<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
January 13, 2000
Date of report (Date of earliest event reported)
Commission File Number: 0-22271
CFI MORTGAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of incorporation or organization)
SUITE 500, 601 CLEVELAND STREET
CLEARWATER, FL 33755
(Address of principal executive office)
65-0127741
(IRS Employer Identification Number)
Telephone Number: (727) 674-1010
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant has (1) filed all reports Required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was Required
to file such reports), and (2) has been subject to filing requirements Within
the past 90 days.
Yes [ ] No [X]
Item 2. Acquisition or Disposition of Assets.
On January 13, 2000, the Company completed the acquisition of sixty percent of
Inventek, Inc., a Florida corporation, doing business as Surfside Software
("Surfside"). The Company expected to, but at that time did not, acquire from
another party an additional five percent of Surfside under the same agreement
and terms (later acquired on August 2, 2000) and intended to acquire the
remaining thirty percent of Surfside from two other parties under separate terms
to be negotiated. The acquisition was completed by means of an exchange of
stock, described below. Surfside is engaged in the development and marketing of
computer software which is designed to address the needs of motor fleet
operators, whether taxi cab and limousine operators or over-the-road trucking
companies. Surfside was founded in 1994 by father and son James Furniss and
Stephen Furniss, its principal stockholders. Surfside employed 8 persons at the
date of the acquisition, significantly all of whom where engaged in software
development, as well as Surfside's stockholders and executive officers who were
also engaged in sales and marketing. At the date of the acquisition, Surfside
leased 2,600 square feet of general office space at which all of its operations
were conducted and to which the executive offices of the Company were relocated
in Clearwater, Florida following the acquisition.
Surfside common stock representing sixty percent of its issued and outstanding
common stock was acquired from James Furniss and Stephen Furniss, who were and
remain also directors and the executive officers of Surfside. In exchange for
the Surfside common stock, the Company issued .4615 of one share of the
Company's Convertible Preferred Stock, Series 2, and 461,000 common stock
purchase warrants to each of Messrs. Furniss. The balance of the one full share
of the Company's preferred stock and 77,000 common stock purchase warrants were
to be issued for the additional five percent of Surfside owned by Charles
Iappini, however, that part of the transaction was not completed until August 2,
2000. In addition to the Company's preferred stock and common stock purchase
warrants issued to Messrs. Furniss and Mr. Iappini in the acquisition, as part
of the acquisition agreement, the Company is also obligated to issue to Messrs.
Furniss and Mr. Iappini an aggregate of one additional share preferred stock.
<PAGE>
The one share of the Company's Convertible Preferred Stock, Series 2, issued at
the closing of the acquisition (including the fractional share issued later to
Mr. Iappini) has a stated value and liquidation preference equal to One Million
Dollars ($1,000,000) plus the amount of "Net Worth Surplus" and less the amount
of "Net Worth Deficiency" of Surfside; is not be entitled to any preference in
payment of dividends and distributions ahead of the common stock, any such
dividend or distribution being allocated to the Series 2 preferred stock on the
basis as if then converted into common stock on the record date for payment of
the dividend or distribution, as the case may be; is not redeemable at the
election of the Company or of the Holder on each 120 day "anniversary date",
provided that all shares of thereof then outstanding shall then be redeemed; is
convertible into such number shares of CFIM's common stock as is determined by
dividing the stated value thereof by the average of the closing asked quotation
or closing price, as the case may be, in the best market for CFIM's common stock
over the last five trading days in the month preceding the holder's election to
convert; and (v) has a right to vote on any matters submitted to a vote of the
holders of the Company's common stock, the number of votes assigned thereto
being determined on the basis as if then converted into common stock on the
record date for stockholders entitled to vote. "Net Worth Surplus" means the
amount by which three times the book value of the assets less the liabilities of
Surfside ("Net Asset Value"), as shown on Surfside's balance sheet at January
13, 2000, as reviewed the Corporation's independent auditors and adjusted in
accordance with the auditors' recommendations, exceeds $700,000; and, "Net Worth
Deficiency" means the amount by which $700,000 exceeds the Net Asset Value.
The one share of the Company's Convertible Preferred Stock, Series 3, to be
issued not more than thirty months after the closing of the acquisition will
have a stated value equal to two times Surfside's net profits earned during the
twenty-four month period commencing February 1, 2000, less one million dollars
in initial consideration paid, not to exceed a cap of five million dollars
($5,000,000) in aggregate; will not be entitled to any preference in payment of
dividends and distributions ahead of the common stock, any such dividend or
distribution being allocated to the Series 2 preferred stock on basis as if
converted into common stock on the record date for payment of the dividend or
distribution, as the case may be; will not be redeemable at the election of the
Company or of the Holder on each 120 day "anniversary date", provided that all
shares of thereof then outstanding shall then be redeemed; will be convertible
into such number shares of the Company's common stock as is determined by
dividing the stated value thereof by the average of the closing asked quotation
or closing price, as the case may be, in the best market for the Company's
common stock over the last five trading days in the twenty-fourth month
following the Closing; and will not have a right to vote on any matters
submitted to a vote of the holders of the Company's common stock. Fractional
shares may be issued.
Prior to the acquisition, there was no relationship between the Company, its
directors, officers and affiliates, or any of their associates, and Messrs.
Furniss and Mr. Iappini. Following the acquisition, Stephen Furniss was elected
as a director of the Company to fill a vacancy resulting from resignation of an
earlier director.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The financial statements of Surfside at and for the periods ended December 31,
1999 and 1998 are filed herewith as Exhibit A.
(b) Pro forma financial information.
The acquired 65% interest in Inventek (doing business as "Surfside Software
Systems") is being accounted for as an acquisition. The following unaudited
Proforma summary presents information as if Surfside been acquired as of the
beginning of the Company's fiscal year in 1999. The Proforma amounts include
adjustments to recognize: (1) the creation of goodwill in the amount of
$1,076,094 and (2) the amortization of goodwill for the year ended December 31,
1999 in the amount of $107,609. The Proforma information does not necessarily
reflect the actual result that would have occurred nor is it necessarily
indicative of future results of operations of the combined companies. This
summary is filed herewith as Exhibit B.
<PAGE>
(c) Exhibits.
Exhibit 5. Stock Exchange Agreement dated January 13, 2000 covering the
acquisition by the Company of a majority interest in Inventek, Inc., a Florida
corporation, doing business as Surfside Software.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned, thereunto duly authorized.
CFI Mortgage, Inc.
By: /s/ STEPHEN E. WILLIAMS
STEPHEN E. WILLIAMS
CHIEF EXECUTIVE OFFICER
Date: September 28, 2000
<PAGE>
INVENTEK, INC.
D/B/A
SURFSIDE SOFTWARE SYSTEMS
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
INVENTEK, INC. D/B/A/ SURFSIDE SOFTWARE SYSTEMS
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
I N D E X
Page No.
--------
INDEPENDENT ACCOUNTANTS' REPORT ........................................ 1
FINANCIAL STATEMENTS:
Balance Sheets as at December 31, 1999 and 1998 ................... 2
Statements of Operations and Accumulated Deficit
For the Years Ended December 31, 1999 and 1998 ................... 3
Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998 ................... 4
NOTES TO FINANCIAL STATEMENTS .......................................... 5-9
<PAGE>
[LETTERHEAD WEINICK SANDERS LEVENTHAL & CO. LLP]
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
Inventek, Inc. D/B/A Surfside Software Systems
We have audited the accompanying balance sheets of Inventek, Inc. D/B/A Surfside
Software Systems as at December 31, 1999 and 1998, and the statements of
operations and accumulated deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inventek, Inc. D/B/A Surfside
Software Systems as at December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Weinick Sanders Leventhal & Co., LLP
New York, N.Y.
July 21, 2000
<PAGE>
-2-
INVENTEK, INC. D/B/A SURFSIDE SOFTWARE SYSTEMS
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash $ -- $ 15,409
Accounts receivable 93,340 47,895
--------- ---------
Total current assets 93,340 63,304
--------- ---------
Property and equipment, at cost, less
accumulated depreciation of $11,548
and $2,852, respectively 49,452 36,215
--------- ---------
Other assets:
Capitalized software development costs, less
accumulated amortization of $151,210 and
$100,115, respectively 104,267 155,362
Security deposits 1,690 1,690
--------- ---------
Total other assets 105,957 157,052
--------- ---------
$ 248,749 $ 256,571
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Cash overdraft $ 7,521 $ --
Accounts payable 20,667 7,721
Due to related parties 52,942 32,379
Accrued expenses and other current liabilities 148,900 60,859
--------- ---------
Total current liabilities 230,030 100,959
--------- ---------
Consulting fees payable 58,661 58,661
--------- ---------
Commitment -- --
Stockholders' equity (capital deficiency):
Common stock, no par value
Authorized 100,000 shares
Issued and outstanding - 1,000 shares
Class A voting 184,560 184,560
Additional paid-in capital 1,002 1,002
Accumulated deficit (225,504) (88,611)
--------- ---------
Total stockholders' equity (capital deficiency) (39,942) 96,951
--------- ---------
$ 248,749 $ 256,571
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
-3-
INVENTEK, INC. D/B/A SURFSIDE SOFTWARE SYSTEMS
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For the Years Ended
December 31,
-------------------------
1999 1998
--------- ---------
Sales $ 475,744 $ 470,071
--------- ---------
Expenses:
Direct costs 71,204 125,408
Selling 105,213 75,012
General and administrative 425,069 364,144
Interest 11,151 1,351
--------- ---------
Total expenses 612,637 565,915
--------- ---------
Net loss (136,893) (95,844)
Retained earnings (accumulated deficit)
at beginning of year (88,611) 7,233
--------- ---------
Accumulated deficit at end of year ($225,504) ($ 88,611)
========= =========
See accompanying notes to financial statements.
