees to waive any
requirements for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief. If any term, provision, covenant or
restriction in Sections 5, 6, 7, or 8 is held by a court of
competent jurisdiction to be invalid, void or unenforceable, such
term, provision, covenant or restriction shall be deemed amended
to the extent required to render it valid, binding and
enforceable.
10. SUCCESSORS; AMENDMENT; NOTICE.
This Employment Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and
assigns. This Employment Agreement shall be binding upon
Employee and shall inure to the benefit of his heirs, executors,
administrators and legal representatives, but shall not be
assignable by Employee. This Employment Agreement may be amended
<PAGE>
or altered only by the written agreement of the Company and
Employee. All notices or other communication permitted or
required under this Employment Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or
mailed (certified or registered mail, postage prepaid, return
receipt requested) to Employee or the Company at the respective
addresses on the first page of this Employment Agreement, or such
other address as shall be furnished in writing by Employee or the
Company to the other.
11. ENTIRE AGREEMENT.
This Employment Agreement embodies the entire agreement and
understanding between Employee and the Company with respect to
the subject matter hereof.
12. SEVERABILITY.
If any term, provision, covenant or restriction of this
Employment Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Employment
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
13. GOVERNING LAW.
This Employment Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia
applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its name and behalf by its duly authorized
officer and the Employee has hereunto set his hand, all on the
day and year first above written.
WITNESS: DELSOFT CONSULTING, INC.
/s/ Benjamin J. Giacchino /s/ Jeffrey A. Rinde
WITNESS:
/s/ Kathryn Osso /s/ Michael Osso
Michael Osso
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is being entered into as of
July 1st, 1996, by and between DELSOFT CONSULTING, INC., a
Georgia corporation with principal offices at 555 Sun Valley
Drive, Suite J-2, Roswell, Georgia 30076 (hereinafter called the
"Company"), and ADIL CHOKSEY, residing at 9207 Summerwood Lane,
County of Fulton, City of Alpharetta 30202, (hereinafter called
the "Employee").
1. POSITION; DUTIES.
Employee shall serve as Vice President of Sales of the
Company. As such, Employee shall report to the Board of
Directors of the Company. Employee shall use his best efforts to
perform the duties generally associated with his position as
Vice President of Sales of the Company and as are reasonably
assigned by the Board of Directors of the Company. Employee
shall in good faith devote his full time and best efforts to
performance of his duties hereunder, and shall not actively
engage in any other business in any capacity whatsoever, except
upon the written approval of the Board of Directors of the
Company.
2. TERM OF EMPLOYMENT AGREEMENT; EXTENSION.
The term of this Employment Agreement shall begin as of the
date hereof and terminate as of the close of business on June 30,
2001. On July 1, 2001, and on each anniversary thereof, the term
of this Employment Agreement shall be automatically extended one
year unless, not less than 90 days prior thereto, the Company
notifies Employee that it is electing not to so extend the term
of this Employment Agreement. The term of this Employment
Agreement shall automatically terminate upon any termination of
this Employment Agreement pursuant to Section 4.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY. Employee's salary shall be $60,000
per year. Effective January 1, 1997, Employee's base salary
shall not be less than $95,000 per year, payable in accordance
with the Company's normal pay practices. Employee shall be
entitled to an annual increase equal to 5% of his base salary for
the prior year.
(b) BONUS. Employee will further be entitled to the
additional sum of $500.00 for any month in which the hours billed
by the Company equal or exceed fifteen thousand (15,000) hours.
Payment, if any, shall be made in cash on the 15th day of each
month based on the total hours billed in the preceding month.
The additional sum of $500.00 shall be further increased in
increments of $250.00 for each increase of five thousand (5,000)
hours billed by the Company in any month (e.g., Employee will be
entitled to the additional sum of $750.00 for any month in which
the hours billed by the Company equal or exceed twenty thousand
(20,000) hours, the additional sum of $1,000.00 for any month in
which the hours billed by the Company equal or exceed twenty five
thousand (25,000) hours, etc.).
<PAGE>
Employee will also participate in the Company Executive
Incentive Compensation Program which provides payout opportunity
to a maximum of 80 percent of base salary. Payout opportunities
under this plan will be measured on specific goals agreed upon
with the Board of Directors of the Company.
(c) FRINGE BENEFITS. Employee shall be entitled to
participate and receive benefits under the Company employee and
fringe benefit plans and arrangements. Employee will also
participate in the Company Director and Officer Insurance, plus
two times Base Salary of life insurance.
(d) VACATION. Employee shall be eligible for four (4)
weeks of vacation, plus five (5) sick days and Company holidays,
annually. In addition, Employee will be included in the Company
Vacation Carry-over Policy.
(e) BUSINESS EXPENSES. Employee shall be entitled to
reimbursement of up to three hundred ($300.00) dollars per month
for all reasonable marketing, advertising, and/or entertainment
expenses incurred in the performance of his duties hereunder.
4. Termination.
(a) DEATH. This Employment Agreement shall terminate
upon Employee's death. Upon such termination, the Company shall
pay to Employee's estate (or as Employee or his estate shall
otherwise direct) Employee's base salary through the end of the
calendar month in which Employee's death occurs and will use its
reasonable efforts to assist in the prompt processing of claims
under applicable employee benefit plans.
(b) CAUSE. This Employment Agreement may be
terminated by the Company by written notice to Employee for cause
as defined in this section. Cause means willful misconduct,
injurious to the Company and of a material nature, gross
negligence of duties, or material breach of this Agreement.
(c) OTHER. The Employee may terminate this Employment
Agreement by a 90-day written notice to the Company at any time.
If Employee, however, elects to terminate this Employment
Agreement during its initial terms, Employee will not be entitled
to receive any severance compensation.
(d) ELECTION NOT TO EXTEND. If the Company elects not
to extend the term of this Employment Agreement pursuant to
Section 2, the Company shall pay Employee his base salary in
accordance with Section 3(a) for twelve (12) months following the
Date of Termination and continue Employee's health and welfare
benefits for six (6) months following the Date of Termination on
substantially the same basis as existed on the Date of
Termination.
(e) DATE AND EFFECT OF TERMINATION. The Date of
Termination of this Employment Agreement shall be (i) in the case
of Section 4(a), the date of Employee's death; (ii) in the case
of a termination of this Employment Agreement pursuant to
Sections 4(b) or 4(c), the date specified in the Company's or
<PAGE>
Employee's notice of such termination; or (iii) in the case of
the Company's election not to extend the term of this Employment
Agreement pursuant to Section 2, the last date of the term of
this Employment Agreement. Upon any termination of this
Employment Agreement pursuant to this Section 4 or election not
to extend the term of this Employment Agreement pursuant to
Section 2, Employee shall not be entitled to any further payments
or benefits of any nature pursuant to this Employment Agreement,
or as a result of such termination or election, except as
specifically provided for in this Employment Agreement.
Sections 5, 6, 7, and 8 (and to the extent applicable thereto,
Sections 9, 10, 11, and 12) shall survive any termination of this
Employment Agreement pursuant to this Section 4 or election not
to extend the term of this Employment Agreement pursuant to
Section 2.
5. CONFIDENTIALITY.
During the term of this Employment Agreement and thereafter,
Employee will not divulge to anyone or use for his own benefit or
the benefit of any third party any confidential information of
the Company or any of its subsidiaries (including, without
limitation, all technical designs and specifications, trade
secrets, financial data and marketing strategies) learned by
Employee in connection with the performance of his duties
hereunder unless (a) any such information becomes generally
available to the public other than as a result of disclosure by
Employee; (b) Employee is requested or required (by oral
question, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to
disclose any such information, in which case Employee will
(i) promptly notify the Company of such request or requirement,
so that the Company may seek an appropriate protective order, and
(ii) cooperate with the Company, at its expense, in seeking such
an order. Upon termination of this Employment Agreement,
Employee shall promptly deliver to the Company all confidential
information of the Company or any of its subsidiaries.
6. NONCOMPETITION.
During the term of this Employment Agreement, Employee will
not, directly or indirectly, engage or participate in as owner,
officer, director, manager, employee, consultant or otherwise or
have any financial interest in, or aid or assist anyone else in
the conduct of, any business which competes with the Company or
any of its subsidiaries in any line of business conducted or
contemplated during the term of this Employment Agreement;
provided, however, that Employee's ownership of not more than 5
percent (5%) of the securities of any corporation or other entity
which are traded on any national securities market or in the
over-the-counter market shall not constitute a violation of this
Section 6.
7. NONSOLICITATION.
During the term of this Employment Agreement and for a
period of eighteen (18) months following the Date of Termination
of this Employment Agreement, Employee will not entice or in any
<PAGE>
other manner persuade or attempt to persuade any employee,
independent contractor, dealer, supplier, client or customer of
the Company or any of its subsidiaries to discontinue his or her
relationship or violate any agreement with the Company or any of
its subsidiaries as employee, independent contractor, dealer,
supplier, client or customer, respectively.
8. EQUITABLE RELIEF.
Employee: (i) acknowledges that any breach or attempted
breach of the provisions of any of Sections 5, 6, or 7 will cause
immediate and irreparable harm to the Company and that a remedy
at law for any such breach or attempted breach shall be
inadequate; (ii) agrees that the Company shall be entitled to
temporary or permanent injunctive relief with respect to any such
breach or attempted breach (in addition to any other remedies, at
law or in equity as may be available to it with respect to any
such breach or attempted breach); and (iii) agrees to waive any
requirements for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief. If any term, provision, covenant or
restriction in Section 6, 7, or 8 is held by a court of competent
jurisdiction to be invalid, void or unenforceable, such term,
provision, covenant or restriction shall be deemed amended to the
extent required to render it valid, binding and enforceable.
9. SUCCESSORS; AMENDMENT; NOTICE.
This Employment Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and
assigns. This Employment Agreement shall be binding upon
Employee and shall inure to the benefit of his heirs, executors,
administrators and legal representatives, but shall not be
assignable by Employee. This Employment Agreement may be amended
or altered only by the written agreement of the Company and
Employee. All notices or other communication permitted or
required under this Employment Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or
mailed (certified or registered mail, postage prepaid, return
receipt requested) to Employee or the Company at the respective
addresses on the first page of this Employment Agreement, or such
other address as shall be furnished in writing by Employee or the
Company to the other.
10. ENTIRE AGREEMENT.
This Employment Agreement embodies the entire agreement and
understanding between Employee and the Company with respect to
the subject matter hereof.
11. SEVERABILITY.
If any term, provision, covenant or restriction of this
Employment Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Employment
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
<PAGE>
12. GOVERNING LAW.
This Employment Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia
applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its name and behalf by its duly authorized
officer and the Employee has hereunto set his hand, all on the
day and year first above written.
WITNESS: DELSOFT CONSULTING, INC.
/s/ Jeffrey A. Rinde /s/ Benjamin J. Giacchino
- -------------------- -------------------------
WITNESS:
/s/ Jeffrey A. Rinde Adil Choskey
- --------------------- --------------------------
Adil Choksey
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is being entered into as of July 1,
1996, by and between DELSOFT CONSULTING, INC., a Georgia
corporation with principal offices at 555 Sun Valley Drive, Suite
J-2, Roswell, Georgia 30076 (hereinafter called the "Company"),
and JEFFREY A. RINDE, residing at 909 Cardova Drive, N.E., County
of Fulton, City of Atlanta 30324 (hereinafter called the
"Employee").
1. POSITION; DUTIES.
Employee shall serve as General Counsel and CFO of the
Company. As such, Employee shall report to the Board of
Directors of the Company. Employee shall use his best efforts to
perform the duties generally associated with his position as CFO
of the Company and as are reasonably assigned by the Board of
Directors of the Company. Employee shall in good faith devote
his full time and best efforts to performance of his duties
hereunder, and shall not actively engage in any other business in
any capacity whatsoever, except upon the written approval of the
Board of Directors of the Company.
2. TERM OF EMPLOYMENT AGREEMENT; EXTENSION
The term of this employment Agreement shall begin on January
1, 1997, and terminate as of the close of business on December
31, 2001, On January 1, 2002, and on each anniversary thereof,
the term of this employment Agreement shall be automatically
extended one year unless, not less than 90 days prior thereto,
the Company notifies Employee that it is electing not to so
extend the term of this Employment Agreement. The term of this
Employment Agreement shall automatically terminate upon any
termination of this Employment Agreement pursuant to Section 4.