<PAGE>
-4-
INVENTEK, INC. D/B/A SURFSIDE SOFTWARE SYSTEMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities: ($136,893) ($ 95,844)
--------- ---------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 59,791 53,947
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable (45,445) 58,609
Accounts payable 12,946 (16,310)
Accrued expenses and other current liabilities 88,041 30,798
--------- ---------
Total adjustments 115,333 127,044
--------- ---------
Net cash provided by (used in) operating activities (21,560) 31,200
--------- ---------
Cash flows used in investing activities:
Expenditures for property and equipment (21,933) (14,418)
--------- ---------
Cash flows from financing activities:
Cash overdraft 7,521 --
Advances from related party 25,000 --
Payments to related parties (4,437) (3,400)
--------- ---------
Net cash flows provided by (used in) financing activities 28,084 (3,400)
--------- ---------
Net increase (decrease) in cash (15,409) 13,382
Cash at beginning of year 15,409 2,027
--------- ---------
Cash at end of year $ -- $ 15,409
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year:
Income taxes $ -- $ --
========= =========
Interest $ 7,506 $ 1,351
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
-5-
INVENTEK, INC. D/B/A SURFSIDE SOFTWARE SYSTEMS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITY:
Inventek, Inc. D/B/A Surfside Software Systems ("the Company" or
"Surf side") was incorporated under the laws of the State of Florida
on August 11, 1994. Surfside provides PC-based software solutions,
under the trade name Tranware, to the taxi, courier, para-transit,
shuttle and limousine industries.
The software is generally distributed under a licensing
agreement. In addition to the software, Surfside provides customer
staff training, maintenance and program customization as maybe
desired. At present, a substantial portion of the Company's revenue is
generated from the licensing of the Tranware product.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES.
(a) 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.
(b) Applicable Accounting Pronouncements:
The Company has adopted the guidance provided under SEAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed". SFAS No. 86 provides guidance for specific costs
in the development of proprietary software products which may be
capitalized, and the stages of development during which they may be
capitalized. The adoption by the Company of SFAS No. 86 has resulted
in capitalized software development costs of approximately $255,000
since the Company's inception.
<PAGE>
-6-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(c) Property and Equipment:
Property and equipment are stated at cost less accumulated
depreciation. The Company's policy is to provide for depreciation over
the estimated useful lives of the assets ranging from three to seven
years. Expenditures for repairs, maintenance and minor renewals are
charged to operations as incurred. Upon retirement or abandonment of
the property and equipment, the carrying value and related accumulated
depreciation and amortization are removed from the accounts.
Depreciation expense attributable to property and equipment and
charged to operations for the years ended December 31, 1999 and 1998
amounted to $8,696 and $2,852, respectively.
(d) Capitalized Software Development Costs:
Capitalized software costs, which represent the costs incurred by
the Company to develop its proprietary software products subsequent to
determining the programs' technical feasibility and prior to
availability for sale to the general public, are capitalized and
amortized over a period of five years. Any remaining unamortized costs
relating to program development which is considered obsolete is
written off in the period of obsolescence.
Amortization of capitalized software development costs amounted
to $51,095 for each of the years ended December 31, 1999 and 1998.
(e) Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary
cash investments with high credit quality financial institutions,
which at times may be in excess of the FDIC insurance limit.
Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's
customer base and their geographic dispersion. Management continually
reviews its trade receivable credit risk and has adequately allowed
for potential losses.
<PAGE>
-7-
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(f) Income Taxes:
The Company complies with SFAS No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed for differences between the financial
statement and tax basis of assets and liabilities that will result in
future taxable or deductible amounts, based on the enacted tax laws
and rates in the periods in which differences are expected to affect
taxable income. Valuation allowances are established, when
appropriate, to reduce deferred tax assets to the amount expected to
be realized.
NOTE 3 - RELATED PARTY TRANSACTIONS.
The Company received advances from six individuals, five of whom
are stockholders of the Company. The balances amounted to $27,942 and
$32,379 at December 31, 1999 and 1998, respectively. The advances are
due on demand and there has been no interest charged on the
outstanding balances. In addition, in October 1999, as part of an
acquisition agreement (discussed in Note 7) entered into between the
Company and CFI Mortgage Inc. ("CFI") the Company received an advance
in the amount of $25,000 and signed a demand note payable to CFI. The
note bares interest at a rate of 7% per annum. On January 14, 2000,
the agreement was consummated and the $25,000 note was converted to
additional paid-capital of Surfside.
NOTE 4 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accrued expenses and other current liabilities are comprised of
the following:
December 31,
-----------------------
1999 1998
-------- --------
Payroll taxes $ 97,672 $ 33,563
Accrued interest and penalties
on payroll taxes 22,302 --
General and administrative expenses 28,926 27,296
-------- --------
$148,900 $ 60,859
======== ========
<PAGE>
-8-
NOTE 5 - COMMITMENT.
In January 2000, the Company entered into a lease for office
space, which runs through December 31, 2004. Minimum annual rents
under the lease are as follows:
Years Ending
December 31,
------------
2000 $142,726
2001 149,778
2002 157,187
2003 165,042
2004 173,254
--------
Total minimum
annual rentals $787,987
========
Rent expense amounted to $42,729 and $27,828 for the years ended
December 31, 1999 and 1998, respectively.
NOTE 6 - INCOME TAXES.
As of December 31, 1999, the Company had a net operating loss
carryforward of approximately $326,000 available to reduce future
taxable income through the year 2019. The Company's ability to utilize
its net operating loss carryforward could be limited following a
change in ownership in excess of 500, which resulted from the exchange
of 65% of the outstanding Class A stock for shares of stock in CFI
Mortgage Inc. ("CFI") as more fully described hereafter in Note 7. The
Company has fully reserved its deferred tax asset due to the
uncertainty about its ability to utilize it in future periods.
<PAGE>
-9-
NOTE 7 - SUBSEQUENT EVENTS.
On January 14, 2000, the shareholders owning 65% of the Company
exchanged their shares in the Company for convertible preferred stock
and certain common stock purchase warrants of CFI, valued at
approximately $1,080,000. CFI issued preferred stock with a par value
of $700,000 and 1,000,000 common stock purchase warrants, to which a
value of $380,000 has been attributed.
CFI also contributed $250,000 as additional paid-in capital of
the Company of which $229,000 has been received through June, 2000.
The agreement calls for a potential adjustment to the purchase
price, based on earnings of Surfside over the twenty-four month period
following the closing of the transaction. Such adjustment would be in
the form of additional convertible preferred stock up to an additional
$4,000,000.
CFI has accounted for this transaction as a purchase. As a result
of this transaction, the Company became a majority-owned subsidiary of
CFI.
In July 2000, CFI acquired the remaining 35% of the Company in
exchange for 300,000 shares of its common stock and 30,000 common
stock purchase warrants. As a result of this transaction, the Company
became a wholly owned subsidiary of CFI.
<PAGE>
PROFORMA CONDENSED
BALANCE SHEET
DECEMBER 31.1999
(UNAUDITED)
<TABLE>
<CAPTION>
INVENTEK,INC.
D/B/A
SURFSIDE
PRO - FORMA CFI MORTGAGE SOFTWARE
PRO - FORMA ADJUSTMENTS INC. SYSTEMS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current assets $ 191,640 $ 98,300 $ 93,340
Property and equipment,
at cost 104,870 55,418 49,452
Other assets:
Goodwill 968,485 968,485
Capitalized software costs 104,267 104,267
Sundry 26,690 25,000 1,690
------------ ------------ ------------ ------------
$ 1,395,952 $ 968,485 $ 178,718 $ 248,749
============ ============ ============ ============
Current liabilities $ 2,771,188 $ 2,541,158 $ 230,030
Liabilities not subject to compromise 1,237,552 1,237,552 --
Liabilities under plan of 4,083,328 4,083,328 --
reorganization
Other liabilities 58,661 58,661
------------ ------------ ------------ ------------
Total liabilities 8,150,729 7,862,038 288,691
------------ ------------ ------------ ------------
Stockholders' capital deficiency:
Common stock 156,764 (184,560) 156,764 184,560
Preferred stock 700,000 700,000 -- --
Additional paid - in capital 12,996,258 560,654 12,434,602 1,002
Accumulated deficit (20,607,799) (107,609) (20,274,686) (225,504)
------------ ------------ ------------ ------------
Total stockholders' capital (6,754,777) $ 968,485 (7,683,320) (39,942)
deficiency
------------ ------------ ------------ ------------
$ 1,395,952 $ 968,485 $ 178,718 $ 248,749
============ ============ ============ ============
</TABLE>
<PAGE>
PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
INVENTEK,INC.
D/B/A
SURFSIDE
PRO - FORMA CFI MORTGAGE SOFTWARE
PRO - FORMA ADJUSTMENTS INC. SYSTEMS
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 496,972 $ 21,228 $ 475,744
Operating expenses 4,406,437 107,609 3,686,191 612,637
----------- ------------ ----------- -----------
Loss from continuing (3,909,465) 107,609 (3,664,963) (136,893)
operations
Extraordinary gain -
forgiveness of debt 3,646,371 3,646,371 --
----------- ------------ ----------- -----------
Net loss ($ 263,094) $ 107,609 ($ 18,592) ($ 136,893)
=========== ============ =========== ===========
Weighted average shares 4,953,376
===========
Net loss per share -
basic and diluted:
Continuing ($0.79)
operations
===========
Net loss ($0.05)
===========
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
STOCK EXCHANGE AGREEMENT
--------------------------------------------------------------------------------
THIS STOCK EXCHANGE AGREEMENT, made and entered into as of January 13,
2000, by and between CFI Mortgage, Inc., a Delaware corporation, ("CFIM")
and J. Steven Furniss, James E. Furniss and Charles Iappini, (collectively,
the "Selling Stockholders") and Inventek, an Florida corporation, doing
business as SURFSIDE Software Systems ("SURFSIDE").
WITNESSETH:
WHEREAS, CFIM's common stock is traded in the public securities market on
the OTC Bulletin Board and CFIM Is obligated to file reports with the U.S.