3. COMPENSATION AND BENEFITS
a) BASE SALARY. Employee's salary shall not be less
than $111,500 per year, payable in accordance with the
Company's normal pay practices. Employee shall be entitled
to an annual increase equal to 5% of his base salary for the
prior year. In addition, on a quarterly basis, Employee
shall receive a stipend of $100 for each day during the
preceding quarter that Employee spent traveling for business
purposes and that required an overnight stay.
b) BONUS. Employee shall receive on an annual basis
an option, in substantially the form attached hereto as
Schedule A, to purchase twenty-five thousand (25,000 shares
of Company stock at a price equal to one percent (1%) of the
value of the Company stock on the calendar date Employee
exercises such option.
<PAGE>
Employee will further be entitled to the additional sum of
$500.00 for any month in which the hours billed by the Company
equal or exceed fifteen thousand (15,000) hours. Payment, if
any, shall be made in cash on the 15th day of each month based on
the total hours billed in the preceding month. The additional
sum of $500.00 shall be further increased in increments of
$250.00 for each increase of five thousand (5,000) hours billed
by the Company in any month (e.g. Employee will be entitled to
the additional sum of $750.00 for any month in which the hours
billed by the Company equal or exceed twenty thousand (20,000)
hours, the additional sum of $1,000.00 for any month in which the
hours billed by the Company equal or exceed twenty-five thousand
(25,000) hours, etc.)
Employee will also participate in the Company Executive
Incentive Compensation Program which provides payout opportunity
to a maximum of 80 percent of base salary. Payout opportunities
under this plan will be measured on specific goals agreed upon
with the board of Directors of the Company.
c) FRINGE BENEFITS. Employee shall be entitled to
participate and receive benefits under the Company employee
and fringe benefit plans and arrangements. Employee will
also participate in the Company director and Officer
Insurance, plus two times Base Salary of life insurance.
d) COMPANY AUTOMOBILE. Employee will be provided
with a Company automobile in accordance with the Company Car
policy.
e) VACATION. Employee shall be eligible for four (4)
weeks of vacation, plus five (5) sick days and Company
holidays, annually. In addition, Employee will be included
in the Company Vacation Carry-over Policy.
f) BUSINESS EXPENSES. Employee shall be entitled to
reimbursement of up to three hundred ($300.00) dollars per
month for all reasonable marketing, advertising, and/or
entertainment expenses incurred in the performance of his
duties hereunder.
4. TERMINATION.
a) DEATH. This Employment Agreement shall terminate
upon Employee's death. Upon such termination, the Company
shall pay to Employee's estate (or as Employee or his estate
shall otherwise direct) Employee's base salary through the
end of the calendar month in which Employee's death occurs
and will use its reasonable efforts to asset in the prompt
processing of claims under applicable employee benefit
plans.
b) CAUSE. This Employment Agreement may be
terminated by the Company by written notice to Employee for
cause as defined in this section. Cause means willful
misconduct, injurious to the Company and of a material
nature, gross negligence of duties, or material breach of
this Agreement.
-2-<PAGE>
c) OTHER. The Employee may terminate this Employment
Agreement by a 90-day written notice to the Company at any
time. If Employee, however, elects to terminate this
Employment Agreement during its initial term, Employee will
not be entitled to receive any severance compensation.
d) ELECTION NOT TO EXTEND. If the Company elects not
to extend the term of this Employment Agreement pursuant to
Section 2, the Company shall pay Employee his base salary in
accordance with Section 3(a) for twelve (12) months
following the Date of Termination and continue Employee's
health and welfare benefits for six (6) months following the
Date of Termination on substantially the same basis as
existed on the Date of Termination.
e) DATE AND EFFECT OF TERMINATION. The Date of
Termination of this Employment Agreement shall be (i) in the
case of Section 4(a), the date of Employee's death; (ii) in
the case of a termination of this Employment Agreement
pursuant to Sections 4(b) or 4(c), the date specified in the
Company's or Employee's notice of such termination; or (iii)
in the case of the Company's election not to extend the term
o this Employment Agreement pursuant to Section 2, the last
date of the term of this Employment Agreement. Upon any
termination of this Employment Agreement pursuant to this
Section 4 or election not to extend the term of this
Employment Agreement pursuant to Section 2, Employee shall
not be entitled to any further payments or benefits of any
nature pursuant to this Employment Agreement, or as a result
of such termination or election, except as specifically
provided for in this Employment Agreement. Sections 5, 6,
7, and 8 (and to the extent applicable thereto, Sections 9,
10, 11 and 12) shall survive any termination of this
Employment Agreement pursuant to this Section 4 or election
not to extend the term of this Employment agreement pursuant
to Section 2.
5. CONFIDENTIALITY.
During the term of this Employment Agreement and thereafter,
Employee will not divulge to anyone or use for his own benefit or
the benefit of any third party any confidential information of
the Company or any of its subsidiaries (including, without
limitation, all technical designs and specifications, trade
secrets, financial data and marketing strategies) learned by
Employee in connection with the performance of his duties
hereunder unless (a) any such information becomes generally
available to the public other than as a result of disclosure by
Employee (b) Employee is requested or required (by oral question,
interrogatories, requests for i information or documents,
subpoena, civil investigative demand or similar process) to
disclose any such information, in which case Employee will (i)
promptly notify the Company of such request or requirement, so
that the Company may seek an appropriate protective order, and
(ii) cooperate with the Company, at its expense, in seeking such
an order. Upon termination of this Employment Agreement,
Employee shall promptly deliver to the Company all confidential
information of the Company or any of its subsidiaries.
-3-
<PAGE>
6. NONCOMPETITION.
During the term of this Employment Agreement, Employee will
not, directly or indirectly, engage or participate in as owner,
officer, director, manager, employee, consultant or otherwise or
have any financial interest in, or aid or assist anyone else in
the conduct of, any business which competes with the Company or
any of its subsidiaries in any line of business conducted or
contemplated during the term of this Employment Agreement;
provided, however, that Employee's ownership of not more than 5
percent (5%) of the securities of any corporation or other entity
which are traded on any national securities market or in the
over-the-counter market shall not constitute a violation of this
Section 6.