Securities and Exchange Commission pursuant to a registration statement
under the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"); and
WHEREAS, CFIM desires to acquire all of SURFSIDE's securities owned by the
Selling Stockholders which represent 65% of the issued and outstanding
securities of Surfside; and
WHEREAS, SURFSIDE and the Selling Stockholders desire CFIM to acquire
SURFSIDE's securities as contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises herein before set forth,
in reliance hereon and the mutual promises and respective representations
and warranties of the parties, one to another made herein, and the reliance
of each party upon the other(s) based hereon and other good and valuable
consideration, the receipt and sufficiency of which the parties
acknowledge, the parties agree, for purposes of consummating the exchange
of stock as contemplated herein, as follows:
ARTICLE I
PRELIMINARY MATTERS
Section 1.01. Recitals. The parties acknowledge the recitals herein above
set forth in the preamble are correct, are, by this reference, incorporated
herein and are made a part of this Agreement.
Section 1.02. Exhibits and Schedule. Exhibits (which are documents to be
executed and delivered at the Closing by the party identified therein or in
the provision requiring its delivery) and Schedules (which are statements
setting forth Information about party identified in each such Schedule)
referred to herein and annexed hereto are, by this reference, incorporated
herein and made a part of this Agreement, as if set forth fully herein.
Section 1.03. Use of words and phrases, Natural persons may be identified
by last name, with such additional descriptors as may be desirable. The
words "herein," "hereby," "hereunder," "hereof," "herein before,"
"hereinafter" and any other equivalent words refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision
hereof. The words, terms and phrases defined herein and any pronoun used
herein shall include the singular, plural and all genders. The word "and"
shall be construed as a coordinating conjunction unless the context clearly
indicates that it should be construed as a copulative conjunction.
<PAGE>
Section 1.04. Accounting terms. All accounting terms not otherwise defined
herein shall have the meanings assigned to them under generally accepted
accounting principles unless specifically referenced to regulatory
accounting principles.
Section 1.05. Calculation of time lapse or passage; Action required on
holidays. When a provision of this Agreement requires or provides for the
calculation of the lapse or passage of a time period, such period shall be
calculated by treating the event which starts the lapse or passage as zero;
provided, that this provision shall not apply to any provision which
specifies a certain day for action or payment, e.g. the first day of each
calendar month. Unless otherwise provided, the term "month" shall mean a
period of thirty days and the term "year" shall mean a period of 360 days,
except that the term "calendar year" shall mean the actual calendar year
period. If any calendar day on which action is required to be taken or
payment is required to be made under this Agreement is not a Business Day
(Business Day being a day on which national banks are open for business
where the actor or payer is located), then such action or payment shall be
taken or made on the next succeeding Business Day.
Section 1.06. Use of titles, headings and captions. The titles,
headings and captions of articles, sections, paragraphs and other
subdivisions contained herein are for the purpose of convenience only and
are not intended to define or limit the contents of said articles,
sections, paragraphs and other subdivisions,
ARTICLE II
TERMS OF THE TRANSACTIONS
Section 2.01. Exchange Transaction. In accordance with the terms of this
Agreement, on the Closing Date, (a) the Selling Stockholders will assign,
transfer and deliver to CFIM all of the issued and outstanding equity
securities in SURFSIDE owned by the Selling Shareholders representing 65%
of the issued and outstanding securities of Surfside; and (b) CFIM will
issue and deliver to the Selling Stockholders one share of preferred stock
of CFIM ("CFIM Stock") and common stock purchase warrants exercisable for
the purchase of shares of CFIM common stock ("Warrants") as set forth
below. Not more than thirty months after the Closing (such period being
determined by the time required to complete the appropriate and necessary
accounting), CFIM will deliver to the Selling Stockholders a second share
of CFIM Preferred Stock as set forth below. The cross deliveries of the
securities at and after the Closing is referred to herein as the
"Exchange".
Section 2.02. The CFIM Preferred Stock and Warrants.
(a) One share certificate of CFIM Preferred Stock, which is delivered at
the Closing, will have a stated value as identified in section 2.03
below. One share certificate of CFIM Preferred Stock, which is
delivered after the Closing, will have a stated value equal to two
times SURFSIDE's net profits earned during the twenty-four month
period commencing with the month following the Closing, less one
million dollars in initial consideration, not to exceed a cap of five
million dollars ($5,000,000) in aggregate. The share of CFIM Stock
delivered at closing will be convertible, at the election of
shareholder into such number shares of CFIM's common stock as is
determined by dividing the stated value thereof by the average of the
closing asked quotation or closing price, as the case may be, in the
best market for CFIM's common stock over the last five trading days in
the month prior to the election, and will not have any preference to
payment of a dividends or distributions. The share of CFIM Stock
<PAGE>
delivered after closing will be convertible into such number shares of
CFIM's common stock as is determined by dividing the stated value
thereof by the average of the closing asked quotation or closing
price, as the case may be, in the best market for CFIM's common stock
over the last five trading days in the twenty-fourth month following
the Closing, and will not have any preference to payment of a
dividends or distributions. In the event any dividends or
distributions are paid or made on CFIM's common stock, the number of
shares into which the CFIM Stock would be convertible on the record
date for such dividend and distribution shall be determined, and CFIM
shall pay to the and holders of the CFIM Stock such dividend or
distribution as if the CFIM Stock had been converted into common
stock.
(b) Each Warrant will entitle the holder to purchase one share of CFIM's
common stock at an exercise price of $.15 at any time for a period of
five years beginning on the issue date, will be redeemable by CFIM
upon sixty days prior written notice (during which notice period the
Warrant may be exercised) beginning two years after issue date at a
redemption price of $.15, and shall be adjusted for share divisions,
combinations and recapitalizations. The Warrants will be exercisable
beginning February 1, 2000.
Section 2.03. Purchase Price Adjustment
(a) The purchase price for the Shares shall be $1,000,000 plus the amount
of any "Net Worth Surplus", as defined below, or minus the amount of
any "Net Worth Deficiency," as defined below (the "Purchase Price").
(i). "Net Worth Surplus" shall mean the amount by which the
book value of the assets multiplied times three on the Closing
Date Balance Sheet (as defined in Section 2.03(b) below) less the
book value of the liabilities on the Closing Date Balance Sheet
exceeds $700,000.
(ii). "Net Worth Deficiency" shall mean the amount by which
$700,000 exceeds the book value of the assets times three on the
Closing Date Balance Sheet less the book value of the liabilities
on the Closing Date Balance Sheet.
(b) Manner of Payment. On the Closing Date, Buyer shall pay the Selling
Shareholders the Purchase Price, plus the amount of any "Projected Net
Worth Surplus", as defined below, or minus the amount of any
"Projected Net Worth Deficiency", as defined below by delivery of (i)
Series __ preferred stock of Buyer with a stated par value of
$700,000; and (ii) three warrants for common stock of Buyer for each
dollar of the remaining balance of the Purchase Price plus or minus
the Project Net Worth Surplus or Deficiency as the case may be. Each
Shareholder shall receive his Proportionate Share (as set forth below)
of the Purchase Price, as adjusted for certain payments required to be
made under the Purchase Agreement, due on the Closing Date.
Proportionate Share of the Purchase Price of each Shareholder shall be
as follows:
James 46.15%
Steve 46.15%
Iappini 7.70%
(c.) Post Closing Adjustment. The Purchase Price shall be adjusted in
accordance with this Section:
<PAGE>
(i) On or before the Closing Date, the Shareholders and
Buyer, shall agree upon a projected balance sheet, to be prepared
by the Shareholders at their sole cost showing a good faith
estimate of the financial condition of the Company as of the
Closing Date ("Projected Balance Sheet"). At such time as the
Shareholders deliver the Projected Balance Sheet, the
Shareholders shall also deliver to Buyer a certificate setting
forth the amount of the Projected Net Worth Surplus based upon
the Projected Balance Sheet ("Projected Net Worth Surplus") or
the amount of the projected Net Worth Deficiency based upon the
Projected Balance Sheet ("Projected Net Worth Deficiency"), as
the case may be.
(ii) Within forty-five (45) days after the Closing Date, the
Company shall prepare a balance sheet of the Company as of the
Closing Date in a manner consistent with the accounting practices
of the Company used in the preparation of the Projected Balance
Sheet and the Financial Statements. Buyer shall retain the
services of Weinick Sanders Leventhal & Company (the "Auditor")
to: (i) review the balance sheet of the Company as of the Closing
Date; and (ii) make adjustments to such balance sheet if the
Auditor deems any adjustments are required (the balance sheet, as
reviewed and adjusted by the Auditor the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall be completed as
soon as is reasonably practicable, and no later than ninety (90)
days after the Closing Date. All fees and expenses of the Auditor
incurred in this capacity shall be billed to and paid by Buyer.
If within forty-five (45) days following delivery of the Closing
Balance Sheet (or the next Business Day if such 45th day is not a
Business Day), the Sellers or Sellers' Agent has not given the Buyer
notice of the Sellers' objection to the computation of the Net Worth
as set forth in the Closing Balance Sheet (such notice to contain a
statement in reasonable detail of the nature of the Sellers'
objection), then the Net Worth reflected in the Closing Balance Sheet
will be deemed mutually agreed by the Buyer and the Sellers. If the
Sellers or Sellers' Agent shall have given such notice of objection in
a timely manner, then the Issues in dispute will be submitted to a
regional or national accounting firm mutually acceptable to the Buyer
and the Sellers' Agent (the "Accountants") for resolution. If Issues
in dispute are submitted to the Accountants for resolution, (1) each
party will furnish to the Accountants such work papers and other
documents and information relating to the disputed issues as the
Accountants may request and are available to the party or its
subsidiaries (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with
the Accountants; (2) the Accountants will be instructed to determine
the Net Worth based upon their resolution of the issues in dispute;
(3) such determination by the Accountants of the Net Worth, as set
forth in a notice delivered to both parties by the Accountants, will
be binding and conclusive on the parties; and (4) the fees and
expenses of the Accountants for such determination shall be paid by
the party against whom the accounting firm decides.