7. NONSOLICITATION.
During the term of this Employment Agreement and for a
period of eighteen (18) months following the Date of Termination
of this Employment Agreement, Employee will not entice or in any
other manner persuade or attempt to persuade any employee,
independent contractor, dealer, supplier, client or customer of
the Company or any of its subsidiaries to discontinue his or her
relationship or violate any agreement with the Company or any of
its subsidiaries as employee, independent contractor, dealer,
supplier, client or customer, respectively.
8. EQUITABLE RELIEF.
Employee: (i) acknowledges that any breach or attempted
breach of the provisions of any of Sections 5, 6, or 7 will cause
immediate and irreparable harm to the Company and that a remedy
at law for any such breach or attempted breach shall be
inadequate; (ii) agrees that the Company shall be entitled to
temporary or permanent injunctive relief with respect to any such
breach or attempted breach (in addition to any other remedies, at
law or in equity as may be available to it with respect to any
such breach or attempted breach); and (iii) agrees to waive any
requirements for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief. If any term, provision, convenant or
restriction in Sections 6, 7 or 8 is held by a court of competent
jurisdiction to be invalid, void or unenforceable, such term,
provision, covenant or restriction shall be deemed amended to the
extent required to render it valid, binding and enforceable.
9. SUCCESSORS; AMENDMENT; NOTICE.
This Employment Agreement shall be binding upon and shall
inure to the benefit of the Company and its successors and
assigns. This Employment Agreement shall be binding upon
Employee and shall inure to the benefit of his heirs, executors,
administrators and legal representatives, but shall not be
assignable by Employee. This Employment Agreement may be amended
or altered only by the written agreement of the Company and
Employee. All notice or other communication permitted or
-4-
<PAGE>
required under this Employment Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or
mailed (certified or registered mail, postage prepaid, return
receipt requested) to Employee or the Company at the respective
addresses on the first page of this Employment Agreement, or such
other address as shall be furnished in writing by Employee or the
Company to the other.
10. ENTIRE AGREEMENT.
This Employment Agreement embodies the entire agreement and
understanding between Employee and the Company with respect to
the subject matter hereof.
11. SEVERABILITY.
If any term, provision, covenant or restriction of this
Employment Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Employment
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
12. GOVERNING LAW.
This Employment Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia
applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its name and behalf by its duly authorized officer
and the Employee has hereunto set his hand, all on the day and
year first above written.
WITNESS DELSOFT CONSULTING, INC.
/s/ Jerry Rosemeyer /s/ Benjamin J. Giacchino
- ------------------------ ---------------------------
WITNESS
/s/ Jerry Rosemeyer /s/ Jeffrey A. Rinde
- ------------------------- ---------------------------
Jeffrey A. Rinde
-5-<PAGE>
SCHEDULE A
Stock Option Agreement
COMMON STOCK OPTION
(Nontransferable)
DELSOFT CONSULTING, INC.
(a Georgia Corporation)
FOR VALUE RECEIVED, DELSOFT CONSULTING, INC. (the
"Corporation") hereby grants to _______________ (the "Holder"),
subject to the terms and conditions hereinafter set forth, the
option to purchase an aggregate of twenty-five thousand (25,000)
shares of the common stock without par value (the "Common Stock")
of the Corporation.
1. TERM AND EXERCISE.
(a) This Option may be exercised by the Holder for
all, but not less than all, of the Shares of the Common Stock
subject to this Option at any time prior to the expiration of
this Option, which expiration shall occur simultaneously with the
first to occur of either of the following two (2) events:
(1) The failure of the Holder to have duly
exercised this Option in the manner provided herein prior to the
expiration of a period of five (5) years from the date of the
issuance of this Option.
(2) The cessation for any reason whatsoever of
the Holder as an officer of the Corporation. Upon the expiration
of this Option, as foresaid, this Option shall be and become null
and void.
(b) The Holder shall exercise this Option by surrender
to the Corporation of this Option with the Purchase Form attached
hereto as Exhibit "A", duly executed, accompanied by payment in
cash or by check of the price hereinafter set forth for the
Shares of the Common Stock so purchased (the "Option Price").
(c) Within sixty (60) business days following the
exercise of this Option by the Holder as hereinabove provided,
the Corporation shall cause to be issued in the name of and
delivered to the Holder a certificate or certificates
representing the Shares of the Common Stock so purchased. The
Corporation covenants and agrees that all of the Shares of the
Common Stock which may be issued and delivered upon the due
exercise o this Option by the Holder shall, upon such issuance
and delivery, be fully paid and nonassessable.
2. OPTION PRICE. The Option Price at which the Shares of
the Common Stock shall be purchased upon the exercise of this
Option shall be one percent (1%) of the market value as of the
date of exercise of this Option.
<PAGE>
3. EXPIRATION OF OPTION ON CERTAIN ADDITIONAL EVENTS.
Anything contained in this Option to the contrary
notwithstanding, this Option shall expire and be and become null
and void unless, in the event of any consolidation of the
Corporation with, or merger of the Corporation into, any other
corporation (other than a merger with a wholly owned subsidiary
or in which the Corporation is the surviving corporation); any
transfer of all or substantially all of the assets of the
Corporation; or the dissolution, liquidation or winding-up of the
Corporation, this Option shall have been duly exercised, as
hereinabove provided, prior to the date which is the record date
for determining the holders of Common Stock entitled to vote upon
such consolidation, merger, transfer, dissolution, liquidation or
winding-up. The Corporation shall give to the Holder at least
ninety (90) days' prior notice of the date which shall be the
record date for determining the holders of Common Stock entitled
to vote upon such consolidation, merger, transfer, dissolution,
liquidation or winding-up.
4. NONTRANSFERABILITY. This Option shall not be assigned,
pledged, hypothecated, sold or otherwise transferred or
encumbered by the Holder. Notwithstanding the foregoing, this
Option shall be exercisable upon the death or permanent
disability of the Holder by Holder's heirs, personal
representatives, guardians, beneficiaries, devisees, or
otherwise.
5. NOTICES. Any notice or other communication to the
Corporation or to the Holder o this Option shall be in writing
and any such notice or communication shall be deemed duly given
or made if personally delivered or if mailed, by registered or
certified mail, postage prepaid, and if to the Corporation: to
the Corporation's office at 555 Sun Valley Drive, Suit J-2,
Roswell, Georgia 30076, and if to such Holder: to
_____________________________, or at such other address as the
Corporation or the Holder may designate by notice to the other.