(iii) The Company will permit Buyer and its representatives
and the Auditor to observe the physical count of the Inventory
which shall be conducted beginning as of the close of business
within one week preceding the Closing Date.
<PAGE>
(iv) The Company shall make all of the work papers and other
relevant documents in connection with the preparation of the
Projected Balance Sheet available to Buyer and Auditor, and shall
make the persons in charge of the preparation of the Projected
Balance Sheet available for reasonable inquiry by Buyer and the
Auditor.
(v) If the Closing Date Balance Sheet discloses a Net Worth
Surplus or a Net Worth Deficiency, as the case may be, in an
amount different than the Projected Net Worth Surplus or
Projected Net Worth Deficiency, as the case may be, then within 3
business days of the issuance of the Closing Date Balance Sheet,
Shareholders, severally in proportion to their Proportionate
Share of the Purchase Price, shall pay Buyer or Buyer shall pay
the Shareholders, as the case may be, an amount equal to such
difference (together with interest thereon accruing from the
Closing Date at the prime rate in effect as of the Closing Date
as published in the Wall Street Journal in immediately available
United States funds by wire transfer to an account designated by
the party receiving such payment.
(d) Earnings adjustments
For purposes of this Section, the term EBITA shall mean earnings of
the Company before interest and taxes and amortization of goodwill. In
determining EBITA, there shall be excluded each of the following:
(i) The impact of all acquisition expenses and adjustments,
including any increased depreciation or amortization expenses
attributable to any write-up of assets resulting from purchase
accounting.
(ii) The impact of any payment made pursuant to this
Agreement and;
(iii) The impact of all amounts charged by Buyer or any of
its affiliates by way of management expenses and charges or similar
expenses or charges other than those directly related to the on site
support of the business of the Company as determined by the Board of
Directors.
In addition, there shall be excluded the effect of gains or losses on
the sales of capital assets:
(e) Rule 144 Issues and Removal of Restrictions
(i) Rule 144 Reporting. With a view to making available to
the Selling Shareholders the benefits of certain rules and regulations
of the Securities and Exchange Commission which may permit the sale of
the Preferred Stock and/or Conversion Stock to the public without
registration, after such time as a public market exists for the
Preferred Stock and/or Common Stock of the Buyer, the Buyer agrees to:
(ii) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act,
at all times after the date that the Buyer becomes subject to the
reporting requirements of the Exchange Act;
<PAGE>
(iii) File with the Securities and Exchange Commission in a
timely manner all reports and other documents required of the Buyer
under the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements); and
(iv) So long as a Seller owns any Restricted Securities,
furnish to the Seller forthwith upon request a written statement by
the Buyer as to its compliance with the reporting requirements of Rule
144, and of the Securities Act and the Exchange Act (at any time after
it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Buyer filed with the
Securities and Exchange Commission, and such other reports and
documents of the Buyer and other information in the possession of or
reasonably obtainable by the Buyer as a Seller may reasonably request
in availing itself of any rule or regulation of the Securities and
Exchange Commission allowing a Seller to sell any such securities
without registration.
Buyer shall remove any and all stop transfer instructions and shall
remove any restrictive legend on the certificates with respect to the
Buyer's Common Stock then owned by the Seller to the extent that
either (i) such Buyer Common Stock may hereafter be registered under
the Securities Act of 1933, as amended, and under any applicable state
securities or blue sky laws, or (ii) Buyer has received an opinion of
counsel reasonably satisfactory to Buyer, in form and substance
reasonably satisfactory to Buyer, that such registration is not
required. Upon receipt of reasonable evidence that the requirements of
Rule 144(k) have been complied with (including an opinion of counsel
reasonably satisfactory to Buyer to such effect), Buyer shall remove
any and all stop transfer instructions and shall remove any
restrictive legend on such certificates."
Section 2.04. Management following the Exchange. Following the Exchange,
SURFSIDE's president shall be J. Steven Furniss and its board of directors
shall be comprised of James E. Furniss, Rodger W. Stubbs, Stephen E.
Williams, and J. Steven Furniss.
Section 2.05. Press releases. Neither party will issue a press release
regarding the subject matter of this Agreement and the transaction
contemplated hereby without the prior approval thereof by the other party
and its counsel; provided, that the filing of reports pursuant to the
Exchange Act by CFIM and the issue of a press release in connection
therewith shall be the entire responsibility and prerogative of CFIM.
Section 2.06. Transaction costs. Each party shall pay all costs and
expenses, which it incurs in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE III
CLOSING OF THE TRANSACTION
Section 3.01. Location, date and time of the Closing. The Closing of the
Exchange shall be take place as soon as possible, but in any event on or
before January 31, 2000, unless extended by mutual agreement of the
parties.
Section 3.02. The Selling Stockholders' obligations at Closing. At the
Closing, the Selling Stockholders will deliver to CFIM Certificates
<PAGE>
representing 65% of all of the issued and outstanding equity securities of
SURFSIDE, fully endorsed to enable CFIM to transfer such certificates on
the books of Surfside pursuant Section 2.01; and
Section 3.03. SURFSIDE's obligations at Closing. At the Closing, SURFSIDE
will deliver to CFIM the Officers' Certificates and Secretary's
Certificates of SURFSIDE, in the respective forms of Exhibit "A" and
Exhibit "B".
Section 3.04. CFIM's obligations at Closing. At the Closing, CFIM will
deliver to the Selling Stockholders:
(a) Certificates representing the one share of CFIM Stock deliverable at
Closing and the Warrants, in such names and such denominations as
advised by Selling Stockholders not less than two Business Days prior
to the Closing of the Exchange,
(b) Officers' Certificates and Secretary's Certificates of CFIM, in the
respective forms of Exhibit "A" and Exhibit "B".
Section 3.05. Closing memorandum and receipts. As evidence that all parties
deem the Closing to have been completed and the transaction contemplated by
this Agreement to have been consummated, the parties jointly will execute
and deliver a Closing memorandum acknowledging such completion and
consummation. Each party receiving shares of the CFIM Stock will execute
and deliver a receipt therefore to CFIM.
Section 3.06. Waiver of conditions. Notwithstanding Section 11.03, any
condition to the Closing which is to the benefit of any party and which is
not satisfied prior to or at the Closing will be deemed to be waived by the
benefited party or otherwise satisfied and waived by virtue of that party
executing the Closing memorandum, except to the extent any such unsatisfied
or unperformed condition is expressly preserved in the Closing memorandum
for satisfaction or performance after the Closing.
Section 3.07. Further assurances. At any time and from time to time after
the Closing of the Exchange, at the reasonable request of any party and
without further consideration, any other part(ies) shall execute and
deliver such other instruments and documents as such requesting party may
deem reasonably desirable or necessary to complete the transactions
contemplated by this Agreement.
Section 3.08. Conditions precedent to CFIM's obligations. All obligations
of CFIM hereunder are subject, at the option of CFIM, to the fulfillment of
each of the following conditions at or prior to the Closing, and the
Selling Stockholders and SURFSIDE shall exert their best efforts to cause
each such condition to be so fulfilled:
(a) All representations and warranties of the Selling Stockholders and
SURFSIDE contained herein or in any document delivered pursuant hereto
shall be true and correct in all material respects when made and shall
be deemed to have been made again at and as of the date of the Closing
of the Exchange, and shall then be true and correct in all material
respects except for changes in the ordinary course of business after
the date hereof in conformity with the covenants and agreements
contained herein.
(b) All covenants, agreements and obligations required by the terms of
this Agreement to be performed by the Selling Stockholders and/or
<PAGE>
SURFSIDE at or before the Closing shall have been duly and properly
performed in all material respects to CFIM's reasonable satisfaction.
(c) Since the date of this Agreement there shall not have occurred any
material adverse change in the condition or prospects (financial or
otherwise), business, properties or assets of SURFSIDE.
(d) All documents required to be delivered to CFIM at or prior to the
Closing shall have been so delivered.
(e) SURFSIDE shall have obtained votes or written consents to the Exchange
where the vote or consent of any other party (including holders of
SURFSIDE's equity securities, all of whom shall have waived any
statutory appraisal rights) may, in the view of CFIM's counsel, be
required for or as a consequence of the Exchange, including any
landlords of SURFSIDE.
(f) None of the assets or business of SURFSIDE shall have suffered or
incurred a material damage, destruction or loss not fully covered by
insurance and which has a materially adverse affect on its business
and operations.
(g) CFIM shall have received a certificate of good standing for SURFSIDE
issued by the secretary of state of its state of incorporation and of
each state in which it is qualified to do business as a foreign
corporation.
(h) Employment agreements will be executed with J. Steven Furniss and
James E. Furniss for a period of not less than three (3) years.
Section 3.09. Conditions precedent to the Selling Stockholders and
SURFSIDE's obligations. All obligations of the Selling Stockholders and of
SURFSIDE at the Closing are subject, at the option of SURFSIDE, to the
fulfillment of each of the following conditions at or prior to the Closing,
and CFIM shall exert its best efforts to cause each such condition to be so
fulfilled.
(a) All representations and warranties of CFIM contained herein or in any
document delivered pursuant hereto shall be true and correct in all
material respects when made and as of the Closing.
(b) All obligations required by the terms of this Agreement to be
performed by CFIM at or before the Closing shall have been duly and
properly performed in all material respects.
(c) All documents required to be delivered to SURFSIDE at or prior to the
Closing shall have been so delivered,
(d) CFIM shall have obtained written consents to the transaction
contemplated by this Agreement where the consent of any other party
may, in the view of SURFSIDE's counsel, be required for or as a
consequence of the transactions contemplated hereby.
(e) None of the assets or business of CFIM shall have suffered or
incurred, on a consolidated basis, a material damage, destruction or
loss not fully covered by insurance and which has a materially adverse
affect on their respective business and operations.