6. GOVERNING LAW. This Option shall be governed by and
construed and enforced in accordance with the laws of the State
of Georgia.
7. SUCCESSORS AND ASSIGNS. All of the provisions of this
Option shall be binding upon the Corporation and its successors
and assigns and the Holder, his heirs, personal representatives
and guardians.
(SIGNATURES CONTAINED ON FOLLOWING PAGE)
<PAGE>
IN WITNESS WHEREOF, DELSOFT CONSULTING, INC. has caused this
Option to be signed in its corporate name under its corporate
seal by its President and its corporate seal to be hereunto
affixed and its execution hereof to be attested by its Secretary,
as of this ____ day of _______________.
ATTEST: DELSOFT CONSULTING, INC.
_____________________________ By:______________________
Benjamin Giacchino, Secretary Jerry Rosemeyer,
President
ACCEPTED: Date:
_____________________________ __________________________
_____________________, Holder
<PAGE>
EXHIBIT A
PURCHASE FORM
DELSOFT CONSULTING, INC.
555 Sun Valley Drive
Suite J-2
Roswell, Georgia 30076
Gentlemen:
The undersigned hereby irrevocably subscribes for twenty
five thousand (25,000) shares of Common Stock of DELSOFT
CONSULTING, INC., pursuant to and in accordance with the terms
and conditions of the Stock Option Agreement dated as of
_______________, 1996, and hereby makes payment of
___________________ Dollars ($__________) therefor, and requests
that a certificate for such shares be issued in the name of the
undersigned and delivered to the undersigned at the address
listed below.
_________________________
_____________________[Name]
Address:
_________________________
_________________________
Dated: ________,____
CONSULTING AGREEMENT
THIS AGREEMENT is being entered into as of September 1,
1997, by and between DELSOFT CONSULTING, INC., a Georgia
corporation with principal offices at 106 Bombay Lane, Roswell,
Georgia 30076 (hereinafter called the "Company"), and JERRY
ROSEMEYER, residing at 2355 Old Northpark Lane, County of Fulton,
City of Alpharetta 30004 (hereinafter called the "Rosemeyer").
WITNESSETH:
WHEREAS, Company and Rosemeyer have mutually agreed to
terminate the Employment Agreement between Company and Rosemeyer
dated July 1, 1996; and
WHEREAS, the parties deem it to be in their best interests
to set forth in writing the terms and conditions under which this
Consulting Agreement is to be made.
NOW, THEREFORE, in consideration of the mutual promises and
covenants of the parties hereto as hereinafter set forth, the
parties hereto hereby agree as follows:
1. TERM OF CONSULTING AGREEMENT.
The term of this Consulting Agreement shall begin as of the
1st day of September 1997, and terminate upon Company's
satisfaction of all terms and conditions stated herein.
2. COMPENSATION AND BENEFITS.
a) COMPENSATION. Rosemeyer shall receive total
compensation of $288,000 over a period of twenty four (24) months
in consecutive equal monthly installments of $12,000.00.
Payments shall be made payable to the order of Rosemeyer and
mailed to 2355 Northpark Lane, Alpharetta, Georgia 30004. The
first payment shall be made to and received by Rosemeyer on
September 30, 1997, and each successive payment shall be made on
the last day of each month thereafter.
b) OPTIONS. Rosemeyer shall receive on July 1, 1998,
and on an annual basis thereafter, for a period of four (4)
years, an option to purchase twenty five thousand (25,000) shares
of Company stock in accordance with the terms and conditions of
the Company Stock Option Plan.
c) VACATION. Rosemeyer shall receive payment, on or
before November 1, 1997, for ten (10) days of accrued vacation.
d) BONUS. Rosemeyer shall receive payment for any
amount due and owing as of June 30, 1997, pursuant to the Company
Executive Incentive Compensation Program. Payment will be made
in the same manner and in the same amounts as the Company makes
to all other participants. Notwithstanding the foregoing, any
amounts due and owing pursuant to this subsection shall be paid
in full on or before the expiration of this Consulting Agreement.
<PAGE>
e) COMMISSIONS. Rosemeyer shall receive a commission
of 10% of the gross sales price for any sale of the Company's
"Hyperdate Methodology" made by Rosemeyer on behalf of the
Company after September 1, 1997. In the event a sale is
consummated, Rosemeyer shall also be reimbursed for any
reasonable expenses incurred in completing such sale. Payment
shall be made on or before thirty (30) days after receipt of
payment from Company's customer. Notwithstanding the foregoing,
Rosemeyer shall not receive commissions for any sale made to an
existing or prospective customer of the Company as of the date of
this Consulting Agreement.
f) OTHER.
(i) Placements. Rosemeyer shall be entitled to
$1/hr for each hour worked by any consultants introduced to the
Company by Rosemeyer and placed by Company with Company's
customers on or after September 1, 1997. Payment shall be made
on or before thirty (30) days after receipt of payment from
Company's customer for such work.
(ii) Projects. Rosemeyer and company shall
mutually agree to the compensation to be paid to Rosemeyer for
any projects introduced to the Company by Rosemeyer on or after
September 1, 1997, that involve any person and/or entity not
presently a customer or prospective customer of the Company.
Rosemeyer shall be paid on such terms and conditions as are
mutually agreed to by the parties hereto.
(iii) Consulting Services. Rosemeyer shall be
entitled to compensation for any consulting services provided to
Company's customers at the written request of Company on such
terms and conditions as are mutually agreed on by the parties
hereto.
3. CONDITIONS TO COMPENSATION AND BENEFITS.
In consideration of the compensation and benefits stated
herein, upon the written request of Company Rosemeyer agrees to
provide up to ten (10) hours of services per week during the term
of this Agreement.
4. RESTRICTIONS.
Rosemeyer shall have no authority to negotiate, enter into,
or execute any contracts binding upon the Company, and/or create
any obligations, financial or otherwise, on the part of the
Company, and/or perform any other acts and/or take any other
actions on behalf of the Company, except such as shall be
specifically authorized by the Board of Directors of the Company
or by an executive officer of the Company acting pursuant to
authority granted by the Board of Directors.
5. TERMINATION.
a) DEATH. This Agreement shall terminate upon
Rosemeyer's death. Upon such termination, the Company shall pay
2
<PAGE>
to Rosemeyer's estate (or as Rosemeyer or his estate shall
otherwise direct) any amounts which remain due and owing
hereunder on such terms and conditions as are stated herein.
Company shall further use its reasonable efforts to assist in the
prompt processing of claims under applicable employee benefit
plans.
b) CAUSE. This Agreement may be terminated by the
Company by written notice to Rosemeyer for cause as defined in
this section. Cause means any material breach of this Agreement.
c) DATE AND EFFECT OF TERMINATION. The Date of
Termination of this Agreement shall be (i) in the case of Section
5(a), the date of Employee's death; or (ii) in the case of a
termination of this Agreement pursuant to Section 5(b), the date
specified in the Company's notice of such termination. Upon any
termination of this Agreement pursuant to this Section 5,
Rosemeyer shall not be entitled to any further payments or
benefits of any nature pursuant to this Agreement, except as
specifically provided for in this Agreement. Sections 6, 7 8, 9,
and 10 (and to the extent applicable thereto, Sections 11, 12 and
13) shall survive any termination of this Agreement pursuant to
this Section 5.
6. CONFIDENTIALITY.
During the term of this Agreement and for a period of
eighteen (18) months following the termination of this Agreement
for any reason whatsoever or the expiration of this Agreement,
Rosemeyer will not divulge to anyone or use for his own benefit
or the benefit of any third party any confidential information of
the Company or any of its subsidiaries (including, without
limitation, all technical designs and specifications, trade
secrets, financial data and marketing strategies) learned by
Rosemeyer during the performance of his duties as an employee of
the Company and/or during the term of this Agreement hereunder
unless (a) any such information becomes generally available to
the public other than as a result of disclosure by Rosemeyer,
and/or (b) Rosemeyer is requested or required (by oral question,
interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any
such information, in which case Rosemeyer will (i) promptly
notify the Company of such request or requirement, so that the
Company may seek an appropriate protective order, and (ii)
cooperate with the Company, at its expense, in seeking such an
order. Upon termination or expiration of this Agreement,
Rosemeyer shall promptly deliver to the Company all confidential
information of the Company or any of its subsidiaries.
7. NONSOLICITATION OF EMPLOYEES.
During the term of this Agreement and for a period of
eighteen (18) months following the Date of Termination of this
Agreement for any reason whatsoever or the expiration of this
Agreement, Rosemeyer will not, either directly or indirectly, on
Rosemeyer's own behalf or on behalf of others solicit, divert or
hire, any person employed by the Company at any location where
Rosemeyer performed services for the Company or any person with
3
<PAGE>
whom Rosemeyer had regular contact in the course of his
employment by the Company and/or during the term of this
Agreement, whether or not the employment of any such person is
pursuant to a written agreement, for a determined period or at
will.
8. NONSOLICITATION OF CUSTOMERS.
During the term of this Agreement and for a period of
eighteen (18) months following the Date of Termination of this
Agreement for any reason whatsoever or the expiration of this
Agreement, Rosemeyer will not (except on behalf of or with the
prior written consent of the Company), either directly or
indirectly, on Rosemeyer's own behalf or on behalf of others:
solicit, divert, appropriate to, or accept on behalf of any
business which competes with, or is substantially the same as,
the business conducted by or contemplated by the Company or any
of its subsidiaries during the performance of his duties as an
employee of the Company and/or during the term of this Agreement,
any business from any customer or actively sought prospective
customer of the Company with whom Rosemeyer has had regular
contact, and/or whose contacts with the Company have been
supervised by Rosemeyer, and/or any individual and/or entity that
becomes a customer of Company during the term of this Agreement.
Rosemeyer expressly acknowledges and agrees that the
individual and/or entities delineated on Attachment "A" appended
hereto are the customers or actively sought prospective customers
of the Company with whom Rosemeyer has had regular contact,
and/or whose contacts with the Company have been supervised by
Rosemeyer.
Rosemeyer and Company expressly acknowledge and agree that
any individual and/or entity that becomes a customer of Company
during the term of this Agreement shall be added to Attachment
"A" and expressly incorporated therein.
Notwithstanding anything to the contrary stated herein,
"actively sought prospective customers" shall not include any
actively sought prospective customers of the Company that do not
become customers of the Company prior to September 1, 1998.
9. EQUITABLE RELIEF.
Rosemeyer: (i) acknowledges that any breach or attempted
breach of the provisions of any of Sections 6, 7, or 8 will cause
immediate and irreparable harm to the Company and that a remedy
at law for any such breach or attempted breach shall be
inadequate; (ii) agrees that the Company shall be entitled to
temporary or permanent injunctive relief with respect to any such
breach or attempted breach (in addition to any other remedies, at
law or in equity as may be available to it with respect to any
such breach or attempted breach); and (iii) agrees to waive any
requirements for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other
equitable relief. If any term, provision, covenant or
restriction in sections 6, 7, or 8 i held by a court of competent
4
<PAGE>
jurisdiction to be invalid, void or unenforceable, and such court
of competent jurisdiction is so authorized by state or common
law, such term, provision, covenant or restriction shall be
deemed amended to the extent required to render it valid, binding
and enforceable.
10. RELEASE.
Rosemeyer does hereby remise, release and forever discharge
the Company, and all business entities with which it is or has
been affiliated, together with any predecessor, successor,
parent, or subsidiary entity as well as any officers, directors,
employees, agents, designees, assignees, representatives,
attorneys or any other person acting or purporting to act on
behalf of the Company or any such other business entity and/or
person previously descried herein, whether herein named or
referred to or not, and who, together with the above named, may
be jointly, severally, and/or jointly and severally liable to
Rosemeyer, whether in their individual and/or corporate capacity,
of and from any and all, and all manner of, actions and causes of
action, rights, suits, covenants, contracts, agreements,
judgments, claims and demands whatsoever in law or equity
existing as of this date.
11. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and
understanding between Rosemeyer and the Company with respect to
the subject matter hereof This Agreement supersedes any and all
other agreements between the parties with respect to its subject
matter, including, but not limited to, the Employment Agreement
between the parties dated July 1, 1996. No other agreement,
statement, or promise relating to the subject matter of this
Agreement that is not contained herein shall be valid or binding.
12. SEVERABILITY.
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenant and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated.
13. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia
applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its name and behalf by its duly authorized officer
and Jerry Rosemeyer has hereunto set his hand, all on the day and
year first above written.
WITNESS: DELSOFT CONSULTING, INC.
/s/ Adil Choskey /s/ Jeffrey A. Rinde
Jeffrey A. Rinde, CFO
/s/ Benjamin J. Giacchino
Benjamin Giacchino, for Board of
Directors
WITNESS:
/s/ Adil Choskey /s/ Jerry Rosemeyer
Jerry Rosemeyer
6
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is being entered into as of June 18,
1997, by and between DELSOFT CONSULTING, INC., a Georgia
corporation with principal offices at 106 Bombay Lane, Roswell,
Georgia 30076 (hereinafter called the "Company"), and BENJAMIN
J. GIACCHINO, residing at 404 Crabapple Springs Court, County of
Cherokee, City of Woodstock 30188, (hereinafter called the
"Giacchino").
WITNESSETH:
WHEREAS, Company and Giacchino have mutually agreed to
terminate the Employment Agreement between Company and Giacchino
dated July 1, 1996; and
WHEREAS, the parties deem it to be in their best interests
to set forth in writing the terms and conditions under which this
Consulting Agreement is to be made.
NOW, THEREFORE, in consideration of the mutual promises and
covenants of the parties hereto as hereinafter set forth, the
parties hereto hereby agree as follows:
1. TERMS OF CONSULTING AGREEMENT.
The term of this Consulting Agreement shall begin as of the
1st day of July 1997, and terminate upon Company's satisfaction
of all terms and conditions stated herein.
2. COMPENSATION AND BENEFITS.
a. COMPENSATION. Giacchino shall receive total
compensation of $80,000, payable in sixteen (16) equal
installments in accordance with the Company's normal pay
practices. The first installment shall be payable on August
1, 1997.
b. OPTIONS. Giacchino shall receive on July 1, 1997,
and on an annual basis thereafter, for a period of four (4)
years, an option to purchase twenty five thousand (25,000)
shares of Company stock in accordance with the terms and
conditions of the Company Stock Option Plan.
c. FRINGE BENEFITS. Giacchino shall be entitled to
participate and receive benefits under the Company health
and 401(k) plans and arrangements for a period of twelve
(12) months from the date of this Agreement.
d. VACATION. Giacchino shall receive payment, on or
before August 1, 1997, for four (4) weeks of accrued
vacation.
e. DEFERRED COMMISSIONS. Giacchino shall receive
payment of six thousand six hundred ($6,600.00) dollars, on
or before August 1, 1997, for all deferred commissions due
and owing as of the date of this Agreement.
<PAGE>
f. BONUS. Giacchino shall receive payment for any
amount due and owing as of June 30, 1997, pursuant to the
Company Executive Compensation Program. Payment will be
made in the same manner and in the same amounts as the
Company makes to all other participants.
3. CONDITIONS TO COMPENSATION AND BENEFITS.
In consideration of the compensation and benefits stated
herein, upon the written request of Company Giacchino agrees to
provide up to ten (10) hours of services per week during the term
of this Agreement.
4. ENTIRE AGREEMENT.
This Agreement embodies the entire agreement and
understanding between Giacchino and the Company with respect to
the subject matter hereof. This Agreement supersedes any and all
other agreements between the parties with respect to its subject
matter, including, but not limited to, the Employment Agreement
between the parties dated July 1, 1996. No other agreement,
statement, or promise relating to the subject matter of this
Agreement that is not contained herein shall be valid or binding.
5. SEVERABILITY.
If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall
remain in full force and effect and shall in no way be affected,
impaired or invalidated.
6. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia
applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed in its name and behalf by its duly authorized officer
and Giacchino has hereunto set his hand, all on the day and year
first above written.
WITNESS: DELSOFT CONSULTING, INC.
/s/ Jeffrey A.Rinde /s/ Jerry Rosemeyer
Jerry Rosemeyer, President
WITNESS:.
/s/ Jeffrey A. Rinde /s/ Benjamin J. Giacchino
Benjamin J. Giacchino
DELSOFT CONSULTING, INC. STOCK OPTION PLAN
A. PURPOSE AND SCOPE
The purposes of this Plan are to encourage stock ownership by
key employees of Delsoft Consulting, Inc. (herein called the
"Company"), to provide an incentive for such employees to expand and
improve the profits and prosperity of the Company, and to assist the
Company in attracting and retaining key personnel through the grant
of Options to purchase shares of the Company's common stock.
B. DEFINITIONS
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Stock Option Plan Committee,
which is appointed by the Board, and which shall be composed of
three members of the Board.
3. "Company" shall mean Delsoft Consulting, Inc., a Georgia
corporation.
4. "Code" shall mean the Internal Revenue Code of 1954, as
amended.
5. "Option" shall mean a right to purchase Stock, granted
pursuant to the Plan.
6. "Option Price" shall mean the purchase price for Stock
under an Option, as determined in Section F below.
7. "Participant" shall mean an employee of the Company to whom
an Option is granted under the Plan.
8. "Plan" shall mean this Delsoft Consulting, Inc. Stock
Option Plan.
9. "Stock" shall mean the common stock of the Company, no par
value.
C. STOCK TO BE OPTIONED
Subject to the provisions of Section M of the Plan, the maximum
number of shares of Stock that may be optioned or sold under the
Plan is 2,000,000 shares. Such shares may be treasury, or authorized,
but unissued, shares of Stock of the Company.
D. ADMINISTRATION
The Plan shall be administered by the Committee. Two members
of the Committee shall constitute a quorum for the transaction of
business. The Committee shall be responsible to the Board for the
operation of the Plan, and shall make recommendations to the Board<PAGE>
with respect to participation in the Plan by employees of the
Company, and with respect to the extent of that participation. The
interpretation and construction of any provision of the Plan by the
Committee shall be final, unless otherwise determined by the Board.
No member of the Board or the Committee shall be liable for any
action or determination made by him in good faith.