<PAGE>
(f) SURFSIDE shall have received a certificate of good standing for CFIM
issued by the secretary of state of its state of incorporation,
(g) Non-Contravention. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
or compliance with or fulfillment of the terms and provisions hereof
or of any other agreement or instrument contemplated hereby, do not
and will not: (i) conflict with or result in a breach of any of the
provisions of the Certificate of Incorporation or By-Laws of CFIM;
(ii) contravene any law, rule or regulation or any order, writ, award,
judgment, decree or other determination which affects or binds CFIM or
any of its properties; or (iii) conflict with, result in a breach of,
constitute a default under, or give rise to a right of acceleration,
termination or the imposition of penalties under any material
contract, deed of trust, mortgage, trust, lease, governmental or other
license, permit or other authorization, contract, agreement, note or
any other agreement, instrument or restriction to which CFIM is a
party or by which any of its properties may be affected or bound.
(h) Consents. Except as set forth on the disclosure schedule corresponding
to this Section, no authorization, consent, approval, permit or
license of, or filing or registration with, any governmental or public
body or authority, any lender or lessor or any other person is
required to authorize, or is required-in connection with, the
execution, delivery and performance of this Agreement or the
agreements contemplated hereby by CFIM.
(i) SEC Reports and Financial Statements.
(i) CFIM has filed with the SEC all forms, reports, schedules,
statements and other documents required to be filed by it since
_________ , under the Exchange Act and the Securities Act (as
such documents have been amended since the time of their filing,
collectively, the "CFIM SEC Documents"). As of their respective
dates or, if amended, as of the date of the last such amendment,
the CFIM SEC Documents, including, without limitation, any
financial statements and schedules included therein (i) did not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading and (ii)
complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC
hereunder,
(ii) Each of the financial statements included in the CFIM SEC
Documents complies in all material respects with applicable
accounting requirements and with the published rules and
regulations of the SEC with respect thereto, has been prepared in
accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes
thereto) and fairly presents in all material respects the
consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if
any) of CFIM and its consolidated subsidiaries as at the dates
thereof or for the periods presented therein (subject, in the
case of unaudited interim financial statements, to normal year
end adjustments and lack of footnote disclosures).
<PAGE>
(j) Absence of Certain Changes. Except as disclosed in the CFIM SEC
Documents, since January 1, 1999, CFIM and its subsidiaries have
conducted their respective businesses and operations in the
ordinary course of business consistent with past practice. Except
as disclosed in the CFIM SEC Documents, since January 1, 1999,
there has not occurred: (i) any events, changes or effects
(including the incurrence of any liabilities of any nature,
whether or not accrued, contingent or otherwise) having or, which
would be reasonably likely to have, in the aggregate, a material
adverse effect on CFIM and its subsidiaries taken as a whole;
(ii) any declaration, setting aside or payment of any
distribution (whether in cash, shares or property) with respect
to the equity interests of CFIM or of any of its subsidiaries,
other than any regular quarterly cash dividends or dividends paid
by wholly-owned subsidiaries; or (iii) any change by CFIM or any
of its subsidiaries in accounting principles or methods, except
for any such change required by reason of a change in GAAP.
(k) No Undisclosed Liabilities, Except (i) to the extent disclosed in
the CFIM SEC Documents and (ii) for liabilities and obligations
incurred in the ordinary course of business consistent with past
practice, since December 31, 1998 (?), neither CFIM nor any of
its subsidiaries has incurred any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that
have, or would be reasonably likely to have, individually or in
the aggregate, a material adverse effect on CFIM and its
subsidiaries taken as a whole.
(l) Litigation. There is no suit, claim, action, proceeding, review
or investigation pending or, to the knowledge of CFIM, threatened
against or affecting, CFIM or any of its subsidiaries which,
individually or in the aggregate, is reasonably likely to have a
material adverse effect on CFIM and its subsidiaries taken as a
whole, or would, or would be reasonably likely to, materially
impair the ability of CFIM to consummate the transactions
contemplated by this Agreement.
(m) Compliance with Law. CFIM and its subsidiaries have complied with
all laws, statutes, regulations, rules, ordinances and judgments,
decrees, orders, writs and injunctions, of any court or
governmental entity relating to any of the property owned, leased
or used by them, or applicable to their business, including, but
not limited to, equal employment opportunity, discrimination,
occupational safety and health, environmental, insurance,
regulatory, antitrust laws, ERISA and laws relating to taxes,
except to the extent that any such noncompliance would not have a
material adverse effect on CFIM and its subsidiaries taken as a
whole.
(n) No Default. The business of CFIM and each of its subsidiaries is
not being conducted in default or violation of any term,
condition or provision of (i) its respective certificate of
incorporation or bylaws or similar organizational documents, or
(ii) agreements to which CFIM and its subsidiaries are parties,
excluding from the foregoing clause (ii) defaults or violations
that would not have a material adverse effect on CFIM and its
subsidiaries taken as a whole and would not, or would not be
reasonably likely to, materially impair the ability of CFIM to
consummate transactions contemplated by this Agreement.
(o) Certain Securities Matters.
(i) CFIM represents and warrants that the Shares it will acquire
upon exercise thereof are being acquired by CFIM for its own
<PAGE>
account and not with a view to, or for offer or sale in
connection with, any distribution thereof, and it is not
participating and does not have a participation in any such
distribution or the underwriting of any such distribution;
(B) CFIM has sufficient knowledge and experience in
financial and business matters arid is fully capable of
evaluating the merits and risks of purchasing the Shares;
and (C) CFIM has not been solicited to acquire the Shares by
means of general advertising or general solicitation.
(ii) CFIM has been furnished with information about and allowed
access to Surfside's business, books, records, files, and
properties and has had the opportunity to investigate
Surfside's business and assets and to ask questions of and
receive answers from Surfside sufficient to satisfy CFIM
that Surfside's business is reasonably as described by
Surfside.
(iii) CFIM understands that (A) the Call Option and the Shares
are not registered under any applicable federal or state
securities law in reliance upon certain exemptions
thereunder, (B) the Call Option and the Shares may not be
sold, transferred or otherwise disposed of without
registration under the Securities Act and compliance with
applicable state securities laws or the availability of an
exemption therefrom; and (C) in the absence of registration
under the Securities Act and compliance with applicable
state securities laws or an exemption therefrom, the Shares
must be held indefinitely. CFIM acknowledges that the
reliance of the Selling Shareholders upon such exemption
from registration is predicated upon the foregoing
representations.
(iv) CFIM has filed all reports and statements, together with any
amendments required to be made with respect thereto, that it
was required to file with the SEC, any state securities
authorities, and the CFIM Principal Market. As of their
respective dates, each of such reports and documents, as
amended, including the financial statements, exhibits and
schedules thereto, complied in all material respects with
the relevant statutes, rules and regulations enforced or
promulgated by the regulatory authority with which they were
filed, and did not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading.
(p) Brokers. CFIM has not incurred any obligation for any finder's,
broker's or agent's fee in connection with the transactions
contemplated by this Agreement.
(q) Market Manipulation. CFIM has not, directly or indirectly, taken
any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of CFIM Stock to
facilitate the sale or resale of CFIM Stock, in any case in
violation of any federal or state securities laws.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 4.01. The Selling Stockholders and SURFSIDE's representations and
warranties. The Selling Stockholders and SURFSIDE, jointly and severally,
represent and warrant to CFIM that:
(a) SURFSIDE is a duly incorporated and existing corporation in good
standing under the laws of its state of incorporation, has full
corporate power to execute and deliver this Agreement, is qualified
and in good standing as a foreign corporation in every jurisdiction
where the conduct of its business or the nature of its properties
require it to be qualified and has delivered to CFIM true copies of
its articles of incorporation, bylaws and the records of proceeding of
its board of directors and stockholders for the past five years or
since inception, whichever is less.
(b) SURFSIDE has the power to conduct its business as it is now being
conducted and to own and lease its properties shown on its most recent
balance sheet and used in the conduct of its business.
(c) This Agreement has been duly and validly authorized, executed and
delivered by SURFSIDE and constitutes the legal, valid and binding
obligation of SURFSIDE enforceable against it in accordance with its
terms subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of, relating to or affecting
stockholders and creditors rights generally and to general equitable
principles.
(d) The execution of this Agreement and consummation of the transaction
contemplated hereby does not conflict with and will not result in any
adverse consequences to or breach of any agreement, mortgage,
instrument, judgment, decree, law or governmental regulation, permit
or authorization by SURFSIDE or in the loss, forfeiture or waiver of
any rights or franchise owned by SURFSIDE, from which SURFSIDE
benefits or which is desirable in the conduct of SURFSIDE's business.
(e) SURFSIDE's authorized capital is as set forth in its Articles of
Incorporation; and, SURFSIDE's shares to be acquired by CFIM in the
Exchange, representing 65% of the issued and outstanding Surfside
capital stock, and are duly and validly authorized, are validly
issued, fully paid and non-assessable, all of which are legally and
beneficially owned by the Selling Stockholders.
(f) Except for such actions as may have been taken, no further action by
or before any governmental or quasi-governmental body or authority of
the United States of America or any state or subdivision thereof or
any self-regulatory body to which SURFSIDE is subject is required in
connection with the execution and delivery of this Agreement by
SURFSIDE and the consummation of the transactions contemplated hereby,
(g) The information the Selling Stockholders and SURFSIDE have delivered
to CFIM relating to SURFSIDE was, to the knowledge of the Selling
Stockholders and SURFSIDE, on the date reflected in each such item of
information accurate in all material respects and, to the knowledge of
the Selling Stockholders and SURFSIDE, such information at the date
hereof taken as a whole provides, to the knowledge of the Selling
Stockholders and SURFSIDE, full and fair disclosure of all material
information relating to SURFSIDE and does not, to the knowledge of the
Selling Stockholders and SURFSIDE omit to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
<PAGE>
(h) SURFSIDE has conducted its business in the ordinary course for the
last three years or since inception, whichever is less.