E. ELIGIBILITY
The Board, upon recommendation of the Committee, may grant
Options to any key employee (including an employee who is a director
or an officer) of the Company. Options may be awarded by the Board
at any time and from time to time to new Participants, or to then
Participants, or to a greater or lesser number of Participants, and
may include or exclude previous Participants, as the Board, upon
recommendation by the Committee shall determine. Options granted at
different times need not contain similar provisions.
F. OPTION PRICE
The purchase price for Stock under each Option shall be 100 per
cent of the fair market value of the Stock at the time the Option is
granted, but in no event less than the par value of the Stock.
G. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the
Board and shall be evidenced by agreements in such form as the
Board, upon recommendation of the Committee, shall from time to time
approve. Such agreements shall comply with and be subject to the
following terms and conditions:
1. EMPLOYMENT AGREEMENT. The Board may, in its discretion,
include in any Option granted under the Plan a condition that the
Participant shall agree to remain in the employ of, and to render
services to, the Company for a period of time (specified in the
agreement) following the date the Option is granted. No such
agreement shall impose upon the Company, however, any obligation to
employ the Participant for any period of time.
2. TIME AND METHOD OF PAYMENT. The Option Price shall be paid
in full in cash at the time an Option is exercised under the Plan.
Otherwise, an exercise of any Option granted under the Plan shall be
invalid and of no effect. Promptly after the exercise of an Option
and the payment of the full Option price, the Participant shall be
entitled to the issuance of a stock certificate evidencing his
ownership of such Stock. A Participant shall have none of the
rights of a shareholder until shares are issued to him, and no
adjustment will be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
3. NUMBER OF SHARES. Each Option shall state the total number
of shares of Stock to which it pertains.
4. OPTION PERIOD AND LIMITATIONS ON EXERCISE OF OPTIONS. The
Board may, in its discretion, provide that an Option may not be
<PAGE>
exercised in whole or in part for any period or periods of time
specified in the Option agreement. Except as provided in the Option
agreement, an Option may be exercised in whole or in part at any
time during its term. No Option may be exercised after the
expiration of 10 years from the date it is granted. No Option may
be exercised for a fractional share of Stock.
H. TERMINATION OF EMPLOYMENT
Except as provided in Section I below, if a Participant ceases
to be employed by the Company, his Options shall terminate
immediately; provided, however, that if a Participant's cessation of
employment with the Company is due to his retirement with the
consent of the Company, the Participant may, at any time within
three months after such cessation of employment, exercise his
Options to the extent that he was entitled to exercise them on the
date of cessation of employment, but in no event shall any option be
exercisable more than 10 years from the date it was granted. The
Committee may cancel an Option during the three-month period
referred to in this paragraph, if the Participant engages in
employment or activities contrary, in the opinion of the Committee,
to the best interests of the Company. The Committee shall determine
in each case whether a termination of employment shall be considered
a retirement with the consent of the Company, and, subject to
applicable law, whether a leave of absence shall constitute a
termination of employment. Any such determination of the Committee
shall be final and conclusive, unless overruled by the Board.
I. RIGHTS IN EVENT OF DEATH
If a Participant dies while employed by the Company, or within
three months after having retired wit the consent of the Company,
and without having fully exercised his Options, the executors or
administrators, or legatees or heirs, of his estate shall have the
right to exercise such Options t the extent that such deceased
Participant was entitled to exercise the Options on the date of his
death; provided, however, that in no event shall the Options be
exercisable more than 10 years from the date they were granted.
J. NO OBLIGATIONS TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the
Participant to exercise such Option.
K. NONASSIGNABILITY
Options shall not be transferable other than by will or by the
law of descent and distribution; and during a Participant's lifetime
shall be exercisable only by such Participant.
L. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
The aggregate number of shares of Stock available for Options
under the Plan, the shares subject to any Option, and the price per
share, shall all be proportionate adjusted for any increase or
<PAGE>
decrease in the number of issued shares of Sock subsequent to the
effective date of the Plan resulting from (1) a subdivision of
consolidation of shares or any other capital adjustment, (2) the
payment of a stock dividend, or (3) other increase or decrease in
such shares effected without receipt of consideration by the
Company. If the Company shall be the surviving corporation in any
merger or consolidation, any Option shall pertain, apply, and relate
to the securities to which a holder of the number of shares of Stock
subject to the Option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or
upon a merger or consolidation in which the Company is not the
surviving corporation, all Options outstanding under the Plan shall
terminate; provided, however, that each Participant (and each other
person entitled under Section I to exercise an Option) shall have
the right, immediately prior to such dissolution or liquidation, or
such merger or consolidation, to exercise such Participant's Options
in whole or in part, but only to the extent that such Options are
otherwise exercisable under the terms of the Plan.
M. AMENDMENT AND TERMINATION
The Board, by resolution, may terminate, amend, or revise the
Plan with respect to any shares as to which Options have been
granted. Neither the Board nor the Committee may, without the
consent of the holder of an Option, alter or impair any Option
previously granted under the Plan, except as authorized herein.
Unless sooner terminated, the Plan shall remain in effect for a
period of 10 years from the date of the Plan's adoption by the
Board. Termination of the Plan shall not affect any Option
previously granted.
N. AGREEMENT AND REPRESENTATION OF EMPLOYEES
As a condition to the exercise of any portion of an Option, the
Company may require the person exercising such Option to represent
and warrant at the time of such exercise that any shares of Stock
acquired at exercise are being acquired only for investment and
without any present intention to sell or distribute such shares, if,
in the opinion of counsel for the Company, such a representation is
required under the Securities Act of 1933 or any other applicable
law, regulation, or rule of any governmental agency.
O. RESERVATION OF SHARES OF STOCK
As a condition to the exercise of any portion of the Option,
the Company may require the person exercising such Option to
represent and warrant at the time of such exercise that any shares
of Stock acquired at exercise are being acquired only for investment
and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such a representation
is required under the Securities Act of 1933 or any other applicable
law, regulation, or rule of any governmental agency.
P. EFFECTIVE DATE OF PLAN
The Plan shall be effective from the date that the Plan is
approved by the Board.
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<NAME> DELSOFT CONSULTING, INC.
<S> <C>
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<PERIOD-END> JUN-30-1997
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0
0
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