(i) Neither SURFSIDE nor any employee, to SURFSIDE's knowledge, has since
inception given or agreed to give any gift or similar benefit valued
at more than $20 annually to any customer, supplier, governmental
employee or other person who is or may be or have been in a position
to help or hinder SURFSIDE's business which might subject any of
SURFSIDE to damage or penalty in civil, criminal or governmental
litigation or proceedings.
(j) Other than the equity securities of SURFSIDE to be acquired by CFIM in
the Exchange, and the 35% of the common stock owned by Wilbur /
Griffith, there are no other equity securities of SURFSIDE issued and
outstanding, no authorizations in effect or, upon a specified event,
with the lapse of time or otherwise, to take effect for the issue of
additional equity securities of SURFSIDE, no obligations outstanding
convertible into equity securities of SURFSIDE, no options, warrants,
rights or similar instruments outstanding pursuant to which the holder
has a right to demand and receive the issuance of SURFSIDE's equity
securities and no stock appreciation rights or phantom stock of
SURFSIDE held by any person or to which any person has a claim.
(k) SURFSIDE's financial statements delivered to CFIM have been prepared
in accordance with accounting principles consistently applied and
maintained throughout the periods indicated, with respect to the
fiscal years ended and interim period through December 31, 1999 and
fairly present the financial condition of SURFSIDE at the dates and
the results of operations for the periods indicated, contain all
normally recurring adjustments and do not omit to disclose any
contingent, undisclosed or hidden liabilities.
(l) SURFSIDE has good, marketable and insurable title to all of the
properties and assets which it owns or uses in its business or
purports to own, including, without limitation, those reflected in its
books and records and in the balance sheet, both tangible and
intangible, trademarks, trade names, copyrights and other intellectual
properties (excluding inventory sold after the most recent balance
sheet date in the ordinary course of business), excepting only those
properties and assets subject to operating leases disclosed in
Schedule "A". None of the properties and assets are subject to any
mortgage, pledge, lien, charge, security interest, encumbrance,
restriction, lease, license, easement, liability or adverse claim of
any nature whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise, except (i) as expressly set forth in the
notes to SURFSIDE's financial statements as securing specific
liabilities or subject to specific capital leases or (ii) those
imperfections of title and encumbrances, if any, which (A) are not
substantial in character, amount or extent and do not materially
detract from the value of the properties or assets subject thereto,
(B) do not interfere with either the present or continued use of such
property or assets or the conduct of SURFSIDE's normal business
operations and (C) have arisen only in the ordinary course of
business. All of the properties and assets owned, leased or used by
SURFSIDE are in good operating condition and repair, (other than
assets held in inventory for resale which are in "as is" condition)
are suitable for the purposes used, are adequate and sufficient for
all current operations of SURFSIDE and are directly related to
SURFSIDE's business.
(m) All of the contracts, agreements, leases, licenses and commitments of
SURFSIDE (other than those which have been fully performed), copies of
<PAGE>
all of which have been delivered to CFIM, are valid and binding,
enforceable in accordance with their respective terms, in full force
and effect and there is not hereunder any existing default or event,
which after the giving of notice or lapse of time or both, would
constitute a default or result in a right to accelerate or loss of
rights and none of such contracts, agreements, leases, licenses and
commitments is, either when considered singly or in the aggregate with
others, unduly burdensome, onerous or materially adverse to SURFSIDE's
business, properties, assets, earnings or prospects or either before
or after the Closing, to result in any material loss or liability.
(n) Except as set forth in Schedule "B", there is no claim, legal action,
suit, arbitration, governmental investigation, or other legal or
administrative proceeding, nor any order, decree or judgment in
progress, pending or in effect or to SURFSIDE's knowledge threatened,
against or relating to SURFSIDE, its directors, officers or employees
with respect to SURFSIDE or for which SURFSIDE may have an indemnity
obligation, it properties, assets or business or the transaction
contemplated by this Agreement and SURFSIDE does not know or have any
reason to be aware of any basis for the same, including any basis for
a claim of sexual harassment or racial or age discrimination or
patent, copyright, or other claim relating to the development or use
of its software.
(o) There is no claim, legal action, suit, arbitration, governmental
investigation, or other legal or administrative proceeding, nor any
order, decree or judgment in progress, pending or in effect or to
SURFSIDE's knowledge threatened, against or relating to SURFSIDE, its
directors, officers or employees with respect to SURFSIDE or for which
SURFSIDE may have an indemnity obligation, its properties, assets or
business or the transaction contemplated by this Agreement and
SURFSIDE does not know or have any reason to be aware of any basis for
the same, including any basis for a claim of sexual harassment or
racial or age discrimination.
(p) Except as disclosed on Schedule "B" all taxes, including without
limitation, income, property, special assessments, sales, use,
franchise, intangibles, employees' income withholding and social
security taxes, imposed by the United States or any state,
municipality, subdivision, authority, which are due and payable, and
all interest and penalties thereon, unless disputed in good faith in
proper proceedings and reserved for or set aside, have been paid in
full and all tax returns required to be filed in connection therewith
have been accurately prepared and timely filed and all deposits
required by law to be made by SURFSIDE with respect to employees'
withholding and social security taxes have been made, unless otherwise
disclosed. SURFSIDE is not and has no reason to believe that it will
be the subject of an audit by any taxing authority. There is not now
in force any extension of time with respect to the date when tax
return was or is due to be filed, or any waiver or agreement by
SURFSIDE for the extension of time for the assessment of any tax and
SURFSIDE is not a "consenting corporation" within the meaning of
Section 341(f)(1) of the Internal Revenue Code of 1986, as amended;
and no shareholder of SURFSIDE is entitled to the distribution of
previously taxed undistributed S corporation earnings and profits. All
workers' compensation, disability and similar items due and payable
under any governmental program have been paid.
(q) SURFSIDE does not have any employee benefit, pension or profit sharing
plans subject to ERISA and no such plans to which SURFSIDE is
obligated or required to make contributions.
<PAGE>
(r) None of SURFSIDE's employees are represented by a collective
bargaining agent or subject to a collective bargaining agreement and
SURFSIDE considers its relations with its employees as a whole to be
good, SURFSIDE has disclosed to CFIM all employee salary, compensation
and benefit agreements and no employee has a written employment
agreement.
(s) No selling shareholder has guaranteed any obligation of SURFSIDE and
SURFSIDE has not guaranteed the obligation of any other person.
(t) The software has been copyrighted both in common law and statutorily
by filing for copyright protection and copyrights have been issued.
This is an on-going process with all new versions of the software.
Trademark and service mark registration applications have been filed
for the bird logo, for TranWare. A registered trademark for "Surfside
Software Systems" has been awarded by the U.S. Patent and Trademark
Office.
Section 4.02. CFIM's representations and warranties. CFIM represents and
warrants to SURFSIDE and to the Selling Stockholders that:
(a) CFIM is a duly incorporated and existing corporation in good standing
under the laws of its state of incorporation, has full corporate power
to execute and deliver this Agreement, is qualified and in good
standing as a foreign corporation in every jurisdiction where the
conduct of its business or the nature of its properties require it to
be qualified.
(b) This Agreement has been duly and validly authorized, executed and
delivered by CFIM and constitutes the legal, valid and binding
obligation of CFIM enforceable against CFIM in accordance with its
terms subject, as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of, relating to or affecting
shareholders and creditors rights generally and to general equitable
principles.
(c) The CFIM Stock, when issued by CFIM and authenticated and delivered by
its transfer agent, as contemplated by this Agreement, will be duly
and validly authorized, are validly issued and fully paid and
non-assessable.
(d) Except for such actions as may have been taken, no further action by
or before any governmental body or authority of the United States of
America, Federal Bankruptcy Court or any state thereof is required in
connection with the execution and delivery of this Agreement by CFIM
and the consummation of the transactions contemplated hereby.
(e) The information CFIM has delivered to SURFSIDE was on the date
reflected in each such item of information accurate in all material
respects and such information at the date hereof as a whole did not
contain any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; subject
in all respects to reports filed by CFIM under the Exchange Act.
(f) CFIM agrees to make additional capital contributions to Surfside, in
an amount equal to not less than $250,000, to be paid in the following
installments: a) $25,000 already advanced upon the signing of the
letter of intent, b) $40,000 in additional equity upon the execution
of the purchase and sale agreement, c) $60,000 in additional equity by
March 1, 2000 d) $60,000 by April 15, 2000 and $65,000 in additional
<PAGE>
equity by June 1, 2000. CFIM also agrees that it will undertake on a
best efforts basis, an additional funding into Surfside in the amount
of $1,000,000 subject to certain benchmarks to be mutually agreed
upon.
Section 4.03. Nature and survival of representation and warranties;
Remedies. All statements of fact contained in this Agreement, any
certificate delivered pursuant to this Agreement, or any letter, document
or other instrument delivered by or on behalf of SURFSIDE or CFIM and their
respective officers, pursuant to the terms of this Agreement shall be
deemed representations and warranties made by SURFSIDE and CFIM,
respectively as the case may be, to each other under this Agreement. For
purposes of this Section 4.03 and Section 10.01 only, any party or other
person seeking to enforce, or claiming the benefit of, any representation
and warranty under this Agreement is called a Claimant, and any party or
other person against whom a right is claimed is called a Defendant. All
representations and warranties of the parties shall survive the Closing and
all inspections, examinations or audits on behalf of the parties; provided,
however, that all representations and warranties shall terminate and
expire, and be without further force and effect whatever from and after the
two years from the date hereof, and neither CFIM nor SURFSIDE shall have
any liability whatsoever on account of any inaccurate representation or
warranty or for any breach of warranty, unless a Claimant shall, on or
prior to the expiration of such one year period, serve written notice on a
Defendant, with a copy to the Defendant's counsel, setting forth in
reasonable detail the breach and any direct, incidental or consequential
damages (including amounts) the Claimant may have suffered as a result of
such breach.
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.01. Conduct of business prior to Closing.
(a) From the date hereof to the Closing, SURFSIDE will conduct its
business and affairs only in the ordinary course and consistent with
its prior practice and shall maintain, keep and preserve its assets
and properties in good condition and repair and maintain insurance
thereon in accordance with present practices, it will use its best
efforts (i) to preserve its business and organization intact, (ii) to
keep available to CFIM the services of SURFSIDE's present employees,
agents and independent contractors, (iii) to preserve for the benefit
of CFIM the goodwill of suppliers, customers, distributors, landlords
and others having business relations with it, and (iv) to cooperate
and use reasonable efforts to obtain the consent of any landlord or
other party to any lease or contract with SURFSIDE where the consent
of such landlord or other party may be required by reason of the
transactions contemplated hereby.
(b) From the date hereof to the Closing, SURFSIDE shall not (i) dispose of
any material assets, (ii) engage in any extraordinary transactions
without CFIM's prior approval, including but not limited to, directly
or indirectly, soliciting, entertaining, encouraging inquiries or
proposals or entering into negotiation or agreement with any third
party for sale of assets by SURFSIDE, sale of equity securities or
merger, consolidation or combination with any company, (iii) grant any
salary or compensation increase to any employee, or (iv) make any
commitment for capital expenditures, other than as disclosed to CFIM
and approved by it,
Section 5.02. Notice of changes in information. Each party shall give the
other party prompt written notice of any change in any of the information
<PAGE>
contained in their respective representations and warranties made in
Article IV, or elsewhere in this Agreement, or the exhibits and schedules
referred to herein or any written statements made or given in connection
herewith which occurs prior to the Closing.
Section 5.03. Notice of extraordinary changes. The SURFSIDE shall advise
CFIM with respect to any of the following outside of ordinary course of
business or which are materially adverse: (i)the entering into and
cancellation or breach of contracts, agreements, commitments or other
understandings or arrangements to which SURFSIDE is a party, including,
without limitation, duplication or obsolescence of its Tranware Software,
commitments for capital expenditures or improvements, orderly and gradual
discontinuance or particular items or software, or (ii) any changes in
purchasing, pricing or selling policy (including, without limitation,
selling software at discounts); provided, however, that not withstanding
anything contained in this subsection (C) SURFSIDE will not take or fail to
take any action that, in CFIM's reasonable judgment, is likely to give rise
to a substantial penalty or a claim for damages by any third party against
SURFSIDE, or is likely to result in losses to either corporation, or is
otherwise likely to prejudice in any material respect or unduly interfere
with the conduct of its business and operations in the ordinary course
consistent with prior practice, or is likely to result in a breach by
SURFSIDE of any of its representations, warranties or covenants contained
in this Agreement (unless any such breach is first waived in writing by
CFIM).
Section 5.04. Access to information and documents. Upon reasonable notice
and during regular business hours, each party will give the other party,
its attorneys, accountants and other representatives full access to its
personnel (subject to reasonable approval as to the time thereof) and all
properties, documents, contracts, books and records and will furnish copies
of such documents (certified by officers, if so requested) and with such
information with respect to its business, operations, affairs and prospects
(financial and otherwise) as it may from time to time request, and the
party to whom the information is provided will not improperly disclose the
same prior to the Closing. Each party will afford the other party an
opportunity to ask questions and receive answers thereto for purposes of
due diligence. Any such furnishing of such information or any investigation
shall not affect that party's right to rely on the other party's
representations and warranties made in this Agreement or in connection
herewith or pursuant hereto, The Selling Stockholders and SURFSIDE
acknowledge that information which they receive regarding CFIM and its
subsidiaries may include material non public information, their disclosure
of which to third parties or their purchase or sale of CFIM's common stock
in the public securities markets could result or constitute in violations
of the federal securities laws.
Section 5.05. Cooperation by the parties. Each party hereto shall cooperate
and shall take such further action as may be reasonably requested by any
other party in order to carry out the provisions and purposes of this
Agreement.
ARTICLE VI
SECURITIES LAW MATTERS AND STATUS OF CFIM STOCK
Section 6.01. Unregistered the CFIM Stock. The Selling Stockholders
acknowledge that the CFIM Stock delivered as contemplated by this
Agreement, and the underlying common stock into which it is convertible, is
not being registered under the federal Securities Act of 1933, as amended,
("Securities Act") and the securities laws of the Stockholders' state of
residence, and that the CFIM Stock is not transferable, except as permitted
under various exemptions contained in the Securities Act and applicable
<PAGE>
state securities law. The provisions contained in the following sections
are intended to ensure compliance with the Securities Act and applicable
state securities law.
Section 6.02. No transfers in violation of Securities Act. The Selling
Stockholders agree not to offer, sell, assign, pledge, hypothecate,
transfer or otherwise dispose of the CFIM Stock, except after full
compliance with all of the applicable provisions of the Securities Act and
applicable state securities law.
Section 6.03. Investment intent. The Selling Stockholders represent and
warrant to and covenant with CFIM by subscription agreement that they are
acquiring the CFIM Stock for their own account for investment, and not with
a view to resale or other distribution; that they currently have no
intention of selling, assigning, transferring, pledging, hypothecating or
otherwise disposing of all or any part thereof at any particular time, for
any particular price, or on the happening of any particular event or
circumstance; and they acknowledge that CFIM is relying on the truth and
accuracy of their covenants, warranties and representations in issuing the
CFIM Stock without first registering it under the Securities Act,
Section 6.04. Conditions to sale and investment legend on certificates. The
Selling Stockholders agree not to sell, assign, transfer, pledge,
hypothecate or otherwise dispose of any of the CFIM Stock for two years
following the Closing, unless and until they (i) have delivered to CFIM a
written legal opinion in form and substance satisfactory to counsel for
CFIM to the effect that the disposition is permissible under the terms of
the Securities Act; (ii) have complied with the registration and prospectus
delivery requirements of the Securities Act; or (iii) if more than one year
after the Closing, have presented CFIM satisfactory evidence that the
transfer will comply with Rule 144 under the Securities Act. The Selling
Stockholders further agree that the certificates evidencing the CFIM Stock
shall contain the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
IS A "RESTRICTED SECURITY" AS DEFINED UNDER SAID ACT. ACCORDINGLY, NEITHER
THIS SECURITY NOR ANY INTEREST THEREIN MAY BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED, EXCEPT BY BONA FIDE GIFT OR
INHERITANCE, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THIS SECURITY UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO HITS
THAT SUCH REGISTRATION IS NOT REQUIRED.
The Selling Stockholders acknowledge CFIM will also place a "stop transfer"
order against any transfer of the CFIM Stock until one of the conditions
set forth in this section has been met.
Section 6.05. Indemnification by the Selling Stockholders. If at any time
in the future, the Selling Stockholders should offer, sell, assign, pledge,
hypothecate, transfer or otherwise dispose of any of the CFIM Stock without
registration under the Securities Act, unless an exemption from
registration is available, the Selling Stockholders agree to indemnify and
hold harmless CFIM against and from any and all claims, liabilities,
penalties, costs and expenses which may be asserted against or suffered by
CFIM as a result of the disposition.
Section 6.06. State securities law. The Closing is subject to any and all
requirements of the laws of the Selling Stockholders respective states of
residence applying to the offer and sale of securities therein, In no event
shall any party be liable to anyone for failure to sell or issue its
<PAGE>
securities pursuant to this Agreement, unless and until all applicable
requirements of the law of the applicable state of the recipient's
residence relating to the offer and sale have been satisfied.
Section 6.07. SURFSIDE's stock. CFIM acknowledges that it is acquiring the
SURFSIDE stock under the same terms and conditions set forth in this
Article VI that apply to CFIM's stock.
ARTICLE VII
FEDERAL INCOME TAX MATTERS AND ELECTIONS
Section 7.01. Responsibility for understanding tax consequences. Each party
shall be responsible for obtaining its own tax advice with respect to and
understanding the federal income tax consequences of the transactions and
the federal income tax consequences thereof contemplated by this Agreement,
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
Section 8.01. Termination For Default.
(a) CFIM may, by notice to the Selling Stockholders, given in the manner
provided below on or at any time prior to the Closing Date, terminate
this Agreement if default shall be made by the Selling Stockholders or
SURFSIDE in the observance or in the due and timely performance of any
of the covenants and agreements contained, made by or imposed upon it,
in this Agreement, if the default has not been fully cured within
fifteen days after receipt of the notice specifying the default.
(b) The Selling Stockholders may, by notice to CFIM, given in the manner
provided below on or at any time prior to the Closing Date, terminate
this Agreement if default shall be made by CFIM in the observance or
in the due and timely performance of any of its covenants and
agreements contained in this Agreement, if the default has not been
fully cured within fifteen days after receipt of the notice specifying
the default.
(c) Notwithstanding Section 2.05, the party giving notice of the other
party's default, if the default is not cured as provided in subsection
(a) or (b), above, will be entitled to recover from the defaulting
party its costs incurred in connection with this Agreement.
Section 8.02. Termination. If the Closing does not occur by January 31,
2000, either CFIM or the Selling Stockholders, if the party is not then in
default in the observance or in the due or timely performance of any
covenants and conditions under this Agreement, may at any time terminate
this Agreement by giving written notice to the other.
Section 8.03. Termination. CFIM may, at its option, terminate this
Agreement prior to the Closing if the business or assets of Surfside have
suffered any material damage, destruction or loss (whether or not covered
by insurance).
<PAGE>
ARTICLE IX
NOTICES
Section 9.01. Procedure for giving notices. Any and all notices or other
communications required or permitted to be given under any of the
provisions of this Agreement shall be in writing and shall be deemed to
have been duly given when personally delivered (excluding telephone
facsimile and including receipted express courier and overnight delivery
service) or mailed by first class certified U.S. mail, return receipt
requested showing name of recipient, addressed to the proper party.
Section 9.02. Addresses for notices. For purposes of sending notices under
this Agreement, the addresses of the parties are as follows:
As to SURFSIDE and the Selling Stockholders:
J. Steven Furniss
601 Cleveland Street, Suite 300
Clearwater, Florida 33755
Copy to: James E. Furniss
Charles Iappini
Michael G. Little, Esq.,
As to CFIM: Stephen E. Williams, President
CFI Mortgage, Inc.
Suite 309
631 U.S. Highway 1
North Palm Beach, Florida 33408
Copy to: Jackson L. Morris, Esq.
3116 West North A Street
Tampa, Florida 33609
Section 9.03. Change of address. A party may change its address for notices
by sending a notice of such change to all other parties by the means
provided in Section 9.01.
ARTICLE X
LEGAL AND OTHER COSTS
Section 10.01. Party entitled to recover. In the event that any party (the
"Defaulting Party") defaults in his or its obligation under this Agreement
and, as a result thereof, the other party (the "Non-Defaulting Party")
seeks to legally enforce his or its rights hereunder against the Defaulting
Party (whether in an action at law, in equity or in arbitration), then, in
addition to all damages and other remedies to which the Non-Defaulting
Party is entitled by reason of such default, the Defaulting Party shall
promptly pay to the Non-Defaulting Party an amount equal to all costs and
expenses (including reasonable attorneys' fees and expert witness fees)
paid or incurred by the Non-Defaulting Party in connection with such
enforcement.
Section 10.02. Interest. In the event the Non-Defaulting Party is entitled
to receive an amount of money by reason of the Defaulting Party's default
hereunder, then, in addition to such amount of money, the Defaulting Party
shall promptly pay to the Non-Defaulting Party a sum equal to interest on
such amount of money accruing at the rate of 1.5% per month during the
period between the date such payment should have been made hereunder and
the date of the actual payments thereof.
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.01. Effective date. The effective date of this Agreement shall
for all purposes be the date set forth in the introductory paragraph
hereto, notwithstanding a later actual date of execution by the parties.
Section 11.02. Entire agreement. This writing constitutes the entire
agreement of the parties with respect to the subject matter hereof,
superseding all prior agreements, understandings, representations and
warranties.
Section 11.03. Waivers. No waiver of any provision, requirement,
obligation, condition, breach or default hereunder, or consent to any
departure from the provisions hereof, shall be considered valid unless in
writing and signed by the party giving such waiver, and no such waiver
shall be deemed a waiver of any subsequent breach or default of the same or
similar nature.
Section 11.04. Amendments. This Agreement may not be modified, amended or
terminated except by a written agreement specifically referring to this
Agreement signed by all of the parties hereto and amendment, modification
or alteration of, addition to or termination of this Agreement or any
provision of this Agreement shall not be effective unless it is made in
writing and signed by the parties.
Section 11.05. Construction. This Agreement has been negotiated by the
parties, section by section, and no provision hereof shall be construed
more strictly against one party than against the another party by reason of
such party having drafted such provision. The order in which the provisions
of this Agreement appear are solely for convenience of organization; and
later appearing provisions shall not be construed to control earlier
appearing provisions.
Section 11.06. Invalidity. It is the intent of the parties that each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law. If any provision hereof shall be
prohibited, invalid, illegal or unenforceable, in any respect, under
applicable law, such provision shall be ineffective to the extent of such
prohibition, invalidity or non enforceability only, without invalidating
the remainder of such provision or the remaining provisions of this
Agreement; and, there shall be substituted in place of such prohibited,
invalid, illegal or unenforceable provision a provision which nearly as
practicable carries out the intent of the parties with respect thereto and
which is not prohibited and is valid, legal and enforceable.
Section 11.07. Multiple counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be an original and, taken
together, shall be deemed one and the same instrument.
Section 11.08. Assignment, parties and binding effect. This Agreement, and
the duties and obligations of any party shall not be assigned without the
prior written consent of the other party(ies). This Agreement shall benefit
solely the named parties and no other person shall claim, directly or
indirectly, benefit hereunder, express or implied, as a third-party
beneficiary, or otherwise. Wherever in this Agreement a party is named or
referred to, the successors (including heirs and personal representative of
individual parties) and permitted assigns of such party shall be deemed to
be included, and all agreements, promises, covenants and stipulations in
this Agreement shall be
<PAGE>
binding upon and inure to the benefit of their respective successors and
permitted assigns.
Section 11.09. Survival of representations and warranties. The
representations and warranties made herein shall survive the execution and
delivery of this Agreement and full performance hereunder of the
obligations of the representing and warranting party, subject to the
provisions of Section 4.03.
Section 11.10. Arbitration. Unless a court of competent jurisdiction shall
find that a particular dispute or controversy cannot, as a matter of law,
be the subject of arbitration, any dispute or controversy arising
hereunder, other than suit for injunctive relief which can be granted only
by a court of competent jurisdiction, shall be settled by binding
arbitration in West Palm Beach, Florida by a panel of three arbitrators in
accordance with the rules of the American Arbitration Association;
provided, that the rules of discovery of the U.S. District Court with
jurisdiction of the situs of the arbitration shall apply. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The parties may pursue all other remedies with
respect to any claim that is not subject to arbitration.
Section 11.11. Jurisdiction and venue. Any action or proceeding for
enforcement of this Agreement and the instruments and documents executed
and delivered in connection herewith which is determined by a court of
competent jurisdiction not, as a matter of law, to be subject to
arbitration as provided in Section 11.10 or which seeks injunctive relief
shall be brought and enforced in the courts of the State of Florida in and
for Palm Beach County and in the United States District Court for the
Southern District of Florida, Palm Beach Division, and the parties
irrevocably submit to the jurisdiction of each such court in respect of any
such action or proceeding.
Section 11.12. Applicable law. This Agreement and all amendments thereof
shall be governed by and construed in accordance with the law of the State
of Florida applicable to contracts made and to be performed therein (not
including the choice of law rules thereof).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement
to be signed by their respective officers thereunto duly
authorized and their respective corporate seals to be hereunto
affixed, the day and year first above written
[Corporate Seal] CFI Mortage, Inc.
Attest: By: /s/ Stephen E. Williams
------------------------------
Stephen E. Williams, President
/s/ [illegible]
------------------------
--------------------, Secretary
[Corporate Seal] SURFSIDE, Inc.
Attest: By: /s/ J. Steven Furniss
-----------------------------
J. Steven Furniss, President
/s/ Elizabeth G. Furniss
------------------------
Elizabeth G. Furniss
--------------------, Secretary
The Selling Stockholders
/s/ J. Steven Furniss
------------------------
J. Steven Furniss
/s/ James E. Furniss
------------------------
James E. Furniss
------------------------
Charles Iappini
<PAGE>
AMENDMENT AND MODIFICATION TO STOCK EXCHANGE AGREEMENT
This Amendment and Modification to Stock Exchange Agreement, made and
entered into July 28, 2000 as of January 13, 2000, by and between CFI Mortgage,
Inc., a Delaware corporation, ("CFIM") and J. Steven Furniss, James E. Furniss
and Charles Iappini, (collectively, the "Selling Stockholders") and Inventek,
Inc., a Florida corporation, doing business as Surfside Software Systems
("Surfside").
WITNESSETH:
Whereas, CFIM, Messrs. Furniss and Surfside executed and conducted the
Closing pursuant to a Stock Exchange Agreement among the parties as of January
13, 2000 ("Stock Exchange Agreement"); and
Whereas, Mr. Iappini has not executed the Stock Exchange Agreement,
but is willing to do so and to Close with respect to the shares of Surfside
common stock which he owns if he is relieved as provided herein of the
representations and warranties which were to have been made by him jointly and
severally with Messrs. Furniss and Surfside as set forth in Section 4.01 of the
Stock Exchange Agreement; and
Whereas, Mr. Iappini has not been engaged in the management or
operations of or employed by Surfside, with the result that he is not in a
position to know of the accuracy or inaccuracy of the representations and
warranties set forth in Section 4.01 of the Stock Exchange Agreement; and
Whereas, CFIM, Messrs. Furniss and Surfside are willing to make the
amendment and modification of the Stock Exchange Agreement as provided herein as
an inducement for Mr. Iappini to complete his part of the Stock Exchange
Agreement;
Now Therefore, in consideration of the premises set forth herein and
other good and valuable consideration, including the reliance of each party on
the other parties with respect to the subject matter hereof, receipt and
sufficiency of which is hereby acknowledged, the parties agree that:
Section 1. Relief of representations and warranties. Mr. Iappini is
not making any of the representations and warranties set forth in Section 4.01
of the Stock Exchange Agreement, either individually or jointly with any other
person and said Section 4.01 is hereby amended and modified to remove Mr.
Iappini as a "Selling Stockholder" for purposes of said Section 4.01.
Section 2. Mr. Iappini's ownership of Surfside shares. In lieu of all
the representations and warranties set forth in said Section 4.01, Mr. Iappini
represents and warrants to CFIM solely that he is the legal and beneficial owner
of 50 (fifty) shares of Surfside common stock and he owns no other shares of
Surfside common stock.
Section 3. Exchange is not a breach, etc. Mr. Iappini's exchange of
his Surfside common stock as contemplated by the Stock Exchange Agreement will
not breach or violate any pledge, hypothecation, encumbrance, mortgage, security
interest or other agreement or contract to which Mr. Iappini is a party, his
Surfside common stock being subject to none of such things.
<PAGE>
Section 4. Tender and exchange of shares. Mr. Iappini will tender to
CFIM his shares of Surfside common stock with the return of this Amendment and
Modification fully executed and CFIM shall promptly deliver to Mr. Iappini his
fractional share of the CFIM Stock and his Warrants, as provided in the Stock
Exchange Agreement.
In Witness Whereof, the undersigned have set their hands the dates
after their respective names.
[Corporate Seal] CFI Mortage, Inc.
By: /s/ Stephen E. Williams
------------------------------
Stephen E. Williams, President
[Corporate Seal] Inventek, Inc.
By: /s/ J. Steven Furniss
------------------------------
J. Steven Furniss, President
The Selling Stockholders
/s/ J. Steven Furniss
------------------------
J. Steven Furniss
/s/ James E. Furniss
------------------------
James E. Furniss
/s/ Charles Iappini
------------------------
Charles Iappini
